• Friday, June 14, 2024
businessday logo

BusinessDay

Knowledge deficits, dollar scarcity making Nigerians lose in car importation – Amisu

Knowledge deficits, dollar scarcity making Nigerians lose in car importation – Amisu

FEMI AMISU, is regional manager for Auto Auction Mall, a company that represents the Copart lounge in Nigeria. Copart is one of the biggest car auction platforms in the United States where dealers (and end-users) often source used vehicles to be imported in Nigeria. He tells CALEB OJEWALE, how the car importation industry has been adapting to challenges such as foreign exchange, Customs valuations, while also highlighting opportunities for would-be car owners or importers. Excerpts:

In your experience, what common mistakes do people make in bidding on cars without expert knowledge involved?

A common mistake people make when bidding on cars is, first of all in titles. Not all titles are accepted by US Customs for exports, some vehicles don’t even have titles and title will basically just prove that the vehicle was not stolen. In a situation where you buy a vehicle, it is when you move the vehicle to the ports that you realize it doesn’t have a (required) title and is rejected. You’re then stuck with a vehicle that you’ve paid for but cannot export.

Also, people misunderstand deals. The closer the car is to the port, the more expensive it will be and if it is far from the port, it is going to be cheap. Now, Nigerians will see that cheap price and then jump on it, because they don’t know that the distance is why it is cheaper.

Then to get a trucker to move the vehicle to port becomes an issue, and you find them defaulting, the vehicle being relisted and they eventually lose money.

The third one is understanding the ever-changing, exports environment of the US. There are times when the closest port to the vehicle is filled up or at capacity, and they are no longer accepting certain types of vehicles. Nigerians like to buy salvage titles and damaged cars because they are cheaper.

The common trend in the last five years and even longer is that Nigerians favour salvage vehicles, you know, vehicles with damage, because the cost of labour is cheap. Customs needs to consider that as much as they are trying to generate revenue, they also need to consider the economic realities of the country

However, by the time ports are filled up with those kinds of vehicles, and then you buy the same type without having that pre-information; you are then stuck with a vehicle that you can not export. You would then have to find storage of $10 – $20 per day in extra cost. In most cases, some people would abandon the cars, and just lose money.

In West Africa, Nigeria especially has one of the highest relist rate or cargo abandonment rates when it comes to cars because of issues like this. Also, it is common knowledge that we don’t like to read in this part of the world, however, taking time to look through the details of the vehicle could save a lot.

For instance, when a title is pending and a person misses that information, they have to wait maybe 35-45 days for the title to be ready, during which time Copart (as an auction platform for instance) will be charging on storage. Sometimes when people calm down and see details, they’re able to dodge bullets as it were. That is part of why we (Auto Auction Mall) came into this, and trying to help clients from avoidable challenges.

With foreign exchange challenges in Nigeria, how are people able to scale this hurdle?

Overtime, and in fact, all of last year, there were so many new CBN introductions. There are so many variations with limits. Now, you can do a (foreign currency) transfer from your bank account, that is, your domiciliary account, but there are certain conditions such as not being able to go over the counter to deposit USD and then making an electronic transfer of it.

While you can send the money between accounts within the same bank, from Bank A to Bank B, if you want to send outside the country, you can only send out to an individual account. If you want to send to a corporate account (such as the car auction company or any other dealer), then you have to process what is called form M.

From experience, the process can take longer than the timeline you have after purchasing a vehicle. And when you consider people making multiple payments, it becomes a challenge.

Even if you’re able to scale the form M hurdle and get somebody to transfer or fund your account electronically, you also now have to look at the limit. There is a $10,000 weekly limit and accumulative $20,000 monthly limits, which vary from bank to bank. Now, if you’re buying a Lexus 570, let’s say 2019 model, costs can easily be over $30,000-$50,000. With a transaction limit of $20,000, how do you make it work?

You have three days to pay to avoid a late payment fee, and seven days to avoid the relist time penalty that could mean losing your deposit. Copart also has a term that if you are paying directly the name of the sender has to tally with the name of the account. Copart is also being careful and does not want issues with law enforcement agencies on account of receiving stolen money or money hacked from an account. So they prefer your sender account for a transaction tallies with the account name on Copart. They don’t allow third-party payments to put it simply. A solution could be having a US bank account, but how many people have that.

Where we come in as a Copart lounge is allowing third-party payment. Also, sometimes we have people that have excess USD over there and have need for naira transactions, those avenues exist that we use to assist people with payments. We can collect Naira here, and use USD from over there to fund a transaction or finding a way to do the remittances. It is a very huge challenge when it comes to payments.

