Understanding the reasons behind rising car prices

A visit to a number of websites will definately make you wonder why the cost of cars has lately hit the roof. This increase in price can also be noticed on social media while viewing people’s statuses. For example, when you view Raul Kanyike, a car dealer’s status, you will notice that the cost of a 2400cc Toyota Harrier 2009 model is Shs53m.

The situation is not any different when you visit the Next Rides Uganda Instagram page which indicates that the cost of a seven seater 2014 model Mitsubishi Pajero with a 3200cc engine is Shs100m. On the same page, the cost of an automatic Toyota Vitz 2015 model with a 1500cc engine is Shs30m while a 2016 model Subaru Forester XT with a 2000cc engine costs Shs75m.

However, some cars such as the Toyota Mark X, which by local standards have a low resale value, are still being sold at reasonable prices. For example, the 2014 model with a 2500cc engine and UBJ number plate series is being sold at Shs35m while a Mercedes Benz E-Class 2010 model with UBP series is for sale at Shs65m. But why are car prices on the rise?

Ban on importation of old cars 

Saeed Bilal, the sales manager at Yuasa Investments Limited, says the ban of importation of cars older than 15 years in Uganda has led to the increase in the price of many cars.

“The best example is the 1998 or 1999 model Toyota Premio that cost Shs21m or Shs22m. Today, you cannot import a Premio that was manufactured before 2011. The newer the year of manufacture, the higher the price. The prices are high because there are no older options,” Bilal explains. 

The effects of Covid-19

Gilbert Wavamunno, the managing director of Spear Motors Limited, says globally, Covid-19 broke the global car supply chain. Because of prolonged lockdowns, car manufacturers depended on some small companies that make and supply millions of car parts such as screws, plastics, floor mats, door bolts, batteries and leather as well as other parts because not all parts are produced in the car factories.

If, for instance, there was a three-month lockdown, it meant that car manufacturers such as Toyota were giving small companies parts supply orders yet these small companies had employees to pay for the three months with no profits. It also meant that car manufacturers negotiated with supplying companies for the cheapest cost of, say, a car floor mat to make it cheaper because they want to reduce the cost of the vehicle.

This is just one supplier yet there are millions of suppliers for different manufacturers. If a bunch of suppliers went broke because they did not have money to pay salaries, various suppliers shut their businesses. Car manufacturers had to find new suppliers to make floor mats, sometimes with no capacity to make one million floor mats a month. As such, the demand for cars fell after lockdown because of the effects of Covid-19. Manufacturers reduced the quantities of parts they ordered from different suppliers.

“To remain afloat, suppliers increased and dictated the price of parts because car manufacturers reduced orders of certain parts. A floor mat the manufacturer bought from the supplier at $10 (Shs37,000) would be increased to $50 (Shs187,000) yet the manufacturer had to make an order for six months or one year. In the end, the manufacturer resorts to the car and adds some money on the cost because they were also charged an extra cost on one of the car accessories because not every part is built from the car factory. When all is done, the price of the car increases,” Wavamunno explains. 

Shipping hurdles

Sometimes ships that transport cargo, including cars, are not enough which pushes the shipping rates up. For example, shipping rates have recently gone up by three times due to lack of access to the Red Sea. This means that ships that ferry cars to Africa and other continents have to search for secure and safer routes, whwhich takes more time and fuel. In the end, the cost of cars, including used ones, also goes up.

“The shortage of affordable cars is not yet sorted globally because the quickest new car factory starts operations at the end of 2024. The overall demand in the world went down because people went out of business, others lost jobs, while some customers died. The demand is not as high as before Covid-19,” Wavamunno argues.

The effect of European wars 

Ukraine was supplying fibre optics and leather to most car manufacturers. Because of the war with Russia, car manufacturers had to find these materials elsewhere, yet there was no country ready with the same materials waiting for manufacturers. It means that new supply points had to be started and whichever starting supplier had to charge the manufacturers more money as capital expenditure. Similarly, other wars such as the Houthis war by the Houthi fighters in the Red Sea that target all ships means ships transporting goods, including cars, have to be diverted to other routes. This indirectly affects the cost of many cars, usually leading to increased prices.