Car dealers change tack over rise in import duty

Car dealers have turned to strategies such as vehicle-import-financing to boost sales due to the rise in import duty.

The tax was raised from 20 per cent to 43 per cent in February.

As a result, car sales fell 1.9 per cent in the first quarter of this year, according to the latest Kenya Motors Industry report.

Due to this, car dealers such as Maridady Motors — which sales new and used vehicles and is located on Kiambu Road — have changed marketing tactics to offer clients vehicle-import-financing.

Maridady Motors gets financing from a bank on behalf of clients and imports vehicles for them.

“Given that market prices of popular vehicle models are common knowledge, we use the average of the value of vehicles that we already have in our showroom.

“If a client wants to import a 2012 Nissan X-Trail which goes for about Sh1.85 million but does not have enough money, we issue an import quotation for the amount detailing specifications of the car to be imported to secure a bank loan.

“Upon getting an approval, our partners in Japan will, on strength of the bank’s offer, ship the vehicle to us. Once it arrives at Mombasa port we handle the clearing, get the car registered and use the logbook to secure the client’s loan,” said Sir Eric Ngigi, CEO, Maridady Motors.

Besides asset financing, the car dealer has also introduced the lay-by model. This targets customers who are more inclined to saving for products rather than taking loans to finance the same. In this model, clients sign a contract to save money with the company for a period of between six months and a year to buy a car.

Usually, the customer makes an initial deposit of about 10 per cent of the value of the vehicle, the client decides on how much to pay in instalments so as to complete payment for the car within the stipulated period.

“There are cases where we consider shorter or longer periods. We limit the payments to one year because taxes keep changing, so we do not want a situation where we agree on three years and tax increments affect the landing cost of the vehicle.

“Some clients ask for one and a half years and we look at the type of vehicle they want and if it is not frequently affected by taxes, we consider the request,” said Mr Ngigi. Maridady Motors has also introduced a product called “import to sell”.

This product targets individuals and groups that have idle capital and would like to make money from the same.

In this model, Maridady Motors utilises the idle capital to import vehicles, sell them and pay the partner 10 per cent profit for each vehicle sold.

The import and selling cycle usually takes four months, so the partner can earn up to 30 per cent return on investment per year.

Ineax Motors, located in Kilimani, Nairobi, plans to introduce in-house financing to enable customers get car loans from the company. The dealer has seen a decrease in sales of the Honda Fit model, which was popular with Uber drivers, due to the increase in price from Sh650,000 to Sh850,000.

“We are still working on how to implement the model. Banks have put in place mechanisms of finding out who is credit worthy, who is not and ways to reclaim their assets in case of non payments.

“The introduction of in-house financing is influenced by the increase in import duty which is passed down to customers. Last year, the Honda Fit 2010 model was one of our best-selling vehicles; in November we sold 15 of them.

“But now we have three in our yard that have not been sold since January because of the Sh200,000 price increase,” said George Ochieng, CEO of Ineax Motors.

Kensville Motors, dealers in UK and Japanese cars located in Westlands, Nairobi, has seen a decrease in high-end car imports such as the Range Rover.

The dealer has taken to marketing Japanese cars such as the Passat on its website because they are cheaper.

“We have noticed a decrease in imports, especially of high-end cars,” said Kenneth Njagi, CEO of Kensville Motors.

The firm sold about eight Range Rover Sports cars last year but has only sold two this year.

- African Laughter