What are the charges involved in using your platform to source a vehicle from the US?

We have three charges, we have our own fee of $249-299, depending on the purchase price, we have a $75 documentation fee as requested by the state of Florida, where our head office is, as requirement to file an affidavit that the vehicle was legitimately bought and exported.

There is also the auction Clearing House fee, which is the charge by the lot where the vehicle is located. Auction lots come a little bit discounted because you’re buying through us. There is a little bit of discount there to accommodate our fees.

There is a required deposit of $600 to give you buying power, which is the ability or eligibility to buy. The deposit also serves as a protection or failsafe because if you buy a vehicle at the auction, and you do not see the transaction through. ‘All sales are final and binding’, that’s the capital term. If you default after winning an auction or you don’t pay, there are what we call relist penalty fees.

That is usually what the $600 goes towards, as well as the buying power or eligibility to buy vehicles up to a maximum of $6,000. Anything over $6,000 means your deposit has to be up to 10% of its value. When we successfully get you a vehicle, the deposit becomes an advance payment. The entire fund is applied to your purchase. The only instance where it is refundable is if we cannot find you a vehicle; attended multiple auctions and we are not winning.

Can you take us through the process of what happens after a bid has been won; starting with what other charges have to be paid either to your firm or to the auction platform (through you), before the vehicle can be shipped?

When a vehicle has been won, we have different sales conditions. It could be a ‘pure sale’, meaning that the highest bid at the auction wins the car out rightly. Even if it’s a 2020 Rolls Royce, and the highest bid is $100, you get it out rightly. That’s a killer sale.

There is also ‘seller’s reserve’, where the seller has a minimum amount they are looking to make on that vehicle. Some are disclosed, sometimes they are hidden. If a seller’s reserve is $5000 and it is open, that’s usually what we call ‘buy now’. If it is hidden, then we won’t know until we are the highest bidder at the end of the auction.

Where it is hidden and we won the auction where the highest bid was $4,000, we then enter a second round of negotiations exclusively between us and the seller, to agree on a price. If they agree, we’ve won the vehicle, if not; they cancel the auction, relist the car in auction, and release our deposit to try another vehicle. Another one is ‘on-approval’, meaning that whatever the final purchase price is, the seller just wants to be sure that it is not too low. If the seller is not satisfied, they have the opportunity to do a counter price.

In terms of charges, the final purchase price is what determines the charge. On our platform (Auto Auction Mall), we have a fee calculator, which could advise you on what we think a vehicle will sell for based on our history of past sales. It is also up to your budget, so if your maximum bid amount for a 2005 corolla is $1800, for example, it will auto compute the charges that you have to pay. If you go to our calculator and you type $1800, you’re going to see $249 our fee, you’ll see $75 as the documentation fee, and then auction fee of $513. On $1800 as purchase price, the total charges applicable will be $837. This is excluding the cost of shipping and local clearing.

Toyotas are known to be popular among Nigerians, but, what has stood out as a trend in the last five years in terms of purchase patterns through your auctions platform?

On average, Nigerians would buy cars usually below $5,000. They don’t buy cars that are higher than that, and it’s understandable because not many people considering the high cost of clearing more recent years can afford more.

The common car is Corolla, but because of competition and high demand for Corolla in West Africa, you find people gravitating towards other cars, like Honda Civic, Honda Accord, and Sienna amongst transporters.

I would say it’s almost an equal spread between Sedans and SUVs. But the common trend in the last five years and even longer is that Nigerians favour salvage vehicles, you know, vehicles with damage, because the cost of labour is cheap, we have second hand parts that make it cheaper, even China parts. So, people would buy to save thousands of dollars and come fix them here, compared to what it would have cost in the US.

Generally, the trend is to go for lower year vehicles to save on clearing costs, to allow for ease of fixing, and be able to resell whenever they want to change cars.

Read also: Avoiding mistakes when selecting ‘Tokunbo’ cars to import in Nigeria

Shipping is about the last stage in this process. Tell us what the experience and trends have been in say, the last five years to get cars to Nigeria?

In terms of shipping, it is important I mention that Auto Auction Mall is not a shipping company. Copart also does not offer shipping services. But based on our experience over time in this industry, we’ve been able to create partnerships with shipping companies and they are the booking agents for the shipping lines.

An individual cannot go and book the shipping line; they have to go through the shipping company. Think of when you want to clear a vehicle, the shipping company is the clearing agents; the shipping line is the terminal; that’s how it works.

