…Dealers run out of stock
By Moses Akaigwe and Uche Usim, Abuja
When the Federal Government introduced the new automotive policy in October 2013 to join the list of initiatives centred on backward integration and import substitution many Nigerians hailed the bold step taken to wean the country’s over-reliance on dumped rickety vehicles.
The government was also commended because many felt their age-long dream of owning a brand new vehicles, under friendly business arrangement, was in the works, despite the doubts expressed by the National Assembly over the affordability of vehicles assembled in a nation lacking steady power supply, raw materials and other needed components.
However, four years down the line, expectations of Nigerians seem to have been dashed with the prices of new and used vehicles quadrupling, way beyond the reach of the average Nigerians, who are the major target of the programme.
Today, both the vehicle assembly plants and importers are battling to remain in business due to the scorching operating environment occasioned by recession, protracted foreign exchange (forex) scarcity, high clearance costs and poor infrastructure.
At the inception of the idea, no Nigerian, except few experts, had an inkling that recession would jolt the nation three years after. The exchange rate was as low as N109/$1 at that time but within the last few weeks, it went as high as N550/$1 until the Central Bank of Nigeria (CBN) reviewed its forex policy and launched a Naira revival strategy.
Checks by Daily Sun reveal that a new Toyota Landcruiser SUV, which sold for N14 million in the last three years is now hovering between N50 and N60 million. The same goes for other brands like Honda, Nissan, among others. For used vehicles, 2004/5 Toyota Camry Sedan that was hitherto N980,000 is now N2.2 million. A Lexus RX-300 SUV 2002 model that was formerly N1.35 million is now N2.8 million. These prices could be slightly lower or higher depending on where the vehicles are displayed.
As is the case in all import-dependent industries across the economy, the assembly plants say they have also been battling with the challenges of bureaucracy, aside sourcing the scarce forex for the importation of the required (semi or completely) knocked down components. And even when they are able to surmount the odds, the unusually high cost of vehicles produced discourages patronage.
Confirming this at his company’s assembly plant, United Vehicle Assembly Limited (UVAL), in Isolo, Lagos, the Managing Director of Kia Motors Nigeria, Mr. Jacky Hathiramani, lamented the effect of the paucity of forex supply on prices, volume of production and patronage.
He, however, disclosed that regardless the enormous challenges, UVAL, which assembles almost all Kia models available in the local market, has continued to produce without ceasing.
“Forex has affected the prices by 100 per cent,” Hathiramani told Daily Sun. “And as a result, market size has dropped by more than 50 per cent. So, we are also selling less than 50 per cent of the volume we used to sell.”
Also affirming the adverse effect of low value of Naira and lack of forex, the Chairman of Innoson Vehicle Manufacturing Company Ltd (IVM), Nnewi, Dr. Innocent Chukwuma, said the plant never shut down as a result. Rather, it has managed to keep afloat till now that there are signs of improvement via CBN interventions .
Recently at ANAMMCO, Enugu, hundreds of Shacman trucks, fresh from production lines, were seen being branded for the Dangote Group. Checks at the plant revealed that no fewer than 50 heavy duty trucks are assembled every week following a manufacturing agreement between Transit Support Services Limited (TSS), a subsidiary of ABC Transport, and ANAMMCO, to utilise the assembly facility.
Commenting on the deal, a manager at the plant said the good news was that the impacts of Dangote’s patronage, which runs into hundreds of units of Shacman trucks, and the subsequent partnership between TSS and ANAMMCO, were being felt in various ways at the plant and beyond. They include the recall of workers laid off earlier, the resumption of full production and the engagement of suppliers from different parts of the South-east.
Reacting to the development at the nearby ANAMMCO, Chukwuma hailed the patronage, saying that encouraging the purchase of made-in-Nigeria vehicles would ensure the survival of the auto companies engaged in genuine manufacturing in a recession-hit economy, as well as guarantee the success of the auto policy.
Since the policy was initiatied, about 14 assembly plants have commenced the production of new cars and SUVs of various brands, including Peugeot, IVM, Kia, Nissan, Hyundai, Honda, Volkswagen, Ford, Changan and GAC. In the bus and truck segments are Hyundai, Ashok-Leyland, MAN, Leyland-Busan, IVM, FAW, Sino, Shacman, Aston, Foton, Forland and Isuzu.
In March, another plant built in Ikotun, Lagos, for the assembly of JAC and Toyota models, formally commenced operations, even as Weststar Associates intensified the setting up of its plant dedicated to the assembly of Fiat cars, also in Lagos. The plant where Higer buses will be assembled by Globe Motors is being built in Lagos too.
