General Motors projects flat growth as excise duty bites

GMEA Managing Director Rita Kavashe and former Tanzania President Jakaya Kikwete soon after he commissioned the new Heavy Commercial Line at the GMEA assembly plant in Nairobi on 6th October, 2015

Nairobi, Thursday, January 14

Motor vehicle assembler, General Motors East Africa (GM), expects to record a flat growth this year should the Government continue to effect the new excise duty on locally-assembled vehicles.

GM Managing Director Rita Kavashe said the volatile exchange rates, high interest rates and now the excise duty will cut the growth of automobile industry from last year’s 15 per cent to a flat growth.

She noted that the new excise duty, which came into effect last year, together with the shaky market in Uganda and Tanzania, will depress the growth of the firm, which grew by about 33 per cent last year.

“Last year the automobile industry grew by about 15 per cent and GM grew at about 33 per cent. This year, we forecast a very minimal growth. We may witness about 20,500 new industry vehicles,” explained Kavashe.

She revealed that the industry, through the Kenya Association of Manufacturers, is in consultation with the Ministry of Industrialisation and the Treasury and also seeking clarification on excise duty that was imposed on locally assembled vehicles.

“We are already engaging them (ministry and treasury) because as an industry, it will pinch our customers most,” said Kavashe, adding that they hope to get the best out of the consultations.

She was speaking during the signing of a partnership agreement between GM and NIC Bank that will see customers access financing of up to 95 per cent of the value of the vehicle at an interest rate of 8.47 per cent. Kavashe added that the deal will help more customers buy vehicles.

She reckoned that majority of GM’s customers are individuals and Small and Medium Enterprises (SMEs) who buy commercial vehicles. “Therefore, such a pool will be sensitive to an addition of between Sh150,000 to Sh200,000 as a result of the new excise duty.”

The partnership, Kavashe said, will run for the next three months up to end of March. Buyers of Isuzu and Chevrolet vehicles assembled by the firm will be required to deposit a minimum of only five per cent of the value of the vehicle to drive home their new vehicle.

“Last year interest rates for our asset financing customers went up from about 16 per cent on reducing basis to about 20 per cent,” said Alan Dodd, NIC Bank Executive Director.

But now with the new duty, locally assembled vehicles appear to suffer since importers will require only Sh150,000, which is a departure from the previous 20 per cent duty on the value of the vehicle.

The company, which also sells its products in Uganda and Tanzania, has not had good fortunes on these two markets. Ms Kavashe attributed this to the high interest rates of about 27 per cent that put off customers.

Further, reaching out to customers with attractive bank products has proved hard due to the underdeveloped banking sector in the neighbouring states compared to Kenya.

“Many customers their buy products on cash basis or on lease-type environment. The underlying Hire Purchase Act that we follow here (Kenya) is not well developed in Uganda and Tanzania, thus locking out banks,” said Dodd.

Source: The Standard