By Steve UMIDHA
The Kenyan auto industry just posted another slump in local sales, latest industry figures show.
The industry sold a total of 9,684 units in 10 months to October 2023, 1,361 units less than it managed in a similar period last year when the industry sold a total of 11,045 units.
The Kenya Motor Industry Association (KMIA) attributed the low retail sales numbers to a difficult year borne from the brunt of an uncertain economic environment, sending ripples through the auto sector, which has largely dodged a significant hit from inflation this year in comparison to other sectors.
Macroeconomic fallout
Macroeconomic indicators like the gross domestic product (GDP) – a monetary measure of the market value of all the final goods and services produced and sold in a specific time period, are statistics or data readings that reflect the economic circumstances of a country or sector.
They are used by analysts and governments to assess the current and future health of the economy and financial markets. Other factors like interest rates, unemployment rates, disposable income, and exchange rates ordinarily affect the growth and performance of the automotive industry.
And so, during a slump, auto sales typically fall, often significantly and many buyers tend to back out of the market until the economy recovers – a kin to the trend seen today.
Similar challenges have also been seen in prices of used vehicles or second-hand cars commonly known as ‘mitumba’ with popular brands like Vitz, and Subaru among other models all increasing prices by hundreds of thousands of shillings on scarcity and weakening the local currency.
Because Kenya’s oil and fuel importers use US dollars to buy fuel, the forex shortage has had a direct impact on the country’s fuel supplies, and by extension, the country’s supply chain. But it has also impacted essential imports such as medicine and food as well as car parts.
Kenyan consumers continue to choke from the ever-increasing tax increases as measures approved in the 2023 Finance Act a host of which kicked in July following its consent by President William Ruto in June, has added to the pain of inflation that has pushed up the cost of living to a five-year high.
The government’s policies and incentives can have a significant impact on new car sales. If the government promotes electric vehicles or offers tax incentives for fuel-efficient cars, it may influence purchasing decisions.
Online Marketplaces
In Kenya, the demand for used cars, particularly from countries like Japan, is high due to their affordability and reliability.
The growth of online marketplaces for used cars has made it easier for consumers to find and purchase second-hand vehicles, contributing to a shift away from new car sales.
Kenya has relatively high import taxes and duties on new cars, making them more expensive compared to used or imported second-hand cars.
Similarly, consumer preferences are evolving, and many people are more interested in the sharing economy (e.g., ride-sharing services like Uber) rather than owning a car.