COVID-19: What the Pandemic Means for Auto Financiers

By Patricia Andago

People around the world have been undergoing a series of changes in their behaviour, mainly impacted by shrinkage in their earning abilities and plunging consumer confidence. Increased uncertainty is making individuals and businesses much more cautious about their cash flows, and non-essential expenditure has taken a hit. Vehicle sales have declined around the world.

From January to June 2020, the passenger car market fell 23% in the United States, 27% in China, and 43% Europe-wide.  Some of the best selling used Japanese brands in the Kenyan market have announced major expected global profit drops. Toyota expects profit to drop 80% this year, its lowest in nine years! Nissan said the value of global sales plunged 50.5%. In Kenya, data from the Kenya Motor Industry Association shows that the sales of new motor vehicles dropped ~26% in the first half of the year. Toyota Kenya experienced a 39% decline in sales in the 4 months from March to June, compared to the same time last year.

2020 started off as a great year for auto dealers in Kenya with ~9% growth in new vehicle registrations from January to March, compared to 2019. Luxury cars from brands like Range Rover, Porsche and Mercedes experienced a 73% increase in demand during the same period. The announcement of the first Coronavirus case in Kenya changed things fast and a significant decline in new vehicle registration was reported in April and May. Many middle-class citizens, the ones who form the bulk of car owners in Kenya, already had a “weekend driving” culture even before COVID-19 (many park their cars during weekdays and only use them on weekends, while those without cars tend to hire them for weekend use). Now, with the pandemic having triggered a recession, some Kenyans are postponing car purchases.

Car sales have been down with new vehicle registration declining by ~39% between April and July. Furthermore, some Kenyans have ceased servicing any financing related to their cars including car loans and car insurance.

Source: KNBS

For public transport, there has been a decrease in the number of passengers partly because of social distancing measures and partly because of the higher cost of transport. In May 2020, public transport costs had increased by 51.7% resulting in ~14% of Kenyans opting for alternative forms of transport.

Bodabodas, which have become a popular means of transport in Kenya (there are over 600,000 motorcycle taxis operated by youth in Kenya according to the Motor Assessors Association of Kenya), have also experienced a plunge in sales. Government restrictions on movement resulted in a 64% decrease in new motorcycle registrations between April and May 2020, the lowest decline in vehicle registrations reported for all types of vehicles.

Source: KNBS

How are auto financiers are responding?

According to a report by the Central bank of Kenya, the profile of restructured loans includes bus companies, vehicle assemblers, freighters and logistics companies and tours transport companies. Additionally, motor vehicle dealing companies have been reported to be some of the borrowers of cash reserve ratio (CRR*) funds. An increased attrition rate of auto dealers is likely, leading to an increase in banks’ non-performing loans, and eventual overall decrease in the market size for this sector.

Leniency and improved technology

A bank manager at KCB Bank Kenya told Odipodev that the bank is being more lenient at this time by offering loan modifications for auto loans such as moratoriums for those who have lost their jobs, or loan restructures for customers experiencing pay cuts. Stanbic Bank Kenya has restructured car loans valued at Kshs 1 billion. Other stakeholders have also participated in the negotiations of repayment of vehicle financing loans, adding pressure to financial institutions to exercise leniency at this time. For example, Uber Kenya has been helping their drivers to get suitable repayment arrangements.

It is likely that the financial impact of COVID-19 may outlast the actual pandemic, and auto financiers are being careful to maintain good relationships with their customers and build trust. NCBA Kenya renewed its partnership with Toyota and Suzuki to provide asset financing through their online platform, maintaining the role of providing financial access while taking advantage of technology to improve their services by making them accessible remotely.

However, not all defaulters have been spared, as some top auto lenders have reported auctioning of commercial and personal vehicles. Stanbic Bank has advertised the auctioning of 72 vehicles, including 31 Uber Chap Chap vehicles while NCBA Kenya has put at least 51 commercial and personal vehicles for sale.

With some Kenyans posing the question: “Why pay insurance when my car is now parked most of the time?”, auto insurers have also had to adjust their operations. Heritage Insurance is using telematic devices to collect data on their customers to provide usage and miles-based insurance. Motorists with reduced driving will pay discounted premiums. The insurer also offered a 15% discount to motorists on the motor cover for the months of May and June 2020.

On the bright side…

While most Kenyans have put a halt to luxury spending, wealthy Kenyans have maintained their non-essential spending and some are even upgrading their vehicles to more prestigious selections. DT Dobie and Inchcape have reported a recent increase in orders for new high-end cars, and they expect their sales to soon reach pre-COVID-19 levels.

Data from the Kenya Motor Vehicle Industry Association shows that demand for BMW and Mercedes brands drove the rise in orders for high-end cars by 14.5% between January and June 2020, compared to the same period last year. This category of consumers who have defied the economic impact of the Coronavirus is willing and able to invest in financial products that enhance their purchase and usage of luxury vehicles.

New vehicle registrations for all car types (buses, saloon cars, lorries, motorcycles, etc) are also on the rise (refer to graph 1 above). The year-on-year decrease in June was 14%, and 16% in July, a significant improvement from the 69% decline in April and a 57% decline in May. The market is definitely picking up as more Kenyans go back to work. Investors are also showing confidence in the recovery of the automotive sector. Simba Corporation has recently signed an agreement with Malaysian car brand Proton to assemble cars for the Kenyan market from November 2020. The government is also planning to purchase locally assembled vehicles worth Kshs 600 million to boost performance in the sector. Auto financiers can therefore expect a recovery from credit lent to this sector by end of next year, as long as government directives continue to encourage mobility.


CRR*: Cash Reserve ratio: Minimum amount of deposit that the commercial banks have to hold as reserves with the Central Bank


Patricia Andago is the product development lead at Odipodev, a data science and analytics firm operating out of Nairobi Kenya.

This work is supported by the Heinrich-Böll Foundation.


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