Daily Independent (Lagos)
Isioma Madike
18 October 2008
The romance by automobile dealers with banks that now offer various credit schemes aimed at making the dream of ownership of brand new low-budget cars a reality in Nigeria seems poised to affect the flourishing fairly used auto (Tokunbo) trade. But how far would the deal go?
A time was, in the 1970s through to the 1980s when going for new cars was the craze among the middle class in the country. It was a time when Peugeot Automobile Nigeria (PAN) and Volkswagen Nigeria, offered, for instance, brand new 504 GL and Beetles, nicknamed "sokinso," literarily translated to mean "drop and let me drop" for N7, 000 and N1, 500 respectively. The Beetle car was so popular then even though it had only two doors.
A graduate freshly out of school at the time would select his choice from those lined up by companies as part of the package to entice young people into accepting job offers. The companies scrambled for graduates and went straight to the universities to recruit fresh brains.
It was also a time when teachers owned new cars especially the Peugeot 404 salon brand, and were not reminded that their reward awaited them in heaven. Even peasant farmers could buy new vehicles with just a year's harvest. There was nothing like the concept of fairly used cars.
But that was then.
With Volkswagen assembly plant going comatose and the recession in the nation's economy, which started manifesting increasingly in the late 1980s, the consumers' purchasing power took a deep plunge and resulted to a kind of revolution that saw importers flooding the Nigerian automobile market with tokunbo of various brands. Most of them had run a full circle in their countries of origin and were only good for the junkyard.
But the importers increased the influx, and purchased fairly new cars from Europe, especially from Germany and Belgium, later America as well as Asia to fill the vacuum created by the high cost of acquiring new cars. There was no age limit for the imported tokunbo cars. And soon those that could be described as scraps started arriving the seaports, and Nigeria became a dumping ground for overused cars.
The government intervened and fixed the age limit for used cars at eight years. The move, according to government, was to stop the dumping of unserviceable cars in the country. To ensure full compliance with the order, the government empowered the Nigeria Customs Service (NCS) to seize cars from dealers and importers that failed to comply with the directive.
The fiscal policy was meant to encourage local automobile assembly plants even as government approved five per cent tariff for wholly imported new vehicles. The strategy worked as Honda Place, Elizade, Coscharis and GM motors among others opened shop to complement PAN with brands like Honda, KIA and BMW making impressive entry into the Nigerian automobile market. The dealers offered plausible incentives to lure corporate organisations and individuals into patronising them.
To compete with the seemingly thriving tokunbo market, the automobile dealers introduced various credit schemes, which observers are predicting would silence the once vibrant fairly used car trade.
The banks, smarting from the successful consolidation exercise opted to partner with the automobile dealers to have a competitive edge and woo customers.
Peter Buno works with one of the oil companies in Port Harcourt, the Rivers State capital. While contemplating buying a fairly used car, Buno got a hint from his friend in Lagos of opportunities to purchase a brand new car with painless mode of payment. He approached his bank for a loan and was obliged with a payment period of 48 months.
"This is a wonderful package that is capable of rubbishing the tokunbo market in the country," Buno remarked with excitement.
In the wake of the banking sector consolidation, most of the banks started paying their workers jumbo salaries. This saw the old salary of United Bank for Africa (UBA), for instance, increasing by about 300 per cent. A middle-level staff who previously earned N1, 800,000 per annum now earns close to N4 million per annum. For most banks, remuneration for graduate trainees is between N1, 200, 000 and N1, 800, 000 per annum. Middle-level officers and managers earn between N5 million and N10 million per annum.
It is the same story in the telecommunication sector, especially the Global System for Mobile communication (GSM). The oil and gas sectors are in the same category. Saturday Enquirer gathered that MTN Nigeria pays its middle-level managers about N5 million per annum. Zain and Globacom, the other two major GSM operators in the country are not left out in what has been described as jumbo package arrangement.
Multinationals in the manufacturing sector such as Nestle Nigeria, Guinness Nigeria, Nigerian Breweries and Dangote Industries have all had to raise their remuneration packages to be able to attract competent professionals, especially in key areas of their operation.
Similarly, new world-class airlines have sprang up due to the liberalisation of the sector with Virgin Nigeria Airline, Arik Airline, Aero Contractors and others creating the right ambience for employees and paying salaries that are competitive internationally. The reality is that middle class in Nigeria is re-emerging. Osita Ogbu, former economic adviser to former president Olusegun Obasanjo, and chief executive, National Planning Commission (NPC), was once quoted as saying that without the middle class, there will be no consumer credit.
"Virtually all the automobile purchase loans, which enable workers own brand new cars are targeted at staff of organisations that pay good salaries. For instance, to buy a brand new car valued at N3 million, a worker must make a down payment of 25 per cent, which is N750, 000 and pay the balance plus 19 per cent interest over a period of 48 months, that is, about N65, 000 per month. The beneficiary must, therefore, not only work with a viable organisation but with one that guarantees job security to profit from such credit now being offered by banks," Ogbu said.
