Avenue Car Hire Limited operations director Neel Shah, and Isuzu East Africa MD Rita Kavashe during the handover of a fleet of 43 locally assembled Isuzu D-Max Pick-up vehicles valued at Sh 189 million. FILE PHOTO | DIANA NGILA | NMG
New vehicle dealers and assemblers have raised prices by double-digits on the back weakening shilling and the rising cost of credit in a move that is likely to hurt sales for the second year running.
Industry players said they were not only battling a slide in the value of the local unit against major international currencies but also a shortage of the US dollars, which has affected the timely payment of suppliers abroad.
That has raised the cost of operation for the industry that largely relies on imports including completely knocked-down parts, prompting an upward price adjustment to recoup the expenses and protect margins.
“For the [rising dollar] strength, we are responding through price adjustments. The changes have been upwards of 10 percent,” said Gabriel Kanyingi, general manager for commercial finance at Isuzu East Africa, which has a 45 percent market share in the industry.
“For scarcity [of the dollars], we are constantly engaging with banks to buy any available dollars on a daily basis to build enough to pay our suppliers.”
The shilling has lost about 16 percent of its value against the globally bullish US dollar, raising the cost of materials for motor vehicle assemblers and units for the dealers in a global market that is yet to recover from supply chain disruptions.
The dealers are now staring at a possible further fall in sales of new vehicles which contracted 6.3 percent year-on-year to 13,352 units last year.
The situation is compounded by the rising cost of credit after the inflation-targeting Central Bank of Kenya (CBK) signalled lenders to further increase the cost of borrowing after raising the benchmark lending rate to 9.50 percent from 8.75 percent on March 29.
The CBK’s monetary policy committee has now raised the benchmark rate by 2.5 percent since last May to stem the highest inflationary pressure in six years.
Increasing the key lending rate makes borrowing more expensive, and this is expected to reduce or postpone expenditure on luxurious goods like cars, thus helping rein in elevated inflationary pressures.
“The implication of all this will be felt in the second half of the year. High prices are likely to dampen demand,” Mr Kanyingi said.
“If the situation is not reversed we shall be faced with a reduced order pipeline which will affect production volumes too.”
Isuzu East Africa was amongst the few firms which grew sales last year after closing deals for 5,968 units compared with 5,609 units in 2021, according to Kenya Motor Vehicle Industry Association (KMI) which tracks data in the formal new vehicle market.
The rising price of cars as a result of weakening shilling and inflation has also hit used car dealers who are grappling with flagging supply.
“There has been a high demand for fewer units in Japan. This, coupled with a weakening shilling, has had a significant impact on price,” Charles Munyori, secretary general of the Kenya Auto Bazaar Association, told the Business Daily last February.
“The supply of locally used vehicles is very limited at the moment as people tend to maintain and keep their old cars other than selling them to purchase another one at a higher price.”
