Monday, October 31, 2011

Tata to set up $20 million motor assembly plant in Kenya

Tata Africa will next year build a $20 million (Sh2 billion) motor vehicle assembly plant in Kenya to tap East African demand and challenge Chinese assemblers eyeing the country.

The Indian multinational is expecting to churn up to 5,000 units of pick-ups and light commercial trucks as the twin brands emerge the fastest selling units in the region.

It joins Chinese car makers Chery Automobile and Beiqi Foton Motors in seeking a piece of the locally assembled units in a market that has been dominated by Thika-based Kenya Vehicle Manufacturer (KVM), the Association of Vehicle Assemblers (AVA) Limited of Mombasa and General Motors East Africa (GMEA).

Tata moves will shift the business rivalry between China and India to East Africa as the twin nations have competed vigorously over trade, energy investments, even border tensions.

“We are looking at establishing an assembly plant in either Kenya or Tanzania in the short-term, but Kenya appears to have better infrastructure,” said Naresh Leekha, the executive director of Tata Africa.

“Local assembly will give us a price advantage that we expect will lift our market share in the commercial trucks market from the current fourth position to the third position.”

Tata has emerged as a major supplier of vehicles to the booming construction market, including tippers and concrete mixers.

It sold 800 trucks in the year to March—ranking among the top players in this segment alongside Simba Colt, DT Dobie, and CMC Motors.

Mr Leekha said that Tata could alternatively buy a significant stake in the existing assembly plants such as KVM and AVA if their shareholders are willing to sell.

Toyota Corporation has also expressed interest to acquire half of AVA to assemble Hino trucks and buses locally and tap the rising demand for heavy commercial vehicles in the region. So far, the auto dealers ship in built vehicles in what has denied them room to lower prices because of high freight and duty charges.

Pricing headroom

Duties on locally assembled units are zero per cent against 25 per cent for fully built units, giving assemblers like Tata greater pricing headroom to deploy its low cost business model.

The new assemblers are looking to use Kenya as the launching pad for entry into the regional common market, reaffirming Nairobi’s position as East Africa’s economic hub.

The expansion of Tata’s operations is set to benefit smaller auto dealers such as Marshalls East Africa, Banbros and Ryce Motors Bamboos who have been distributing the Indian manufacturer’s vehicles for years.

Chinese vehicle manufacturer Foton is building a $15 million (Sh1.5 billion) assembly plant in Nairobi while Chery Automobile has a $50 million (Sh5 billion) plan.

The entry of Tata, Chery and Foton in this segment is set to stiffen competition against Japanese and western brands such as Isuzu, Nissan, and Toyota.

Sources: Business Daily Africa

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