Domesticating automobile industry will create jobs, wealth – Okundaye

BUSTY OKUNDAYE, is the Nigerian that led the team that set up the General Motors (GM) plants in China thereby putting his footprints on the global automobile industry. He tells BADEJO ADEMUYIWA and YANGEE IKYAA of his experience in GM global operation and the opportunities in the new auto policy.

Q:Domesticating automobile industry will create jobs, wealth.

I left Nigeria for further studies in the United States in 1981 after my early school days and had my first degree in 1985 in Mechanical Engineering and also my master’s degree in the same course, specialising in spacecraft dynamics and controls.

I did my research with National Aeronautic and Space Administration (NASA), with a group based in California, where we worked on an unmanned spacecraft that was later sent to Jupiter.

During my last year in school, I was recruited by six companies but chose to go to General Motors, which, at that time, was number one, and still in that position today.

I graduated on a Friday, and started work in General Motors in Detroit, Michigan on a Monday. I started on a fast-track programme, which took me through all the departments and units in the company on which I was evaluated every month.  I was later sent to the factory which was making two types of Chevrolet SUVs: Chevrolet Blazer and the full size SUV.

 I started as a production supervisor, working in a team comprising others from other departments in line with General Motors rule, one has to go through everything together in a team so that everybody has an idea of the whole operations of the company.

 I supervised the assembling team and was in charge of the whole of a vehicle that we call the chassis, comprising the engine and the rest of the internal parts except the body. At this unit, we produce 656 vehicles in a day from 1989 to 1991, working two shifts of eight hours a day, from 7am to 3pm and 3pm to 11pm. The maintenance unit comes in from 11pm to 7am to ensure all the machines tooling equipment are in the right condition for the next day.

I was moved to the R and D department after a year and we do advanced activities on the work of the Research division. So, basically, if a vehicle is to be produced in four years from today, we start working on it from today, meaning that you actually start designing and developing it, making necessary changes until the vehicle is actually produced three, four, five years later. 

The factory in Michigan where we produce these 656 Chevrolet SUVs daily has 3,000 direct employees in addition to about 200 suppliers and consultants that we call third parties. 

There is another support group to the R and D department that does on-the-spot research and not the normal long research. And, then, another section actually churned out the body of the vehicles, which is called stamping, and which is cutting the body to the shape of the designed engineers. 

Another section produced V8 engines for heavy duty vehicles. So, if you added all this together, then everybody in that complex would sum up to about 12,000 direct employees. And if you add the suppliers and all that, you will be talking about 14,000 or there about.

After a year in the R and D in the Michigan plant, I was sent to the main R and D Centre in the General Motors technical centre in Walden, a distance of about 15 miles from Detroit, Michigan. There, I worked in advanced activities on future vehicles with designers from Asia, Latin America and Europe.

After my MBA from Massachusetts Institute of Technology (MIT), I was sent to Canada, Mexico, and twice to Germany to garner experiences. In 1997, I led a team to see how we can effectively transfer technologies to China. The project called Shangai GM (SGM) was valued at $2.145bn and was the first GM’s major activity in China.

It was also China’s second largest major project. We later discovered that the Chinese government compelled GM to also domesticate its technologies in the country. This means that we will produce right from China and in effect, discourage import. This is not quite different from assembling. We started with the Buick Reego and Buick Century and we made sure that these two vehicle models are produced 100 percent in China. Today, GM produces two million vehicles from the China plant annually.

 The Chinese government was not so direct, as it gave GM two choices, to come and produce without paying customs and excise duties. And those days, depending on the value of the vehicle, the duties could be over 100 percent.

So, if you were to buy a Buick Reego, in the US for about $30,000, import duties will take another $30,000 and eventually pushes the price to between $70,000 and $100,000 to drive it in China. And with the license plates that were very expensive too, the manufacturers and dealers were not competitive because It was simply too expensive. Whereas if you made the vehicle in China, you could sell it at the same price as in the US since you wont pay customs and every excise duties.

The Chinese government did this to create jobs through the entire value chain because this compelled GM to have all its suppliers from within in China as opposed to its operations in the US, Canada, Germany, Mexico, etc.

Domestication takes time and its not an overnight business. But it creates those jobs and grows the economy because the automobile industry is one of the best ways to develop an economy as it spreads across the board.

