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How vehicle leasing eases trade operations, can help create jobs

Vehicles packed at the Isuzu/General Motors (GM) parking yard along Mombasa road, Nairobi on February 22, 2021 [Elvis Ogina, Standard]

Transport and logistics as an integral part of commerce has evolved significantly over the last 20 years and indeed dramatically over the last decade.

The dynamics and demands of modern trade, finance and economics have accelerated unprecedented change in the transport industry, more specifically road transport. Access to an efficient and reliable means of transport for personnel and goods is critical to on-time and in-full delivery, which translates to revenue and satisfied customers.

The entry of internet-based cab hailing applications in 2010 caused a monumental disruption in the passenger transport sector, simplifying access to taxis for millions of people. This innovation opened up vast opportunities in the digital space, financial services, insurance and hospitality industry, among others. The key word here remains access to transport solutions. Data captured in 2019 indicates that road transport remains the most widely used means of mobility at 62 per cent.

The government’s Big Four agenda continues to make an impact in the community and has provided great opportunities to local assemblers for vehicle leasing. Focusing on infrastructure, affordable housing, healthcare and education, the Big Four Agenda has provided the local automotive industry opportunity to supply heavy commercial trucks, light trucks, buses and pick-ups to serve diverse transportation needs across the country.

Organisations that require transport as part of their routine operations know only too well the investment required in owning and maintaining a fleet of vehicles. The intricacies of maintenance, scheduling, servicing, replacement of parts, accident repairs, tracking performance and driver management can negatively impact the bottom line if not well managed.

That aside, the capital required for purchase of vehicles is always a major factor, given the cost.

However, leasing of vehicles and machinery has made it easy to access these assets. This developing trend spearheaded by financial services providers in close collaboration with vehicle assemblers is making acquisitions easier by eliminating the need for hefty deposits. The cash outlay as expected is likely to eat into working capital, not to mention the requirements for collateral and other forms of guarantees. Vehicle leasing in Kenya has changed the narrative on ownership and brought out immense advantages for fleet owners.

A lease is a contract where one party agrees to rent an asset owned by another party and guarantees regular payments over a specified period. In the case of vehicles, leasing provides attractive returns to the lessee, which include lower capital outlay spread out over several years, affordability, access to new vehicles and better financial planning as the lease expenses remain constant over the life of the vehicle.

Additional benefits include lifting the burden of vehicle management from the lessee, to focus on their core business. The partnership that has made leasing possible has a positive and direct benefit to the banking sector, insurance, vehicle assemblers and their suppliers. Leasing has contributed to growth in sales of locally assembled vehicles and creation of jobs in the sectors that support the assemblers.

Kenyan owned companies that make batteries, exhaust pipes, automotive paint, harnesses, seats, lubricants, tyres are already reaping the benefits due to the growing demand for locally assembled vehicles. In 2020, the automotive sector scored a rare first with the leasing of 100 buses for the PSV transport by Super Metro and Metro Trans saccos. The leasing of the Isuzu NQR 33 seater buses valued at Sh533 million was facilitated by Co-op Bank Fleet Africa Leasing Ltd. This is the largest fleet delivery in Kenya for the PSV sector.

In November of the same year, President Uhuru Kenyatta handed over 75 Isuzu D-max pickups leased by the government for the Ministry of Lands and Planning for the National Land Titling Programme, while in December 2021 Isuzu East Africa leased 80 Isuzu Mu-x vehicles to the National Police Service, [DM1] and 10 FVZ tipper trucks to the Laikipia County Government.

In 2021 all local vehicle assemblers in Kenya sold over 14,250 units, a 29 per cent increase compared to 2020 where 10,977 units were sold. Apart from enacting legislation encouraging local production, the government has been the largest player in the leasing programme.

Customers can opt for either a Dry Lease or Wet Lease both of which have an agreed tenure and payments by instalments. The Dry Lease does not include service and maintenance of the vehicles. This is paid separately. A Wet Lease, on the other hand, means the vehicles will be serviced and maintained fully by the vehicle manufacturer to the end of the contract.

Notably, the vehicle leasing programme has created a highly coveted after-sales market during the time for disposal upon expiry of the leases. The vehicles are usually quickly snapped up during public auctions as was the case with the 2,700 units leased by the Ministry of Interior and National Coordination in 2014.

Local vehicle assemblers are optimistic that the economy will continue on the recovery path. The sector also stands to benefit from the Kenya Standard 1515 gazetted in 2019 that has gradually stopped importation of fully built used trucks and buses between 3 and 30 tonnes, that can otherwise be assembled locally.

According to the Kenya Vehicle Manufacturers Association, this sector has potential to create over 60,000 new jobs in local assembly, financial services and other support services. Let us “Buy Kenya and Build Kenya.”