The new drive in these sectors of the nation's economy has thrown up a new generation of workers with big spending power. So, there is a crop of people earning good enough to plan for the future. In most of these companies, staffers earn good income and are able to take care of themselves and save. They are also able to access credit with which they acquire brand new cars and other essentials items, and pay back at a latter date.
A human resources consultant, Emmanuel Ashikwei said, with stable incomes, there is no reason why members of the middle class should acquire items and pay 100 per cent.
"The banks are now identifying those people and giving them credit to acquire cars and pay back over a period of time. You will be able to appreciate this more when you see the effect on the demand side. This is what happens in the advanced world," Ashikwei said.
But the same formula is what is threatening to collapse the American economy, said to be the financial world power as well as the other economies around the world. The financial institutions in America reportedly advanced mortgage and other loans to a class of its society whose incomes have nosedived and made it impossible for them to repay the loans.
According to Henry Boyo, a renowned economist and financial analyst, "it is what appears to be responsible and rightly acknowledged to be so by the American public. We are informed that the financial crisis was brought about by the failure of people, who took mortgages to buy houses to pay back their loans on time.
"This phenomenon appears to have been brought by what some have described as the greed of the banks and the mortgage institutions, for extending facilities to people to buy houses, which are so much higher than they can pay. In other words, once you start to pay over 30 per cent of your income as mortgage repayment, then you are treading on very dangerous ground. In some cases people whose salaries were not so large, were given loan to purchase houses and the repayment of these loans sometimes consumes 40, 50 or even 60 per cent of their incomes. So, it was only a matter of time that the whole thing came crumbling down," Boyo said.
It is now common for automobile companies to partner with banks and other financial institutions in Nigeria to sell new cars with convenient payment arrangement, a sharp contrast to the cash and carry affair that had existed before now.
The former Managing Director of PAN, Aliyu Kakumi had laid bare the challenges he met when he assumed office in January 2007. He was said to have also emphasised his plans to return the automobile company to an enviable height in the face of stiff competition from other automobile dealers that have besieged Nigeria with different brands of cars. He promised to reclaim, with determination, PAN's position in the Nigerian automobile industry.
Kakumi addressed every department that he believed would help the new management realise its objectives and maintained that the time was ripe in the face of competition to launch the Peugeot Ownership Made Easy (POME) scheme in collaboration with Bank PHB. This development enabled Nigerians that wanted to own brand new Peugeot cars to afford them without paying at once. The company did not restrict its relationship to Bank PHB alone. A reliable source confirmed to Saturday Enquirer that PAN has since added Spring Bank to the new arrangement.
Coscharis motors, which sells mostly BMW brand of cars followed the footsteps of PAN and engaged some banks to partner with it. From then, other car dealers and banks have cleverly queued up to reap from the benefit of the idea that has gradually captured the hearts of Nigerians.
Union Bank of Nigeria and Access Bank are other financial institutions said to be operating similar but slightly different schemes. While Union Bank has what it called the Union Plus Auto Loan Scheme targeted at car acquisition for maximum repayment of four years, Access on the hand allows its customers to choose a car online or visit the bank's auto dealers to check the cost of their choice car and obtain an invoice for it.
A Principal Manager at the Corporate Affairs Department of Union Bank Plc. Head Office Marina, Lagos, Francis Barde said anybody with Union Bank account could access the auto loan package of the bank. Barde added that though a non-account holder may as well access the auto package, this, according to him, has to be with special arrangement with the branch the loan seeker is dealing with.
UBA is also believed to be in this new scheme where it has to facilitate the purchase of a brand new car for an individual if such individual can meet up with the obligation of contributing the initial 15 per cent of the total cost of the car.
In most of these transactions, the banks complete the payment after an initial deposit by the would-be owners, and schedule payments of the balance over 48 months.
But banks are not alone in this scheme; the media too. The pen industry has already joined the bandwagon to acquire brand new cars for its staffers even though they do not belong to the big earning young upwardly mobile guys, the type described with the street lingo "aje butter."
They have a different arrangement though. They simply approach the car dealers or vice versa to bargain on barter basis where the media outfit would buy a number of cars and exchange others for advertisement with a discount as high as 50 per cent. This scheme, just like the one being offered by the banks, has also become attractive to the media industry. They seem to be in a race to outdo each other in re-branding both the companies as well as their staff. Brands like the American Chevrolet, South Korean KIA, China's Geely and Japan's Nissan Sunny remain the favourite of the news purveyors.
