Used Car Market Still A Challenge For Chery

One of the latest major deals in Zimbabwe's auto sector underlines BMI 's view that the used car market is one of the biggest threats to sales of new vehicles in many Sub-Saharan African markets. Local firm Knee Deep Investments has signed a Memorandum of Understanding with Singaporean vehicle trader Kheng Keng Auto to import second-hand vehicles from Singapore and operate after-sales services. As the deal is aimed at making these Japanese and European used cars cheaper and more reliable, it threatens the expansion plans of carmakers such as China's Chery , which s till comes up against a preference for second-hand cars.

Although Chery's expansion into Africa has been relatively successful since starting exports to the region in 2003, the company believes it could do more. In 2012, exports to the region grew 143% to 30,000 units, accounting for almost 16% of total exports. However, the China Association of Automobile Manufacturers (CAAM) recognises that there is still an image problem for Chinese brands. In a local press report in February, CAAM vice chairman Dong Yang said the low price is the only way for Chinese brands to compete with Japanese and European used cars, as they cannot match them on brand image and quality.

Long-Term Opportunities
Zimbabwe New Vehicle Sales (CBUs) And Vehicle Sales Growth (% chg y-o-y)

Deals such as that with Kheng Keng will not help new vehicle manufacturers, as it aims to bring second-hand vehicles to Zimbabwe at particularly low prices. The setting up of service workshops and spare parts centres means there will also be value-added after-sales support, which adds another level of competition.

Chery has looked to increase its competitiveness with local assembly facilities in Zimbabwe. The carmaker is also adapting vehicles for the local market. According to Chery's assistant general manager, Huang Huaqiong, 'the market should not be a mere copy of the domestic market' - which is why vehicles destined for Africa have been fitted with bigger wheels and petrol tanks to cope with the local terrain and hot, dry conditions.

Looking ahead, however, more will need to be done in terms of brand building and bringing the same level of technology and performance that can be found in used cars for a similar price. The CAAM believes this will involve more Chinese companies investing in domestic production to bring their technology to the local market, which aligns with BMI's own view that we will increasingly see brands from emerging markets expanding globally.

This article is tagged to:
Sector: Autos
Geography: Zimbabwe, Singapore

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