September 22, 2021

Policy somersaults drive auto industry off the roads

Policy somersaults drive auto industry off the roads

…Chinese brands make in-roads

N500b new investments rot away

Investors move to Ghana

Dealers see further decline, blame policy environment

By Theodore Opara

Against the backdrop of harsh operating environment, Nigeria’s automobile industry has recorded 400 per cent rise in prices of vehicles while volume of sales has declined 80 per cent in the last decade.

Also, local manufacturing capacity utilization has crashed to less than two per cent.

Industry operators have attributed the development to inflationary pressures, exchange rate, tariff and adverse policies, all impacting negatively on the automobile sector.

The combination of these factors, according to them, has stifled both local manufacture and importation of new vehicles.

Also, while production of major, locally assembled vehicles have reduced drastically compared to two decades ago, the imported ones are restricted to few brands whose patronage has declined massively.

From 2017 to 2020, a total of 42,166 new vehicles were sold in Nigeria, far less than one-year sales volume 20 years earlier. Only 9,000 vehicles were sold in 2017, while 11,500 and 12,836 vehicles were sold in 2018 and 2019 respectively. The volume dropped to 8,830 in 2020 as 2021 figures is set for further decline.

Five years earlier, between 2010 and 2013, averages of 50,000 new vehicles were sold annually, indicating about 80 per cent decline in the five years between 2017 and 2021.

Market shares

Vanguard market findings show that currently, Chinese brands are the main beneficiaries of the present challenges in the Nigeria auto industry as they are offered the opportunity to penetrate the market with less difficulty due to low prices and brand aesthetics.

Vanguard investigations show that prices of Korean models such as Kia and Hyundai have gone up astronomically, compared to their rates five years ago.

Also, some brands like Chevrolet, Isuzu, Brilliance, Chana, Lifan, Great Wall, Mazda, BYD, Zotye are hardly found in the Nigerian market in recent years. These brands had represented not less than 5.0 per cent of the auto market share in the country.

With the development, dealers say over 98 per cent of automobile sales in Nigeria are for imported used vehicles, up from 70 per cent two decades ago.

Price escalation

A major factor in the decline of fortunes in Nigeria’s new vehicle market is the sharp rise in prices. For instance, the price of Kia Rio which used to be one of the cheapest cars some years back has gone up by 260 per cent to about N9 million from N2.5 million in 2015, while Kia Cerato has gone up by 300 per cent to about N12 million from about N3 million during the same period. The Kia Sorento is now selling for over N25 million, about 316 per cent from N6 million in 2015.

The Ford Explorer’s price rose from N9 million to N35 million while Ford Ranger pick-up, Ford’s fastest selling model in Nigeria, rose from N4.5million to N15 million.

Toyota, the leading brand in the country few years ago is not left out. The price of Corolla, Toyota’s fastest selling sedan in Nigeria is now about N19.5 million, up by about 337.5 per cent from N4 million in 2015, while the flagship SUV Land Cruiser goes for more than N70 million, up by 178.6 per cent from N28million.

Luxury brands like BMW, Mercedes, Range Rover, Porsche, present same mind-boggling price skyrockets. The Mercedes-Benz E-class market price is over N50 million, up by 150 per cent from N20million, while the G63 AMG SUV is about N140 million, up 400 per cent from N28 million.

The Range Rover Autobiography, long and short wheel-base models with showroom prices of N45 million and N42 million respectively now cost N140 million and N110 million each to acquire.

Chinese brands which are gradually making waves in the nation’s auto market are no exceptions in the price acceleration. As they improve in standard, design and popularity, the price tags are also on the rise.

The two leading Chinese passenger car brands, JAC and GAC also have their share of price increases. Though they do not present many models like the Japanese and Koreans, prices of the few available ones have tripled. The price of the GA3 saloon, GAC, has risen by 200 per cent to N9million from N3 million, while the GS5 which was replaced by GS4 SUV increased 160 per cent to 13 million from N5 million. The top of the range model, GS8 SUV, now has a showroom price starting from N25 million, over 100 per cent increase from N12 million when it was introduced just four years ago.

Historic slide

It should be recalled that at the height of the local assembly era in Nigeria (1980s) local production grew to over 200,000 vehicles annually and young graduates were able to buy new cars from their salaries and savings at a price range around N5,000. This amount cannot buy a used car tyre under the present dispensation.

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At the moment, most of the assembly plantsset up then have either gone moribund or are operating at less than two per cent of their installed capacities.

The assembly plants then included Peugeot Automobile Nigeria Ltd, Kaduna; Anambra Motor Manufacturing Company, ANAMMCO, Enugu; Leyland Nigeria Ltd, Ibadan; Steyr Nigeria Ltd, Bauchi; and Volkswagen of Nigeria VON, in Lagos.

Presently, all these plants which were set up to produce passenger cars, trucks and buses are shadows of themselves. Though the Federal Government has been striving to revive the auto industry with the introduction of a new auto policy, the efforts have so far been without much result.

