Toyota assembly heralds shake-up in market

Toyota East Africa plans to put up an assembly plant in Nairobi, a move likely to cause price realignments in the motor industry in the region.

The move by the Japanese automaker will allow for the leading dealer to sell its locally assembled units at cheaper prices as it saves on shipping costs and taxes.

The Nairobi factory is also expected to boost body builders who will benefit from increased activity by the Japanese firm.

Toyota’s EA chairman, Dennis Awori, says the key factors to reducing the cost of the vehicles will be taxes and economies of scale.

Duties on locally assembled units are zero per cent against 25 per cent for fully built up units.

Players in the motor industry have been calling on countries in the East African Community to look at vehicles assembled in Kenya as local goods, thus attracting similar rates on duty.

Previously, all the five EAC member states had a uniform import duty of 25 per cent but the other members changed the provision in June 2009.

Tsusho Corporation, the trading and investment arm of Toyota group, is set to establish its regional headquarters in Nairobi to run new projects and investments in East Africa, which include putting up of an assembly plant and non-automotive investments like geothermal and solar power production.

During his visit in Nairobi earlier this month, the executive director of Toyota, Tsusho Makoto Hattori, said the company intends to start with increased production of motorcycles.

He was in the country to scan the environment on invitation by Prime Minister Raila Odinga who was in Japan last month and visited the Toyota hub.

The establishment of the vehicle assembly plant in the country is expected to create more job opportunities as well as business for auxiliary companies in the assembly business.

The move is also expected to increase Toyota’s customer base in East Africa.

Gavin Bennett, an independent analyst in the sector, said the move would be a bold industrial statement that would allow the company to grow its business in the region and at the same time allow for transfer of technology.

Toyota assembles some of its Land Cruiser vehicles at the Associated Vehicle Assemblers (AVA) Limited in Mombasa.

The auto dealer has no share holdings in AVA and has contracted it to do the work for its pick ups.

Of the 3,152 units sold in 2008 by Toyota, only 316 Land Cruiser pick-ups were assembled locally.

The Japanese car maker mainly imports fully built units into the country from Japan and South Africa.

“The first models to be considered will be the Hilux range, Hino truck and bus range and eventually Yamaha motorcycles,” Mr Awori said.

Toyota is the fastest selling brand in the Kenyan market, both in the new and second-hand markets.

Last year, the dealer saw its sales drop by 20 per cent to 2,438 units due to the hard economic environment that saw sales in the whole market reduce by 21 per cent to 10,264 units.

Despite the reduced sales, Toyota managed to retain its market share at 23 per cent, followed by General Motors East Africa and Simba Colt at 20 and 18 per cent respectively.

DT Dobie and CMC Motors finished the year with 14 and 12 per cent of market share.

The reduced sales of vehicles in the whole market last year had a negative trickle down effect on the whole vehicle assembly business that mainly benefits from growth in robust economy.

There are two types of motor-vehicle assembly plants in Kenya: franchise and contract assemblers.

General Motors (EA), for instance, is a franchise assembler for Isuzu while AVA and Kenya Vehicle Manufactures in Thika are contract assemblers.

PSV demand

Major dealers who assemble locally recorded a reduction of 18 per cent of units put together last year compared to the 5,537 units in 2008.

The major assemblers in the country include Isuzu, Land Rover, Mitsubishi, Nissan Diesel, now called UD, and Toyota.

Last year, DT Dobie, the dealer of Nissan, began assembling its pick-ups locally.

Pick-ups, trucks of all sizes, parcel vans, buses and prime movers have been the major driving force behind these vehicle body builders as the economy recorded positive growth.

The increased demand for larger buses in the public service has seen increased business for these companies over the years.

General Motors East Africa has attributed its growth in market share last year to the demand in PSVs and believes this will continue to be the driving factor this year.

In a bid to tap into this market, CMC plans to invest in its own assembly plant in Changamwe, Mombasa.

The announcement was made early last year.