Ban the importation of used motor vehicles altogether

THERE WAS A HUE AND CRY last month from members of the Kenya Auto-Bazaar Association (Kaba). Ironically, their bone of contention was that malpractices in the motor trade will drive them out of business.

This is a surprise because people in the used vehicle sector, who had refused to play the game by the rules for a long time, are now crying wolf. Nonetheless, they are right because the cut-throat competition from ruthless and mercenary independent competitors has reached frightening levels.

These independent dealers are flooding the market with imports of all types of jalopies with falsified mileage readings and/or with fake age in an effort to win customers or drive down prices.

Let me give you an insight. The mercenary independent competitors are stealing sales from Kaba as well as mainstream new vehicle dealers. They have discovered a niche market driven by two considerations which the other two groups cannot service.

ONE, IF YOU CAN CREATE A PERCEPtion that a used vehicle is nearly new, then you can attract higher middle-class buyers who otherwise would have purchased a slightly more expensive vehicle from mainstream dealers. So, you reduce the odometer reading to a mere fraction and maximise your profits.

Second, if you can dump a nearly worthless juggernaut on our dilapidated roads, someone from the lower middle class will cut a deal in an effort to feel good, that he or she is now of a higher social status.

So, you look for the oldest junk whose depreciated book value is peanuts. This is important because KRA does not adjust for market replacement value and the duty you will pay will also be peanuts.

Now, while Kaba is blaming KRA and Kebs for this state of affairs, arguing due diligence is not being followed and the law is being enforced selectively, they are to blame for the mess. They developed a market which is not sustainable.

This means that more policing is not a solution. The costs of policing, also, far outweigh the usefulness of such initiative. The only viable solution is to ban importation of all used vehicles. Although this will affect Kaba adversely, the long-term gains far outweigh the loss.

Let me elaborate on this point. Such a ban will present the East African Community (EAC) with an opportunity to offline a new vehicle whose price on the road will be less than that of an imported used vehicle.

EAC as an economic bloc has the market and resources to produce or to assemble a saloon which can retail for less than Sh700,000. The average annual total motor vehicles, registered in the EAC region before Burundi and Rwanda came on board a few months ago was 180,000 units. Kenya led with 90,000 units, Tanzania 70,000, and Uganda 20,000.

Out of this volume, the new vehicles registered are 19,000. Again, Kenya leads with 13,000 units, Tanzania with 3,500 units and Uganda with 2,500 new vehicles.

In addition, Kenya has three assembly plants with an annual installed production capacity of 30,000 vehicles in a single shift. Currently they are operating at about 30 per cent of their capacity.

We also house the Nairobi Machine Complex which has the capacity and ability to manufacture spare parts even for jet fighters.

If EAC was to ban the importation of used vehicles as some countries have done and support their own, we will enjoy significant cost reductions in three areas.

To start with, we will utilise the existing capacity of 60,000 units on two shifts. Then we can set up other assembly plants as follows: Tanzania – 30,000 units, Uganda – 30,000 units, Burundi – 15,000 units, and Rwanda – 15,000 units. This will reduce costs through economies of scale.

SECOND, FREIGHT CHARGES WILL come down. While the freight cost of a completely built-up vehicle is 50 to 70 per cent of FOB price, that of a completely knocked down kit is a mere seven per cent.

Three, local content is available. It ranges from about 25 per cent for a saloon to 60 per cent for a bus. This will create additional employment and enhance disposal income. It will also bring down the total ownership experience costs because of the after-sales back-up.

In conclusion, therefore, let us put these lamentations by Kaba to good use: ban importation of used vehicles to initiate the development and growth of a viable and sustainable EAC motor industry.

Mr Kitau is the managing director, Bruce Trucks and Equipment (EA) Ltd.