New car prices jump on 35% import duty, weak shilling

Expect prices of new cars to increase by at least 10 per cent, dealers now say, as they move to factor in new import duty amid low sales.

Both new and second-hand cars have also been hit by the 35 percent import duty ,after the East African Community (EAC) approved an application by Kenya to raise duty on motor vehicles.

This is under the Common External Tariff (CET) which has seen duty increase from a previous 25 per cent.

The import tax rates were imposed on used motor vehicle from July 1, 2023.

This adds up to the pains of a continued weakening shilling against the US dollar, which has led to the increase of costs on imported fully-built units and knocked down kits, with buyers paying the final price.

The shilling has fallen to a record low this week, averaging at Sh145.40 to the dollar yesterday, Central Bank of Kenya data shows.

Local commercial banks are however selling the dollar at up to Sh156 meaning importers are spending more to secure enough dollars to pay for goods in foreign markets.

According to the Kenya Motor Industry Association (KMIA), dealers have been engaging with local banks to buy available dollars on a daily basis, to build enough to pay suppliers.

Even so, dealers have been forced to pass the extra costs to consumers, a move they say is likely to dampen demand for new cars, even as majority Kenyans go for second-hand units.

"The changes have been upwards of 10 per cent and the implication of all this will be felt in the second half of the year. High prices are likely to dampen demand,” Isuzu EA General Manager, Commercial Finance, Gabriel Kanyingi told the Star.

Isuzu commands the highest market share of new motor vehicles in Kenya, at 42.8 per cent.

Together with Toyota at 28.2 per cent, the two accounts for up to 70 per cent of all sales.

A large number of new saloon cars (zero mileage) range between Sh2.5 million and 3.5 million in showrooms across the country, but prices go higher for more superior vehicles on different classes.

Some local assembled units however fetch prices below Sh2million.

This means a unit that was going for Sh2.5 million will cost buyers an extra Sh250,000.

Data by KMIA, the official umbrella body for dealers of new cars in Kenya, shows sales on new cars remained low last month, a trend expected to continue wing witnessed this month, with hopes they will pick over the December period.

A total of 963 units were sold across showrooms in the country albeit zero sales for top range classes such as Range Rover and Jaguar.

BMW dealer sold only one car from its showrooms, Land Rover sold two with only Mercedes units recording the highest sale of 31 cars.

During the period, trucks accounted for lion share of new vehicles sold (345 units), signaling a vibrant construction, transport and logistics industry.

There was also a significant sale on single cabin pick-ups (189), station wagons (107) and double cabin pick-ups (98).  Other notable ales wee in busses and prime movers.

Dealers of used imported cars have also reported increased prices following the move by the government to increase import taxes and the weak shilling.

For instance, a Suzuki Alto, common in the taxi business, is now going for between Sh650,000 and Sh700,000, up from Sh550,000, CIAK confirmed.

Nissan Note which was selling at Sh750,000 is now asking Sh950,000.

Toyota Fielder is going for Sh1.7 million up from about Sh1.2 million while a used imported Probox is selling at between Sh1.15 million and Sh1.2 million, up from Sh850,000.

“Prices are shooting beyond the reach of the majority Kenyans,” CIAK national chairman Peter Otieno said.

Used cars account for about 80 per cent of the cars on the Kenyan roads, with Japan, United Kingdom, United Arab Emirates, Singapore and South Africa as the main source markets.

Latest Central Bank of Kenya-CEOs survey indicates the business environment and increased taxation was of greater concern for firms in Kenya, going into the second half of the year.