An individual cannot just walk into the terminal to clear; he has to go through a licensed agent because that’s how shipping works.

In terms of experiences and trends, first I will say is cost. There was a time when cost of shipping ocean freight could be as low as $700 but it has risen to about $1000 for a regular sedan. And from April the cost will be reviewed upward, as we were recently informed. This is due to operational costs, and a report says increasing global fuel costs probably related to the Russia-Ukraine war. As their costs rise, they also pass it on to the consignees or the owners of vehicles. Generally, cost has been on a steady rise.

In terms of timelines, from the date of purchase at the auction, to the time of arrival in Lagos, Nigeria can be anywhere between six to eight weeks. However, sometimes it may be late in the cases of non-runners, because shipping companies prefer vehicles that run and drive, as they are easy to load so those usually tend to come faster than non-runners. And then it also varies from port to port, there are some ports in the US, such as New Jersey, that can have shipping lines load two or three times in a month, there are some ports like Baltimore, that is only once a month.

Auto Auction Mall helps to evaluate all these things and advise in managing bid cap, even if you’re on a tight budget.

Finally, when it arrives in Nigeria, what has the experience been in terms of clearing them? Any challenges with valuations?

In terms of clearing, we have clearing partners as well, to make it such that your buying, shipping and clearing expenses are all done through the Copart lounge in Lagos, Nigeria with Auto Auction Mall. Experience with clearing has been good, but I mean, there are always challenges. There is vandalism and criminals at the terminals, and there are terminals notorious for vandalism.

Also, the way vehicles are handled at the ports has to be pointed out because when they’re offloading some of these vehicles, the people that offload just do it anyhow. After offloading, you might find that the side-mirror is gone, the body has different scratches. We even had an instance where the bus we got for a client was caught tied to the back of another vehicle and used to tow that other vehicle. The uncaring, careless attitude in how these vehicles are offloaded compared to how they are handled in the US, is among not-so-good experiences when it comes to clearing.

Also, after a car has been valued, paid for and cleared, on the road, you encounter some customs enforcement teams and they say you underpay. The question is; if the value on the assessment sheets was duly signed with a badge number and officer name as provided to the agent to pay, who issued it? Maybe on my way somewhere on Ore or Sagamu, Benin road, a customs officer is now telling me I underpaid.

I didn’t generate the duty myself, I didn’t assess the vehicle myself. If you have a problem with the duty, get the number of the officer and the badge number and issue him a query, it’s not a problem of mine. You don’t need to harass me or tell me about that.

So those are some of the experiences with clearing. But hopefully, the new e-valuation system will allow the uniform clearing costs. I hope when that happens, we will still not have a situation where a vehicle will be on its way to the east, and then the customs enforcement agent will still come and say you have underpaid. Did you hack the back end?

Can you speak to the recent issue with valuation of vehicles which caused a showdown between importers and Customs, what should be the way forward?

We had hundreds of vehicles that were affected by the showdown between importers and customs officials, so it’s important. I would say the e-valuation is the way forward, but duty being requested on vehicles is too high.

Customs needs to consider that as much as they are trying to generate revenue, they also need to consider the economic realities of the country. If they continue, at this rate, what you would have in Nigeria is a lot of used substandard vehicles. And before you know it, the rate of accidents in the country would increase.

If the rate and amount of duty being generated for even old cars is on the high side, it will drive people to cut corners, and at the end of the day, Nigeria will be the worse for it.

In Ghana for example, the more recent the car you buy, the cheaper the duty, so it is more expensive to clear a 2005 vehicle than to clear a 2021 vehicle. What you find on Ghana roads are a lot more modern cars. You see a lot more roadworthy cars; there is less impact on the environment because these cars are more recent with better emission control and better safety features.

How do you handle conflicts of interest when one or more customers ask you to bid on the same vehicle?

It does not happen a lot, but it does happen, however, by default it is whoever has the highest bid that will get the vehicle. There are times the auction could go higher than Bid Cap A but lower than Bid Cap B, automatically the customer B gets it but if it is now lower than both bids, and it is an auction on seller’s reserve it becomes a case of who between client A and B is willing to go highest.

If all else fails and each of the two or more clients are keen on getting the vehicle, we call them individually and explain to them that there is another customer interested in the vehicle and this is his bid cap to get them flexible with their bid.

We can also strive to look for alternatives of same car and for inconvenience we can offer discount on our fees just to avoid that clash and everybody is happy.