Local production and advertising will drive auto sector

Last week Toyota announced that the government is considering a new policy that aims to revive local production in the automotive sector.

The good news is that they are doing this in full consultation with the industry’s captains.

Toyota Kenya’s chairman Dennis Awori said that the resulting policy has to make commercial sense in order to encourage car manufacturers to set up local production facilities that will provide jobs and support a local content industry that has been ailing for a long time.

We get the sense that establishing a progressive policy is an uphill task because of the circumstances the automotive industry in Kenya finds itself in.

Brand new vehicles account for approximately 10 per cent of total sales, and they have a slower annual growth rate than the second hand, or mitumba vehicle sales.

To say that the mitumba market has exploded would be an understatement, and it has happened despite the government’s initiative to reduce the age limit of imported used vehicles.

Culture also seems to support the mitumba industry because a majority of car buyers have never set foot in a brand new car showroom, let alone ever considered buying one.

The international automotive industry paints a different picture though. Ninety-five million vehicles were produced in 2016 with Toyota, Volkswagen, Hyundai/Kia and GM being the top manufacturers. Toyota Corolla remains the top selling car brand and their Korean counterpart Hyundai Elantra comes in second place according to Forbes.

Global automotive production grew by 4.5 per cent in 2016 and this was supported by USD 470 billion in advertising, placing the sector at the top of the worldwide advertising expenditure ranking.

Toyota, the largest manufacturer for years, is getting fierce competition from Volkswagen who are intent on being number one and have this as a central part of their ‘2018 strategy’. Although that focus has led to some negative outcomes, including the ‘dieselgate’ scandal and the demise of CEO Winterkorn, it has also placed them at the pinnacle of vehicle sales — Volkswagen achieved 10.3 million deliveries making them the top manufacturer in 2016.

They supported their ambitions with heavy advertising campaigns, worth $6.6 billion in 2015, making them the top advertiser in the category. Toyota focused on chasing volume. “Our goal is to be No. 1 with consumers by engineering and producing ever-better cars,” says Kayo Doi, Toyota’s spokesperson.

Advertising is even more important in this market because the car companies need to grow the new car sales sub-category by convincing the majority of customers who buy used vehicles but can afford brand-new.

At Toyota’s event last week, a customer asked if Toyota Kenya could reconfigure the in-car entertainment and information interfaces that are in the Japanese language which are pre-installed in used cars.

Rather than reconfigure the drivers, it is the entire industry that needs reconfiguration and we hope that the government’s initiative to encourage local production will bear fruit.