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Car dealers switch tactics to hedge against tough trading environment

NEWS
By - | Jun 12th 2012 | 3 min read
By - | June 12th 2012
NEWS

By JOHN OYUKE

Faced with cutthroat competition and a tough economy, local motor dealers are learning to drive in a different direction.

The latest aboard this diversification ship is Simba Colt Motors Group.  Toyota, Japanese auto giant, first signalled this growing need for diversification when they ventured into second hand vehicles.

Toyota Kenya-affiliated Toyotsu Auto Mart in April opened a multi-operational showroom in Nairobi that will retail and service pre-owned Toyota vehicles.

In a departure from the expected marketing script, the auto mart will sell Toyota, Daihatsu, Hino and Subaru brands.

Toyotsu has already opened a Sh500 million showroom and spare parts shop in Nairobi to scale up used Toyota car imports and sell brands.

Last week, Simba Corporation joined Toyota bandwagon, albeit in a different way. The holding company of Simba Colt Motors hired international luxury hotel chain Kempinski to manage its new property in Kenya as it seeks to diversify from its mainstay in vehicle dealership.

Simba has signed a management agreement with the Geneva-based Kempinski Hotels SA for a 5-star luxury hotel in Nairobi and a safari camp on a Conservancy next to the Masai Mara Game Reserve.

A team of top executives from Kempinski Hotel is expected to attend the handing over of the new facility in Nairobi today. The hotel, within the Westlands area of Nairobi, is due for opening later this year.

Though not divulging reasons for entry into the property market, analysts believe decision by Simba is to secure its profit margins from erosion.

According to XN Iraki, a lecturer at University of Nairobi Business School, the two local auto dealers could be diversifying their business lines to protect themselves from wild price movements and fluctuating sale of new cars.

“The car industry is very elastic, particularly when currency changes which serves to hedge their bets,” he said.

According to Economic Survey 2012, registration of certain brands of new motor vehicles has been on a steady decline.

For instance, there was a significant drop of 87.5 per cent in the registration of mini mini-buses matatu from 3,600 units in 2010 to 451 units in 2011.

The number of new saloon cars registered also dropped from 16,165 in 2010 to 11,026 last year.

While the drop in minibuses might have been occasioned by the Government plan to phase out the 14-seater Public Service Vehicles to decongest major cities, it’s the eroded purchasing power due to inflation and a weak shilling that shrunk the buying of saloon cars.
Over time, this drop gradually ate into the profit margin of the two motor dealers.
The shrinking sales are, however, just one facet of an increasingly complex situation for auto dealers.

In the recent past, the Eastern Africa region has gradually become the target of several vehicle manufacturers.

Data from consulting firm Pricewaterhouse Coopers (PwC), however, shows other vehicle brands digging in, either establishing assembly plants here or expanding their sales network across the a region whose market is set to expand with the independence of South Sudan — East Africa Community’s planned sixth member.

Already, Chinese vehicle makers have primed their sights on East Africa. Foton Motors, a Chinese firm recently launched in Nairobi. With its planned assembly plant, Foton Motors hopes to supply at least 10,000 units to the region.

Price is also a major issue in the automotive industry and is blamed for consumer preference to second hand vehicles that command 70 per cent of the market share in East Africa according to various studies.

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