Industry

Wealthy Kenyans defy Covid to lift BMW, Mercedes sales

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Summary

  • Data from the Kenya Motor Vehicle Industry Association (KMI) shows that Mercedes and BMW drove the rise in orders for high-end cars to 79 units in the review period compared to 69 units a year earlier.
  • This made luxury car sales outpace the entire new vehicle market that saw orders fall 26.4 percent to 4,628 units from 6,294 units.
  • The performance shows that rich households and some private companies increased their spending at a time when most businesses and workers suffered major income declines from the measures imposed to curb the spread of the coronavirus.

The rich have defied the coronavirus economic hardships to increase orders for luxury cars like Mercedes-Benz and BMW by 14.5 percent in the six months to June.

Data from the Kenya Motor Vehicle Industry Association (KMI) shows that Mercedes and BMW drove the rise in orders for high-end cars to 79 units in the review period compared to 69 units a year earlier.

This made luxury car sales outpace the entire new vehicle market that saw orders fall 26.4 percent to 4,628 units from 6,294 units.

The performance shows that rich households and some private companies increased their spending at a time when most businesses and workers suffered major income declines from the measures imposed to curb the spread of the coronavirus.

The country announced its first case of the virus on March 13, setting off a panic and plunge in demand in the wake of containment measures such as night curfew that led to job cuts and unpaid leave.

The government expects economic growth to drop to below 2.5 per cent this year, down from a pre-pandemic forecast of more than six per cent.

But spending on luxury cars has defied the general slowdown in economic activity in the first half.

Prices of most new luxury cars range from Sh6 million to Sh20 million, with a few models crossing the Sh30 million mark.

Orders for Mercedes cars were the strongest in the six-month period, rising to 37 from 24 while those for BMW models rose to 14 from three.

There were no Jaguar sales in the review period, compared to seven the year before.

Land Rover sales, including Range Rovers, dropped to 18 from 22 while orders for Bentleys fell to one from three. Porsche sales also declined to nine from 10.

The trend demonstrates that high-net-worth individuals and profitable companies have significant cash buffers and can maintain or raise their spending amid economic turmoil.

While the luxury car segment thrived, the rest of the market, including the mainstay commercial vehicles, declined in response to the fall in economic activity.

“The year 2020 started well, as the industry built on the momentum from 2019. However, there was a drastic drop from March to May due to the Covid-19 effect on the economy,” Arvinder Reel, the managing director of Toyota Kenya, said in a recent interview.

The travel restrictions and closure of schools had a particularly sapping impact on commercial vehicle sales.

“Overall, sales of commercial vehicles (pickups, 14-seater minibuses, trucks and buses) contributes 50 per cent of total new vehicles market,” Mr Reel said.

“Unfortunately, this is the segment that has been the most affected due to the restriction of travel/movement and lockdowns of the major towns.”

The travel restrictions, which were eased on July 7, had hurt earnings of cargo transporters and public service operators and left them with excess capacity, reducing their need to expand their fleets.

Average monthly sales in the first half of the year dropped to 771 units compared to 1,049 units a year earlier.

Sales fell to their lowest at 568 units in May and then rose to 762 units last month, with dealers hoping that the upward trend can be maintained if the economy remains open.

“We are optimistic that this positive trend will continue as the national government puts in place guidelines that will help in re-opening the economy,” Mr Reel said.

A sales rebound will be critical in avoiding job losses in the industry and lower revenue for the taxman.

The Kenya Revenue Authority collects billions of shillings from motor vehicle sales through a plethora of taxes.

As part of its stimulus spending to counter the economic fallout from the pandemic, the government said it would buy locally assembled vehicles worth Sh600 million.