How weakening Kenya Shilling alters vehicle market dynamics

By Stephen Macharia

Since the beginning of 2020, the Kenyan shilling has experienced a steady decline in value against the US dollar, with the exchange rate plummeting from Sh99 to Sh140. The weakening shilling has increased import costs and increased vehicle prices.

The depreciation of the Kenya shilling has dealt a blow to vehicle dealers, imposing substantial costs on imports and operations. As the local currency weakens against the US dollar, the price of importing vehicles and completely knocked-down parts has risen significantly. This has forced dealers and industry stakeholders to adjust their prices upwards, aiming to recoup expenses and protect profit margins. Unfortunately, this surge in vehicle prices has deterred potential buyers, leading to a decline in sales for the second consecutive year.

“The motor vehicle industry in Kenya heavily relies on imports, exacerbating the challenges posed by the weakening shilling. Since January 2023, the Kenyan currency has lost six per cent of its value against the US dollar. This devaluation can be partially attributed to the ongoing war in Ukraine and the resulting supply chain bottlenecks. Additionally, the growing trade barriers between major economies have further compounded the situation, intensifying the strain on the motor vehicle importers and traders whose transactions are primarily dollar-denominated,” says Michael Waweru, a motor dealer in Nairobi.

As a consequence of the surging costs, the prices of small vehicles such as the Toyota Vitz, Mazda Demio, and Honda Fit have soared above the Sh1 million mark. In response, vehicle owners have been compelled to hold onto their cars for longer periods. Some buyers have even opted for locally used vehicles, triggering a surge in demand for pre-owned cars and subsequently driving up their prices.

To adapt to the changing market dynamics, savvy traders are resorting to importing more affordable vehicles to attract buyers and maintain a balance with the availability of second-hand cars. Consequently, there has been a notable shift in consumer preferences from larger vehicles to smaller ones, and some owners have even converted their compact cars into taxis. The increased demand for smaller vehicles has naturally resulted in a price hike for these models.

The challenges faced by the motoring industry as a result of the weakened Kenya shilling have had wide-ranging effects. Vehicle dealers and industry stakeholders are finding it increasingly difficult to maintain profitability in the face of dwindling profit margins and soaring operational costs. The situation calls for innovative strategies and effective cost management to navigate these tumultuous times successfully.

Government intervention and policies aimed at stabilizing the currency could potentially alleviate some of the burdens faced by the motoring industry. Furthermore, fostering a conducive business environment and promoting local vehicle assembly could reduce the reliance on imports, mitigate the impact of currency fluctuations, and safeguard the industry’s growth.

As the Kenyan shilling continues its downward trend against the US dollar, the motoring industry must adapt swiftly to these new market conditions. Only through proactive measures and collaborative efforts between industry players, regulators, and policymakers can the sector weather the storm and regain its stability and prosperity.

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