 Failed investments, govt plans

At the recently concluded Lagos Motor show, Director-General of the National Automotive Design and Development Council, NADDC, Engr Jelani Aliyu, said that as at 2019, local auto manufacturers had invested more than N500 billion in assembly plants, with installed capacities of 400,000 units of vehicle per annum.

According to him, the huge investments are yet to yield the desired result due to many factors, including lack of patronage.

He, however, promised that the Federal Government will unlock the potentials of the auto industry with a view to supporting the investments.

He also hinted that the revised draft of the National Automotive Industry Development Plan, NAIDP, Bill is ready and will soon be sent to the National Assembly as an executive bill, adding that the bill will become law before the end of this year.

Aliyu said: “We strongly believe that the only viable future for Nigeria is one of industrialisation and the automotive sector plays a significant role in the industrialisation of any nation”. Pointing out that the electric vehicle is the next frontier in the automotive sector which should be embraced by Nigerians, the NADDC boss added:

“There is infrastructure on ground; when you look at these vehicles here, these companies and more have invested over N500billion in their plants, so they believe in Nigeria.

“Ability to build these vehicles exists, it is something we are charging, it is not something that will happen in the next five or ten years. It exists already,” he said, while referring to the launch of electric cars charging station at the University of Lagos.

 Egypt, Morocco, S-Africa dwarf Nigeria

 Reports on auto industry trends in Africa also show that Nigeria has deteriorated to insignificance, while competing economies such as South Africa, Morocco and Egypt dominate the sector.

According to the President of African Association of Automotive Manufacturers, AAAM, Mr. Mike Whitefield, South Africa produced 631,921 vehicles in 2019, and sold 536,612 vehicles in the country as against 10,000 new vehicles sold in Nigeria the same year.

Morocco accounted for 394,652 while Egypt produced 94,000 during the period. Altogether, Africa produced 1.1 million vehicles in 2019 and Nigeria made no significant contribution.

Industry leaders speak

Also speaking to Vanguard, the Managing Director of BKG Exhibitions, organisers of the Lagos and Abuja motor shows, Mr. Ifeanyi Agwu, stated: “This is indeed a challenging time for the Nigerian auto industry, a lot of companies have closed shop while a large number are merely existing and direly in need of support.”

According to him, the automotive and road transport sectors are very important as they not only show physically the state of a nation’s economy, but generate revenue and create enormous employment, adding: “It is the artery of the economy and if it is badly affected, other sectors suffer. Economies that know their worth do not handle issues in the sector with kid gloves.”

He lamented the recent Finance Act which he said should reduce duty for imported fully built vehicles, urging  stakeholders to resist the avalanche of policy somersaults and economic downturn to squeeze life out of the industry.

“We cannot afford to always slaughter long-term goals on the altar of short-term and immediate gain as contained in Section 38 of the Finance Act 2021,” Agwu said.

It should be recalled, the Chairman of Innoson Vehicles Manufacturing Company Limited IVM, Chief Innocent Chukwuma, cautioned that the Federal Government’s plan to reduce import duties and levies on buses, tractors and other motor vehicles as contained in the 2020 Finance Bill will be a disincentive to investments, in addition to setting Nigeria’s automotive industry back by at least 10 years.

The Innoson boss who described the Federal Government decision as shocking said that it will lead to closure of many auto plants and job losses in no time.

Chukwuma, argued that a reduction in duty on imported vehicles will lead to massive importation of fully-built-up (FBU) vehicles, resulting in unfavourable competition that is likely to run Nigerian auto makers out of business.

He said the duty review is an embarrassing policy somersault considering that the present charges on imported vehicles were prescribed by the  National Automotive Industry Development Plan (NAIDP) to discourage the influx of fully built up products while helping to boost production by the domestic auto plants.

Also, Mr. Kunle Jaiyesimi, Deputy Managing Director of Massilia Motors, while speaking on the state of the nation’s auto sector said that the Finance Act which reduced duties on imported vehicles should be a cause for concern for Nigerian assemblers. He said: “To the assemblers, they are not happy with the Finance Act. It is making the locally assembled vehicles non-competitive compared to the fully built units. Examples are the Mitsubishi Fuso and Canter that we are assembling. It is cheaper to bring them in as FBU (Fully Built Unit) than assembling them locally. And that has affected our production lines.”

The Federal Executive Council (FEC) had on Wednesday, November 18, 2020 approved a reduction in duties on tractors from 35 per cent to 10; reduction of duties on motor vehicles for the transportation of goods from 35 per cent to 10 per cent; reduction of levy on motor vehicles for the transportation of persons from 35 per cent to five per cent.

 Auto investors move to Ghana

 Meanwhile, the Executive Secretary of Nigeria Automotive Manufacturers Association, NAMA, Mr. Remi Olaofe, has expressed worries about the Nigerian auto industry as investors now prefer Ghana to Nigeria. He said: “Africa Bilateral Free Trade Agreement has taken off and where is Nigeria in the scheme of things? Assembly plants are now moving to Ghana. What do we stand to gain? Toyota, Hyundai, are being assembled in Ghana, are they for Ghana economy? I can tell you that their target market is Nigeria.”

Vanguard News Nigeria