General Motors plant: Global auto firms are increasingly showing interest in establishing assemblies in Kenya, a move expected to see price realignments. Photo/FILE
Global auto firms are increasingly looking to establish assembly plants in Kenya in a move that sets the stage for price realignments in a market that has remained in the hands of three players for decades.
China’s State-owned manufacturer Foton Motor has announced plans to open a plant in Nairobi next year to produce light commercial vehicles, becoming the third auto dealer after Japan’s Toyota and India’s Tata to unveil such assemblies.
The three auto dealers ship in built vehicles save for Toyota that assembles some of its pick-ups locally, a move that has denied them room to lower prices because of high freight and duty charges.
Duties on locally assembled units are zero per cent against 25 per cent for fully built units.
“This project (the Foton East Africa assembly plant) is likely to radically transform the light commercial vehicle sector in the entire region,” said Fred Amayo, the chairman of auto dealer Marshalls East Africa which will hold a stake in the assembly and which holds the Foton franchise in East Africa.
The new assemblers are looking to use Kenya as the launching pad for entry into the regional common market, reaffirming Nairobi’s position as East Africa’s economic hub.
The fragmented economies of the five East African countries had discouraged the auto dealers from setting up assembly plants, but the common market has made it possible for the dealers to capture a region of more than 130 million residents.
Their entry is set to loosen the stranglehold of Thika-based Kenya Vehicle Manufacturer (KVM), the Association of Vehicle Assemblers (AVA) Limited of Mombasa and General Motors East Africa (GMEA) who have come under the spotlight for possible involvement in anti-competitive market practices linked to sale of overpriced goods.
Postpone launch
Finance minister Uhuru Kenyatta has ordered the Monopolies and Price Commission — the agency that is charged with promoting fair competition — to investigate alleged abuse of market dominance by the three.
The rise in the number of assemblers could also set the stage for a price war in the motor vehicle markets, especially in the fast-moving pick-ups and heavy commercial vehicles, renewing the battle between Asian and European brands such as Mercedes Benz and Iveco.
In mid 2008, Tata said it would set up an assembly plant in Mombasa at a cost of Sh800 million to churn out 10 to 60 buses per month.
The economic slowdown of 2008, which saw the number of new motor vehicles sold annually drop from 13, 135 units in 2008 to 9,000 units in 2009, prompted the Indian firm to postpone the launch.
Sources at Marshalls, who are their local business partners, say Tata’s plant will be constructed from next year in time for Kenya’s growing economy.
Earlier this year, Toyota East Africa announced plans to put up an assembly plant in Nairobi but did not give timelines.
“The first models to be considered will be the Hilux range, Hino truck and bus range and eventually Yamaha motorcycles,” Mr Dennis Awori, the firm’s chairman said in an earlier interview.
Toyota has been assembling some of its brands at the Mombasa-based Associated Vehicle Assemblers (AVA) and setting up its own plant means AVA will lose the Toyota deal.
The assembler also does work for Simba Colt Motors, which sells Mitsubishi heavy commercials trucks and buses locally.
KVM mainly assembles CMC and DT Dobie’s trucks and heavy commercial vehicles such as the Nissan double-cab pick-ups, Land Rover, Mazda, Iveco, and Mercedes Benz.
The assemblies are set to drive up competition in the formal vehicle market that is already feeling the heat of reduced demand from the government and private companies amid increased second-hand imports by individual consumers and small businesses.
The increased activity in assembling comes at a time the local auto sector is set to close the year with below-target sales where executives predict that it may take up to two years for turnaround.
Data from Kenya Motor Industry — the industry lobby — shows sale of new units stood at 9, 904 in the 11 months to November — a pointer to the fact that the industry is unlikely to hit its 2010 target of 11,000 units given that December is traditionally a slow month for the auto sales.
The industry sold 13,135 units in 2008. It assembled 3, 377 units in the seven months to July compared to 3,095 units and 3, 579 units in the same period in 2008 and 2009 respectively.