To the Director of Policy and Planning Department of the National Automotive Design and Development Council (NADDC) , Mr. Luqman Mamudu, the sustained tempo of investments in auto assembly is an indication that the policy is on course. “Why don’t you ask yourself the reason investors are building more plants. Is it for fun?” Mamudu asked rhetorically.
Last week, Mr. Anil Sagal, the Director in charge of the auto section at Kewalram-Chanrai, which opened a Foton plant in Isolo, Lagos, two years ago, assessed the situation in the industry thus:
“Forex has been the issue. It is the challenge we have been facing, but we have not stopped producing. Assembly of vehicles is on.”
This was not different from the response received at PAN Nigeria. The assembly lines came alive again with the production of 301 following the coming into effect of the auto policy, but like other manufacturers requiring imported input, the plant located in the Kakuri area of Kaduna, has been facing serious forex challenges with knock-on effect on prices, among other things.
“But we neither stopped producing nor stopped selling,” a highly placed manager said.
At the VON Automobiles in Ojo, Lagos, it was gathered that though the volume of production has ebbed, the plant has been operating ceaselessly, assembling Nissan vehicles like Almera, Sentra and Patrol, as well as some Hyundai models, including the new Creta. But the vehicles, it was learnt, are produced according to demand. Recently, the Director General of NADDC, Aminu Jalal, said the regulatory body was not unaware of the rumours that the situation in the industry was an indication of the failure of NAIDP, and that government might be considering reversing the policy.
Jalal dismissed the insinuations as “baseless and unsubstantiated,” assuring stakeholders that, rather, government would take more steps to reinvigorate the implementation of the policy towards achieving the goal of the diversification of the economy.
Also reacting, NADDC boss, Luqman Mamudu, said: “We don’t know of any automotive plant with unusually high unsold stock. The prices of all products with high import content have generally risen and the capacity of Nigerians to acquire has dropped. But this doesn’t mean that every other sector has collapsed.
“More assemblers are opening letters of credit to bring in more CKD kits. Their challenge, however, is forex and we are discussing with the right sources for solutions. In any case, the credit purchase scheme we have been working on was designed to boost demand. So the policy is still on track.”
Comparing the pre- and post-NAIDP years, Mamudu argued: “Installed capacity to assemble in 2013 was less than 60,000 units per year but by 2015 when we last took stock, installed capacity for assembly had grown to 360,000 units. Actual assembly, however, peaked at only about 20,000 units that same year. This is slightly over 5 per cent of capacity utilisation but when you take the actual production of 2,000 units in 2012 as the baseline, assembly operation increased 10 fold. I think the industry is doing well under the circumstances.”
On the flip side, a popular dealer in Nissan , who craved anonymity, said he was to place an order for new vehicles since last year.
“I’m out of stock. Same goes for many like me. We can’t import. Forex is expensive and rationed. Again, who will buy in this recession?,” he lamented.
According to Manny Philipson, an automotive industry consultant, many assembly plants had a rough outing in 2016.
“Many of them nearly sunk and had to lay off staff to remain afloat. Many of them do not have fresh stock as we speak. They are still battling to sell their old stock because buyers are scarce. Only government agencies and big private sector players and individuals can afford brand new vehicles.
“They did not have forex to place order for vehicles in the last quarter of 2016. To source forex at above N450/$1 was not an easy thing. And those dealers who sold old stock could not even import Complete Knocked Down (CKD) components. Many dealers do not have stock as we speak. It is terrible,” he lamented.
On steps taken so far by the government to ensure the success of the auto policy, Philipson said, “there hasn’t been any clear-cut approach by the government as yet, aside the prohibition, last year, of import through the land borders.
We are aware that government is taking a critical look at the policy with a view to tweaking it to achieve its own idea of development. I hope it will engage the authentic stakeholders who have already invested so much in the take-off of the sector shortly.
“If the government is serious about developing our industries, it should determine the strategic industries going by the National Industrial Revolution Plan (NIRP) and determine the incentive package it would put in place to accelerate their take-off.
“The incentive package would take into account the peculiar disadvantages, which investors face in Nigeria because of failure to develop our infrastructure and put them in a position to compete. The auto industry falls into this category. Without mincing words, a viable vehicle manufacturing industry is capable of creating huge multiplier effects for the Nigerian economy and society. Other nations with developed auto industries towed the same path. There is so much for the government to do in this respect.
