Kenya: Used car prices rise by 30% in 3 months

The used car market in Kenya has been facing significant challenges in recent months, with prices soaring by up to 30% due to a combination of factors including a weak shilling, scarcity of vehicles, and rising shipping costs. Vijay Gidoomal, Managing Director at Car & General, shed light on the grim economic impact on car purchases in the country during an interview with CNBC Africa. Gidoomal highlighted the sharp decline in second-hand car sales, which dropped from 74,000 in the previous year to around 15,000 from January to May this year. On the other hand, new car sales saw a slight increase, reflecting a shift towards formal sector purchases. However, overall sales have been down by 50% in the second-hand car market, signaling the prevailing economic challenges. The market has traditionally been dominated by Toyota, but recent price hikes have led to a minor shift towards brands like Nissan and Honda. While Toyota remains the favorite with an 80% share of the second-hand car market, Gidoomal noted that there has been a marginal movement towards other brands. In the new car sector, Toyota and Suzuki continue to lead the market, with Mitsubishi also holding a notable presence. Despite these shifts, the economic uncertainties have had a dampening effect on consumer purchasing power, with disposable incomes decreasing amidst price surges. Gidoomal emphasized the global factors contributing to the rise in second-hand car prices, such as the scarcity of semiconductors and increased input costs. These factors have led to a surge in demand for second-hand cars, resulting in supply shortages and elevated prices. Moreover, the local inflation rate of 7.9% in Kenya has added to the price pressure, further impacting consumer affordability. As a result, the demand for cars is expected to remain subdued in the consumer sector, which forms a significant portion of the market. Despite the challenges in the used car market, there is optimism in the local manufacturing sector. The Kenyan government's policies to promote local vehicle assembly have been well received, with expectations of double-digit sales growth for locally assembled vehicles. The proposed reduction in taxes on locally assembled vehicles, as well as potential incentives for locally manufactured parts, are seen as favorable moves that could bolster the industry. If implemented, these policies are likely to create a significant price advantage for locally assembled vehicles, stimulating demand and boosting the local economy. Gidoomal also discussed the tax regulations imposed on imported vehicles in Kenya, including a 25% import tax, excise duty ranging around 20%, and a 16% VAT. These tax rates, coupled with age limits on imported cars, have contributed to the high costs of second-hand cars in the market. The potential disparity between imported and locally assembled vehicles, in terms of duties and taxes, could further incentivize consumers to opt for locally manufactured cars, driving growth in the local automotive sector. In conclusion, the challenges facing Kenya's used car market underscore the broader economic uncertainties impacting consumer purchasing power and industry dynamics. While the sector grapples with price surges and supply shortages, the government's initiatives to promote local manufacturing offer a glimmer of hope for the industry's growth and resilience.