The marketing manager of Dana Motors, sole distributor of KIA brand in Nigeria also confirmed to Saturday Enquirer that his company has a financing scheme that allows Nigerians who are in love with brands of KIA to own Rio, Picanto and the others. Hyra motors, dealers of the Chinese Geely brand also confirmed being in alliance with Intercontinental Bank to make the dream of Nigerians who wish to drive brand new cars a reality. A source puts the Geely arrangement ahead of others saying, "It is the best as the intending beneficiaries would only need to cough out N47, 005 as monthly repayment cost after the initial payment of 10 per cent. That is why you see, for instance, KIA Rio everywhere in Nigeria. Both the middle and the low classes fit into the arrangement perfectively," the source added.
Investigations, however, revealed that the banks usually do not ask for collateral or prior relationship from individuals to benefit from the credit schemes. The only requirement, a source hinted, is to open and effectively operate an account to secure the loan. But Barde disagreed, saying that all loans go with collateral, and as such, the auto loan cannot be an exception.
"There is collateral for every loan. Nobody will give you loan without a collateral. As a salary earner, your salary is your collateral. Whatever you are given will depend on salary package," he said.
But, there is a snag. The vehicles, Saturday Enquirer gathered, can only be purchased through the bank's accredited dealers. This, observers say, smells of mischief. "The banks are up to something with this scheme. It is too simplistic to be true. I would never be part of this deceit because the bubble, like they say, will soon burst and many would regret their actions," a commentator, who does not want his name in print, said.
Many, nonetheless, agree that the increasing popularity of the scheme by car dealers and the numerous windows of opportunities the banks now offer could actually impact on used cars in the country. Besides, it is becoming relatively easier to purchase new cars. Some have argued that it is safer to buy a new vehicle, which one can drive for about four to five years without any major problem unlike the used one that may require a regular visit to the mechanic workshop.
There are also those who dispute the fact that there is a visible decline in Tokunbo patronage. The decline, if any they say, only affects the lower fragment of the market. The middle and upper luxury classes, they insist, still enjoys good patronage. The sales executive of Excellent Motors located along Obafemi Awolowo Way in Ikeja, Lagos, Emeka Okafor though agreeing that the market is tilting towards brand new vehicles, blames government for buying new cars for its officials.
"That is the major factor responsible for the decline in the used car segment," Okafor said.
Ikenna Obi, another fairly used car dealer at Berger Auto Market, Oshodi/Apapa Expressway believes that tokunbo cars are still preferred by those he said appreciates quality.
"They may be buying new Rio, Picanto, and the other brands. These brands are made in Asia solely for the African and other Third world markets. They are all second-rate. People believe that brand new cars are more durable; that is only in America and other developed countries not Nigeria. You cannot compare those ones here with the tokunbo that were made for the European market. They don't compromise standards over there," Obi argued.
The tokunbo market generates both employment and revenue opportunities for the government. It also flourishes, according to reports, on an estimate of over N200 billion.
But, would the credit scheme that has seen most Nigerians becoming proud owners of brand new cars be sustained? Or would it turn to be another flash in the pan?
Barde believes that the auto loan package can be sustained.
"What is important is demand and supply. As long as we continue to have demand and supply and the banks continue to do business, I don't think anything will thwart the sustenance of the auto loan package. Likewise, I do not think anything can even prevent the banks from doing business," Barde further said.
Additional reports by Emeka Umejei and Michael Jegede.
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This is a good move in our dear country Nigeria. It is really a divine healing from our God above to us - Nigerians. A 60 second drive out of the dealer's lot, irrespective of the chosen brand and make turns the so called new old. Because, cars depreciate value. So, I hope in the meantime such opportunity to finance New Cars will be avail to all Nigerians interested in Tokunbos'. A smart way to save and start life anew free from parent’s dependence also requires learning to be responsible in one's little way in a growing society such as ours. For instance, "AIT or This Day" decides to upgrade 10 of her fleets after 5 years. Who and where is the audience that is expected to pick up her old cars? Which, also is a revenue to "AIT or This Day" in bring down the payment of her new cars. Secondly, if you have an old car from either of these make: Toyota, Nissan and Honda. Please, safe your breathe from buying brand new China, be responsible to keep a good driving habit, and follow the 3 to 6 months regular maintenance in the auto maker's manual. Then, our Government does their part of providing good roads. I tell you the truth; you have won a gold medal for yourself. Hip! Hip!! Hurray!!! The answer to the above question might surprise us all. Nigerians living in Niaja certainly will. So, let's stop the idea of opening new doors and shutting down the other. It is a foolish mind's game. Rome, they say, "it was not build in a day or better still, all hands are equal - mine is not." Nigerians should not be exceptional to societal transformation. We need Economic growth in all facets of Nigeria's Society and stop quoting United States out of context. America pays Social Security to her Seniors age 65 years and above, disable and unemployment benefits to her citizens. Do not push me to ask Mr. Yar'dua, about my Dad's Federal pension being withheld to eternity- the only benefits Nigerians receives is constantly being denial by her government. Nigeria, wake up, turn a new leaf, embrace change, and extinguished xenophobia. Kesilo. Los Angeles, CA 90009.