Motor assemblers fortunes rise with new contracts

Kenya’s vehicle assemblers have received a boost after auto dealers announced plans to assemble more brands in the country to gain pricing advantage from a lower tax bill.

Imports of parts used in local assembly are exempted from the 25 per cent import duty levied on fully built cars — giving room to the assemblers to produce cheaper vehicles.

India’s Tata and Japan’s Hino now say that they will start assembling their bus and truck brands at the Mombasa-based Associated Vehicle Assemblers (AVA) before December while Hyundai trucks and Eicher buses have turned to Thika’s Kenya Vehicle Manufacturers (KVM).

The move is set rev up jobs creation in the auto sector and reduce the idle capacity in the twin assemblers—which had been hit hard by cheap second-hand imports and concerns over their quality standards.

David Percival, the managing director of KVM, said that increased interest for local assembly looks set to revive the fortunes of the assemblers, but reckoned that Kenya was still far from hitting the peak levels experienced in 1980s.

“We are currently running at a capacity of about 10 per cent. At KVM alone, we have the capacity to assemble the entire industry’s annual volume in a matter of weeks,” said Mr Percival in an interview with the Business Daily.

Last year, a total of 6,049 vehicles were assembled in the country compared to 5,721 units the previous year. This is 10.1 per cent of the 59, 600 cars that were registered in Kenya in 2011 and 47.7 per cent of the 12, 613 new vehicles sold in the same year.

Dave Williamson, factory manager at AVA, told the Financial Times in April that the assembler is currently doing 2,500 units compared to a peak of 10,000 units in 1985. He blamed the high cost of production and the liberalisation of the auto market in the 1990’s that paved way for the cheaper second-hand imports.

But the rising number of brands, especially trucks and buses, coupled with the expanded market within the East African Community—which has created a seamless market of 130 persons across five countries—is making local assembly more attractive.

“We are going to assemble our Tata trucks at AVA from September,” said Naresh Leekha, the managing director of Tata Africa, which has shelved its earlier plan to build its own assembly plant. It sells an average of 700 trucks in Kenya annually.

Players in the industry, however, say ownership structure of the Kenya’s assemblers has also blighted their business on the strength that auto dealers with stakes have been resisting orders from rivals.

“The current shareholders, who have run the assembly plant for decades, are resistant to the idea of opening up to a larger pool of clients who compete with them in the new vehicle market,” admitted Mr Percival.

CMC Motors and DT Dobie have a 32.5 per cent stake each in KVM with the government holding the remaining 35 per cent. General Motors has own plant in Nairobi while Marshalls East and Simba Colt each have a 50 per cent stake in AVA

Treasury had launched investigations into the operations of Kenya’s three motor vehicle assemblers, targeting cartel-like activities in the industry.