May 1, 2008
Price war rages in used car trade

By John Vianney Nsimbe

Ten years ago, John Gakibayo had a dream to become one of the richest Ugandans by selling used cars from Japan. His dream was perhaps influenced by the thriving market for reconditioned cars in Uganda and neighbouring countries.

But ten years into the trade, this dream is still elusive. Reason?
“I am letting go of this business because I have realized it is hard for me to get my way around it,” said Gakibayo recently.

Gakibayo says a powerful group of business people from Pakistan, with financial ability to import more vehicles has created a price war that is driving financially weak traders out of business.

“I have realized I just can’t compete with these people,” he said.
Gakibayo represents the growing number of Ugandans who cannot cope with the cut-throat competition, which some claim involves price undercutting by the foreign investors seeking to take market leadership.

Local dealers are suspicious of the huge car imports by their competitors from Pakistan. “There is a danger in this used car trade… and government must become very vigilant because you may find an influx of used stolen cars. It is very unusual how such dealers can import cars from the same market we do but then sell them at the price we buy them,” says Gakibayo .

The stiff competition in the business has been caused by the burgeoning corporate sector which buys vehicles through hire purchase arrangement. This competition has also been fueled by commercial banks enticing salaried employees, earning as little as Shs 500,000 per month, to sign up for car loans.

Commercial banks have partnered with car dealers where a salaried employee can own a car after paying 20% of the value of the car upfront.
This strategy by commercial banks of targeting bigger car dealers against the smaller importers (many of whom are local), could also be the reason for the lower prices quoted by foreign importers.

Timothy Kalibala, a used car dealer, said that because the foreign business men import a lot of cars, they are able to set their own prices.

“In the event that I import five cars, the financial muscle of the foreign businessman allows him to buy at least 100 vehicles at a go, which I can’t afford and as such I wouldn’t be able to sustain my business,” he said.

Kalibala added that “a car that would normally cost Shs 15 million, the Pakistan businessman would sell it at Shs 12m and he would not feel the pinch.”

Khurram Abbas, the operations manager of Al-Malik Group says that they are relatively cheaper because his company has its own agents in Japan who buy cars from first owners. He said they do not go through middlemen to buy cars from like the local traders do.

And to make matters worse most of the bonded houses where these traders keep their cars before they are cleared by Uganda Revenue Authority (URA) are owned and managed by Pakistanis. The traders are charged Shs 2,500 per day for keeping their cars at bonded houses.

But Hentie Stemmet, Stanbic Bank’s Head of Vehicle and Asset Financing defended his bank’s partnership with foreign owned firms like Yuasa, Al Malik, Cosmos, explaining that “these dealers offer customers guarantee on the quality of imported vehicles and that they come onto the market legally with genuine parts and engines.

Yet, while the likes of Kalibala complain, their Asian counterparts say that they are doing a service to the economy by creating employment for Ugandans. Khurram Abbas, the operations manager of Al-Malik Group, dealers in Japanese used cars said, “We have 150 workers, most of whom are Ugandans that work at the warehouse and transport the cars.”

Also URA is basking in the joy of beating its revenue collection targets partly because fees from import taxes are more than those from domestic taxes. Currently, new or used cars are charged 54% depending on their value. On the other hand, imported cars that are eight years and above old are taxed an extra 10% environment levy.

But Gordon Wavamunno, Uganda’s longest surviving car dealer, believes government is shortsighted to let foreigners dominate the car industry. He said that the economy stands to lose a lot when foreigners repatriate profits to their countries.

“It is so unfair that Pakistanis continue to have the lion’s share in this business,” said Wavamunno, who imports Mercedes Benz, Jeep Cherokees and Daimler Chryslers, adding that “most nations have a policy to protect their people especially when their job opportunities are encroached on, unfortunately this is not done in Uganda.”

Wavamunno, who was lost to a foreign company, Motorcare, to a multi-million dollar deal to supply cars for the Commonwealth Heads of Government Meeting (CHOGM), explained that while the Pakistanis might pay more taxes their businesses here might lead to “capital flight and also less job opportunities for Ugandans.”

It is a view that Gakibayo might agree with. For the moment, there is no love lost between Ugandans and their Pakistani counterparts.