Used car imports push Marshalls deeper into losses
Several challenges continue to slow down Marshalls performance, including a rise in used car imports and the loss of the Peugeot franchise. Fredrick Onyango
Car dealer Marshalls East Africa continued its loss-making streak in the first half of its 2011 financial year, with analysts predicting a tougher operating environment for the entire auto industry in the medium term.
The firm made a net loss of Sh93.1 million in the six months to September, worsening a net loss of Sh3.8 million in a similar period last year. Sales dipped by 67 per cent to stand at Sh133.3 million, down from Sh405.7 million.
Several challenges continue to slow down the firm’s performance, including a rise in used car imports, the loss of the Peugeot franchise, and infighting at the company’s boardroom.
“There has been a spike in used car imports. For every new car bought in the market currently, there are five used cars acquired. This is up from a ratio of one new car bought to three second-hands previously,” said an analyst at Kestrel Capital.Sales of new cars, which took a beating since 2009 on the back of the a weak economy brought home by the financial crisis and the 2008 post-election violence, have continued to slide, according to data from the Kenya Motor Industry Association (KMI).
In the 10 months to October, total sales of new vehicles stood at 8,979, indicating the sector is set to close at about the all-time low of 10,264 units seen last year. Industry players say the economic upturn that has lifted most sectors, including tourism, financial services, and real estate, are yet to translate into orders for new cars.
“The Japanese Yen has strengthened in recent months, raising the showroom price of cars from the country,” said Stannah Dudley, the head of marketing at Subaru Kenya.
“While the economy has generally picked up, it will not be until the second quarter of next year to see a rise in sales,” he said.
The economy grew by 5.4 per cent in the second quarter compared to 4.4 per cent in the first quarter, with total growth expected to reach at least five per cent by year-end. The discontinuation of the Peugeot franchise in 2008 has denied Marshalls significant sales opportunities though the company continues to service and sell the French car’s parts. The company, however, is struggling to realise profits from the sales and service of the Peugeot parts. It made a loss of Sh108.6 million and Sh29.6 million in 2008 and 2009 from this business line. Infighting at the company’s boardroom has also denied Marshalls a strategic focus in the difficult operating environment where rivals like Subaru and CMC Motors have launched new models to rev up sales.
Kamlesh Pattni and Ketan Somaia have been fighting for control of the firm since 2006, resulting in a high rate of turnover at the executive suites.
The warring between the two groups has featured in all the AGMs as shareholders held parallel meetings, which culminated in the cancellation of last year’s shareholders’ meeting.
Mr Pattni has always insisted that he bought a controlling stake in Marshalls, but argued that Mr Somaia had refused to transfer the shares to him.
The lacklustre performance has seen investors give a wide berth to Marshalls’ stock, with the share trading rarely at the stock market. On Friday, Marshalls share price stood at Sh14, a drop of over 40 per cent compared to a year ago.
