CMC Motors Thursday suffered a major dealership blow after Jaguar Land Rover announced that it had withdrawn its franchise from the troubled car dealer and awarded it to a rival.
South Africa-based Jaguar Land Rover said in a press statement that it had signed a franchise deal with RMA Group, a new motor dealer that established operations in Kenya four months ago, ending nearly 50 years of business relationship with CMC.
JLR is the owner of the flagship Land Rover Defender, Jaguar and Range Rover brands that CMC has exclusively sold in the Kenyan market since independence and which account for 30 per cent of its annual unit sales.
Withdrawal of the flagship brands is particularly unsettling for CMC shareholders as it represents material erosion of their investment without an exit option.
CMC Holdings, which is listed at the Nairobi Securities Exchange (NSE) has been out of the trading floor since September last year.
Capital markets regulator CMA stopped trading in the motor-dealer’s shares in the wake of a vicious shareholder war that has to date ended the boardroom careers of some of longest serving corporate Kenya operatives.
READ: Markets regulator extends suspension of CMC shares again
For CMC, loss of JLR brands amounts to more than mere loss of sales revenue. It also means severe erosion of the immense influence that the motor dealer has held among top state officials being the sole supplier of the Land Rover – the de facto official government car – and the richest segment of the Kenyan society who drive the Range Rover.
Withdrawal of the JLR franchise amounts to a double hit for one of Kenya’s oldest motor firms coming just weeks after CMC lost the exclusive dealership of MAN trucks with the appointment of a second dealer, RT East Africa, to distribute the commercial vehicles.
RMA will take over dealership of JLR’s brands in Kenya from February 2013 when CMC’s contract with the brand owners ends.
The Business Daily broke the news of RMA taking over JLR’s franchise on September 5 but CMC chief executive Bill Lay strenuously denied the report.
READ: CMC loses exclusive Land Rover, Ford franchise contracts
“CMC Motors remains with the franchise until the end of its current contract in February 2013,” said Willem Schoeman, JLR’s regional manager.
He said the RMA Group brings a broad range of expertise and experience in the motor industry particularly with the Jaguar Land Rover brands which it represents in other global markets.
CMC said it was surprised by JLR’s decision and accused the franchise owners of malice. “We believe that this decision is in bad faith and is intended to defeating the on-going investigations into alleged fraud at the company,” said the statement signed by Mr Lay.
CMC has been in the eye of a storm since late last year when Peter Muthoka, its leading shareholder, was ousted as chairman in a boardroom coup.
Mr Lay, who was appointed the company’s CEO in May stoked the wars further after he accused Andy Forwarders, a logistics firm owned by Mr Muthoka of overcharging the auto dealer to the tune of Sh1.5 billion over a period of five years.
He also accused his predecessor Martin Forster and long-serving directors Jeremiah Kiereini and Charles Njonjo of illegally funnelling the company’s funds to secret New Jersey accounts.
READ: How Forster helped auditors to trail offshore accounts
The allegations immediately intensified the boardroom wars culminating into a series of legal suits and suspension of CMC shares trading at the bourse. CMC shares last traded at a price of Sh13.
The motor dealer has for decades sold the iconic JLR brands including Land Rover Defender and the Range Rover in Kenya, Tanzania and Uganda.
On Kenyan roads, the Range Rover brand is, for instance, widely considered the ultimate status symbol.
The sports utility vehicle, whose price ranges from Sh11 million to Sh20 million, is the preserve of tycoons, business executives, celebrities, and deep-pocketed socialites.
Kenya Motor Industry data shows that CMC’s sale of JLR brands fell steadily from a high of 661 units in 2007 to a low of 292 units in 2010 before rising to 404 units last year.
JLR, which is owned by India’s Tata Motors, has previously expressed its disappointment with CMC’s handling of its brands in East Africa blaming the franchise holder of underinvestment in the showrooms and marketing.
READ: Range Rover brand owners issue stern warning to dealer
JLR had demanded that CMC builds a separate modern showroom for its brands but the motor dealer kept postponing the proposed projects, citing a cash crunch.
Thursday, CMC said it had made a “huge financial outlay” since June to meet JLR’s demands, adding that the withdrawal of the franchise had caused it huge losses.
“In view of past and ongoing relations between the parties, it is clear that the decision to terminate the relationship was pre-conceived long ago and that JLR has been unfairly leading CMC along. In the process it misrepresented its true intentions and thereby occasioned CMC loss and prejudice,” Mr Lay said in a statement.
CMC made a net loss of Sh181.1 million in the year ended September 2011 on lower vehicle sales and rising expenditure.
The company however moved back to profitability in the first half of the current year ended March when its net profit more than tripled to Sh383.5 million compared to Sh120.1 million the year before, helped by a Sh450 million foreign exchange gain.
The weak performance in 2011 was linked to the government’s decision to ditch fuel guzzlers such as Range Rover under new austerity measures that saw the government cut its purchases of vehicles by billions of shillings in the medium term. The government accounts for a quarter of CMC’s vehicle sales.
The drop in sales has seen CMC’s market share shrink from 15.4 per cent in 2009 to nine per cent in the nine months to September, making it the fifth largest dealer behind General Motors East Africa (GMEA), Toyota, DT Dobie, and Simba Colt Motors.
The loss of JLR brands leaves CMC with the dealership of Maruti Suzuki cars, Volkswagen cars, Ford cars and pick-ups, Iveco and MAN trucks, Eicher buses, and Case agriculture equipment.
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RMA has headhunted Marshalls East Africa’s CEO Sanjiv Shah to head its regional operations.
Mr Ken Nzioka, a former manager at CMC, has also joined RMA as regional business development manager.
RMA, the Thailand-based firm, opened an office in Nairobi in June, indicating that JLR started leaning towards its new partner much earlier.
Sources indicated that RMA plans to lease Marshalls’ facilities for an instant countrywide network of showrooms and service centres as it gains a foothold in the local market.
The loss-making Marshalls has little business at the moment, selling only Tata commercial trucks and KIA saloon cars after losing the flagship Peugeot dealership in 2007.
The firm’s facilities, including an assembly plant in Mombasa, are currently underutilised and RMA is keen on leveraging on them to immediately start operations.