Peugeot makes comeback into Kenyan market with Sh1.2b deal

PSA Group Executive Vice-President, Africa-Middle East Jean-Christophe Quémard (sitting left) and Urysia Ltd Jean Claude Muenda sign an agreement during announcement of Industrilization Agenda at State House, Nairobi. (Photo: Boniface Okendo/Standard)

Peugeot signed a Sh1.2billion deal with the Government in a deal that will see the French automaker make a return to Kenya.

The move comes barely a month after President Uhuru Kenyatta inaugurated an assembly facility in Thika for Volkswagen. The German car maker assembled 25 vehicles in its first week of operation.

Peugeot, on its part, has set its target at 1,000 vehicles every month. The two will now join Toyota, General Motors East Africa, Simba Colt, CMC, DT Dobie, Crown and Tata which have been the players in the assembly of cars in the country.

In a signing session at State House Nairobi attended by President Uhuru Kenyatta,  French Finance and Economic minister Michel Sapin, Peugeot Executive Vice President Jean-Christophe Quemard said it would be ‘relatively easy’ to reclaim the Kenyan market.

“We already have a market experience in Kenya. But usually in such businesses, it depends on the capacity and appetite of the products,” said Quemard.

In Kenya, Peugeot will be partnering with Urysia Ltd, its local dealer in the new venture.

Quemard said the firm had invested Sh1.2 billion in the initial phase of the project that seeks to produce five of its leading brands in the market, among them the Peugeot 508 and 308.

Job opportunities

“This will also provide direct employment to 200 Kenyans with more hundreds indirectly,” he said.

French Finance Minister Sapin described the re-launch of Peugeot as a sign of trust and confidence from his country in the development and economy of Kenya.

“...and this will even call for more investment from France in various development projects,” Sapin said.

President Kenyatta said the Government was determined to ensure the country had a conducive environment to attract industries.

“We have cut the red tape and flexed the rules and regulations—especially on cutting the interest rates on loans—which has realised progress such as revitalisation of the Pan Paper Factory and the Standard Gauge Railway (SGR) that will reduce the cost of transport,” said President Kenyatta.

As a result, the President said his government expects more job opportunities for the youth and improved lifestyles for marginalised people.

Speaking during the ceremony, Industrialisation Cabinet Secretary Adan Mohamed said local markets were quite complex.

“But the biggest challenge for industries is the influx of second hand products—whether in automobiles, textile or leather—which needs a strategic plan to phase out, by promoting the Buy Kenya Build Kenya initiative,” noted Adan who was accompanied by Foreign Affairs CS Amina Mohamed, Treasury CS Henry Rotich and Industrialisation  Principal Secretary Julius Korir. 

But even as these carmakers make grand returns, questions linger on what might have lured them back after official data showed that car sales by Kenyan assembly plants plunged.

The volume of vehicles sold last year plunged 30 per cent, with the industry selling about 13,535 vehicles in 2016 compared with 19,523 units sold in 2015.

New entrants

In the second quarter of 2015, car assembly experienced the slowest growth at 3.2 per cent. 

Car sales were also at their lowest in the month of November, with all the main car dealers selling a total of 1,078 cars, a unit more than the total sales recorded in January, according to industry reports.

Total year-to-date industry sales for November 2016 stood at 12,610 units compared to 18,077 sold in the same period 2015, resulting in a 30 per cent decline.

According to figures from the Kenya National Bureau of Statistics (KNBS), in 2015 about 10,810 vehicles were assembled in the country, up from 951 pieces in 2014.

Car dealers have had to contend with intense competition from second-hand vehicles because of their low cost.

With car assembly shrinking, it is not clear where the new entrants will find their foothold. However, it is worth noting that Volkswagen already has a head start, having cut a deal with the Government to have all its officials drive the Passat.

The fact that the entry of Peugeot is also being mid-wifed by the governments of Kenya and France is also quite telling. Some observers will be quick to read a government-to-government agreement in which Peugeot are promised to some government sales.

Despite being dogged by an emission-cheating scandal, Volkswagen still sold the most cars in 2016.

The German automaker surpassed Toyota in the number of car sales it made last year to become the world’s largest car seller in the year. It sold 10.3 million units in 2016 up from 9.9 million it achieved in 2016. This was a 3.8 per cent increase.