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New vehicle sales fall 15pc on tough economy

Nissan Kenya Showroom in Nairobi on August 8, 2022. PHOTO | DENNIS ONSONGO | NMG

New motor vehicle dealers registered a 14.84 percent drop in sales last year when rising interest rates and weakening of the Kenya shilling made it more expensive for customers to make showroom purchases.

Data from the Kenya Motor Industry Association (KMIA) shows that the dealers, including Isuzu East Africa, CFAO Motors and Simba Corp, sold 11,370 units in the local market in the year ended December 2023.

This was down from 13,352 units sold the year before. The formal dealers battled one of the toughest business environments last year when the shilling depreciated by 21.19 percent against the US dollar.

Isuzu’s sales declined to 5,340 in the review period from 5,968 in 2022. The dealer, which sells its namesake commercial and sports utility vehicles, however, raised its market share to 46.96 percent from 44.7 percent.

This indicates that other companies registered a larger decline in sales. CFAO Motors saw its orders fall to 3,689 from 3,856 but also raised its market share to 32.44 percent from 28.9 percent.

CFAO now represents multiple brands, including Mercedes, Hino and Suzuki, after the merger of the former Toyota Kenya and DT Dobie.
Simba Corp saw its sales decline to 1,070 from 1,379, a move that resulted in its market share falling to 9.4 percent from 10.3 percent.

The dealer has multiple franchises such as Mitsubishi and Proton.

The latest decline in annual sales marks the industry’s struggle to reclaim the peak orders recorded in 2015 when they moved 19,253 units. Since then, sales have risen and dropped to range between 10,620 units (in 2017) and 14,250 units (in 2021).

Last year, the dealers grappled with the weakening of the local currency, which raised the prices of new vehicles that are imported in parts or fully built from overseas markets such as Japan, South Africa and Malaysia.

The shilling lost 21.19 percent against the dollar in the 12 months to December 2023 to close at 156.6 units to the greenback. The local currency recently staged a dramatic recovery that has seen it settle at 146 units against the dollar currently.

“The strengthening of the shilling is good for business,” said Wanjohi Kangangi, the sales and marketing director at Isuzu East Africa, adding that it will stabilise prices.

Rising interest rates on commercial bank loans have also made it more expensive for individuals and businesses to acquire vehicles. The rates have been rising steadily in line with a jump in returns on debt instruments, including fixed deposits.

Banks are now charging interest rates of up to 27 percent on their riskiest customers. Even large, established firms are also borrowing at rates above 17 percent, underlining the surge in the cost of borrowing.

Most new vehicle purchases are financed by banks, which previously charged a near-uniform rate of 13 percent before they started applying risk-based pricing of loans from late 2022.

The combination of a weaker shilling and higher interest rates has seen the cost of acquiring vehicles jump by up to millions of shillings depending on the model. Luxury cars and prime movers have seen some of the biggest jumps in price and financing costs. Besides the increased showroom prices, demand for new vehicles has been hurt by a generally tough business environment that has affected households’ purchasing power and corporate budgets.

The Finance Act 2023 expanded taxes on employees and businesses, with more similar measures expected this year. Employees, for instance, will in July start contributing 2.75 percent of their earnings towards the Social Health Insurance Fund.

The dealers are expanding the list of models they assemble locally in a bid to benefit from incentives, including exemption from the 35 percent import duty, giving them a price advantage. Vehicles shipped in fully built from overseas markets like Japan are charged an import duty of 35 percent, excise duty of 25-35 percent depending on engine size and VAT of 16 percent, payable cumulatively and in that order.