Isuzu East Africa has seen a growing preference for vehicle leasing as opposed to purchases. The Business Daily spoke to Isuzu Managing Director Rita Kavashe on what is driving this and what the market looks like on the back of a weak shilling and high-interest rates.
Vehicle leasing seems to be gaining popularity. How did the entry of the government into this programme influence the uptake?
It is interesting how one programme can lead to many. Traditionally, the leasing product was only targeting multinationals.
They were the first companies to go into leasing because they wanted a better way of managing their working capital. They did not want their money to be tied up in outright purchases.
Then the government came into leasing. This completely opened up the capability of stakeholders in the industry, including banks, to learn more about the product.
The government was very demanding, including on how to access service. This made people like ourselves build more locations where they could access the service.
Because the government programme worked well, banks and us built capacity and understanding of leasing products that allowed us to go to fleet operators in the public service vehicle (PSV) industry.
Right now, we work with the Cooperative Bank Fleet and have almost 600 medium-duty buses working in Nairobi.
What do you see as the place of leasing for companies seeking to manage their cash flows?
We see more customers coming up for leasing type of products. It is interesting how the entire landscape is changing.
They see it as a way of planning their payment patterns because they are only paying at the end of the month and know in advance how much to pay.
Some PSVs are also coming on board with contracts so that the operators are not troubled with the maintenance of those vehicles.
We are doing that on their behalf. That means they can plan their repayments and concentrate on their core business of providing services to customers.
How easy or difficult has it been to work with matatu and bus operators, given that PSV is generally viewed as a very risky business?
It is true that PSVs are complicated. There are more risks embedded in the business. That is why insurance companies have to come in terms with creating a better insurance package for the PSV industry. We are, for instance, working with CIC Insurance.
The vehicle market was negatively impacted by the weakening of the Kenyan shilling against the dollar last year. From the Isuzu East Africa perspective, how is the environment now?
The market is still difficult but, thank God, the exchange rate is beginning to turn. It has been difficult to import vehicles and vehicle parts because we needed to buy dollars to be able to get these materials from abroad. Aside from the bad rate, it was also hard to get dollars.
Interest rates have been high, meaning most of our customers were not able to get funding. Today, it is between 18 and 25 per cent. We have not seen such an interest rate in many years and so it is tough for our customers too.
However, sectors like tourism, education, agribusiness and PSV have begun to show some positive trajectory. PSV is one of the sectors that has been depressed for a long time but we are seeing customers begin to renew their fleets.
Interest rates in Kenya are still high. Access to dollars was in itself a problem in the first three months of the year. Fortunately, that is beginning to ease.
If the local currency can get some strength against the American dollar, how long can it take to translate into a price reprieve for vehicle buyers?
It needs to be noted that many vehicle dealers were not able to pass the entire price impact of a weak shilling to customers. Isuzu East Africa, for example, had to absorb part of it and reduce its margins as well as leverage on partnerships to support customers.
Many of us still have the inventory we ordered with a higher dollar rate. This is still in our facilities.
Until we are able to mop up that and then order at a cheaper cost, in say a year, we will begin to see prices come down.
Ahead of the Finance Bill, 2024, what would you like to see addressed to give the industry a lift?
What we are looking for is a full implementation of KS1515. It will be a big game-changer for our industry when it comes to the local content supply base.
For us to be able to compete in the Africa Free Trade Area, the competitiveness base of the auto industry is critical. We will be able to double our production.
We are today operating at 32 per cent of our installed capacity. That capacity can move to 60 to 70 per cent in plant utilisation and create at least 10,000 jobs. The industry could total about 20,000 units per year from the current 7,000 vehicles.
