Hard times ahead for new cars shoppers in 2014

There are very strong indications that new car buyers in Nigeria especially the rising middle class, will be made pay 60 percent more for new cars from 2014 following the new national automotive policy released last month by the federal government.

Similarly, there are fears that if this policy takes root as planned by the federal government next year, the present employees under existing car dealers may lose their jobs when dealerships cannot meet their sales target before the new policy as a result of the hike on duties on new cars. This will no doubt impact negatively on family members.

Meanwhile, a close industry told our reporter that, for the policy to be seen to work effectively and to carry all stakeholders who had made huge investment in terms of men and material, at least a period of five years should be given to allow for further consultation between them and their principals.

With series of meetings going on between the federal government and a group of auto dealers at various times, BusinessDay gathered that the group frowned at a situation where consultations were not made with the dealers her were they carried in fashioning out a workable model that would make the policy work as is the practice elsewhere in the world.

Under the new policy, duty on passenger and commercial vehicles were upwardly reviewed to 70 and 30 percent respectively. The implication of this is that importers who opened letters of credit (LC) after the policy deadline of October 3 would pay high duty, while those privileged to have opened before October 2nd would pay the old rate.

The policy according to government authorities would encourage local manufacture of vehicles that would be sold at competitive prices, reduce foreign exchange demand by importers (which currently stand at about N550billion) and stimulate job creation.

Government’s pronouncement of the new automotive policy direction jolted automobile dealers across the country few hours after the bombshell. While they said it was a good step that would help the economy grows in the long term, they stated that it has taken at a very wrong time.

These stakeholders had picked holes in the timing of the policy adding that the measure was taken at a critical period in the nation’s history when government is still grappling with a lot of infrastructural necessities. Some auto dealers warn the move may lead to inflation in the system.

These include constant power supply, dysfunctional state and total collapse of the steel industries and non existence of automotive allied industry that can produce parts like clutch cables, brake pads, fenders, oil and fuel filter. Component parts manufacturers around the world tend to also locate near assembly plants. They are of they believe that this will help in lowering the cost of locally made vehicles in the country.

Before October 3, those wishing to import Full Built Units (FBUSs) passenger cars paid between 20 and 30 percent duty while that of commercial vehicles attracted a flat rate of 10 percent.

A two-page document dated November 14, 2013 and signed by Ngozi Okonjo-Iweala, the coordinating minister of economy and minister of finance, gave the new import tariff on cars as 70 percent (of the cost of each vehicle).

The document, with reference number BD/FP/DO/09/189, also stated that fully built commercial vehicles would attract 35 per cent duty but no levy imposed. Government had said that all letters of credit (for new imports) opened after October 3 would attract the new duty, while all L/Cs opened before October 3 would attract the old duty until February 28, 2014.

It stated that a fully built car would attract a duty of 35 percent and a levy of another 35 percent of the cost of the vehicle. Prior to this development, importers/dealers pay 20 percent and two percent as duty and levy, respectively on new cars and 10 percent flat rate on commercial vehicles.

Although the new tariff on cars shows an increase of 48 percent over the old rate, dealers have estimated that the showroom price of an imported car will rise by 60 percent when other variables (costs) are added.

In other words, prices of imported cars currently being sold between N3m and N5m will shoot up to N4.8m and N8m; while tokunbo vehicles selling for N800,000 will rise to N1.28m.

Those who spoke with our correspondents on the issue on Sunday also warned that there might not be enough vehicles to meet the demand of the country next year.

A sales manager of one of the major dealers said, “Many of us are skeptical about ordering for new vehicles because we don’t know if people would be ready to pay the about 60 percent increase on the cars when the import duty and levy are added to the original cost of purchase. Even the supplies by local plants will obviously be grossly inadequate to meet the demand.”

According to a cross section of Nigerians, they were of the opinion that on paper, these are sound ideas but implementation may pose another impediment. Some critical stakeholders in the auto sector have misgivings about the policy. For instance, there are questions about whether any lessons have been learnt from the failure of the past, especially with the experience of such companies like erstwhile Volkswagen of Nigeria Limited (VWoN), and Dunlop Nigeria Plc.

There are also issues of human capital, availability of raw materials and policy inconsistency that has become a recurring decimal with past administrations over the years.

However, while there is scarcity of requisite raw materials for auto manufacturing, the existing petrochemical industries has not translated into an opportunity to make automotive plastics and composite materials which have increasingly gained applications in motor manufacturing elsewhere in the world.