Kenyas Auto Market

Deloitte Africa Automotive Insights for 2016 estimates that the volume of imported vehicles in Kenya rose from 33,000 units in 2003 to 110,500 units in 2012. The report noted that passenger cars were Kenyas fourth largest import in 2014, valued at U.S. $420 million and comprising 2.3 percent of total imports. Commercial vehicle imports ranked seventh, with a value of $370 million. The report forecast that if the current trend of 10 to 12 percent growth per year on vehicle imports is to be maintained, Kenya will have 5 million vehicles on the road by the year 2030.

The report noted that Kenya had a total vehicle fleet of around 1.3 million units as of 2014. Among these, Kenyas National Bureau of Statistics stated that 112,500 new and old vehicles were registered in 2015. And the Kenya Motor Industry reported that it registered 19,500 new vehicles in 2015. By segment, light and heavy commercial vehicles comprise 86 percent of total vehicle sales while sedans and SUVs account for 14 percent.

The heavy commercial vehicle segment witnessed the highest growth, recording a compound annual growth rate of 27.5 percent between 2005 and 2015. However, IHS Automotive forecasts that Kenyas light-vehicle market will witness more than 24,000 new registrations in 2016, a slight decline from 2015.

Kenya boasts three auto assembly plants, including General Motors East Africa in Nairobi, Associated Vehicle Assemblers in Mombasa and the Kenya Vehicle Manufacturers plant in Thika. According to Deloitte, the assembly of motor vehicles in Kenya grew by 31.4 percent from 2013 to 2014, including 54.4 percent for pick-up trucks, 43.7 percent for trucks and 20.8 percent for buses. Deloitte forecasts Kenyas vehicle assembly figures to double between 2013 and 2019.

This forecast looks to be fulfilled based on the number of original equipment manufacturers that have shown an interest in setting up assembly plants in Kenya. Volkswagen led the way in late December of 2016 when it opened a car assembly plant in Thika, an industrial town in Kiambu County, Kenya.

Volkswagen is projected to produce up to 1,000 vehicles in its initial phase and then increase output to 5,000 Polo Vivo cars per year. According to Herbert Diess, the companys chief executive officer, the new plant will provide a foothold for Volkswagens expansion into Africa.

Following Volkswagens successful entry of into the Kenyan market, Peugeot has announced it will set up an assembly plant in the country. The plant is a partnership between Peugeot and a local agent, Urysia. President Uhuru Kenyatta of Kenya lauded the agreement as a sign of greater things to come.

Finally, Ashok Leyland announced plans to open a bus assembly plant, with a capacity to produce 1,200 units targeted for the East African automotive market. All of these developments have attracted automakers from other parts of the world, who consider Kenya an important hub for penetrating the East African auto market.

Shift to Better Oils?

The opening of these new auto plants means there will more modern vehicles on Kenyas roads that will require higher quality oils. Therefore, observers anticipate that the plants could influence a shift toward lubricants formulated with API Group II or synthetic base oils. However, most industry sources seem to think there will not be a large-scale shift to Group II or synthetic lube consumption in Kenya.

For instance, James Mutesya, lubricant manager for KenolKobil, feels the new auto plants will have limited impact on lubricant consumption patterns. Shifting of blends from Group I to Group II is quite unlikely. The impact will be minimal as the number of new cars in Kenya is about 10 percent [of the car parc], he said. Volumes will definitely be low because most marketers are already selling synthetic oils from well-known brands.

Joseph Ndungu, an East Africa-based lubricant professional agreed. These [auto] companies were already in Kenya and were purchasing lubes from local companies, he said. He pointed out that the status quo will remain unless the new automakers are able to displace imported cars. If the market share of these auto dealers increases, for example, they will displace imported second-hand vehicles. Then, some effect will be felt in the usage of synthetic lubricants, he added.

Mehrdad Vajedi, director of Dubai-based Permian Energy, noted that the Kenyan lubricant market is price sensitive, a factor that he emphasized accounts for the influx of used vehicles into the country. He added that oil selection remains a challenge in most emerging economies and the situation in Kenya is no different.

Like all emerging markets, engine oil selection is left to oil change shops, and they sell what brings them more profit. Lube manufacturers are in a fight to get that segment, said Vajedi. However, he acknowledged that fleet owners and OEMs will behave differently, and he foresees a gradual shift in oil selection habits and oil change intervals. He also predicted changes to players in the market, including lube traders and manufacturers.

However, Vajedi pointed out that the number of heavy-duty vehicles in Kenya is similar to the number of commercial passenger vehicles, resulting in a significant demand for engine oils within that segment. This is understandable since Kenyas ports serve a lot of landlocked countries, and trucks travel quite a distance. Demand is remarkable in this segment, and any revolutionary change will occur there, he said. Vajedi added that the new VW and Peugeot plants are expected to produce 2,000 to 5,000 units, which is not a significant number, but it creates a culture to increase the demand for better oils.

At the commissioning of Volkswagens plant, Diess emphasized that the assembly of Polo Vivos in Kenya will result in a comprehensive manufacturers warranty that could impact the demand for higher grade oils. Vajedi agreed, saying that the OEMs will bring their own standards to the market by shifting not only factory fill oil quality but also service fill quality, through warranties that will force buyers to use authorized dealers for oil changes. This will gradually shift the habit and culture of engine oil purchases, said Vajedi.