CMC loses exclusive Land Rover, Ford franchise contracts
CMC Motors Group Ltd, a subsidiary of CMC Holdings, no longer has the exclusive distribution rights for Land Rover vehicles. Jaguar Land Rover (JLR) and Ford franchise owners have appointed another dealer in Kenya in a move that look set to hurt the earnings of CMC Holdings that has been the sole dealer of the franchises. Photo/ANTHONY KAMAU
What you need to know:
The franchises will be shared between CMC Motors and Thailand-based RMA Group that opened shop in Nairobi in July with the brief of selling the brands to large buyers like the government, multinationals, aid and UN agencies.
CMC will focus largely on local companies and individual customers to sell JLR and Ford brands that include Ford pick-ups, Land Rover Defender, and luxury saloon cars like Jaguar, Range Rover, and Discovery.
The entry of RMA Group comes after Volkswagen, Jaguar Land Rover, and Ford have expressed their dissatisfaction with the level of sales in the local market, piling pressure on CMC to invest more in their brands.
The three franchise owners account for 70 per cent of CMC’s annual unit sales, underlining their importance to the auto dealer. CMC’s sale of JLR brands fell steadily from a high of 661 units in 2007 to a record low of 292 units in 2010, but recovered last year to post 404 units.
CMC sold 334 units of Ford brands last year compared to 328 units in 2010 while Volkswagen sales dropped to 183 units from 224 in 2010 and 292 units on 2009 — a drop that was linked to the freeze in government orders.
The dealer’s net profit stood at Sh383.5 million in the review period compared to Sh120.1 million a year earlier as sales increased to Sh6.3 billion from Sh6.1 billion. Its sales of vehicles declined to 1,163 units from 1, 202 as it booked Sh450 million in foreign exchange gain from a loss of Sh106 million.
CMC Motors has recorded a steady decline in profitability since its 2008 peak performance when its first half net profit stood at Sh892 million, Sh631 million (2009) and Sh189 million in 2010.
Jaguar Land Rover (JLR) and Ford franchise owners have appointed another dealer in Kenya in a move that look set to hurt the earnings of CMC Holdings that has been the sole dealer of the franchises.
The franchises will be shared between CMC Motors and Thailand-based RMA Group that opened shop in Nairobi in July with the brief of selling the brands to large buyers like the government, multinationals, aid and UN agencies.
CMC will focus largely on local companies and individual customers to sell JLR and Ford brands that include Ford pick-ups, Land Rover Defender, and luxury saloon cars like Jaguar, Range Rover, and Discovery.
RMA is the biggest distributor of the twin franchises globally in operations that cover Europe, Asia, Middle East and Africa, where it has offices in Kenya, Liberia and South Africa.
“We will not compete with CMC for small, local orders. We want to serve large clients seeking our efficiencies in global supply of vehicles,” said Ken Nzioka, RMA’s regional business development manager.
Mr Nzioka, who until recently was the general manager of Ford and Mazda at CMC, said the local auto dealer will offer spare parts and service functions to the vehicles sold locally by the international dealer.
The entry of RMA Group comes after Volkswagen, Jaguar Land Rover, and Ford have expressed their dissatisfaction with the level of sales in the local market, piling pressure on CMC to invest more in their brands.
“On the board meeting of August 18, 2011 it was noted that CMC Group risked losing the Ford, VW, and JLR franchises due to the poor state of facilities (showrooms),” PwC wrote in a forensic audit report dated February 28 in the wake of a boardroom fallout at the company.
Volkswagen wants CMC to build a modern workshop and a dust-free showroom to better position its brands in the Kenyan market where the German carmaker is unhappy with the sales volumes.
Ford wants the auto dealer to upgrade the existing showroom and build a separate unit dedicated to its brands, a similar demand has been made by JLR in what will shift CMC’s business model since it hosts all models in a single premise.
The three franchise owners account for 70 per cent of CMC’s annual unit sales, underlining their importance to the auto dealer. CMC’s sale of JLR brands fell steadily from a high of 661 units in 2007 to a record low of 292 units in 2010, but recovered last year to post 404 units.
CMC sold 334 units of Ford brands last year compared to 328 units in 2010 while Volkswagen sales dropped to 183 units from 224 in 2010 and 292 units on 2009 — a drop that was linked to the freeze in government orders.
It remains to be seen what impact RMA’s entry will have on the fortunes of CMC which more than tripled its net profit in the six months ending March, helped by foreign exchange gains.
The dealer’s net profit stood at Sh383.5 million in the review period compared to Sh120.1 million a year earlier as sales increased to Sh6.3 billion from Sh6.1 billion. Its sales of vehicles declined to 1,163 units from 1, 202 as it booked Sh450 million in foreign exchange gain from a loss of Sh106 million.
Boardroom war
The firm has been rocked by a boardroom war in recent months that led its shares to be suspended at the Nairobi Securities Exchange and the removal of three directors including its former chairman and top shareholder Peter Muthoka.
The boardroom wrangles were set off by the ouster of Mr Muthoka as chair of CMC after he was accused of breaching corporate governance standards by being head of the auto firm’s board and a CMC supplier through Andy Forwarders.
CMC Motors has recorded a steady decline in profitability since its 2008 peak performance when its first half net profit stood at Sh892 million, Sh631 million (2009) and Sh189 million in 2010.
In Kenya, the government accounts for at least a quarter of total sales by CMC Holdings, with the military and other security agencies buying most of the Land Rover Defenders.
RMA will be angling for such deals alongside orders from aid agencies.
