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Fall in the per capita income of Nigerians in the last few years is affecting their buying power and capacity to afford new cars. This is coupled with the fact that there is a lack of easily accessible and affordable auto finance schemes in the country.
These and many hydra-headed challenges have been found to be the major limitations affecting Nigerians who desire to own a car. To this end, average Nigerians have continued to opt for imported or used cars to save cost.
Findings showed that used car businesses have over a few decades become the norm for car ownership in the country, making Nigeria one of the dumping capitals for used vehicles in the world.
This challenge of dumping has been further accentuated in the country because the Nigerian auto industry has been heavily driven by an unregulated influx of used cars, which has relegated locally produced cars.
Besides, the cost of importing vehicles, including mass transit units, and other commodities have increased by as much as 20 per cent, a direct consequence of the 40 per cent increase in the foreign exchange (FX) rate for clearing operations.
The possibility, experts have warned, would worsen the commuting crisis and the imminent increase in the poverty level in the country. They added that the increase would complicate the inflation outlook, especially as Nigerians still rely mainly on importation for essential consumption.
The automotive industry as a consumer-facing business is as dependent on well-functioning and widely available financing as any other retail business across the globe.
According to analysts, many countries have jettisoned outright purchases of cars over the decades, as it’s never a tenable option for any individual to commit a large sum of money to own a car. Like house mortgaging, car financing has become the new and sustainable wave of car ownership across the working global economies.
However, the lack thereof has shifted the consumer preference to used cars. This practice has continued to negate all the automotive policies that have been put forward by the government over the years.
Marketing Manager, Dana Motors Limited, Jimoh Olawale, said for every car-producing company, there is a need for financial institutions to provide loans to help open Letters of Credit [LC] that will aid the importation of knocked-down kits into the country for further production/assembling of cars.
Olawale said in recent years, there has been a rather downward trend in the readiness of banks to open LCs for companies thereby making it a challenging phase for the industry in its stocking process and production of vehicles in the country.
According to him, this has further deepened job losses in the sector and redundancy across a vast majority of the assembly plants. He disclosed that the role of financial institutions in the development of world economies has over the centuries, made them an integral part of the advancement of economies.
The Dana Motors chief noted that the automotive industry is currently gasping for breath as a result of the unchecked importation of used cars and ever decreasing buying power of the consumers, to provide a great leap in the survival of this sector, affordable car financing and favourable monetary policies are apparently the only go-to options for all stakeholders.
He said as the backbone of the economy, the effectiveness of these institutions is directly proportional to the sustainability of the economy, owing to the fact that it drives transactions and in turn dictate the pace of the economic development of the country.
Olawale stated that in Nigeria, the monetary policies had over the years impacted the economy, adding “in recent times, the instability of the forex market amongst other factors affected the balance in the economy thereby knocking it off to the pit hole of recession.”
To thrive in the emerging economy, he submitted that automotive finance companies will need to rethink their traditional value chain by providing affordable and accessible vehicle finance schemes to customers. The scope of the required transformation will vary across lenders.
Chairman, Automobile and Allied Services Group, LCCI, Adekunle Jaiyesimi, said there is nowhere in the advanced economies one will see individuals walking into automobile shops and paying cash or making transfers from their personal accounts for procurement of a car, rather, he said they rely on bank credit schemes.
For such purchase, he said after negotiating the required equity contributions of between 10 to 30 per cent with single digit interest rate but that’s not the situation with Nigeria.
In his words: “I was in Cote d’Ivoire about two years ago and I saw desks of a bank and insurance company situated in the showroom of a renowned automobile brand and observed the process of the customer obtaining a pro forma invoice from the dealership and turning it to the bank official with the verification of the credit rating of the customer finalised within an hour, the process was completed under three hours with the customer driving the vehicle out of the showroom.
“I am talking about Cote d’ivoire that is not as sophisticated as Nigeria, the question we should be asking ourselves is where we are getting it wrong.”
Jaiyesimi who is also the Deputy Managing Director, CFAO Motors, said the assurance given to Nigerians based on what was stipulated in the Automotive Policy document was that greater percentage of the previous 35 per cent levy (now five per cent) from imported cars would be deployed to providing credit schemes for vehicle ownership of locally assembled vehicles.
Executive Director, Sales and Marketing, Elizade Nigeria Limited, Ademola Philip-Adewunmi, said there is no Nigerian that would not opt for a brand-new vehicle if given the choice.
He listed several reasons why the average Nigerian cannot afford a new vehicle to include price, custom duties, maintenance, availability and durability.
He said one of the main reasons is the cost. Brand new vehicles can be considered expensive, and the average Nigerian may not be able to afford them, while “Tokunbo” vehicles, on the other hand, seem more affordable and accessible to a wider range of people.
Speaking on the role of government, General Manager, Autosales, Mandilas, Kemi Koyejo, said there have been several discussions around that. He said the discussion has been ongoing for years and hoped that with this new government there would be a revisit of various discussions around the issue
Chief Operating Officer, Autochek MarketPlace, Mayokun Fadeyibi, said despite various reports pointing to the economic benefits of vehicle ownership, there are only 44 vehicles per 1,000 people in Africa, compared to the global average of 180.
Fadeyibi said one of the main reasons for this is that there is currently a gap between the price of cars and what the average African earns. For example, GDP per capita across stands at less than $2,000 while average car prices are about $5,000.
She said financing provides a viable option for bridging this gap but there is still some work to be done to make it easier for financial institutions to offer credit to consumers to buy cars.