Kenyans have resorted to buying cheaper motor vehicles on elevated cost of imports and running expenses including fueling at the pump, official data shows.
Fresh data shows that the number of vehicles imported in the half year ended June rose 16.87 percent to 35,409 but their value dropped slightly, indicating that individuals and second-hand dealers turned to shipping in more cheaper models.
The number of vehicle imports increased from 30,297 units a year earlier. The jump came in the period when the value of the vehicle imports amounted to $418 million (about Sh54.34 billion at current exchange rates) compared with with $424 million (Sh55.12 billion) in the same period a year ago, according to provisional data by Central Bank of Kenya (CBK) and the Kenya Revenue Authority (KRA).
The drop in the value of motor vehicle imports bucked a trend in orders for machinery and transportation equipment, which grew 28.1 percent to $1.92 billion (Sh249.6 billion) in the six-month period.
The Kenya Auto Bazaar Association, which represents second-hand car dealers, said there has been a trend where buyers are changing preferences based on pricing.
Buyers who had planned to buy a Toyota Prado, for instance, are ending up buying Toyota Harrier or a Nissan X-Trail to cut costs of acquisition as well as operation and maintenance.
The lobby’s secretary-general, Charles Munyori, said most banks have also tightened lending conditions for dealers and buyers of motor vehicles amidst growing default rates, hurting acquisition of high-value vehicles which also consume more fuel.
This has come a time consumption of motor petrol for the half-year period through June fell 2.9 percent to 986.2 million compared with a year earlier, data from Energy and Petroleum Regulatory Authority shows. This was despite petrol prices falling to an average of Sh189.84 per litre in June from Sh212.36 average in January.
“Most of the banks have become very careful about who to finance. So you find that you apply for a loan, but it will not be approved because of low turnover of your business,” Mr Munyori told the Business Daily.
“The salaried people also have issues of their own. Some of them cannot even meet their obligations using payslips. So the economy is in a very bad shape for us [second-hand car dealers].”
Purchase of cars is largely financed by bank or sacco loans, with the lenders retaining logbooks until the loan is fully serviced. The cost of credit has generally remained high after the CBK’s Monetary Policy Committee raised its benchmark interest rate by six percentage points since May 2022 to 13 percent until last week.
Increasing the central bank rate makes borrowing to fund purchase of goods and services more expensive as banks use it as a base onto which they load their margins and risk profile of individual borrowers when pricing loans. Banks are charging as much as 25 percent interest for financing purchase of cars, according to dealers.
The cost of importing cars has been under upward pressure since 2022, initially on difficulties accessing dollars amid depreciating value of the shilling, before being hit by further shocks when the duty was increased by 10 percentage points in July 2023 followed by higher cost of credit.
Separate data from Kenya Motor Industry Association (KMI), which represents dealers and assemblers of new motor vehicles, showed local sales dropped 12.27 percent to 4,982 units in six months ended June 2024 from 5,679 units a year earlier.
The depressed sales came at a time the US dollar pressure on the shilling eased relative to last year’s double-digit rate depreciation, while access to dollars also improved.
The shilling averaged 140.27 units against the dollar in the half-year period, a modest 6.54 percent weaker than average of 131.66 units in the same period in 2023.
The shilling hit a historic low of Sh161 against the US dollar in January, according to official rates published by the CBK, before regaining ground from mid-February to trade at prevailing rates of about 130 units to the greenback.
“The issue of the dollar may be behind us now, but there are very few buyers in the market. There are vehicles which have remained unsold for more than a year, something we rarely used to see in the past,” Mr Munyori said.
“If we continue at this rate, you’ll find that some people will just abandon their business for good because most of them are already having to do other things to survive. Importers cannot continue sinking their money into a business where volumes are not moving. We are in very bad shape.”
Traders and households pay a duty of 35 percent to ship in a car, which should not be more than eight years from manufacturing date.
Importation of vehicles further attracts excise duty ranging from 25 percent to 35 percent depending on the size of the engine, in addition to the standard 16 VAT.
Excise tax is charged on sum of landed cost of the car and import duty, while VAT is applied on the resultant value [the sum of landed cost, import tax and excise duty].
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