Car and General: How ditching cars for motorcycles turned around our business

While on a trip to Uganda in the early 2000s, Vijay Gidoomal was fascinated by the many two-wheelers ferrying people and goods across the landlocked country.

In 1996, he’d been named Car and General’s (C&G) chief executive, with his first major task being to close all existing business lines.

One of Kenya’s oldest listed firms founded in 1936 needed an extreme makeover to remedy its loss-making streak.

The liberalisation of the Kenyan economy in the 90s brought with it an influx of cheap Chinese imports that ate into some of its businesses, while its car dealership unit flopped, leaving the firm desperate for fresh ideas.

As the local dealership for Alfa Romeo and Fiat car brands at the time, C&G only had sold 100 units in two years.

“I was walking around Uganda and saw all these second-hand Japanese motorcycles,” recalled Mr Gidoomal.

“I thought at that time that there must be an opportunity for new bikes,” he added. In 2003, the firm decided to introduce two-wheelers and three-wheelers as taxis in East Africa.

Ten years later, in partnership with Indian two-wheeler giant TVS Motor, they launched a motorcycle assembly plant in Nakuru.

“We said if that’s happening in Uganda, the same would happen in Kenya. There was no boda boda culture in Kenya, but in Uganda, it was always there,” he noted.

Boda Boda traces its early history to the border towns of Busia and Malaba where bicycle taxi riders ferried people “border to border.”

Gidoomal noted that at first, most of their customers were from Western Kenya, but the boda boda wave soon took the rest of the country by storm.

Across Africa, there has since been a transport revolution, especially last-mile connectivity owing to the boda boda and tuk-tuks that have become one of East Africa’s biggest employers.

The same thinking saw C&G replicate three-wheelers, or tuk-tuks, which were also popular in India.

“It’s about seeing that opportunity in other places and building it here,” said Gidoomal.

The government had also lowered the import duty on bikes. The company also has a five-year plan with the government to localise 40 per cent of their bikes to spur local manufacturing.

He observed that all businesses happen in transition, and they enjoyed the early boom until competition levelled up the market.

“We were the first people to enter this business. At the time, overheads were low and profit margins high,” said Gidoomal, adding that being the best in the market is what matters amid tough competition.

“To become a sustainable business, it’s taken at least 15 years because it goes through phases. Yes, you’re profitable for the first few years. When dynamics change, then it becomes about staying on top.”

Looking back, he noted that a unit cost about Sh83,000, depending on the model, but it now fetches between Sh100,000 and Sh150,000.

He said buying a motorbike is now much easier as a customer can walk out with one within two hours of paying a Sh10,000 deposit.

Gidoomal said the market size for two-wheelers is about 20,0000 units a month with a market share of about 20 per cent, while that for three-wheelers is about 500 units monthly, commanding a 60 per cent market share. The competition is from importers and other local assemblers.

He noted that government support with duty structures translates into friendlier prices for units, and prices are only affected by external structures, such as global freight costs, exchange rates and raw material prices globally.

“The motorcycle taxi business generates about Sh500 million in revenue daily, with the riders making an average of eight trips. This ecosystem is huge in terms of generating well-being and improving livelihoods, and we are proud of that,” said Godoomal.

C&G is one of the most diversified listed businesses, supplying globally reputable brands in power generation, automotive, industrial equipment and engineering products.

Before the makeover in 1996, it was involved in re-treading of tyres and manufacturing of products such as sparkplugs, gumboots, brake pads and white goods.

“We just felt that we’d really be struggling to compete. S what we did over a period of the next three to four years was to basically sell all these businesses and try to look for new lines,” he said.

The 85-year-old firm is present in five East African countries - Kenya, Uganda, Tanzania, Zanzibar, and Rwanda.

It also has a real estate portfolio, including Nairobi Mega on Uhuru Highway and a stake in microfinancier Watu Credit and also provides aftermarket services for its products.

The company at the same time has a joint venture with Cummins Inc, distributing their power generators, components, filters and parts.

It has about 15 branches countrywide in all the big towns as well as dealers and over 2,000 mechanics.

In the six months to March, turnover hit Sh8.2 billion, representing a 28 per cent rise compared to a similar period last year. Profit after tax stood at Sh460 million compared to Sh164 million in the previous period.

The performance was attributed to higher sales in the boda bodas and tuk-tuks, volumes in the equipment business, including generators, construction equipment, tractors and forklifts.

Gidoomal noted that they managed to go into business lines that offer a reasonable amount of growth. But he still thinks the growth has not been big enough owing to poor overall economic growth in the country.

Slow growth has also been witnessed in their forklift and tractor selling businesses. He said the forklift business averages about 300 units a year.

“It’s been the same for the last six years. It hasn’t’ grown, whereas when you look at the global market for forklifts, it’s grown massively because today, warehousing, volume and efficiency are a bigger issue, but we’ve not seen that growth in forklifts or tractors that much,” he said.

The company has not sold that many tractors despite Kenya being an agricultural economy.

C&G has since also acquired a stake in Watu Credit, a microfinance firm, after seeing a shortage of finance for the mass market.

“We finance, for example, a rider who then earns an income and repays the loan. It’s been pretty significant in driving entrepreneurship, ownership and improving livelihoods,” said Gidoomal.

Of its five regional markets, Kenya makes up the bulk of revenues at 60 per cent.

He said with the benefit of hindsight, the Alfa Romeo and Fiat dealership wasn’t “interrogated” enough.

This has served up crucial business lessons, including analysing whether the addressable market is big enough, its annual growth, whether the firm can dominate it and having the right culture and mindset.

It turned out that the venture targeted a small enthusiast market, which was not sustainable in the long run.

It took two and a half years to kill the business, having sold only 100 units.

“If you go elsewhere in the world, the addressable market in that enthusiastic niche is big enough, but in Kenya, it wasn’t big enough. We thought we could grow that segment, make it more mainstream, but it was not possible,” added Gidoomal.

He noted that Toyota is the most successful car firm because they’ve got the network and last-mile distribution, which are difficult to offer.

“If you’re buying an Alfa Romeo, you want to be sure that you’ll be getting service as far as Kisumu, otherwise why would you buy it?” posed Gidoomal.

The company plans to venture into helmet manufacturing to complement its motorcycle business. “We will churn out our first helmet next month at our factory in Ruiru, which is a central location,” he said.

The factory, situated in Life Industrial Park, Ruiru, has a capacity of producing about 800,000 helmets per year.

The firm is also working on setting up a centralised assembly plant for three-wheelers.

Gidoomal said high power costs locally have impacted local manufacturing, with countries like Ethiopia gaining a competitive edge.

Also, to be great manufacturers, he said, Kenya needs volume and efficiency.

Gidoomal said C&G is also working on eventually producing electric tuk-tuks as part of efforts to adopt cleaner energy.