New vehicle sales fall 11.4pc on high cost of bank loans

Corporate News

Rita Kavashe, GMEA chief executive. PHOTO | FILE  

By VICTOR JUMA, vjuma@ke.nationmedia.com

In Summary

• New vehicle sales in Kenya stood at 3,807 units in the first quarter ended March compared to 4,301 units a year earlier.

New vehicle sales in Kenya dropped 11.4 per cent in the first quarter ended March, weighed down by higher interest rates.

Data from the Kenya Motor Industry Association (KMI) shows that sales in the period stood at 3,807 units compared to 4,301 units a year earlier.

The sales decline has hit several dealers including General Motors East Africa (GMEA), Toyota Kenya and CMC Holdings.

“The reduction in sales is primarily due to a jump in interest rates,” said Rita Kavashe, GMEA’s chief executive, noting that most buyers of new vehicles rely on bank financing.

Dealers surveyed by the Business Daily said banks charged interest rates of up to 24 per cent in the first three months of the year compared to 16 per cent a year earlier on shilling-denominated loans.

Interest on Euro and dollar loans also went up from an average of seven per cent to touch highs of 11 per cent in a similar period.

Besides the high interest rates, demand for new vehicles has been hit by the weakening of the shilling and more stringent credit policies by banks.

The local currency, for instance, depreciated nine per cent to trade at an average of 101 units to the dollar in the review period compared to 91 units the year before.

This has made new vehicles –which are priced in hard currencies— more expensive in shilling terms.

“We are also seeing banks tighten their lending policies. Approval time has been extended from 24 hours up to a week and repayment periods shortened,” said a dealer who did not wish to be named.

There has been an increase in auctions of vehicles seized from defaulting customers including commercial transporters, indicating rising risk that bankers are seeking to rein in with stricter credit appraisals.

Dealers add that reduced government spending has also hurt sales indirectly by slowing down operations of their corporate customers reliant on public sector contracts.

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Toyota recorded the largest sales drop of 183 units, moving 859 units in the first quarter compared to 1,042 units a year earlier. This saw its market share decline to 23 per cent from 24 per cent. It was followed by GMEA whose sales fell to 1,161 units from 1,297 units.

GMEA, however, maintained its market share at 30 per cent. CMC’s sales also dropped to 299 units from 371 units, cutting its market share to eight per cent from nine per cent.