New car sales hit record high on rising demand

Rising demand for luxury cars and increased orders for commercial vehicles pushed new motor vehicles sales to a record high last year, reflecting wealthy Kenyans’ growing penchant for high-end goods and vibrant economic activity.

Data from the Kenya Motor Industry Association (KMI) shows that new vehicle dealers sold 17,499 units in 2014, marking a new high since the liberalisation of the local motor trade in the 1990s that allowed for import of used cars.

The number of units sold last year is 20.3 per cent more than the previous peak of 14,542 units recorded in 2013.

Dealers in luxury cars such as Porsche, Mercedes, BMW and Ranger Rover recorded the highest jump in sales at 58.4 per cent to move 393 units last year, also marking a new record of high-end auto sales.

“The new motor vehicle market did exceptionally well last year due to demand from the expanding middle class and businesses in multiple economic sectors like construction that are growing fast,” said Rita Kavashe, the CEO of General Motors East Africa (GMEA).

The high demand for luxury cars, whose prices can top Sh20 million, has been linked to increased spending among the country’s super rich and upper middle class buyers.

The makers of Porsche opened the Nairobi office in May last year to tap a growing demand.

They spent over Sh1.8 billion on 125 units of the brand last year, paying an average price of Sh15 million for the high performance cars that previously did not have a local dealer.

“We are selling to rich people and the middle class with large salaries,” a Porsche official told the Business Daily.

The orders saw the dealer emerge with the largest share of 32 per cent in the luxury market, relegating the hitherto dominant DT Dobie to second place with a 27 per cent.

Dealers say the rising demand from wealthy individuals and private companies has more than compensated for the government ban on luxury cars in the public sector, which, however, also continues to be flouted.

Sales of the high-end cars had slumped from their peak in 2009 when the government — previously accounting for more than a quarter of orders — introduced a policy in favour of lower-maintenance makes, including Volkswagen.

READ: Porsche pulls ahead of Mercedes in Kenya sales

The 393 units sold last year, however, mark a strong recovery, having outpaced the 2009 sales of 218 units by a large margin.

A recent global survey of the wealthy found that Nairobi has 5,000 dollar millionaires, with their number expected to reach 8,100 by 2020.

The finding of the report prepared by New World Wealth comes at a time when a fresh assessment of the economy placed Kenya among middle-income economies after fully accounting for the increased contribution by sectors such as ICT and real estate.

This reflects the rising consumer spend, including purchase of luxury cars, as disposable incomes pile up from capital and labour earnings.

The larger spending power is expected to see businesses and households reduce their current preference for second-hand motor vehicles in the coming years.

The loosening of import restrictions in the 1990s has seen sales of used motor vehicles surge to account for about 80 per cent of all unit sales, riding on their relatively low prices to attract bargain hunters.

Sales of the second-hand imports stood at 57,230 units in the nine months to September 2014 compared to 13,060 new units sales in the same period.

Used imports have been popular among middle class professionals and small businesses, the main importers of second-hand cars and trucks from Japan, Europe and Asia.

Besides orders from individuals, new auto dealers recorded a strong demand from businesses expanding their operations in various economic sectors that are recording fast growth.

“There is significant demand from sectors like construction and government-funded infrastructure projects including the standard gauge railway,” Ms Kavashe said.

Such demand saw sales of commercial vehicles, including trucks, buses, and pick-ups, rise 19 per cent to top 14,000 last year. The economy grew by 5.5 per cent in the third quarter, with all sectors expanding in the period save for the troubled tourism industry.

Construction expanded by the largest margin at 11 per cent, improving on the 8.6 per cent growth the year before.

“The sector’s resilience has been on account of sustained development of the real estate by the private sector and infrastructure development by the public sector,” the Kenya National Bureau of Statistics said in a statement.

The auto dealers noted that a stable macroeconomic environment also helped boost their sales last year.

READ: Demand for luxury cars soars in Kenya.

Ms Kavashe said that banks — which finance most motor vehicle purchases — offered their customers loans at a rate of between 13 per cent and 15 per cent.

The tenure of the average loan was also extended to between four and five years from the typical three years, attracting more borrowers with a relatively lighter monthly repayment burden.

The sales growth saw GMEA maintain its position as the country’s largest overall dealer with a 29 per cent market share, followed by Toyota with 27 per cent.

Toyota and GMEA benefited from their strong presence in the commercial motor vehicle segment with their respective brands of trucks, pick-ups, and buses.

Besides the dealers, the taxman was the largest beneficiary of the increased demand for motor vehicles. The Kenya Revenue Authority earns billions of shillings of import duty and corporate taxes from the industry.