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Weak shilling slows down used car market to new low 

Kenyans have reduced orders for used cars for the first time in 16 years as rising inflation bites.

Weakening of the shilling has led to further rise in the cost of second hand vehicles thus limiting purchasing power of most buyers.

The Kenya National Bureau of Statistics data show that sale of used cars stood at 17, 577 units in the five months to May compared to 23, 377 sold in the same period a year earlier, reflecting a 24.8 per cent drop.

The decline in sales — the first since the liberalisation of Kenya’s auto industry in 1994 — was worsened by the Government move to stop registration of 14-seater public service vehicles in favour of buses. This has seen the sale of 14-seater vans drop from 1,640 to 335 in the period under review. Dealers in new vehicles grew their sales from 4, 459 to 4, 750 cars in the same period.

Frank Okemwa, a dealer in second hand cars, said the rising cost of living coupled with expensive cars have affected his orders.

“The order book for most dealers has been thin and demand was also affected by the earthquake disasters in Japan, which caused delays in delivery,” said Mr Okemwa.

The weak shilling against the Japanese yen and the dollar together with the rising freight charges has seen the cost of the imported cars increase by an average of 30 per cent this year compared to last year.

The shilling was trading at between Sh75 and Sh77 to the dollar in the five months to May last year compared to Sh80 and Sh90 in the same period this year. The shilling was last year trading at about Sh82 to the yen compared to this year’s range of between Sh100 and Sh114.  The red-hot exchange rate is surfacing at a time when the increase in basic commodities such as food, energy and transport has pushed inflation from 5.42 per cent in January to 14.49 per cent last month.

This has seen consumers spend the bulk of their income on household items leaving them with little cash for luxury items like cars, fridges and holiday. “Finances are so tight and people are still vulnerable even to monthly cycles of cash flow,” says Kwame Owino, chief executive of the Institute of Economic Affairs, a local policy think-tank.

He added that high inflation has also affected the middle-class who tend to be heavy buyers of used cars. But high-end consumers and firms, who are the main consumers of new cars, have not cut their orders. “Our orders have been higher than last year and we expect a strong second half,” says Rita Kavashe, the managing director of General Motors East Africa.

But the story is different in the used market segment where dealers say buyers are holding back on the hope that prices will drop when the shilling strengthens.

The saloon and station-wagon market, which combined account half of the used car market, dropped by 31 per cent and 11 per cent respectively.


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