New car sales fall 13.5pc on costly loans, taxes

A Mercedes-Benz GLE at a CFAO showroom.

Photo credit: File | Nation Media Group

Demand for new vehicles fell 13.51 percent in the first five months of the year, on the back of the elevated cost of loans and taxes.

New vehicle assemblers and dealers sold 4,154 units in the review period, according to fresh industry data, compared with 4,803 units in the same period of last year.

The pace of sales drop has slightly increased compared with last year when orders declined 13.51 percent from 5,526 units in the January-May period of 2022, data tracked by the Kenya Motor Industry Association (KMI) shows.

The data shows that a fall in demand was witnessed across three new motor vehicle assemblers and dealers, which control about 90 percent of volumes.

Market leader Isuzu East Africa has reported a drop of 8.31 percent to 2,008 units from 2,190 vehicles in the corresponding period the year before.

However, Isuzu— which deals in pick-ups, buses, trucks, and sport utility vehicles (SUVs) — raised its share to 48.34 percent from 45.60 percent the year before after sales fell at a slower pace than the industry.

CFAO, which sells multiple brands such as Toyota, Mercedes, Volkswagen, and Hino under one roof following last year’s merger of Toyota Kenya and DT Dobie operations in May last year, posted a sharper fall of 16.12 percent to 1, 332 units from 1,588 units in the prior year.

The larger drop in sales trimmed CFAO Kenya’s share of the market to 32.07 percent from 33.06 percent previously.

Simba Corp, which holds multiple franchises including Mitsubishi and Proton brands, raised its share of the market marginally to 10.13 percent from 9.60 percent a year ago.

This was after Simba Corp processed orders for 421 vehicles against 461 units a year earlier.

The general drop in demand for new cars has come in a period when households and businesses are battling increased cost of borrowing which has hit their plans to acquire new vehicles.

Banks are charging as much as 25 percent interest for financing the purchase of cars, according to dealers.

The cost of credit has generally remained high after the CBK’s Monetary Policy Committee raised its benchmark interest rate by six percentage points to 13 percent since May 2022 to counter a recent wave of inflationary pressure.

Increasing the central bank rate makes borrowing to fund the purchase of goods and services more expensive as banks use it as a base on which they load their margins and risk profile of individual borrowers when pricing loans.

The elevated interest rates have priced out buyers from the automobile market amidst high taxation, depressing local demand for new cars.

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