New Car Purchases Drop 6.1% Due to Tough Economic Conditions

(Nairobi) – New car sales in Kenya have experienced a 6.1% decline through the first 10 months of 2024, indicating a challenging environment for the automotive sector. Between January and October, dealers sold 9,093 new vehicles, a drop of 591 units compared to the same period last year, according to data from the Kenya Motor Industry Association (KMIA). In October, 936 new cars were sold, compared to 969 in October 2023, reflecting a continued downward trend.

This decline in sales comes at a time when many buyers are turning to more affordable used cars, in part due to rising costs linked to high interest rates. In the first half of the year, the Central Bank of Kenya (CBK) increased its benchmark lending rate to 13%, resulting in an average commercial bank lending rate of 16.85% in June 2024, up from 14.64% in December 2023. These higher interest rates have increased borrowing costs for both businesses and households, limiting the ability of many to purchase new cars. The reduction in sales also comes amid a period of high taxes, with many consumers feeling financial pressure from shrinking paychecks.

Despite the overall market decline, Isuzu East Africa maintained its lead in the market, capturing a 47% share of total new car sales by selling 4,245 units in the 10-month period. CFAO Motors Kenya, formerly known as Toyota Kenya and now merged with DT Dobie, secured second place with 3,036 units sold, representing 33.3% of the market share. Other notable players included Simba Corp, which sold 861 units, and Tata, which sold 336 units, accounting for 9.5% and 3.7% of the market, respectively.

The decline in new car sales has been a trend for three consecutive years, with interest rates reaching as high as 25% for car financing. According to Isuzu’s Managing Director, Rita Kavashe, the reduction in new car purchases can be partly attributed to the government’s slower procurement of vehicles, which is a key source of demand in the sector.

Kavashe explained that while interest rates have begun to ease slightly, remaining at around 18%, the high cost of financing continues to make it difficult for customers to afford new cars. Furthermore, the delay in payments for contractors and suppliers in the construction sector has further constrained cash flow, limiting the procurement of new project vehicles. However, Kavashe noted that the construction sector is starting to show signs of recovery, with increasing demand for raw materials such as sand and cement.

Isuzu had hoped that a decline in import costs, brought on by a stronger Kenyan shilling against the US dollar, would ease the financial pressures in the car market. The Kenyan shilling, which had depreciated to around 160 per US dollar late last year, is currently averaging around 129 shillings to the dollar. Despite this, the price of new vehicles remains high, contributing to the preference for used imports, which are generally more affordable.

Between January and October, trucks were the most popular category of new vehicle sold in Kenya, with 3,148 units sold. This was followed by 2,525 pickups, both double and single cabin, and 1,503 buses, which serve various sectors including transport, agriculture, construction, and retail. These sectors, however, have also been facing financial challenges, with the ratio of non-performing loans (NPLs) increasing to 16.7% in August 2024, up from 16.3% in June. This increase in NPLs has been particularly evident in the transport and communication, trade, real estate, and manufacturing sectors.

Despite these challenges, the demand for second-hand imports remains strong. These vehicles, while subject to heavy taxation, are still more affordable than new cars. For example, some used cars are priced as low as KSh 800,000 (approximately USD 5,600), while new cars typically start above KSh 2.5 million (approximately USD 17,500). According to the Car Importers Association of Kenya (CIAK), locally assembled vehicles are often priced more than KSh 600,000 (approximately USD 4,200) higher than their imported counterparts.

In summary, the Kenyan automotive market continues to face significant hurdles as rising interest rates, high taxes, and reduced government procurement contribute to a decline in new car sales. While some market segments, particularly in construction and transport, show signs of recovery, the preference for used vehicles remains a significant factor in the overall market slowdown.