Used car prices to go up as coronavirus reduces imports

The cost of second-hand cars is likely to jump by up to Sh400,000 per unit on reduced supply as fewer ships dock at the Mombasa port and the shilling weakens against the dollar as a result of the coronavirus global markets shocks.

The combination of the weakening shilling against the dollar and reduced supply of imported cars is expected to increase used car prices by at least seven percent from next month, dealers have warned.

Some ships carrying second-hand cars from Asian countries like Japan have in recent weeks failed to dock at the Mombasa port, slowing down monthly supplies by nearly 1,000 units from about 7,000 units. This has been worsened by the weakening of the shilling in recent days to levels last seen four and half years ago, raising the cost of imports like cars and machinery.

The shilling was on Thursday trading at Sh105.80 against the dollar compared to an average of Sh101.37 in February, its lowest level in nearly four and a half years, mainly due to concerns about the potential drop of hard currency inflows caused by the coronavirus outbreak.

“We are buying dollars from banks at Sh108 compared to a range of Sh100.5 and Sh101 early last month,” said Charles Munyori, the secretary-general of Kenya Auto Bazaar Association, which represents used car dealers. “Prices will rise by between Sh50,000 and Sh400,000 depending on the capacity of the cars. And the new shipments should reflect this higher prices.”

New shipments of Toyota Vitz 2013 model will for instance cost about Sh880,000 from the current Sh850,000, said Mr Munyori. On the other hand, a 2013 Toyota V-8 averaging about Sh6 million is expected to cost Sh6.4 million, reflecting the impact of the weakened shilling.

Mr Munyori said the price of a Toyota Premio 2013 model with an engine capacity of between 1,500cc and 1,800cc will increase by between Sh90,000 and Sh110,000 respectively. The two models currently go for Sh1.6 million to Sh1.8 million.

Kenya on average imports fewer second hand cars between January and March, but demand gathers pace from April.

“Depending on demand and how the shilling behaves in the coming month, car prices would come under pressure,” said Mr Munyori.

Vehicles from Japan dominate the Kenyan second-hand car market, controlling more than 80 per cent of market share.

The confirmed cases of coronavirus in Kenya have jumped to 31 and the government has shut down schools indefinitely, banned large public gathering, imposed a night curfew and grounded non-essential flights in a raft of measures aimed at slowing down the spread of the virus that has killed over 22,000 people globally and infected over 460,000 others.

Businesses which rely on the export markets and tourism have already started feeling the heat of the pandemic with the reduction in international and cargo flights, further deepening the worries in the market about the supply of foreign exchange.

Should vehicle prices go up, this will mark the second time that this will be happening over the last four months. In November, car prices have jumped following the introduction of new taxes for motor vehicles with engine capacities exceeding 1.5 litres. Excise duty, one of the biggest taxes levied on motor vehicle imports, increased up to 35 percent effective November 7 after President Kenyatta signed the Finance Bill into law. This increased the prices of both new and used cars, trucks and buses, with taxes taking more than half of the vehicles’ retail costs. Vehicles attract an import duty of 25 percent, excise duty (now ranging from 25 to 35 percent) and value added tax of 16 percent, payable cumulatively and in that order.

According to changes brought through the Finance Act 2019, vehicles running on petrol and with engine capacities of more than 1.5 litres now attract excise tax of 25 percent compared to the previous 20 percent. Similar vehicles running on diesel will now pay excise duty of 35 percent compared to the previous 30 percent that applied on models exceeding 2.5-litre engines and 20 percent on smaller cars. Total taxes on diesel-powered Isuzu double-cab pickup trucks, for instance, jumped by more than Sh500,000, according to commercial vehicle dealer Isuzu East Africa.