Isuzu East Africa has seen a growing preference for leasing cars rather than buying. the The daily business I spoke to Isuzu Managing Director, Rita Kavashi, about what is driving this and what the market looks like against the backdrop of a weak shilling and rising interest rates.
Car rental seems to be gaining popularity. How did the government's entry into this program affect its uptake?
It is interesting how one program can lead to many programs. Traditionally, the leasing product was only targeted at multinational companies.
They were the first companies to get into leasing because they wanted a better way to manage their working capital. They did not want their money to be tied up in direct purchases.
Then the government came in for rent. This has completely opened up the ability for industry stakeholders, including banks, to learn more about the product.
The government was very demanding, including how to access the service. This made people like us build more sites where they could access the service.
Because the government program was working well, we and the banks built capabilities and understanding of leasing products that allowed us to go to fleet operators in the public service vehicle (PSV) industry.
Currently, we work with the Cooperative Bank fleet and have approximately 600 medium-duty buses operating in Nairobi.
Where do you think leasing stands for companies looking to manage their cash flows?
We see more customers coming in to rent some type of product. It is interesting how the whole landscape changes.
They see this as a way to plan their payment patterns because they only pay at the end of the month and know in advance how much to pay.
Some PSVs also come with contracts so that operators do not have to worry about maintaining those vehicles.
We do it on their behalf. This means that they can plan to pay their installments and focus on their core business of providing services to customers.
How easy or difficult is it to work with matatu and bus operators, given that Eindhoven is generally seen as a very risky business?
It is true that PSVs are complex. There are more risks involved in business. That's why insurers need to come to terms with creating a better insurance package for the PSV industry. We, for example, work with CIC Insurance.
The car market was negatively affected by the weak value of the Kenyan shilling against the dollar last year. From Isuzu East Africa's perspective, how is the environment now?
The market is still difficult but thank God the exchange rate has started to shift. It was difficult to import vehicles and their parts because we needed to buy dollars to be able to get these materials from abroad. Aside from the bad price, dollars were also hard to come by.
Interest rates were high, which meant that most of our clients were unable to obtain financing. Today, it ranges between 18 and 25 percent. We have not seen an interest rate like this for many years, so it is difficult for our customers as well.
However, sectors such as tourism, education, agribusiness and PSV are starting to show some positive trajectory. PSV is one of the sectors that has been stagnant for a long time but we are seeing customers starting to renew their fleets.
Interest rates in Kenya remain high. Access to dollars was itself an issue in the first three months of the year. Fortunately, the situation began to ease.
If the local currency can gain some strength against the US dollar, how long could it take to translate into price deferrals for car buyers?
It should be noted that many car dealers were unable to convey the full impact of the weak shilling rate to customers. For example, Isuzu East Africa had to absorb part and reduce its margins as well as leverage partnerships to support customers.
Many of us still have the inventory we ordered at top dollar. This is still in our facilities.
Until we can get rid of that and then order at a cheaper cost, within, say, a year, we will start to see prices come down.
Ahead of the 2024 Finance Bill, what would you like to see to give the industry a boost?
What we are looking for is a full implementation of the KS1515. This will be a huge game-changer for our industry when it comes to the local content supply base.
To be competitive in the African Free Trade Area, the competitiveness base of the automotive industry is crucial. We will be able to double our production.
Today we are operating at 32% of our installed capacity. This capacity could reach 60 to 70 percent plant utilization and create at least 10,000 jobs. The industry could total about 20,000 units per year from the current 7,000 vehicles.