Inflation, Interest Rates Hit Luxury Vehicle Sales in Kenya

Due to the rising cost of borrowing brought on by the Central Bank’s tightening of monetary policy and the high rate of inflation, Kenyans have less money to spend on luxury cars.

This is demonstrated by market statistics, which show a decline of 65.5% in luxury vehicle brand sales in the first quarter of 2023, including brands like BMW and Mercedes-Benz.

According to market statistics, sales of luxury automobile manufacturers, such as BMW and Mercedes-Benz, decreased by 65.5% in the first quarter of 2023.

The KMIA is the leading-edge business federation in Kenya’s regulated automotive industry, representing distributors of all the main car brands, vehicle assemblers, component producers, equipment agents, parts suppliers, and other ancillary services.

Low order demands were negatively impacted by elements including high vehicle prices and rising borrowing rates between January and March 2023.

“Sales in the entire formal vehicle industry dropped 13.9 percent to 2,758 units in the review period,” Kenya Motor Industry Association said in a statement.

The decline in auto sales coincides with the shilling’s depreciation against the US dollar and the Central Bank of Kenya’s decision to raise interest rates, which have increased the cost of borrowing money.

The weakening of the shilling and the lack of dollars have been two issues the auto industry has encountered, and as a result, dealers have had to boost prices.

While DT Dobie sold three Mercedes Benz, down from eleven previously, orders for BMWs and Range Rovers fell to two and one, respectively, from ten and six.

Dealers only managed to sell 2,758 vehicles, a 13.9 percent decrease from the prior quarter, reflecting a loss in the overall number of vehicles sold during the time period.

Since bank loans account for the majority of locally purchased cars, the tightening of monetary policies directly affected sales.

With only Land Rover sales growing from two to four units, high-end car vendors, whose prices can reach Sh30 million, did worse in the first quarter than the whole new vehicle market.

In the previous quarter, the dealers, which included Isuzu East Africa, Simba Corp, and Toyota East Africa, had sold 3,203 cars.

The largest decline in sales among the top dealers was experienced by Simba Corp, whose brands include Proton and Mitsubishi, decreasing by 26.8% to 248.

Isuzu’s orders decreased by 3.3% to 1,174.

The sales of Hino and Toyota brands are handled by CFAO Motors (previously Toyota Kenya), which broke the trend by raising sales by 2.9% to 793 units.

Dealers nationwide sold a total of 13,352 units in 2018, down from 14,250 in 2021.

The year 2015 saw the largest sale with a total of 19,253 units sold.

This represents only 15% of yearly used-car imports, which Kenyans continue to favor mostly because they are more affordable than brand-new vehicles with absolutely no mileage.

13,352 units were sold by dealers countrywide in 2018, down from 14,250 in 2021.

The greatest sale occurred in 2015 when a total of 19,253 units were sold.

This barely accounts for 15% of yearly used-car imports, which Kenyans continue to prefer mostly because they are less expensive than completely new cars with no mileage.

Kenya imports more than 120,000 secondhand cars per year, accounting for more than 80% of the vehicles on its roads.

The Kenya Kwanza administration recently announced a change in policy that will soon allow people and second-hand car dealers to ship in vehicles and postpone paying taxes for up to a year.

Dealers would be permitted to import units and have them parked at KRA customs-controlled locations for up to six months without paying taxes while they look for purchasers.

The Kenya Revenue Authority has been asked to permit the use of bonded warehouses for imported secondhand automobiles.