The Auto Policy: Who’s Fooling Who? –Part 1

By the Nigerian Economic Vanguard

INTRODUCTION

Prior to the full implementation of the auto policy, Nigerians were paying 20% duty on passenger cars (PC) and 10% duty on commercial vehicles (CV). However, with the full implementation of the policy, beginning 1st July, 2014, the masses are expected to pay 70% duty on PC and 35% duty on CV.

The implication of this is a 250% increment; meaning that Nigerians will have to pay 3.5 times what they were paying before the implementation of the policy. So today, how is the policy really affecting the automotive industry? What are the gains? Where are the prospects? Who are the beneficiaries? What are the complications? We, the Nigerian Economic Vanguard, explore a contemplative interrogation of some of the critical issues that the policy has thrown up.

Below are quoted newspaper excerpts and public-sieved statements on the Auto policy and after each quotes are the opinions/questions of the Nigerian Economic Vanguard:

– “The automobile manufacturing industry in the country has been on the upswing of late and the market would soon be flooded with locally made vehicles. The development would bring down the prices of vehicles in the country, even as he pointed out that the local plants have the capacity to produce enough vehicles to meet the nation’s market demand. NAMA can now rightly congratulate the Federal Government for finally commencing the major planks of the Nigeria automotive policy. Indeed, July could be said to mark the watershed moment in history and a tremendous victory for this administration in its bid to unbundle and revolutionize the auto industry in Nigeria”.

–  NAMA’s Executive Director, The Guardian, July 6, 2014.

How will the prices of locally assembled vehicles come down when it is a known fact that SKD/CKD units cost an average of 20-30% more than FBU due to the additional work required by manufacturers to prepare the units? As a result, to bridge the gap in cost of producing SKD/CKD, the government decided to increase tariff on FBU. The increase in cost of procuring SKD/CKD actually implies more drain on our foreign reserves. It still remains to be seen how ‘soon’ the so-called locally made vehicles would flood the market and of what quality standard they would be in view of the hasty implementation. Since the unveiling of the “first locally produced vehicles” in May, how many vehicles have been produced locally since then? It is therefore premature to be congratulating the Federal Government on a policy still in its infancy and encumbered by valid contradictions.

–  “The nation’s automobile assembly plants are expected to roll out an aggregate of 300,000 vehicle units within the next two years, exceeding initial planned installed capacity of 213,000, under the current industry revival plan by the Federal Government. Meanwhile, 23,000 vehicle units of various brands of automobiles would be produced by the plants between June and December this year to further raise the stock of new vehicles in the country. Specifically, VON Nigeria, (the former Volkswagen of Nigeria) would produce multiple brands including Hyundai and Nissan cars and SUVs from April 2014. This, according to the NAC boss, is in addition to the Ashok Leyland buses and Hyundai light trucks, which were already being assembled in the country.”   – DG, National Automotive Council (The Guardian, July 7, 2014)

The planned production of 23,000 vehicles between June and December 2014 implies an average monthly production of 3,286 vehicles implying that assemblers should have produced 6,672 vehicles by the end of July. Where are these vehicles? Nigerians would like NAC to give an update of the total vehicles produced to date. Ports figures indicate that Stallion (owners of Hyundai, Nissan, Volkswagen of Nigeria (VON), etc.) imported about 10,000 vehicles between January- June 2014 compared to about 3,000 vehicles imported between January – June 2013 (233% increase); the highest rate of any importer in the year. In addition, Stallion’s 2013 full year imports of about 8,000 units compared to the 2014 Half year imports of over 10,000 units (of which their Hyundai 2014 Half year import is 6,500 and 2013 full year import was 4,000, thier Nissan 2014 Half year import is 2,700 and 2013 full year import was 2,300) implies that Stallion has enough stock to last them till 2015. Now, if you are manufacturing locally, why import so much at the commencement or just before the commencement of the policy? Other distributors who have claimed readiness to assemble (e.g. Kia, Coscharis, Globe Motors, Kewalrams, PAN etc.) have also imported vehicles in large quantities. Hence their consistent advertisement and reduction of prices to liquidate heavy stock and meet several financial obligations.

Nissan South Africa that has been in existence for decades and operating in an enabling environment, struggles to produce 35,000 units a year, while Toyota South Africa Motors struggles to produce 150,000 units a year. Even at that, their capacity is not fully utilized. Now, how does VON plan to do 23,000 units in 6 months (June-December 2014)? How realistic is this? This clearly shows that the company built up stock at old import rate tariff to sell at “cheaper” prices at the commencement of 70% duty while masquerading the same stock as vehicles produced locally. It is also on record that the most VON ever produced when the Nigerian economy was much better and infrastructure not in its present deplorable state, was a little over 25,000 units of vehicles.

World over, auto manufacturers are struggling to keep their factories running while some are closing down their plants: e.g. G.M., Ford and Toyota are shutting down production in Australia by end of 2017 due to the high cost of production.

…more to come. Part 2.

What do you think about this?