High interest rates take shine off showroom car sales

Sales among Kenya’s new motor vehicle dealers dropped 13.5 per cent in the first two months of the year as high interest rates and the government’s austerity measures cut new orders.

Data from the Kenya Motor Industry Association (KMI) show that players sold 1,535 units in the period under review compared to 1,775 units in a similar period the previous year.

Dealers have expressed worry over high interest rates, which have made it more expensive to buy new cars. The CBK’s move to tighten liquidity has seen banks raise interest rates to an average of 19 per cent from a low of 14 per cent in January last year.

“A lot of things are happening in 2012 that have a major impact on the new vehicle market – including the upcoming General Elections and the government’s austerity measures,” said Bill Lay, the chief executive of CMC Motors.

The bulk of new vehicle purchases are financed through bank loans, hence the sharp rise in interest rates has a direct impact on showroom prices. Sales forecasts for this year have also been dampened by the government’s decision to reduce the purchase of new cars in the medium term. Ministries and state agencies such as Kenya Wildlife Service (KWS) account for a quarter of all new car sales, with an annual value of more than Sh8 billion.

The KMI data show that Simba Colt recorded the largest drop in sales to stand at 143 units from 322 units in 2010, followed by CMC Motors whose sales fell to 177 units from 240 units in the same period. DT Dobie’s sales also dropped to 233 units from 270 units. Simba Colt has attributed the drop in sales to the March 2011 earthquake in Japan that disrupted its supply of Mitsubishi trucks—its biggest vehicle brand in terms of sales.

Market leaders Toyota Kenya and General Motors East Africa however defied the tough business environment to grow sales marginally. GMEA posted the highest sales growth, selling 380 units compared to 362 units in 2010, with Toyota coming second with 382 units sold from 377 units.

In the period under review, GMEA and Toyota tied with 25 per cent marketshare each compared to 20 per cent and 21 per cent respectively in a similar period in 2010. But their gains came at the expense of smaller dealers. Troubled CMC Motors, for instance, saw its marketshare drop to 12 per cent from 14 per cent while Simba Colt’s halved to nine per cent.

Despite losing sales, DT Dobie retained its marketshare at 15 per cent. Smaller dealers such as Tata, Hyundai, Subaru and Kenya Grange however increased their chunk to 14 per cent from 12 per cent in 2010.

“Small dealers mainly in the commercial trucks market recorded significant gains as large dealers suffered from the Japan earthquake,” Naresh Leekha, the chairman of KMI and executive director of Tata Africa said in an earlier interview.