Audit of State vehicle leases stirs anxiety

Cars

The National Treasury has moved to audit the impact of a lucrative multi-billion-shilling vehicle leasing scheme.

Photo credit: Shutterstock

What you need to know:

  • At stake is Sh20 billion, which has so far been spent over the last seven years on the initiative.
  • Players not sure what review will portend for the industry going forward.


 

Anxiety has gripped car dealers and financial institutions as the National Treasury moves to audit the impact of a lucrative multi-billion-shilling vehicle leasing scheme in, which Sh20 billion has been spent over seven years to hire new automobile fleets for police officers and other civil servants.

The government wants to review whether the programme launched nearly a decade ago has met its goals.

“Cognisant of the fact that the government leasing programme is currently in the seventh phase of its implementation, the National Treasury seeks to engage the services of a consulting firm to undertake a rigorous impact assessment of its interventions to date,” the National Treasury said in a bid call seen by Smart Business.

“The assessment will provide in-depth dimensions on the programme’s design, implementation, and results accomplished against the intended outcomes. This assessment will locate itself within the context of government transport policy (draft) that seeks to address inherent weaknesses in the management of the government fleet,” it added noting that the assessment should be detailed with emphasis on evidence on results, lessons, and future opportunities and weaknesses.

The vehicle-leasing programme was officially launched in 2013 and has taken root across the country, serving departments, especially in the security sector where a total of 4,660 vehicles have been rented to date.

Under the scheme, the government has hired cars dealerships including CMC Motors Group Limited, Toyota Kenya Ltd, DT Dobie &Co. Ltd, Simba Corporation Ltd, Isuzu EA Limited, Ecta Kenya (Subaru) Ltd, Crown Motors Group Ltd (Nissan) and Urysia Ltd (Peugeot) for three years before trading them in for newer ones.

Under a trade-in deal, an owner surrenders a used car to a dealer and selects another, and after the two units are assessed, a barter price is agreed on.

The cars would then be resold as second-hand vehicles in the local market to help reduce demand for imports saving on forex and boosting the local industry.

The leasing programme was set up to provide cheaper vehicles to enhance delivery of services, unlock resources of critical public service and the disciplined services while providing efficient and cost-effective official transport to extension workers who have field operations including the police and security personnel as well as ambulances for medical emergencies.

Kenya hoped to stimulate growth of the local motor vehicle assembly industry, generate linkages to local industry and spur the development of the leasing industry, which in turn promotes growth of the local financial sector.

It would also help to establish Kenya as a source vehicle market for the wider Eastern African Region by encouraging vehicle assembly, boosting the secondary market of vehicles coming off lease, and helping reduce importation of second-hand cars, thereby cushioning the country’s foreign reserves; and generate additional employment opportunities for Kenyans while offering cost-effective official government transport.

Now Treasury wants to hire a consultant to see if they have attained these objectives amid a steady rise in importation of used vehicles.

The latest data by the Kenya National Bureau of Statistics shows the number of motor vehicles landed rose by 24.9 percent from 101,220 units in 2020 to 126,415 units in 2021.

Major car dealers that have benefited from the programme will be keeping a close eye on the audit, hoping that the review does not yield radical changes that could affect the scheme.

Police vehicles

Some of the over 1,000 leased police vehicles at Uhuru Park that were flagged off by President Uhuru Kenyatta on November 7, 2013. 

Photo credit: File | Nation Media Group

“If the programme were to be terminated it will heavily affect the local manufacturers since the government is the biggest buyer in the country. It will affect the number of units sold if they return to buying vehicles since they can only buy a few units at a time than the current model where you only need 30 percent of the capital to hire the vehicles so they take up more units,” Rita Kaveshe, managing director, Isuzu East Africa told Smart Business.

“We have built an entire industry based on car leasing that spans banking, insurance, SME’s garages in small towns, fleet management as well as a second-hand market,” she added.

Vehicle dealers say the programme has upgraded the government’s fleet of vehicles allowing the Treasury to acquire newer fleet at affordable costs very quickly enhancing security and service delivery to wananchi.

The Isuzu boss said the programme led to an increase in the local production of new cars and linkages with distribution networks to serve security officials in all parts of the country.

Ms Kaveshe said the government insisted that the vehicles in the pool be assembled locally, which has seen the car dealers enhance their capacity and spread their network/service centres across the country.

Since all pick-up trucks used to be imported from Thailand, Japan, and South Africa, the programme created new job opportunities as companies set up local assembly lines to deliver the units.

Local production has also come with auxiliary industries such as small businesses making upholstery, spare parts, and other small parts along the value chain.

The firms have also set up telematics for fleet management, hiring youth, and driving innovation around monitoring the use of the vehicles and ensuring they are serviced on time.

Treasury also required police cars are not serviced more than 50 kilometres from their stations, which meant dealers had to partner with local garages and train them to operate service stations in remote areas.

The firms also created linkages across the sector with the leasing partners consolidating and collaborating in bidding for the tenders, insurance, and banking.

Ms Kaveshe said the programme has created a new leasing industry where car dealers are now targeting other buyers including the matatu industry and small companies offering partnerships that would see them hire vehicles at lower costs releasing cash flow to the business.

“Overall the programme has been a huge success. Other customers are getting interested in the leasing product and we are seeing this industry expand to matatus and small companies,” Ms Kaveshe said.

She said the programme can be improved especially the bidding process, which sometimes takes up to a year and can be affected by unforeseeable shocks such as the Covid-19 pandemic and supply chain disruptions.

The Isuzu boss said delays in processing payments by the National Treasury have resulted in extra expenses as dealers turn to bank loans to finance the initiative.

“Payment delays are a huge problem which they should be able to look at. Sometimes you are not paid for up to six months and you have taken a bank loan to finance the programme. The tender process also takes a long time, evaluation for a whole year should be reduced,” she said.

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