“The previous governments merely scratched the surface of the issue by putting in place the auto policy. The government can take the credit for giving it a bite by actually putting out a strong incentive package to attract major Original Equipment Manufacturers (OEMs) and seeing it through. This is the way to re-awaken our productive capacity and create a future for the children of the poor and down-trodden,” he explained.
On ways out, he stated: “We need volumes to drive down unit cost of vehicles and when viewed against the economics of our industry, the environment has to be right with good policies, implementation of the auto policy, enhanced purchasing power, introduction of consumer credit, government patronage and above all, restriction of imports including used car imports. Successive governments in Nigeria have over the years battled to move our economy forward, employing different strategies and ploys to energise our docile state and create value to sustain a decent livelihood for the present and future generations of Nigerians.
“It is time for the government to reel out policies needed to assist OEMs to operate optimally and empower patrons too. What we need is that inspiration to acquire capacity to expand our facilities and produce more units at lower prices and consequently move towards global competitiveness and self-sustainability. It is also important the government enhances consumers’ purchasing power and implement the needed policies to assist the OEMs to produce quality and affordable vehicles.”
Also commenting on the journey so far on the new auto policy, the National President, Association of Motor Dealers of Nigeria (AMDON), Ajibola Adedoyin, said the initiative has been a failure so far because it was prematurely implemented without addressing some fundamental issues.
Speaking at a briefing in Abuja, Adedoyin said the government was too quick to increase the duty on imported vehicles from 20 per cent to 35 per cent in addition to 35 per cent taxes, as way of making them commercially unattractive, when it was yet to make the operating environment soothing for vehicle assembly companies.
“The time is not yet right for the implementation of the auto policy as various issues like infrastructure challenge, financing and other problems are yet to be addressed. In developed countries that we copied this idea from, they have addressed these challenges. They also have cheaper means of transport like sea, rail and air to augment road. They have power, no forex issues, there is easy access to finance and other incentives.
“So, hiking the duty on used vehicles has only encouraged smuggling and government is losing revenue. All these task force and ultimatum on duty payment would not have been necessary if we took the auto policy implementation one step at a time. We need to address these fundamentals. We have written to the Senate urging it to suspend the policy until issues that will make made-in-Nigeria vehicle cheaper are sorted out.
“Air transport is for the rich, which is about 10 per cent, our rail service is not in place and as such the only option left is the road and yet the government is making importation difficult when we cannot produce enough for Nigerians. Recall that one presidential committee said high transport cost was responsible for high food prices, so this should be addressed,” he said.
Interestingly, when the duty and tariffs on imported fully built cars and buses were increased to 70 per cent and 10 per cent for Semi Knocked Downs (SKDs) in 2014, more automobile assemblage companies came on board. Dealership companies began to clinch assemblage deals with parent companies for several models.
Stallion Motors led in number of locally assembled models through its Nissan Motors Nigeria, Hyundai Motors having VON as its production plants, many other auto makers found Nigeria as a new emerging market with great middle class power. Nigeria’s own indigenous Innoson Motors hit the ground running, with several models, including SUVs. Kaduna’s Peugeot had also bounced back assembling its 301 model and others.
By mid 2015, the country saw a remarkable reduction in volume of importation of new Fully Built Units (FBUs), as the auto makers focussed more on importing SKDs for local assembly.
However, some of the auto assemblers were importing FBUs for other models in the line and merely removing their tyres and declaring them as SKDs to take advantage of the loophole in the auto policy to pay less tariffs. Some of them faced litigations for allegations related to their roles in tariff evasion.
According to a document of the National Automotive Design and Development Council (NADDC) in 2015, not less than 30 brands, including trucks and buses, have signed commitments with technical partners and obtained licenses to assemble passenger cars, Sports Utility Vehicles (SUVs), buses and trucks in the country. The NADDC estimated annual imports at about 400,000 vehicles valued at $3.45 billion out of which about 50,000 units are new cars. The council also believed the automotive industry, which employed around 2,600 workers in 2015, had the potential to generate 70,000 direct jobs, as well as employ about 210,000 indirectly.
As laudable as that projection was on paper, the reality on ground today is that many auto assemblers are limping. Thousands of workers have been sacked in various assembly plants and vehicle terminals at the seaports.
Stakeholders urge the government to take the new auto policy seriously as it can revive the ailing economy as witnessed in the United States and other countries where the automobile sector contributes as high as 50 per cent to the Gross Domestic Product (GDP).