Companies

Isuzu’s plan to produce 11,000 vehicles yearly

RitaKavashe

Isuzu East Africa CEO Rita Kavashe. FILE PHOTO | NMG

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Summary

  • Isuzu East Africa is this month celebrating the production of 100,000 vehicles at its Nairobi assembly plant since 1977.
  • The company’s chief executive Rita Kavashe talked to the Business Daily on the significance of the milestone, the company’s investment plans and the impending changes in Kenya’s automotive sector.

Isuzu East Africa is this month celebrating the production of 100,000 vehicles at its Nairobi assembly plant since 1977. The company’s chief executive Rita Kavashe talked to the Business Daily on the significance of the milestone, the company’s investment plans and the impending changes in Kenya’s automotive sector.

WHAT IS ISUZU CELEBRATING?

This month we mark a special milestone in our growth journey, attaining 100,000 Isuzu vehicles assembled locally since the plant started operations in 1977. These are pick-ups, trucks and buses. We have achieved our agenda which is technology transfer and empowering Kenyans economically.

This starts right from our 470 employees, our shareholders who continue to enjoy fair returns, our network of dealers, banks, suppliers and the other 50,000 or so individuals who rely on the success of our business.

WHAT IS THE CURRENT UTILISATION OF THE PLANT’S CAPACITY?

Our installed capacity is to produce close to 11,000 vehicles annually. Our capacity utilisation currently is about 40 percent where we are producing about 5,000 trucks. We have the capacity to scale up regionally in terms of production capability. Isuzu has been strong in the commercial vehicle market.

WHICH CUSTOMER OR CUSTOMER GROUP IS THE SINGLE-LARGEST BUYER OF YOUR TOP-SELLING TRUCK MODEL?

I would say that small and medium enterprises have been an outstanding and loyal customer group that drives the sales of our Isuzu FRR90 Truck among other models. Specifically, we have seen steady increase in purchases from the agricultural sector, retail and distribution of fast-moving consumer goods as well as last mile deliveries.

WHAT IS THE SIZE OF ISUZU’S CAPITAL EXPENDITURE THIS YEAR OR IN THE MEDIUM TERM?

We have invested nearly Sh2 billion over the last three years in capacity expansion in terms of plant assembly reorganisation and retooling for our seventh-generation models. This includes the establishment of Kenya’s first-ever Electro-Deposition Paint facility. This type of plant allows you to dip the entire cabin into the paint and remove it without any manual process.

This year, we are looking to invest an additional Sh500 million to prepare our plant to comply with stricter emissions standards. In the medium term, we estimate investments in excess of Sh2 billion.

TAKE US THROUGH THE CURRENT AND UPCOMING REQUIREMENTS IN TERMS OF EMISSIONS STANDARDS IN KENYA AND ISUZU’S PREPARATION TO COMPLY.

European emission standards define the acceptable limits for exhaust emissions for new vehicles sold in the European Union member states and adopted by different countries globally. The aim is to reduce greenhouse gas emissions.

Prior to 2019, Kenya did not have emissions standards, as such the vehicles being produced locally were at the level of Euro 0 to Euro 2. We are now required to transition to Euro 4 standards by 2023. Assemblers will have to source new vehicle models that are compliant. The new models have to be tested and re-engineered to meet local conditions such as fuel, oil, roads and environment (dust, heat, rain etc).

Assembly plants will have to be upgraded with new tooling, equipment and production processes for production of the new vehicle model completely knocked down (CKD) kits. Technician skill upgrade is also required to enable use of the new high-tech equipment and understanding of the new assembly processes. This comes with a high capital investment cost for the assemblers.

WILL PRICES OF VEHICLES RISE AS A RESULT OF THIS TRANSITION?

The model change comes with cost increase to customers.

COULD YOU SHARE WITH US ISUZU’S BROAD FINANCIAL PERFORMANCE IN 2020 AND 2019 –I.E. TURNOVER AND NET INCOME?

We are a private company and do not disclose our numbers. But I will say that we are profitable, debt-free and we have enough resources to fulfil our obligations and capacity to take up large contracts like government leasing.

