How influx of low-priced Asian vehicles is depressing used car market

ALEX CHIEJINA

ALEX CHIEJINA writes that with more Nigerians opting for affordable low-budget Asian models in the salon and Sports Utility Vehicles (SUV range) segments, patronage for used cars is fast dwindling and dealers are considering other options

For Ikegwonu Peter, a dealer in fairly used cars otherwise known as ‘Tokunbo’ in Berger Auto Market along Apa pa-Oshodi Expressway, this may

not be the best of times. This is because his once flourishing business empire is gradually crumbling. This shrewd businessman, who has over the last ten years proved his valour in the automobile industry, now watches as new competition from emerging markets in Asia is gradually takeover the Nigerian automobile industry.

“The Chinese and other Asian auto makers are selling because their cars are affordable,” says John Eraboh, a banker who owns Kia Rio he bought in 2008. Since the 1980s when the economy nosedived and people’s purchasing power dwindled, there had been an increase in demand for imported used cars and parts in the Nigeria’s automobile industry. This however shored up sales of Tokunbo vehicles as cost of new cars were believed to be far beyond the reach of a vast majority of Nigerians. But in 1999 when the Nigerian government under the leadership of President Olusegun Obasanjo imposed a ban on the importation of cars above eight years of age to curb the influx of old automobiles into the country, the price of used cars sky rocketed beyond the means of most struggling Nigerians.

It was at this time that auto dealers began massive introduction of cheaper new cars from Asia, a sharp departure from the past when vehicles from Europe, America and Japan ‘s well established auto industry dominated the market.

The prevalence of Asian vehicles on the Nigerian auto landscape started in 2000, and gathered momentum by 2003 after the revolution in the telecommunications industry. Firstly, the coming of these Asian automobiles was meant to take care of the re-emerging middle class, with more disposable income to spend. The trend was also buoyed by a flourishing credit financing scheme launched by banks.It is this category of people that makers of Geely, Proton, Chery and Tata were targeting.

Alozie MacDonald, a worker with an oil-servicing company in Lagos, told Business Day that the influx of Asian cars was a function of the economic situation in the country. He disclosed that Nigerians have learnt to spend wisely; with the hardship in the system pushing a lot of homes, whether middle or low-income earners, to control their purchase options, especially on automobiles.

Alozie however opined that with the high price of Japanese and European cars, and the Chinese and Korean budget cars offering almost the same in terms of features, Nigerians began to appreciate Asians automobiles as a welcome option.

“It is because of these reasons automobiles like Hyundai and Kia stepped up their quality significantly. Even in North America, they seem to be autos in demand and are selling very well despite the economic meltdown,” he said. Alozie believes that the Asian brands are really not substandard, insisting that Asia’s cheap labour largely accounts for the price differentials. “Besides, no matter the condition of a brand new car, it is still better than the best tokunbo out there. At least you are sure that unlike used cars, it would not break down easily; not in its first or second years,” he further said.

Interestingly, after the banking sector consolidation in 2006, the boom for Asian cars became more visible as the stronger banking system began to lend to high-income earners with flexible payment conditions. Asian auto dealers began partnership with financial institutions to introduce very flexible payback plans like 10 per cent down payment, and the balance spread between 12 and 60 months. The granting of more dealership rights, the easy accessibility to maintenance garages, and the availability of spare parts has also been supportive of this rise in demand.

For instance, Union Bank of Nigeria (UBN) has what it calls the ‘Union Plus Auto Loan Scheme’. The scheme is targeted at car acquisition for maximum repayment of four years. Access on the other hand, allows its clients 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 staff of Union Bank Plc in Surulere, Lagos, who spoke to BusinessDay, stated that anybody with Union Bank account could access the auto loan package of the bank. He noted that though a non-account holder may as well access the auto package, this has to be with special arrangement with the branch the loan seeker is dealing with. Recently Olufemi Ajewole, President, Road Transport Employers Association of Nigeria, emphasised that Nigeria banks had been of tremendous assistance in the efforts by transport operators to renew their old vehicles. Latest statistics backed by figures from auto dealers indicate that over 60,000 new vehicles were sold in the country last year.

Dealers in Chinese and Korean brands including Kia, Hyundai, Chery, BYD, Geely and Brilliance have been upbeat about the positive impact of the auto financing scheme on their sales which runs into tens of thousands of vehicles. Edmond Chima, another fairly used car dealer at Amuwo Odofin Estate, along Festac Link Road, Mile 2, Lagos is of the view that even if there is a visible decline in Tokunbo patronage, these cars are still preferred by those he said appreciate quality.

“They may be buying new KIA Rio, Picanto, and the other brands. These brands are made in Asia solely for the African and other Third world markets. People believe that brand new cars are more durable. However, you cannot compare those ones here with the Tokunbo that were made for the European market. Already, these Asian cars are having the upper hand as financial institutions and other corporate organsation do not patronise those selling fairly used cars as they are not sure of their shelf life,” Chima concluded. Ikegwonwu and Chima admit that they now record less than half of what their sale was in the boom period. They are even lucky that they are still in the business. Many others who rushed for Tokumbo car, dealership because attractive sales and appreciable profit margin, have now abandoned the trade because of hard times. Mark Oyibo is one of such. He told Business Day that he has abandoned the trade and gone back to his provision business which he was doing before venturing into auto sales.

With PAN known for been the foremost Nigeria’s automobile industry already facing stiff competition from other automobile dealers that have besieged Nigeria with different brands of cars, it is believed that these Asian cars no doubt would in the long run afford Nigerians the opportunity to own a vehicle at a fairly low cost; it would also guarantee the user’s safety unlike the Tokunbo cars which are imported of which one may not really know how safe they are.