US truck company sales drop by 90 percent

Sales of new and used truck by US company Tyco dropped by 90 percent from 1999 to 2004 the company’s general manager John Stuart said.

The company sold 300 trucks in Zimbabwe in 1999 but this dropped to 24 in 2004.

The company did not sell a single truck in the first six months of 2004 because of new rules and tariffs.

Stuart said sales for parts had, however, increased three-fold as transport firms tried to lengthen the lifespan of their vehicles.

Stuart blamed the drop in sales on the exchange rate and tariffs introduced by central bank governor Gideon Gono.

Full cable:

Viewing cable 05HARARE295, TYCO TRUCK SALES OFF 90 PERCENT IN ZIMBABWE

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This record is a partial extract of the original cable. The full text of the original cable is not available.

C O N F I D E N T I A L HARARE 000295

SIPDIS

AF/S FOR BNEULING

EB/IFD FOR FCHISHOLM

NSC FOR SENIOR AFRICA DIRECTOR C. COURVELLE, D. TEITELBAUM

TREASURY FOR OREN WYCHE-SHAW

DEPT PLEASE PASS TO ALL AFRICAN DIPLOMATIC POSTS

ALSO PASS TO USAID FOR MARJORIE COPSON

E.O. 12958: DECL: 12/31/2009

TAGS: ETRD PGOV ZI ECON EINV

SUBJECT: TYCO TRUCK SALES OFF 90 PERCENT IN ZIMBABWE

Classified By: Ambassador Christopher Dell for reason 1.4 b/d

¶1. (C) Summary: The head of U.S. firm Tyco,s local

subsidiary told Econoff on February 10 that truck sales

plummeted 90 percent from 1999 to 2004. On a brighter note,

Tyco now sells three times as many parts as in 1999, since

transport firms are trying to lengthen the lifespan of each

vehicle. Still, the Tyco representative asserted that the

country’s aging truck fleet makes Zimbabwe’s roads

increasingly hazardous. End Summary.

——————————————— ——–

Currency Auctions a “Joke;” Sales Plummet

——————————————— ——–

¶2. (C) Tyco General Manager John Stuart told us his firm,s

local sales of new and used trucks in Zimbabwe peaked at 300

in 1999, then dropped in each of the subsequent four years.

Sales fell to a mere 24 in 2004. Stuart blamed the most

recent drop on the Reserve Bank (RBZ)’s currency auctions and

higher taxes. At the auctions, which RBZ Governor Gideon

Gono introduced in January 2004, Stuart said too many buyers

are chasing too little foreign exchange. Tyco’s potential

truck buyers came up empty repeatedly in a process Stuart

disparaged as a “joke.”

¶3. (C) Stuart said Gono’s decision to peg import duties to

the auction rather than the former official rate also

discouraged vehicle imports by raising the end-price of the

trucks, as duty on the trucks rose approximately 80-fold on

December 1, 2003. Finally, Gono tacked on a new 15-percent

value-added tax (VAT) to vehicle sales in January 2004. As

Tyco,s customers tried to come to terms with these new rules

and tariffs, the company did not sell a single truck during

2004’s first six months, according to Stuart.

¶4. (C) By July 2004, however, Stuart recalls that many of his

clients gave up on RBZ currency auctions and became

accustomed to acquiring foreign exchange through the parallel

market. Sales picked up and averaged six trucks per month

for 2004’s second half. Stuart said he knows of cases where

competing dealers that sell non-Tyco trucks have bribed

customs officials in order to escape payment of duty and VAT.

Dealers that resort to these measures often avoid long

delays for incoming new trucks at border stations, which in

Tyco’s case are often six weeks, Stuart said.

———————-

Unsafe Roadways

———————-

¶5. (C) While sales of imported new and used trucks have

suffered, Stuart noted that Tyco’s parts sales are booming.

The company turned over its parts stock three times in 1999,

but eight times in 2004. Stuart said transport firms are

apparently using older and older trucks, which is making

Zimbabwe’s roads more dangerous. Stuart said the country’s

Vehicle Inspection Department no longer spot-checks trucks

for safety compliance and only requires each transporter

bring its fleet to inspection points once each year. The

Tyco general manager knows of instances where truckers

swapped parts among vehicles to obtain annual certification

for the largest number of trucks.

———–

Comment

————

¶6. (C) As Tyco’s case demonstrates, the RBZ,s managed and

overvalued exchange rate has not only hurt the country,s

exporters, who became less competitive during 2004, but also

importers, such as Tyco’s customers, who are unable to

purchase foreign exchange through official RBZ channels.

Moreover, when and if these importers brave the parallel

market, they pay a heavy premium and risk GO

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