ISUZU’S MARKET SHARE IN THE NEW VEHICLE MARKET HAS GROWN BY TWO-THIRDS TO 38.6 PERCENT FROM 23.3 PERCENT IN 2011 WHEN YOU WERE APPOINTED AS CEO. WHAT WOULD YOU ATTRIBUTE THE GAINS TO?

It’s a combination of things that have worked well for us. We have good products, a trusted brand, talented workforce and a well-established distribution network of dealers. Our shareholders also take a long-term view of the business.

WHAT IS ISUZU’S CURRENT DEALER NETWORK AND THEIR GEOGRAPHICAL SPREAD?

We have nine dealers across East Africa. Associated Motors (AM), Central Farmers Garage (CFG), Thika Motor Dealers (TMD), Ryce East Africa Ltd (RYCE), Africa Commercial Motors Group (ACMG), Kenya Coach Industries (KCI), AutoXpress Limited (AX), MAC East Africa (Kampala, Uganda) and Al Mansour Ltd (Dar es salaam, Tanzania).

Our model is that we have a plant and we sell the vehicles through our dealer network. Where there are opportunities, we will expand with our current partners or add more. Devolution has brought more opportunities and each county wants to have its own service centre.

ISUZU SOLD 23 UNITS OF THE MU-X CAR IN THE HALF YEAR TO JUNE. WHO ARE THE BUYERS OF THE SUV AND DOES ISUZU PLAN TO EXPAND IN THE PASSENGER CAR SEGMENT BY ADDING MORE MODELS?

Our sales are mainly to ccorporates, ggovernment departments and individual ccustomers. We have plans to introduce more models under the mu-X line-up in the near future.

WHAT IS THE SIZE OF OPPORTUNITY IN LOCAL ASSEMBLY FOR THE EAST AFRICAN MARKET?

The East Africa market size is about 200,000 vehicles annually. Out of this, 40,000 are commercial trucks and pick-ups. So, while in Kenya we assemble about 11,00 vehicles, in the region there is a big opportunity. We have three plants in Kenya and they are operating at 40 percent of their capacity.

So, these three plants have the capacity to supply commercial trucks to the entire East African region. Uganda and Tanzania with less stringent age limits similarly have second-hand imports comprising approximately 85 percent of their motor vehicle sales each year.

This has hindered the local assembly business in the region, robbing the economy of much needed revenues, expertise, employment and GDP growth. Statistics show that 85 percent of new vehicle registrations in East Africa are second-hand, and therein lies our scale opportunity.

THE LATEST EFFORTS TO BOOST LOCAL ASSEMBLY CULMINATED IN THE BAN ON IMPORTS OF USED COMMERCIAL TRUCKS. WHAT ARE THE CURRENT DISCUSSIONS THE INDUSTRY IS HAVING WITH THE GOVERNMENT WITH REGARD TO DEVELOPMENT OF THE AUTOMOTIVE SECTOR?

Our industry engagements with government have focused on the full implementation of the National Automotive Policy. The policy is before the cabinet and about to be rolled out and what it envisages is the formation of the Automotive Council which will bring together all the players –producers of tyres, springs and motorcycles to concretise opportunities for the automotive sector.

HOW SUPPORTIVE HAS THE GOVERNMENT BEEN IN BUYING LOCALLY ASSEMBLED VEHICLES TO HELP GROW THE INDUSTRY?

The ban on importation of used trucks with load capacities of 3.5 to 30 tonnes was a big one. Buy Kenya Build Kenya has become a reality and the litmus test for this was in the last police tender that the government insisted that if you were to supply you had to demonstrate that you are producing locally.

NEW MOTOR VEHICLE SALES REBOUNDED STRONGLY IN THE FIRST HALF OF THE YEAR; DO YOU EXPECT THE MOMENTUM TO CARRY TO YEAR-END?

The first half has been strong because of back orders and that is going to sustain until the end of the year and most likely up to the first half of next year. The economy is recovering from the depths of last year.

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