A car has all the materials such as plastic, metal, electronics, electrical, chemicals, etc and if these are produced in ones country, automatically all these industries will also be developing at the same pace.

So, that means the steel industry will develop, and if it develops, will automatically make the economy to be stronger; the chemical industry will also develop, and everything just develops across the board. In addition to this is transfer of knowledge that are both technical and managerial.

How can we replicate the China experience in Nigeria with the current situation of things?

It is very possible but we have to look at it holistically and on a long-term basis. Domestication of technology, both the product and knowledge is not an overnight business and the Nigerian government has taken the first step with the new auto policy.

For a country that is populated like ours, if we are going to ever reduce poverty, if we are going to ever acquire these technical skills and advanced managerial skills, we cannot keep on forever importing from Asia, Europe, America, etc, we have to domesticate.

So we have got to that point in life after 53 years where we can say enough of this importation, let’s slow it down at least and let’s accelerate or increase our own domestication practice.

The challenge, however, will be in the implementation of the new policy because it is just a paper work.

There have been arguments for and against the policy and from your experience in the automobile industry, what do you see in the policy that can translate into growth in Nigeria? 

People are the number one assets anywhere, be it in a country or company, it is not technology but the people. With our population, if you are going to create wealth, first of all, create jobs for our own people, especially the youth that are graduating from schools every year in our country.

Government cannot create enough jobs by solely importing vehicles. This is because how many jobs will a dealership create? In one location, probably you will have 10 sales people, then maybe 10 mechanics to do the maintenance work or after-sales service, then five security guards, and five drivers. That is 30 people.

But if you are assembling vehicles under full domestication, the 30 people will be employed just to manufacture a single bolt or screw.

In other words, domestication can create not only huge jobs for everybody, especially the youths who are currently unemployed, but can also begin to create wealth for our people and begin to get our people the human capacity in this area of technical skills and also the managerial skills at all levels.

Apart from that, the economy also grows. And once your economy is big you begin to get what we call sustainable stability nationwide because a kid who gets up in the morning and is rushing to go to work, by the time he works from 8 am to 5pm and gets home at 7pm, he will have to be a super person to go out and start fighting on the streets.

And that is what obtains in those countries like the US, China, Germany and the UK, etc., because by the time you come home, you are already tired and thinking about how to quickly get up tomorrow and set out for work so that at the end of the month you can get money for housing, feeding and others.   

The previous auto policy of the 1970s attracted companies like Peugeot, Steyr and others to Nigeria. Would you say that the policy failed because of the exclusion of the domestication clause?

Two things I would think of: I am not very familiar with that policy because I was growing up then, but I saw some of the results. Peugeot Automobile Nigeria (PAN) in Kaduna, for example, was all there as a result of that policy. I have also seen Volkswagen in Lagos and a few others like Steyr in Bauchi and Anammco in the East of Nigeria.

So, the people who designed those policies then, I believe, did the right thing at that time. One of our biggest issues in this country is implementation, and not really following things through to sustain it and also developing knowledge.  For me, that policy was a very good foundation to start with.

But when I look back, that policy was only focusing on SKDs or Semi-Knocked Down vehicles and there really was no domestication. So, that means that thousands of all the components of a car were made in some other countries, and, then, shipping these things to us for us to just slap them together, which is the simplest part of automobile assembly.

That on its own is a good start but it doesn’t create the economics of scale that we are talking about, the huge job creation that we are talking about. So, if you have a policy that focuses only on SKDs, you have only just scratched the surface of trying to develop your economy or the automobile industry and you would have to take the two steps further.

This means that you would have to go to CKD or Complete Knocked Down vehicle production to maximise the entire thing. Only then can you have all this value chain within the same geographic location or to a considerable degree within the same geographic location.

So, if you just do SKDs, it is a good step but if you stay there, you will still not get the maximum benefit. And if you do CKDs, that one is even much costlier because, apart from sub-systems, you will also have to import many vehicle parts into Nigeria for assemblage.

So, if you make about 90 percent of those imported components here in Nigeria that could be assumed as full domestication.

