AUTO POLICY: Group accuses FG, auto dealers of deception

A group known as the Nigerian Economic Vanguard (NEV) has accused the Federal Government and auto dealers of deceiving Nigerians over the much taunted success of the National Automotive Policy introduced by the administration of President Goodluck Jonathan in October 2013.

Prior to the full implementation of the auto policy, importers paid 20 per cent duty on passenger cars and 10 per cent duty on commercial vehicles. However, with the full implementation of the policy from 1st July 2014, the total duty payable on cars rose to 70 per cent made up of 35 per cent Customs duty and 35 per cent levy while duty on commercial vehicles rose to 35 per cent. This means Nigerians will pay 3.5 times what they were paying before the implementation of the policy.

In a position paper it released on Thursday, NEV faulted claims by the Federal Government’s claim that the policy would reduce the price of vehicles by encouraging importation of semi-knocked-down (SKD) or completely-knocked-down (CKD) vehicles that will be assembled in Nigeria.

“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% to 30% more than FBU (fully built unit) 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 policy still in its infancy and encumbered by valid contradictions,” the group stated.

NEV described as deceptive, claims made by the Director General of the National Automotive Council (NAC), Mr. Aminu Jalal in July that the nation’s automobile assembly plants would roll out an aggregate of 300,000 vehicle units within the next two years exceeding initially planned installed capacity of 213,000 units under the current industry revival plan by the Federal Government while 23,000 vehicle units of various brands would be produced by the plants between June and December this year.

“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 was 6,500 and 2013 full year import was 4,000, their Nissan 2014 half year import was 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 shows that the company built up stock at old import rate tariff to sell at “cheaper” prices at the commencement of 70 per cent duty.

“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,” NEV stated in its position paper titled “The Auto Policy: Who’s Fooling Who?”

The group also faulted the planned introduction of a car financing scheme by the Federal Government to support Nigerians in their desire to acquire new cars at cheaper costs.

Under the proposed financing scheme, the Minister of Industry, Trade and Investment, Mr. Olusegun Aganga said Nigerians will be able to buy new cars “assembled in Nigeria at an interest rate of not more than 10 per cent repayable over a period of four years”.

But NEV said it is concerned with the proposition in view of previous experiences about government loans.

“Where is the guarantee that the scheme will not become another financial mismanagement mess whereby loans will be abused, cornered and given to cronies, favourites, friends and relatives of Government officials? When this happens, the expected people empowerment benefit of the Auto Policy will have been defeated.

“In addition, there is the factor of the Minimum Wage that would undermine the proposed government financing loan idea. With the Minimum Wage being a paltry N18, 000, how will the average Nigerian be able to repay the new car loans within a period of 4 years?

“More importantly, the 10% interest rate on the proposed loan is quite high for an average Nigerian to pay as interest rate. Most nations running successful auto financing schemes have citizens with higher purchasing power, vehicles in such nations are much cheaper and auto finance interest rates are significantly lower (between 3 and 5%). Is it not apparent that Nigeria is far from the nations we seek to emulate?” it stated.

NEV also stated that almost all the Nigerian auto franchise owners said to be interested in assembling vehicles locally in Nigeria are signing or have entered into technical partnerships with one foreign original equipment manufacturer (OEM) or the other.

Entering into technical partnership with foreign OEMs, according to NEV, implies that those manufacturers are not confident of the Nigerian market hence there is no direct foreign investment.

It said that since the locally assembled new vehicles are not yet commercially available and yet the implementation of the auto policy is discouraging importation of new vehicles due to 70 per cent increase in import tariff, the scenario has put most Nigerians wanting to buy brand new affordable cars in a quandary.

NEV stated that while the new Automotive Policy is noble in vision, it is still a subject of hasty implementation, riddled with apparent contradictions that would do the Nigerian auto industry no good.

“It appears somehow rash to expect concrete beneficial results from a policy that ought to have been given at least 10 years of incubation before its implementation. The enabling environment is still sorely lacking and the public outcry against the auto policy is enough reason to put its implementation in proper perspective,” it added.

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