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Economy

Used car prices plunge as corona cuts demand

Dealers in used cars have been forced to cut prices by up to 15 percent in response to depressed demand in an economy reeling from the effects of the Covid-19 pandemic.
Dealers in used cars have been forced to cut prices by up to 15 percent in response to depressed demand in an economy reeling from the effects of the Covid-19 pandemic. FILE PHOTO | NMG 

Dealers in used cars have been forced to cut prices by up to 15 percent in response to depressed demand in an economy reeling from the effects of the Covid-19 pandemic.

Mazda Demio, Toyota Fielder, Toyota V8 and Subaru Outback are among the popular models whose yard prices have dropped by a range of between Sh100,000 to Sh1.2 million since the country recorded its first confirmed case of the coronavirus on March 12.

Dealers say they have been forced to cut prices to clear stocks in a market where the more a car remains unsold the more it loses value, partly due to a greater preference for the latest number plates.

Small business owners and professionals are the main buyers of second-hand cars and most of them have seen their incomes fall significantly from a mix of layoffs, unpaid leave, salary cuts and collapse of activity in various sectors.

Distressed sales of cars seized by banks and auctioneers have also served to expand supply in the market, further putting downward pressure on prices.

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“People (dealers) have been forced to throw them away and there is no money flowing in the economy. Demand is not there. Dealers are stuck with the old stock from last year,” said Charles Munyori, the secretary-general of Kenya Auto Bazaar Association, which represents used car dealers.

Dealers make profits as low as Sh100,000 on some models, meaning that they risk having to merely break even or suffer losses in these crisis times.

Mr Munyori said that dealers will struggle to make sales up to the end of the year even after the State relaxed the Covid-19 restrictions and allowed a phased re-opening of the economy.

“The year is basically written off. We expect things to start picking up from the end of the first quarter next year,” Mr Munyori added.

Motor vehicle registration data shows that sales of saloon cars such as Toyota Corolla fell the most at 46.5 percent to 2,256 units in the five months ended May from 4,219 units a year earlier. Sales of station wagons like Subaru Outback also dropped 36.4 percent to 18,934 units from 29,772 units.

Overall registration of cars, including pick-ups, mini buses, lorries, trailers and buses, fell 36.5 percent to 27,250 units in the five months to May.

Dealers had earlier anticipated a rally in car prices from supply chain disruptions brought by the pandemic.

But the economic fallout from the virus has proven to be the larger factor, sapping demand and pulling down prices for existing stocks and new arrivals.

The price of the 2013 model of Toyota V8 -- a large SUV popular with entrepreneurs and government officials -- has dropped the most to Sh8 million from Sh9.2 million pre-coronavirus.

A Subaru Outback station wagon manufactured in 2014 can now be bought at Sh2.3 million, down from Sh2.5 million.

The price of a 2013 Toyota Premio has dropped by a similar margin to retail at Sh1.6 million from Sh1.8 million.

A Mazda Demio manufactured in 2013 can now be bought for Sh550,000, down from the previous Sh650,000.

The small hatchback is popular among drivers allied with fast-growing ride-hailing services such as Uber and Bolt, raising its sales in recent years.

While the government has eased some of the restrictions aimed at combating the pandemic, including allowing international travel and re-opening of restaurants, the economic fallout is expected to persist for the rest of the year or even beyond.

Banks, whose performance is seen as a measure of the economic pulse, have reported reduced transactions and rising loan defaults, warning that the trend continues unabated.

Stung by lower prices and depressed demand, second-hand car dealers are responding by reducing their imports from overseas markets such as Japan.

“People are importing fewer cars unlike other years due to the panic caused by coronavirus,” Mr Munyori said, noting that dealers would normally enjoy brisk business from April.

Total passenger car registrations dropped 37.6 percent to 21,190 units in the five months ended May compared to 33,991 units the year before.

New luxury cars have, however, bucked the sales slump trend as rich households and private firms raised their spending amid the general economic turmoil.

Formal dealers such as DT Dobie said orders for new high-end cars jumped 14.5 percent in the half year ended June to 79 units from 69 units a year earlier. The trend demonstrates that high-net-worth individuals and profitable companies have significant cash buffers and can maintain or raise their spending even during economic downturns.

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