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Hard economic times pull back new motor car sales 30 per cent

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Toyota Kenya managing director Sachio Yotsukura poses with the new Toyota RAV4 2016 during its official launch in Nairobi. FILE | NATION MEDIA GROUP

New motor vehicle sales are set to close at a four-year low of 14,129 units, marking the first time orders have plunged since 2009, according to industry data.

Dealers have attributed the decline in new vehicle sale orders — mostly by government departments, private companies and high net worth individuals — to slowing economic activity and imposition of excise taxes on assembled vehicles for the better part of the year.

The decline in sale orders signals tougher economic times that, like the shrinking jobs market, stands at odds with the rosy GDP figures.

The number of units sold touched 12,929 in the 11 months to November, according to the Kenya Motor Industry Association (KMI), which expects the dealers to sell an additional 1,200 units by end of the month.

That would take total sales for the year to 14,129 units, a 29.8 per cent drop compared to 19,966 units in 2015 and slightly below the 14,168 units sold in 2013.

It would also mark the first time sales dropped since 2009 when the number of units declined 21.8 per cent to 10,264 in the aftermath of the global financial crisis and the 2008 post-election violence.

This year’s fall in sales came even as the economy is projected to grow six per cent from last year’s 5.6 per cent, indicating that the growth drivers are not benefiting the new vehicles market.

Subdued demand

Dealers expect subdued demand to continue into 2017, citing increased pullback by individuals and businesses ahead of the upcoming General Election.

“We expect sales to remain flat next year as a result of a wait-and-see attitude that always comes with the election,” said Rita Kavashe, the chief executive of General Motors East Africa (GMEA).

Consumer spending and business expansion tends to slow down when elections approach, hurting vehicle dealers and sellers of other high-value goods.

In 2012, for instance, growth of new vehicle sales slowed 1.3 per cent to 12,352 units compared to 12,186 the year before.

This was partly linked to the General Election held in March 2013, whose peaceful outcome ushered in a double-digit sales growth to a record 19,966 units last year.

The wider negative impact of elections can also be seen through general economic slowdown. For instance, GDP growth slowed down to 0.2 per cent in 2008 from 6.8 per cent the year before, according to data from the International Monetary Fund (IMF).

Economic output similarly slowed down from 6.1 per cent in 2011 to 4.6 per cent in 2012 as the looming 2013 polls weighed down investment and consumption — usually shown by a fall in imports.

The Kenya Revenue Authority (KRA) reported that tax collections at the port of Mombasa declined to a daily average of Sh400 million in the quarter ended March 2013 compared to the normal Sh1 billion, indicating how election jitters affect economic activity.

The taxman looks set to once again record lower collections in the run-up to the August 2017 polls, driven by reduced imports of capital and consumer goods.

READ: Personal cars registration hits 20-month high in September on lower excise tax

Suspension of high-value spending around elections is seen as a move by households and businesses to reduce their exposure to property and capital losses should the polls turn violent.

Businesses have usually hedged against political risk by taking insurance policies, and underwriters have taken advantage of the situation to increase premiums.

A.M. Best, a ratings agency, in a newly released report has characterised Kenya’s political risk as “Very High”, saying the key issues in the election will include corruption, terrorism and income inequality.

New car dealers said the slump in this year’s sales is attributable to slow economic activity and introduction of excise tax on locally assembled vehicles between last year and August.

The levy was initially set at a flat rate of Sh150,000 and was raised to 20 per cent a vehicle’s value in June, hurting sales of pick-ups, buses and trucks, whose prices went up by up to Sh1.2 million.

Commercial vehicles account for over 70 per cent of Kenya’s new vehicle sales, underlining the role of the tax in eroding demand.

Stopped in August

The KRA, however, stopped collecting the levy in August, with the Excise Duty Act 2015 set to be amended to officially shield assemblers from the tax.

READ: Motor vehicle sales drop 22pc after Rotich’s excise tax charge

The government moved to revoke the excise tax on the industry after protests by dealers, who also cited loss of hundreds of assembly line jobs.

The major dealers, including GMEA, Toyota Kenya and Simba Corporation, are among the biggest losers as their sales have dropped by double digits.

The removal of the excise tax has, however, offered a reprieve to the dealers, with the government’s increased efforts to expand Kenya’s assembly sector attracting more players.

President Uhuru Kenyatta is Wednesday expected to launch the first passenger car to be produced in Kenya — the Volkswagen Polo Vivo — at Thika-based Kenya Vehicle Manufacturers as French automaker Peugeot S.A. also seeks to start assembling its brands locally.

READ: VW to sell locally assembled Polo at below Sh2m

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