Nigeria is the third highest destination of used cars from the United States and Africa’s largest economy also happens to be the only African country importing the most used vehicles from the United States. According to UNEP, 14 million light-duty vehicles (cars, SUVs and minibuses) were exported to low and middle-income countries between 2015 and 2019 and 40 per cent of that total ended up in Africa.
The European Union accounted for 54 per cent of all used vehicle exports during that period, followed by Japan’s 27 per cent and the United States’ 18 per cent. Despite accounting for a lower share of total used vehicle exports than the EU and Japan, the U.S. still shipped 2.6 million overseas between 2015 and 2019 with a collective value of $24.5 million. The United Arab Emirates is the top importing nation with 389,302 cars while Mexico is a distant second with 281,545. Nigeria is the third, importing 203,136 cars from the U.S. within the period under review.
Nigeria’s inflation rate has had gradual but significant increase in the last couple of months and this has been a major source of concern for the Nigerian economy. Recent inflation statistics from the National Bureau of Statistics (NBS) for the month of March reveal that inflation rate rose to 18.17% from 17.33% recorded in February 2021. While food inflation’s contribution tops the chart, other sources of inflation also have detrimental economic consequences.
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NBS report indicates that core inflation in March rose to 12.67% from the 12.38% recorded in February. It also revealed that one of the highest increases was recorded in prices of motor cars; some of which could be attributed to the current exchange rate (N480/$1), while others could be attributed to the pandemic impact on the auto-makers in the U.S. which left them desperate to break-even from the losses accrued during the pandemic.
The coronavirus pandemic tanked auto sales in the United States. The virus struck the automotive industry after several years of record sales. It came just a decade after the industry essentially collapsed in the financial crisis. Now car makers are once again facing a potentially catastrophic threat, and this time it happens to be something the industry has never grappled with before. Auto companies are taking drastic measures to induce potential customers to keep shopping, and those who follow the industry are looking at other crisis for clues as to how it might respond. Both the financial crisis of 2008 and the fallout from the terrorist attacks of September 11, 2001, prompted car makers to enact aggressive incentive programs to draw customers’ out in times when they were deeply hesitant to purchase the new cars they wanted or very often needed to live their lives. Industry analysts say that these companies may need to use some of those tools again to hold off another collapse. So…WHAT DID THEY DO THEN, AND WHAT ARE THEY DOING NOW?
In the wake of the September 11th attacks on New-York city, the confidence of the American consumer plummeted. The US economy had shown signs that it was entering a downturn months before the attacks took place, but the horrors of September 11th deeply shook the confidence US citizens whose spending accounted for about two-thirds (2/3) of all goods and services. According to a speech given in December 2001 by Robert T. Parry who was then president and CEO of the Federal Reserve Bank of San-Francisco; “By undermining consumer confidence, the attacks hit directly at the economy’s main pillar of support”, Parry said at the time.
In the months that followed the attacks, General Motors (GM), the US largest auto maker rolled out an unprecedented initiative to draw customers back into its dealerships. The “Keep America Rolling” campaign offered zero (0) percent financing for 36 months. Auto makers had offered incentives before, and perhaps an occasional deal offering a zero percent interest on a car loan was not totally unheard of; such deals would have been used very sparingly by auto makers or dealers. Also unprecedented was that GM offered a deal for vehicles across its entire line-up. But the years that followed 911 brought a housing crisis and an ensuing financial crisis that left US auto makers in dire straits. Both General Motors and Chrysler filed for bankruptcy in 2009, only Ford managed to escape bankruptcy during the recession.
In 2009, the Federal government which now owned large portions of both GM and Chrysler, instituted perhaps the most memorable incentive program of that time; the cash allowance rebate system commonly known as the Cash for Clunkers program. The $3 billion incentive program was designed to induce Americans to buy cars again but it came with a few catches. Primarily, its goal was to try to shift consumers into more fuel-efficient vehicles. To qualify a buyer had to trade-in a car which was less than 25 years old and in drivable condition (for EXPORT purposes to other countries). The car also had to be a gas guzzler, getting at least less than 18 mile per gallon. The new vehicle also had to cost no more than $45,000, hence, no super cars. The $3 billion set aside for the program ran out by the end of 2009, but its very nature as a plan to get buyers into greener cars meant that its appeal was limited.
At the time, some auto makers also tried to drum up business by offering assurance incentives that told customers that they would be alright if they missed some payments on a loan. This was effective for addressing low consumer confidence which was rampant at the time, especially among those worried about losing their jobs. Korean car maker ‘Hyundai’ was said to be one of the pioneers of assurance programs at the time.
The coronavirus pandemic and the circumstances it is forcing on the US economy are unlike anything US auto makers have seen, even in their century-long history. When the US automotive industry was still very young, another disease did rage through the United States (The Spanish Flu pandemic of 1918). The Ford motor company had been founded just 15 years earlier in 1903, and that pandemic claimed the life of one of the founding members of the dodge brand still around today and his name was John Dodge. His brother Horace also contracted the disease and never fully recovered; both dodge brothers were reputed to be heavy drinkers for much of their lives and Horace died from cirrhosis a year later. But the world and the automotive business in 2020 was of course wildly different from what it was back then. Before the coronavirus struck, auto industry experts had already expected auto sales to fall in 2020 compared with the previous year.
The automotive business is a cyclical one and sales rise and fall as the US economy expands and contracts. The last several years have seen sales at/near record levels. Total new light vehicle sales topped 17 million for 5 straight years. Sales in 2019 came in at 17.1 million units, topping most estimates which had predicted sales in the high 16 million range. In early February of 2020, industry forecaster LMC automotive expected US new car sales for 2020 to be about 16.8 million units. Sales at the beginning of March 2020, were relatively strong, down just about 4% over the previous year; but just one week later, sales had plummeted by 38% compared with the same week in 2019. In the last week of March, sales had fallen by 61%. As of the first week of April several automotive sales forecasters had expected sales for the full year to fall to around 14 million.
As of April 2nd 2020, 39 state governments had instituted stay-at-home orders for citizens and many areas ordered non-essential businesses to close. That decision affected 265 million consumers or approximately 80% of the population. Within 2 days that number had jumped to 41 states. At the same time, at least 5 states in the U.S. had temporarily banned any automotive sales.
There is no template for understanding the full ramifications of the pandemic (economic or otherwise). Those who followed the auto industry say the U.S. consumer could see a sort of revival of GM’s ‘keep America rolling’ program, perhaps a ‘keep America rolling 2’. As of late March, auto makers were already offering zero percent financing on 84 month loans and even offering to defer payments for up to 6 months; those deals are already unprecedented. Prior the coronavirus, ant type of loan lasting 84 months was a rarity. In 2019, only 7% of loans lasted that long, however, by the end of the last week of March 2020, 23% of all sales came with loans lasting 84 months. As with all incentive programs, not every customer would be able to receive such favourable terms; new vehicle loan interest rates could vary widely depending on a customer’s credit score.
Some auto makers are also once again offering payment protection to customers as they have in the past. Many are trying to assure buyers that their loans won’t be in jeopardy if their employment situation is unstable. Numbers released on April 3rd 2020, showed that payrolls had fallen to levels near the worst scene during the financial crisis in 2009. But how long these types of incentives could last did remain an open question.
One thing the coronavirus does stand to change possibly for good is the way consumers buy cars and the cost at which they would be sold. However, the more pressing issue would be the resultant implications on U.S. dependent economies such as Nigeria once the proverbial pandemic dust settles.
