Energy & Mining

A Time For Replacement

Automotive

Toyota argues that the current level of second-hand imports not only affects local new auto sales, but that they also contribute to “a lot of accidents on our roads.” Most […]

Toyota argues that the current level of second-hand imports not only affects local new auto sales, but that they also contribute to “a lot of accidents on our roads.” Most of these accidents occur between poorly maintained vehicles that are a decade or more old. On the other hand, Toyota wants to provide the country with “world-class services” and safety-approved vehicles by highly trained staff. In this manner, they are seeking to not only improve minimum security standards on the roads, but provide the Zambian population with skilled training and new jobs in the auto service sector through the opening of new after-sales service offices.

Still, the reason for the popularity of second-hand cars in Zambia has always been a matter of income, as brand new cars have often been too expensive for the average hip pocket. Over 2013, estimates for new car registrations were at 4,124 units, with Michael Bentley of Action Auto hoping that the market would rise to sales of 4,400 units over 2014. For a population of some 15 million, such sales levels are a drop in the bucket. One of the major issues hampering the new car market has been the impact of local taxes, which can vary from 46% on a standard sedan up to 96% of the cost price for larger models. Combine that with the high freight fees to import vehicles into the country, and you have a recipe for depressed new unit sales.

One of the traditional barriers to buying a new car has been that of access to financing. Traditionally, auto sales in Zambia have been conducted using cash as the main means of payment, with consumers either saving up the money on their own, obtaining financial assistance from family members, or resorting to local money lenders. However, as the banking industry has begun to understand the importance of this potential market for consumer finance, it has started reinterpreting the ways collateral for loans can be understood, and is now wading into the auto finance sector. In response, Toyota is planning on opening a new division in Zambia that will provide financing options to its growing customer base.

Furthermore, Zambia is planning on developing and better maintaining its road infrastructure, which could mean the dominant role of the ubiquitous 4×4 may soon be surplanted by the sedans more commonly seen on city roads around the world. As the roads become more accessible to other type of cars, the range of vehicles available in the market will broaden, allowing low-cost Asian producers, especially those from China, to enter the market.

MAKE IT MINE

Positive economic growth in the country, as well as the ongoing development of its mining and agriculture sectors, has seen one company catch the need to begin producing locally assembled trucks. ZAVEMA used to sell second-hand cars, but it recently partnered with First Automobile Works (FAW), the oldest vehicle manufacturer in China, and in 2014 started assembling trucks from completely knock-down kits (CKDs). As a result, ZAVEMA has become the first vehicle assembly plant in Zambia. Its strategy of importing the individual parts of a vehicle, and then assembling them in Zambia instead of importing an already assembled truck, will enable the company to compete against the second-hand automobile industry in Zambia by reducing the final sale price of its vehicles by up to $25,000, according to its Managing Director, Donavan Gray. As well, the company is looking to be able to offer clients a level of customization in its trucks that is not presently on offer in the local market. The company will receive 70% of the parts from FAW’s manufacturing facilities in China and South Africa, and then manufacture the remaining parts in Zambia. By doing so, the company aims to reduce vehicle costs by 25% to 30%, as well as create new skilled jobs in the manufacturing sector. Although it is still early days, ZAVEMA hopes to produce 1,000 units per year over 2015, seeing its workforce increase nearly five fold to 600 employees over the ramp up period.

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