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.
Read comments. Write your own.
AllAfrica aggregates and indexes content from over 125 African news organizations, plus more than 200 other sources, who are responsible for their own reporting and views. Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica.
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… [Read Full Text]