Car manufacturing is not a new concept for Saudi Arabia. As long ago as 1974, the US’ General Motors (GM) was considering setting up a multi-million dollar assembly plant in the kingdom, as policy makers began to recognise the benefits of building an industrial base on the back of hydrocarbon revenues.

There have been sporadic efforts since then to create a domestic automotive industry in the country that is endowed with raw materials, which would help it make a name for itself in vehicle assembly and production.

In February 2008, Gulf Automobile Manufacturing Corporation – set up by UAE-based investor Nasser al-Hajri – held talks with the Saudi Industrial Property Authority (Modon) about building a car manufacturing plant in Dammam, the first facility of its kind in the kingdom. The SR375m ($100m) project proposed production of 15,000 cars a year.

Saudi Arabia SUV prototype unveiled

Until now, there has been little to show for these grand ambitions. This changed in June when engineers at King Saud University (KSU) proudly displayed the gleaming product of two years’ worth of research. The carbon-fibre prototype ‘Ghazal-1’ luxury sports utility vehicle (SUV) is the first car to be built on Saudi soil.

If KSU engineers have their way, there will be 20,000 Ghazals rolling into showrooms every year, produced in collaboration with global technology providers.

The military feel of the vehicle reflects a design specifically geared to cope with the country’s dry and dusty climate and its rocky desert terrain. The four-wheel drive vehicle, measuring 4.8 by 1.9 metres, is targeted at aspiring middle-class families that are looking for a car that can provide maximum comfort, safety and a good ride.

Although targeted at affluent buyers, the Ghazal is also intended to be competitive on price. “We prepared the car with local component manufacturers,” says Saied Darwish, industrial engineering professor at KSU. “There are battery, glass and other component manufactures based here in the kingdom. South Korean car manufacturers are dependent on products supplied to them by Saudi Basic Industries Corporation (Sabic). Since we have the raw materials for everything here on our doorstep, we thought, why not use it to produce a car ourselves?”

The concept was to try and introduce something new and attractive to the market. “The car will accommodate large families, who like to get out of town during the weekend,” says Darwish.

Safety is paramount. “We have patents regarding safety and the engine. It meets the NCAP 4 and 5 international safety standards,” says Darwish. Euro NCAP is an European car safety assessment programme.

The Ghazal-1 is based on Germany’s Mercedes-Benz G class SUV, which is likely to boost its chances of winning over customers that have developed an affinity for German automotive engineering. “It’s got a Mercedes engine, so everyone will like it,” says Darwish.

KSU developed the vehicle in collaboration with Austria’s Magna Steyr, a brand-independent engineering and manufacturing partner.

The university is adamant the vehicle is not simply a rebadged foreign car. Ninety per cent of the design of the Ghazal-1 and 60 per cent of its fabrication is Saudi, the university claims.

The car has been patented by KSU and all intellectual property rights are in the university’s name. KSU will maintain ownership of a stake in the product but the university itself will not become a production line. The plan is for manufacturing to take place within the KSU’s technology valley in Riyadh.

The challenge now is to find investors that are prepared to back the Ghazal with up to $500m of investment and turn it into a production vehicle.

This will be no easy feat in a country without an existing vehicle manufacturing base or a skilled labour pool. But Darwish is confident that the combination of a sizeable domestic and regional market, backed by a concerted government effort to create an automotive component industry, will create the right conditions for developing a domestic manufacturing capability.

Market potential for SUVs in Saudi Arabia

The size of the local market is perhaps the biggest draw for potential investors. Saudis buy 150,000 SUVs a year alone, mostly Lexus, Toyota and US models. If the restriction on women driving were to be removed, there would be even stronger demand for new cars.

“Saudi Arabian consumers buy 800,000 new cars a year and for the Gulf area, the figure is 1.2 million – so there is space for us to satisfy a very big market,” says Darwish.

However, if the Ghazal is to become a production vehicle, rather than merely an eye-grabbing prototype, it will need more than a large potential market. Saudis are already well served by imported cars, and the ‘sentiment’ effect – consumers wanting to buy a home-grown product – may have its limitations.

The car’s success will more likely depend on the success of a broader effort to create a manufacturing value chain that will enable car makers to fully capitalise on the kingdom’s energy resource advantage, and move further downstream into value-added industries such as automotive assembly.

The Saudi industrial clusters initiative has a remit to look beyond the oil pump and see where it can extract the value from competitive feedstock. It has adopted a dual-pronged strategy to build up an automotive sector, focusing on assembly and parts.

The kingdom is looking to its carbon-fibre composite industry, which mainly serves the aerospace and military sectors, to support a wide range of automotive component activities.

Cost advantages

The Saudi industrial clusters initiative believes that a focus on auto parts with a significant content of energy, plastics, steel, aluminium and glass – all readily available from state-owned Sabic and other private petrochemical and downstream producers – will leverage the country’s natural resources most effectively.

India, which built a successful automotive manufacturing sector on the back of a components industry, is a potential model for the kingdom to follow. Saudi Arabia already boasts truck assembly capabilities through the National Automobile Industry, which assembles Mercedes-Benz trucks and Al-Jomaih Company, which has a GM bus assembly plant. In 2009, Germany’s Man Nutzfahrzeuge also opened an assembly plant in Jeddah capable of producing 3,000 trucks and tractors a year.

Saudi Arabia also offers lower labour costs compared with European and North American component makers.

There is a growing government-led focus on training the local labour force. The numbers of students graduating from two-year vocational programmes is expected to grow from around 120,000 in 2005 to 450,000 by 2015, with close to 80 new vocational schools opening across the country. This could create a wider skills base to build a domestic automotive industry.  The kingdom is also tapping into foreign expertise in this area.

The UK-based engineering division of the sports marque Lotus Cars has helped to establish an automotive testing centre attached to King Abdulaziz City for Science and Technology. Lotus is developing a research and development test centre that will be open to all vehicle manufacturers in the kingdom.

If the various links in the Saudi value chain start to come together, the Ghazal-1 may stand a chance of success.

For KSU, the project serves another purpose. The university has a mission to turn the knowledge economy into a commercial reality. “There is strong competition between global universities so we decided one of the best ways to improve your ranking is to turn your knowledge into a product – the Ghazal-1,” says Darwish.

The university’s ambitions go beyond the SUV. Plans are also under way to develop a locally made saloon car to be marketed to the more budget-conscious Saudi consumers. 

The Ghazal-1 will face a huge challenge in competing against the well-known SUV brands. National pride may help a domestic car to find buyers, but global automotive makers can bring out new models with the latest kit on an annual basis. 

The researchers at KSU have confounded many doubters by unveiling a Saudi-made car. But the road from concept to mass production is long, and Saudi motorists may prove hard to prise away from their beloved Landcruisers and Lexuses.