advertisement
Corporate

GM steers EA wheel to ride rough Kenya patch

GM managing director Bill Lay. Photo/FILE
GM managing director Bill Lay. Photo/FILE 

Motor dealer General Motors East Africa is set to deepen its entry into the regional markets as it races to cushion its earnings from the sluggish Kenyan market.

The Kenyan market is yet to recover from the slow down that started in 2008 following a slowdown in the local economy that is keeping potential customers mainly Government and corporate firms out of showrooms.

Though the Kenyan economy has been on recovery mode this year on good weather, increased supply of credit and optimism among business leaders, motor dealers are yet to see growth despite the rest of corporate Kenya announcing.

Now, General Motor East Africa is scouring for new markets in Tanzania, Burundi, Rwanda and Uganda to offset the flat Kenyan market.

In the six months to June, the motor dealers in Kenya sold 5,145 units, representing a four per cent drop and clear signal that the industry would take longer before its returns to the 2008 peak.

advertisement

The industry sold 13, 015 units in 2008 and 10, 264 units last year.

“We are optimistic, and this sale to Burundi is a great opportunity for us and are looking for similar orders in the region,” Mr Bill Lay, the CEO of GMEA said on Monday as he delivered the first batch of 50 Isuzu buses to the government of Burundi.

GMEA won an international tender by the Japanese International Corporation Agency (JICA) to supply 50 buses to Burundi aimed at revamping its public transport system.

The Eastern Africa market is becoming important for Kenyan firms looking for virgin markets particularly after the formation of the common market in June 1 — which allows for free movement of goods and services in a market of 126 million persons.

For, GMEA, however, it only allowed for the free passage of 34 models assembled in the country under the common market exports rules.

The community’s rules of origin were crafted to ensure that only goods wholly produced or substantially transformed within the region enjoy the tariff-free trade regime.

The Isuzu brand is the company’s cash cow with the single cabin pick ups being the fastest selling units for the company followed by buses, especially large busses with over 40 seats.

As a result, GMEA is targeting the regions public transports sector, agriculture sector and infrastructure development where regional governments and donor community has pumped in hundreds of millions of dollars.

In Kenya, the government is faced with a tight national budget while cost cutting and restructuring remains the popular strategy in corporate Kenya in the race to grow and defined profit margins.

This belt-tightening means fewer car sales and thus reduced earnings power, fewer jobs and lower dividends in the auto business.

In the saloon market, the established auto dealers continue to face intense competition from imported second hand vehicles, mainly from Japan and United Arab Emirates, with the imports now accounting for about 70 per cent of the market.

Most individuals have opted for the second hand versions egged on by the lower pricing with the saloon class accounting for a huge fraction of the 70 per cent.

As a result, the local motor dealers such as Toyota East Africa, Simba Colt, CMC Motors and DT Dobie have been battling for control of shrinking market, setting the stage for a price war that has furthered diminished the earnings of the dealers.

This market battle is set to move to the region as rival CMC Motor has unveiled similar plans with Tanzania and Uganda its key targets to grow its dwindling earnings.

CMC’s net profit for the six months to March 2010 dropped to Sh433 million compared to Sh631 million in the same period a year earlier.

In 2009, GMEA was second in market rankings with 20 per cent market share behind Toyota East Africa at 23.7 per cent.

Simba Colt was third at 18.3 per cent followed by DT Dobie at 14.3 per cent.

advertisement