Corporate

KRA, dealers big gainers of record car sales growth

Second-hand car dealers account for about 80 per cent of total vehicles sold in the country. PHOTO | FILE
Second-hand car dealers account for about 80 per cent of total vehicles sold in the country. PHOTO | FILE 

Auto dealers and the taxman were the main beneficiaries as increased confidence in the economy and rising incomes drove new and used car sales up 23 per cent in the first six months of the year.

The growth, the biggest jump reported in the last five years, saw households and businesses buy 43,360 vehicles in the first six months of the year up from 35,246 units in the same period last year.

Analysts say the increased spending on cars and commercial vehicles signal better economic prospects for consumers and investors alike.

Besides boosting the motor industry, the higher imports also helped the Kenya Revenue Authority (KRA) collect Sh331.8 billion in customs revenue in the fiscal year ended June, representing a 28.3 per cent jump from Sh258.7 billion the year before.

The taxman also benefited from double-digit growth in customs revenues as exports and imports picked up.

During the period, both used and new car dealers registered double-digit growth in sales, indicating strong, broad-based demand for the high-value goods.

“This shows that confidence in the economy is growing,” said Joseph Kieyah, an analyst at Kenya Institute of Public Policy Research and Analysis (Kippra).

“The purchases also reflect increased spending by the country’s middle class, which is growing fast.”

A majority of vehicle purchases in the country are backed by bank loans or employers’ funds, signalling that these financiers are confident of the borrowers’ ability to repay.

The purchases, whether in cash or on credit, also reflect confidence in better prospects on the part of those buying the units for personal use or for commercial activities.

Saloon cars make up about 70 per cent of all vehicles purchased, with households spending tens of billions of shillings on private transport.

Data from the Kenya National Bureau of Statistics (KNBS) shows that sales of passenger cars rose 28.3 per cent to 30,320 units in the first half of the year.

The price of a newly registered car in Kenya ranges from about Sh600,000 to Sh27 million, depending on whether it is new or used, with most purchases falling below the Sh2 million mark.

Used car dealers, who sell most of the saloon cars, say the surge in demand is driven by reduced political risk.

“Sales in the first half of last year were held down by the General Election,” said Charles Munyori, the secretary general of Kenya Auto Bazaar Association, which represents used car dealers.

“Banks and households were cautious in terms of financing and purchasing cars in that period of uncertainty. The political risk is now diminished.”

The electioneering period had caused a general slowdown in economic activity as investors and households adopted a wait-and-see stance, fearing potential violence similar to the chaos that followed the 2007 contest.

There was a marked drop in demand for cars and other goods as new investments and big-ticket consumption were scaled down in fear of political disruption.

Sales picked up later in the year with total motor vehicle registrations closing at 94,017 units, a good 20,000 units more than in any of the four previous years.

As used car sales tend to peak closer to December when eight-year-old cars are at their cheapest, this year could see sales pass the 100,000 units mark. 

The KNBS data also shows a resurgence in imports — an indicator of increased consumption levels. Kenya’s imports rose 9.2 per cent to Sh748.6 billion in the first half of this year compared to Sh685.4 billion a year earlier.

Increased demand for used cars saw the overall second-hand vehicle market record a 19.4 per cent growth in sales to 34,445 units in the first half.

Second-hand car dealers account for about 80 per cent of total vehicles sold in the country, relying on demand from businesses and individuals who are unwilling or unable to pay showroom prices.

New vehicle dealers, however, recorded the fastest sales growth in the period, indicating robust demand from their customer base composed of the government, blue-chip firms and wealthy individuals.

Their sales rose 39.3 per cent to 8,915 units, with players in the industry attributing it to more purchases by the government and businesses in the transport, trade and construction industries.

“The government’s leasing plan is driving up sales,” said Rita Kavashe, the CEO of General Motors East Africa.

She said that new dealers are also booking strong demand from firms in the public transport, trade and construction sectors, which account for most of the sales of trucks and buses.

Toyota Kenya, for instance, started delivering 1,100 cars to the police service early this year after winning the first of the government’s planned leasing tenders in a deal worth Sh3 billion.

The government is set to issue another Sh6 billion contract that will see the winning bidders supply the police service with 2,700 cars and utility vehicles in the near term.

The purchases are aimed at boosting the capacity of the security personnel to fight high insecurity in the country, including terrorist attacks.

Pick-ups, buses and trucks account for over 90 per cent of all units sold by the new dealers and increased sales of the commercial vehicles indicate a more robust activity in the economy.

The financial services sector is one of the biggest beneficiaries of the increased vehicle sales, financing most the purchases at high interest rates.

Ms Kavashe said the relative stability of interest rates this year has encouraged more people to take up loans to fund vehicle purchases. The rates charged by commercial banks have settled at about 17 per cent.

Personal loans have emerged as the biggest driver of total lending in the banking sector, with most of the debts by households going to finance purchase of houses and cars.

Loans to households stood at Sh442.9 billion in June, accounting for a quarter of the Sh1.7 trillion banking sector loan book.

Personal loans attract the highest interest rates, making them the most lucrative for banks compared to large corporate borrowers who are able to negotiate lower rates on their strong creditworthiness.