New vehicle dealers and assemblers are staring at reduced sales for the second year in a row, reflecting a tough economic setting defined by reduced corporate earnings, high interest rates and weakening shilling that has inflated showroom sticker prices.
Industry data shows demand for new vehicles has dropped by double-digit rates for the first time since the pandemic year, pointing to thinning job opportunities in the sector.
The dealers sold 10,595 vehicles in the 11 months to November compared with 11,962 units in the same period a year ago, according to data provided by Kenya Motor Industry Association (KMIA).
The 11.43 percent contraction is the fastest fall since the 2020 pandemic year when the industry reported an 18.34 percent drop in sales to 9,681 units in a similar 11-month period when authorities curbed movement for months to contain spread of the disease.
The formal dealers have this year complained of a raft of challenges, including shortages of some models in global markets and climbing interest rates which have hit sales as most of the orders are financed by banks.
The dealers have also been hit by accumulated pending bills which are yet to be settled by the government, which have negatively impacted their cash positions.
The situation has been compounded by the depreciating shilling which shed about 24.14 percent of its value against the US dollar between January and November, going by official rates.
That raised the cost of materials for motor vehicle assemblers and fully built units for the dealers in an environment where adequate supply of the US currency has also been a struggle.
“For the strength [of the dollar], we are responding through price adjustments. The changes have been upwards of 10 percent,” Gabriel Kanyingi, the general manager for commercial finance at Isuzu East Africa, told the Business Daily earlier in the year. The situation …[has been] exacerbated by the rising interest rates from the banks on the retail front. If the situation is not reversed, we shall continue to be faced with a reduced order pipeline which will affect production volumes too.”
CFAO Motors Kenya, which rose from the merger of Toyota Kenya and DT Dobie in May, and Salvador Caetano Kenya, the franchise holder for brands such as Ford, Hyundai and Renault Trucks, are the two dealers which bucked the industry trend of flagging sales.
CFAO, which now sells multiple brands such as Toyota, Mercedes, Volkswagen and Hino under one roof, grew its sales by 7.74 percent to 3,395 units [including sales before the merger].
The KMIA data shows sales of brands previously under Toyota East Africa grew 13.25 percent to 2,820 units, while those under D.T. Dobie, including Mercedes, fell 13.01 percent to 575 units in the 11-month review period. However, the increased sales under Toyota were largely a recovery from last year’s 22.48 percent year-on-year drop in the 11-month period.
CFAO controlled 32.04 percent market share of the sales at the end of September.
Market leader, Isuzu East Africa, posted a 9.32 percent contraction in sales to 4,973 vehicles from 5,484 units in the prior year. However, the market share of Isuzu — which sells pick-ups, buses, trucks and sport utility vehicles (SUVs) —increased by about a percentage point to 46.94 percent from 45.85 percent in the same period the year before.
The review period saw the exit of CMC Motors, which used to hold the Ford, Mazda and Suzuki franchises, from the passenger vehicle business to focus on agricultural equipment.
CMC, which sold 486 units in the January-November 2022 period, saw its orders fall to 18 vehicles in the subsequent period under review. The falling demand of vehicles caught the eye of Treasury secretary Njuguna Ndung’u who listed them amongst key goods, including fuel and beer, whose flagging sales were being felt on revenues.
“The shortfall in excise duty is explained by the decline in oil volumes, motor vehicle imports and deliveries of domestic excisable goods such as cosmetics, beer and spirits,” the Treasury officials wrote in the 2023 Budget Review and Outlook Paper (BROP) which was finalised in November.
Motor vehicle imports are one of the major sources of taxes for the government and a drop in the value signals a downward trend in revenue.
The Kenya Revenue Authority increased import duty on shipping cars into the country from 25 percent to 35 percent from July after the East African Community Council of Ministers approved Kenya’s application to levy a higher rate than the 10 percent common external tariff (CET) for the seven-nation EAC bloc.
Importation of vehicles further attract excise duty ranging from 25 percent to 35 percent depending on the size of the engine, in addition to the standard 16 percent VAT rate.
Excise tax is charged on the 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].
The drop in demand has also been felt by dealers of second-hand vehicles.
The Kenya Auto Bazaar Association, which represents second-hand car dealers, has warned that the high cost of shipping in cars has cut orders from abroad this year.
“What we see happening is that people are changing their preferences because of higher prices. Some people who would have preferred to buy a Prado, for example, may decide to import a Nissan X-Trail,” the lobby’s secretary general Charles Munyori told the Business Daily in a recent interview.
“For importers, if you are bringing in 10 Harriers, you may cut it to seven because of the high costs.”
