• Wednesday, May 29, 2024
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BusinessDay

More automakers look to contract assembly, fearing policy summersault

There are strong indications that foreign automakers interested in establishing plants in Nigeria are considering the contract assembly option.

Contract assembly is the automobile production model where prospective automakers coming into a country make use of existing assembly plants to manufacture vehicles.

Under this model, the automakers lease assembly lines of existing auto plants on short- or long-term basis. The practice helps reduce project cost and cuts down on losses should the investor need to withdraw on short notice.

In the developing world, the reason for sudden project abandonment is often similar sudden policy changes by host governments.

Many of the automakers who spoke with BusinessDay at the 65th IAA Commercial Vehicle show in Hannover said they were going into contract assembly as a short-term measure due to fear of policy inconsistency and lack of sustainable political will on  the part of the Federal Government as well as a dearth of supply base for component parts makers.   

“We are meticulously studying the seriousness and commitment and process of how deeply involved the Nigerian government is in pursuing the new automotive policy,” said Weber Quirie, top executive of one of the high-end luxury brands.

Quirie told BusinessDay that as a precautionary measure and in order not to waste investment in a hurry, his company was exploring the contract assembly option by utilising assembly lines of existing auto plants.

Recall that Transit Support Services Limited, a Nigerian company, recently entered into a technical bilateral agreement with Anambra Motor Manufacturing Company (ANAMMCO) on contract assembly arrangement for the manufacture of various ranges of Chinese Shacman trucks. The deal will involve the commitment of $9 million in equipment.

Only recently in Pretoria, Jeff Nemeth, president, Ford Motors South Africa, said with the pronouncement of the auto policy by the Federal Government, the American carmaker had been looking at growth opportunities of new product lines and related economies of scale.

While stressing that Ford Motor Company was yet to decide on assembling vehicles in Nigeria, he observed that for any nation to make any meaningful progress, there should be a clear-cut but long-term industrial policy that must not be tampered with by successive administrations.   

A few weeks ago, Toyota Motor Corporation of Japan said it was investigating the possibility of producing vehicles in Nigeria.

Johan van Zyl, president and chief executive, Toyota South Africa Motors, confirmed this, adding that the investigation had been prompted by the imposition by Nigeria of higher tariffs on imports of new vehicles.

Van Zyl said he could not comment on when any announcement would be made about possible vehicle production in Nigeria.

“The decision on whether we will invest in another country is not a Toyota South Africa decision, but a decision by Toyota Motor Corporation in Japan,” he stressed.

Ian Nicholls, vice-president, operations, General Motors South Africa (GMSA), confirmed that the new regulations and much higher vehicle import duties in Nigeria meant automotive companies would need to do some level of assembly in the country to compete effectively, and that GM would have to rethink its plans in the country.

MIKE OCHONMA