Car manufacturing joint ventures in Nigeria
Automobile sales in emerging economies have been rising. In 2011, 56 percent of cars sold in emerging markets were in China; half of the cars were produced by joint ventures between Chinese and foreign car makers. In 2009 China overtook the US as the largest car market in the world.
Nigerians, in general, prefer Japanese-made cars; Toyota in particular. Their reasons for preferring Toyota include durability, resilience, functionality, efficiency, after-sales service and second-hand value. By some estimates 50 percent of salon cars in Nigeria are Toyotas. German brands like Mercedes are also popular because of their good value and long life.
However, local car dealers are increasingly partnering with Chinese car companies e.g. Globe Motors/Higer Bus, Kewalram/Foton. Perhaps it’s because Chinese cars exported to other emerging markets are sold at rock-bottom prices. And since they are cheaper the hike in tariffs on imported cars won’t have a serious effect on such cars in Nigeria.
This preference for Chinese companies reflects the shift in global manufacturing to the East from the West. Innoson and Coscharis, two indigenous companies, are partnering with Chinese to assemble cars in Nigeria.
However, Chinese cars typically are not known for technology and their brands are not popular. Even so, they are likely to make inroads into Nigeria where, for a market segment, price comes before brand name.
Before the auto policy was revived European car companies – Peugeot, Volkswagen, Mercedes, Steyr, Fiat and Leyland – formed joint ventures with the Nigerian government to establish state-owned enterprises; most now are moribund.
Today, it’s reported that only 5 percent of the installed capacity of these SOEs 10,000 cars per day is being utilised. Stallion Motors in partnership with Renault-Nissan plans to assemble 45,000 cars year, a combination of SUVs, pick-up trucks and salon cars.
We can learn a lot form the Chinese. They started with assembling imported complete knockdowns (CKDs) in 1980. Today, 25 percent of the billionaires in the global auto industry are Chinese e.g. Wei Jianjun of Great Wall, ranked fifth. Others are BYD, Geely and Wanxiang.
Chinese spare parts manufacturers like Wanxiang are known for their technology (developed in-house or through the acquisition of troubled auto part makers in the EU and US) and quality. They, too, may be looking, to forge partnerships with Nigerian companies.
Immediate beneficiaries of will be the long-established trading companies and business conglomerates like Chellarams, Kewalram, AG Leventis, UAC, CFAO, Mandilas, PZ, SCOA, John Holt, UTC, because they are already involved in retailing, wholesaling and manufacturing.
Nigerian car companies must leverage their partnerships with their Chinese counterparts. But strong government support coupled with economies of scale potential and a sizeable GDP and population will not see local firms producing Nigeria brands or 2m units a year anytime soon.
Rather, Nigeria is likely to become a network country i.e. a satellite manufacturing base that assembles particular vehicles (“tropicalised” designs) e.g. pick-up trucks, for farmers as agriculture is commercialised, and buses, as more states adopt the Bus Rapid Transit system.
According to a 2012 report by DHL “An industry rule-of-thumb in the early 2000s suggested that when a country’s GDP per capita reaches $1,000, it can support a profitable automotive industry, and at $4,000, rapid industry growth begins.”
Nigeria’s GDP per capita, after rebasing, is $2,700. However wealth is concentrated in the hands of a small percentage of Nigeria’s 170m population.
McKinsey, a consulting firm, reckons that by 2030 Nigeria’s consuming class could grow to 160 million 59 percent of a projected population of 273 million. (Nigeria’s consuming class is defined as households with annual incomes above $7,500 per year. The average household size is 4.7 people.)