How savvy Kenyans get luxury cars on a budget

businessdaily.co.ke

Not too long ago, cars with luxury badges were a preserve of the super-rich. Not anymore.

Kenyans with a few million in the bank are increasingly playing catch-up through purchases of used Mercedes, BMW, Range Rover and Toyota brands at a fraction of their showroom price tags.

This has expanded the level of equality, at least on the road. And who are helping the middle class match the consumption of top professionals, entrepreneurs, politicians and wheeler-dealers?

Second-hand car dealers and individuals have mastered the art of sourcing the luxury vehicles from countries like the UK and Japan. Citizens in these countries keep their cars for only a few years out of personal choice or to avoid the high costs of complying with stringent roadworthiness and emission standards applied on ageing automobiles.

Scores of luxury cars have also landed in Kenya after being stolen abroad, according to Interpol. Whichever way they arrive here, the second-hand luxury cars are helping many Kenyans take part in status signalling as well as enjoying more refined motoring on a budget.

There is also the occasional wealthy individual who buys a second-hand model to sidestep showroom prices they consider to be exorbitant.

“We sell to a diverse group including entrepreneurs, CEOs, expatriates and other professionals,” says Reagan Kibugi, the managing director of Windsor Motors on Kiambu Road.

“Most are people who have made a few millions and want a high-end car for those amounts. There’s the occasional wealthy buyer who just wants a bargain.”

He gives the example of expatriates who may be given car grants of up to Sh3 million by their employers. He observes that for that sum, an expatriate seeking an SUV to use on Kenya’s bumpy roads has no choice but to visit the roadside yards where they may have to top-up to get their car of choice.

Kibugi says used luxury cars can be up to 50 per cent cheaper compared to those in local showrooms, with year of manufacture being the major determinant for the actual pricing.

Most of the traditional high-end makes like Mercedes, BMW, Range Rover and Toyota Land Cruisers can be had from as low as Sh4 million.

The bulk of used car dealers’ inventory is made up of seven-year old cars to minimise the impact of import taxes and ultimately maintain their price advantage over new car sellers. Imports of used cars are capped at eight years from the date of manufacture, with newer units attracting progressively higher taxes.

Using 2008 as the year of manufacture, a used Range Rover Sport is retailing at between Sh4.5 million and Sh5 million in Nairobi according to Anthony Wainaina of Executive Super Rides on Ngong Road. The price of a Toyota Land Cruiser starts from Sh5 million, a Mercedes ML ranges between Sh4 million and Sh5 million depending on the model while a BMW X5 sells from Sh4.2 million.

A brand new showroom Mercedes ML would go for an average of Sh6.1 million, a Toyota Land Cruiser at Sh8.2 million and Sh12.6 million for a BMW X5.

While most purchases are funded by bank loans, some individuals pay in cash especially when they choose to import directly or through agents who don’t want to hold stocks. One such agent is Karuoro Waithaka of Zero260 who processes orders from individual clients.

“They pay in cash,” he says, noting that he only charges a commission for identifying, paying for and shipping in the cars on behalf of his clients.

Paying for a car on the basis of online photographs and the word of an exporter has significant risks. This is why Waithaka insists that a long-standing relationship with exporters is important since they can make amends if it is established that an imported car has serious damages or mechanical faults.

He says Japanese exporters are generally more honest, attributing this to the fact that Japan relies heavily on exports to absorb its second-hand cars and would therefore not wish to dent that image with imports that do not meet expected standards.

Dealers in countries like the UK that have a large domestic market for used cars are less attuned to the interests of importers, Waithaka says.

Bargains are not to be found in used cars only. Dealers say they occasionally receive requests to import brand new cars on behalf of individuals seeking make huge savings.

Fuel quality

Kibugi, for instance, recently imported a 2014 five-litre Range Rover Sport for a customer who paid Sh15.7 million. The same petrol-driven model at RMA Kenya – the official Jaguar Land Rover dealer – will cost at least Sh18 million according to Kenya Revenue Authority price guidelines.

Besides savings, individuals also import new cars to get the latest models not yet available in local showrooms according to Waithaka.
Are there risks to these direct imports and purchases of used luxury cars from the roadside yards? One of the biggest controversies is the issue of after-sales service and spare parts.

A service centre run by a new car dealer is the best place to take any car for repairs and maintenance but owners of second-hand imports may not be welcome here.

“Several formal dealers actively discourage servicing of cars they did not sell,” says an industry source who sought anonymity due to sensitivity of the matter.

“If the vehicle manufacturers applies pressure on them, they agree to service the used imports but at higher labour rates.”

Even where there is no such discrimination, one can run into major problems if they buy a car not meant for the sub-Saharan Africa market. These include lack of spare parts and skilled mechanics to fix faults in a car that was designed for other markets like the UK or Dubai.

Kenya’s relatively poor quality fuel, especially diesel, can damage high-performance luxury cars intended for countries like Germany and Japan that have some of the cleanest fuel in the world.

Importers of UK cars, in particular, need to watch out for rust brought by use of salt to melt snow and ice on that country’s roads during winter.

While buying used high-end cars has several downsides, these are offset by the millions of shillings saved and a better motoring experience that gives owners a feel of the lifestyles of the wealthy.

Those who buy new luxury cars include billionaire investors, top politicians, CEOs of publicly traded firms, wheeler-dealers and inheritors of large family estates who constantly upgrade their cars to thwart the middle class catch-up game.

A Rolls Royce Ghost – one of the ultimate symbols of wealth – was airlifted to Nairobi earlier this month, marking the latest rush for ever more exotic cars as the rich seek distinction in their consumption. It was not immediately clear whether the Rolls was new or second-hand, because the UK-based Rolls-Royce Motor Cars offers both new and used models.

Wainaina, who has worked with one of the local new auto dealers, says he has observed a major wealth gap between those who buy new luxury cars and those who opt for their second-hand versions.

“Those who buy used high-end cars see major opportunity costs in the showroom prices. They would rather use the savings to invest in their businesses and other assets,” he says.

“Those who buy new luxury cars tend to be filthy rich individuals; mostly old money. They have several cars which they change after a year or two,” he says, adding that money is not a concern for this type of consumer.

New car dealers constantly court the same moneyed elite, sending them brochures of the latest luxury cars in a bid to entice an upgrade or defection from a rival brand. For the princely sums, which can top Sh20 million, they get limited warranties, the “new car smell” and the pleasure of avoiding bargain-hunting online and in dusty roadside yards.

The dealers won’t mention their names, underlining the classic Kenya’s elite aversion to any publicity surrounding their wealth and big-ticket purchases.

Secrecy in selling cars to the wealthy is apparently obligatory and indiscretion can starve a dealer of orders in that small, all-important circle.

Used car dealers are, however, determined to take luxury cars to the mass market and chip away at the line separating the wealthy from upstart millionaires.