The booby trap in old banger bargains

Saturday September 2 2017

An assortment of vehicle spare parts. Perhaps

An assortment of vehicle spare parts. Perhaps the most famous maxim of the global motor industry is: “Put Bums On Seats”. That means put sales volumes ahead of profit margins on new car sales… and then make the real money later, on parts and service. PHOTO | FILE  

Perhaps the most famous maxim of the global motor industry is: “Put Bums On Seats”. That means put sales volumes ahead of profit margins on new car sales… and then make the real money later, on parts and service.   Makes sense. After all, you sell a new car only once. You sell parts dozens of times, to all its owners throughout its life. Also, if a new car is expensive buyers have a lot of other choices. But when it comes to genuine parts, the manufacturer is the only supplier for those who have bought that brand. Whether they bought new, or second or third or sixth hand.  This principle has been an anchor of motor industry strategy, worldwide, for many decades. New car prices are extremely competitive, with discounts, special finance deals and very tight margins. Spare parts prices (and service) are eye-watering. That doesn’t deter new car buyers, because they usually sell on before many (or any) spare parts are required. The bums of used car buyers then get on those seats for even lower purchase prices… and start paying the bills at the spares counter and in the workshops.   And as each car passes from bum to bum the purchase price keeps going down, and the need for expensive parts keeps going up.   So, getting bums on seats of new cars – even at cost price – keeps paying dividends to the original manufacturer all the way along the resale chain. Most Kenyan motorists cannot afford to play that game; but neither can they truly escape it. The first problem is that the most competitive new prices are granted to national distributors who order several thousand cars at a time. But there are no bargain deals when a national distributor orders, say, half-a-dozen (as Kenya’s motor companies do). Our new car “cost price” is unusually high, it is heavily taxed, too, and volumes are so low and the parts market is so wild that high first-sale margins are a business imperative. What Kenyans pay for a bog-standard pick-up would buy an exotic muscle car in many major markets. So, most Kenyans buy super low-priced used cars from other markets, and policy grants them a considerable tax discount, too. The older the better! But this remedy and policy swamps us with cars that need lots of spare parts; potentially very expensive parts. So we solve that by importing parts that are amazingly cheap… because they are junk. They come from junk manufacturers, or from bandits, or from scrap heaps.One problem solved; many more problems created. Because our new car volumes are even lower their cost price is even higher. The same syndrome affects the genuine parts process, too, so they become doubly exorbitant. One way or another, we have to buy a lot of parts (or run defective cars), and if those parts are cheap junk we have to buy them even more often (and suffer severe reliability and performance penalties as well). We’re not really beating the global system. We’re scoring short-term wins at a very high long-term cost. We need to recognise the global system and use it shrewdly to solve problems, not try to outsmart the system in ways that cause problems. Are there policy potentials that could help us aim for the best of both worlds in both the short and the long term? I believe there are.