It means you have the value chain and all your industries like the chemical industry, the electrical industry, the plastics industry, the electronics industry, etc., will be developing because all of those suppliers here will be locally producing, and that is how all this job creation happens with the automobile industry.

Two sectors – power and steel are critical to a vibrant automobile industry. Power sector is being reformed while the steel sector is almost non-existent. With your experience in a start-up project like that of SGM China, how long do you think will take the country to achieve full and effective domestication?

When we moved to China in 1996, the country automobile industry was not much ahead of what we hav      e here in Nigeria today. The prevailing situation in this country can actually achieve the fully domesticated vehicle industry.

We are not inventing anything and all what is required are existing somewhere already and it is just a matter of transferring them here and domesticating them.

We all know that there is power generation virtually everywhere worldwide and that can be done here as well. The government has taken a lot of the right steps in the right direction by privatising the electrical Discos and Gencos because personally, I do not see how we could have made it without privatisation of the PHCN.

Moving it into private hands will achieve 24-hour electricity supply because as an investor, after spending hundreds of millions of dollars, you would not want to see anybody do anything wrong in your company.

Regarding the steel and the other supplies in domestication, when we got to China, the level at which they were then was pretty a little bit ahead of Nigeria of today.

Now, once you domesticate, I will give you our personal example. When we took the Buick to China, we also took some suppliers and told them to talk with the local suppliers whose capabilities technologically, managerially, and otherwise are relatively low. We were the monitors and referees for these meetings. I personally chaired over a hundred of those kinds of meetings because of the policy that compels us to make these vehicles in China.

So we brought the Western companies and the Chinese companies together to work on the basis of comparative needs, combining their capacities to become hundred percent capable to develop various industries.

The steel industry was one of them. I personally worked with at least three steel companies as suppliers in China, to develop them to world class standards that meet the standard in Germany, Great Britain,USA, Canada, Mexico, etc.

We sent a team of our engineers and managers who investigated the local industries in China of their managerial capabilities, available technology, and finances and bridged the gap between where they were and where they are today.

This, in some instances resulted in technical licenses and at other occasions, strategic alliances. With that, these forces combined, while we monitored, and the whole thing developed. And we did this not only in the steel industry; but for virtually all the industries there.

First, you bring the people with technical know-how and let them do it here and with the economy of scale knowing fully that there can be profit on their investment and products, they will come. In fact, they are actually looking for places to go to.

Did GM work in China solely or in partnerships for production activity?    

Actually, there were partnerships with local companies. One of them was SADC, Shanghai Automobile Development Company, which is a very huge Chinese automobile manufacturer among the top three.

We also went into a joint venture with another company called SAIC-GM-Wuling (SGMW) Automobile Company based in Shanghai.

Apart from political will, what other measures do you think will ensure the new auto policy is effective and gainful?

The measures that can make it work are actually in the area of implementation. What is required is to ensure it works and driven by the right people.

Do things right with the right people at the right time and if there is a violation, let there be a penalty for it and also reward if it is well done. If it is an obvious mistake, caution the person but penalise accordingly if it is a violation.

As we are implementing, do you support the view that there should be a total ban on imported used and new vehicles into the country?

No, I do not. Because we are going to need those things, such as new engines, parts and other facilities during this development phase. Just make it more expensive until you are able to develop an alternative, which means that while importation is declining, local production will be rising until you get to 70 percent and above domestication target.

Are you surprised that you have not been contacted given your level of experience and expertise?

Not really, but based on my experience in the United States, in Canada, in Mexico and in China. I was one of the core leaders in getting that done in China and it was successful. I therefore believe I would be able to contribute if I am contacted by the government. I will be able to contribute in many areas technologically, managerially, and even in policy development and also its implementation because I have lived through it in over 11 years.

Would you want to take opportunities of the new auto policy and explore the industry?

Yes, I am working with some offshore investors who have just left because of the Ebola virus disease. I have to stay back for some strategic alliances that seem imminent.

What are the challenges you think can discourage investors from exploring opportunities in the new auto policy?

It is insecurity, right from the time of the Niger Delta insurgency to this time of Boko Haram. Recently, is the Ebola Viral Disease. But the medical threat issues and insecurity problems are all temporal and will go away. I lived through it in China during the SARS health crisis.

BADEJO ADEMUYIWA and YANGEE IKYAA