Cars on display at a Toyotsu Auto Mart, a subsidiary of Toyota Tsusho Company Limited, in Nairobi’s South C. Zambia has rejected the merger deal. File
What you need to know:
The new entity would control about 40 per cent of the new vehicle market in Kenya, potentially giving it muscle to influence policy and price out other dealers.
The conglomerates have applied to the Competition Authority of Kenya (CAK) and regulators in other African markets to effect the merger of their local subsidiaries.
The acquisition means that CFAO and all its subsidiaries are now under direct control of Toyota Tsusho.
Toyota Kenya and DT Dobie are eyeing a merger that has sparked fears by smaller auto dealers that the dominance of the combined entity could hinder competition in the new vehicle market.
The move comes after Japan’s Toyota Tsusho Corporation paid €2.3 billion (Sh265.4 billion) in December to acquire 97.81 per cent stake in French firm CFAO which fully owns Kenya’s DT Dobie and CICA Motors.
“If the auto dealers are merged then there will definitely be issues of business concentration that will hurt competition,” said Adil Popat, the CEO of Kenya’s Simba Corporation that sells BMW cars, Mitsubishi trucks, and Mahindra pick-ups.
The new entity would control about 40 per cent of the new vehicle market in Kenya, potentially giving it muscle to influence policy and price out other dealers.
The conglomerates have applied to the Competition Authority of Kenya (CAK) and regulators in other African markets to effect the merger of their local subsidiaries.
“We have received an application with regard to the proposed combination and we are reviewing it taking into account all views,” said CAK director-general Francis Wang’ombe.
On Tuesday, Zambia rejected an application by the multinationals to merge their operations, saying it would have stifled competition by controlling 75 per cent of that market.
Tanzania has also called for public submissions on the transaction’s impact to help it review an application by Toyota Tsusho to acquire a controlling stake in CFAO Motors Tanzania.
The acquisition means that CFAO and all its subsidiaries are now under direct control of Toyota Tsusho which is aggressively buying out auto dealers operating in Africa.
The Japanese conglomerate acquired in 2010 all the shares of Subaru Southern Africa, giving it control of the firm’s dealership in Subaru cars in South Africa and six neighbouring nations.
Its acquisition of CFAO is set to firm Toyota Tshusho’s grip on the local new vehicle market. Toyota Kenya, the country’s second largest dealer with a 24 per cent market share, has been operating independently.
Toyota deals in its brand of saloon cars, pick-ups, Yamaha motorcycles and is set to venture into the heavy commercial trucks business with the Hino brand next month.
DT Dobie is Kenya’s third largest auto dealer with a 13 per cent market share and sells Mercedes cars and trucks, Nissan pick-ups, Renault cars, and Jeep sports utility vehicles (SUVs).
CICA Motors is one of the country’s smaller dealers, selling Hyundai trucks and Great Wall pick-ups and SUVs. Should the regulator allow the firms to merge, the new entity would have six vehicle franchises in its stable, with Mercedes and Nissan pick-ups being the fastest-selling brands.
Analysts say a dominant auto dealer can lock out its rivals from major tenders by riding on economies of scale to ask for relatively lower prices for its vehicles.
“A dominant dealer can control the market in any way they like, including price distortion. The large market share is itself unfair,” said Gavin Bennett, a motor industry analyst.
Such a dealer could also lock in customers by cross-selling its wide variety of vehicle types and brands, further cementing its dominance and growing its market share. Mr Bennett, however, said Toyota Tshusho and CFAO could maintain their current operations because they were trading houses rather than manufacturers.
General Motors East Africa (GMEA) is the largest auto dealer with a 27 per cent market share, having toppled Toyota Kenya for the first time in 2010.
The company which deals in Chevrolet saloon cars and Isuzu pick-ups, buses, trucks, has turned its focus on the regional exports for growth as local demand slows down.
Simba Corporation is the fourth largest auto dealer with a 12 per cent market share. The company has grown rapidly in the past few years after acquiring the BMW franchise from Mashariki Motors in 2008 and Mahindra dealership from the Ecta Group of companies mid last year.
CMC Holdings is the fifth largest auto firm with a 10 per cent market share, having dropped from the fourth position in the past years on the back of lower sales.
CMC, which is listed on the Nairobi Securities Exchange, is fighting a legal battle to keep its key Jaguar Land Rover (JLR) franchise which the owners intend to give to rival Thailand-based RMA Group.
The JLR franchise accounts for a third of CMC’s annual unit sales though the company has more than seven other franchises including Volkswagen, Ford, Nissan Diesel, MAN, Iveco, and Maruti Suzuki.
Besides a large market share, a merger of Toyota, DT Dobie, and CICA Motors would also give the new entity greater influence in the local vehicle assemblies market that came under probe in December 2010 for anti-competitive practices.
The merged outfit would automatically inherit DT Dobie’s 32.5 per cent stake in KVM where CMC Holdings and the government have a 32.5 per cent and 35 per cent stake respectively.
The Treasury directed the Monopolies and Prices Commission, the predecessor of KCA, to investigate the three vehicle assemblers KVM, GMEA, and Associated Vehicle Assemblers for alleged price fixing.
It was suspected that the trio shared market information on pricing, leading to alleged predatory prices that hurt suppliers and consumers.
It has also been alleged that the operators have locked in the majority of Kenya’s auto dealers by using contracts that make it difficult for new operators to enter the market or for any dealer to opt out.
Kenya and other African nations are separately reviewing the impact of the merger between Toyota Tsusho and CFAO which the European Commission approved, saying it would not hurt the auto business in the 27-nation bloc.
Toyotsu says the acquisition of CFAO is aimed at helping it expand its footprint in Africa’s automotive and pharmaceutical distribution business.
