• Friday, May 24, 2024
businessday logo

BusinessDay

How Nigerians, lovers of brand-new cars, became ‘tokunbo’ consumers

tokunbo_cars_ban

In 1985, Anthony Anamelechi, a young staff of the North Breweries in Kano bought his first car by entering a Volkswagen showroom in the state and bought a brand-new Volkswagen Santana for N3,000.

Then, Anamelechi was on a monthly salary of N250 and N100 overtime wages, which amountedp to N350 monthly and about N4,200 annually.

“Between 1984 and 1985, a brand-new Peugeot was sold for N7,000; Volkswagen Santana for N3,000; Mercedes Benz was sold for N24,000 and a new Volvo car was sold for N18,000,” said 69-year-old Anamelechi.

Anamelechi was neither an executive nor a senior staff at North Breweries, but he was able to save up in a space of two years to buy a new car of his choice by just putting a portion of his salary aside.

Nigeria’s economy at that time, according to him, was doing a lot well compared to today as Nigerians were exchanging a dollar for N0.765 and N0.894 in 1983 and 1984 respectively.

Back in those days, he said, there was price stability, and the likes of Volkswagen were assembling cars in Lagos, Pan assembled Peugeot cars in Kaduna and Steer Trucks were assembled in Ibadan.

To support these assembly plants, spare parts manufacturing firms such as Dunlop and Michelin tyres were producing tyres in Nigeria. They sourced their raw materials locally from places like rubber plantations in Sapele Old Bendel and Akamkpa in Cross River States using backward integration.

Also, the country’s economy relied less on importation because several things were functional; Nigerians were producing spare parts in Awka; Nigeria’s refineries were functional and many cement factories were also producing.

Thirty-nine years down the line, the narrative has changed for the worse. The naira has weakened reaching a record low of N1,830/$ in the parallel market in February 2024.

These market dynamics also helped to shoot up prices with inflation accelerating to 33.2 percent in March, the cheapest brand-new Chinese-made sedan vehicle sold for as much as N36 million and a brand-new mini-SUV sold for over N40 million.

For instance, high-end luxury cars such as the Toyota Highlander go for over N72million, the Toyota Land Cruiser goes for about N130million and the Toyota Land Cruiser Sport GR sells for about N150million.

These prices represent how much Nigeria’s Naira has lost its value. The naira has recorded many woes in recent times as it traded for N1,466.31/$ in the Nigerian Autonomous Foreign Exchange Market (NAFEM) as of May 10.

Today, new cars are reserved for the high and mighty in society particularly politicians and chief executives of companies. Only a very small percentage of the entire Nigeria’s over 218.5 million population can afford to buy a new car.

Demand for ‘tokunbo’ cars

When Nigerians could not afford to buy brand new cars in the ’90s as prices started skyrocketing due to the naira slumping over the dollars, citizens of Africa’s biggest nation began to depend on imported cheaper second-hand cars popularly known as ‘tokunbo’, to satisfy their mobility needs.

BusinessDay Sunday was told by a concerned Nigerian, who spoke on condition of anonymity that “depending on used vehicles is not a luxury for Nigerians. They do not buy used vehicles because they prefer them to new cars, but they buy them because they are pocket-friendly.”

Aside from brand-new cars, the foreign-used ‘tokunbo’ cars that Nigerians depended on to meet their car need started going out of the reach of many Nigerians with the continued galloping of naira, volatile exchange rates and policy inconsistency working together to destabilise prices of not just new cars but foreign-used cars.

National Automotive Policy

The Federal Government signed into law, the National Automotive Policy of 2013, in a move to encourage local manufacturing of automobiles.

It was a protectionist and incentive-offering policy aimed at helping potential and existing local investors, with the sole aim of discouraging the importation of new and used cars into the country.

The policy raised the bar of import tariff on vehicles by imposing a 35 percent duty and 35 percent levy, amounting to a 70 percent tariff to be paid on the imported cars to the Nigeria Customs.

Before then, importers were paying a 10 percent duty and a 10 percent levy, amounting to a 20 percent import duty.

By raising the tariff in 2013, the prices of even used foreign imported cars started going out of the reach of many Nigerians. This forced the importers to resort to bringing accident cars to enjoy a 30 percent rebate in import duty.

Dented or damaged vehicles

With prices of both new and ‘tokunbo’ cars ballooning beyond the reach of the poor, Nigerian car dealers shifted to low-quality and dented vehicles as cheaper alternatives to cushion the effect of high import tariffs on new and used vehicles.

A dented vehicle qualifies for a 30 percent rebate in tariff. But to benefit from the tariff rebate, some important components of the vehicle including the chassis, airbags and a large chunk of the body, must be certified damaged.

“The quality of vehicles imported into the country has deteriorated over the last four years. This was partly due to the recession and the shrunk in the purchasing power of many people. Not everybody can afford a very expensive vehicle that is why people are importing older vehicles or accident vehicles, which are cheaper,” Ascanio Russo, managing director of a RoRo port, PTML told Ships and Ports in 2018.

The year 2018 was five years into the implementation of the auto policy, and Russo said the importation of vehicles into Nigeria became more expensive than before.

“Bringing in dented vehicles is one of the ways importers recoup investments put into bringing cars due to the high cost of exchange rate because it is cheaper and profitable to bring in such low-quality cars, repair and sell,” said Tony Anakebe, a renowned industry analyst.

Cost of vehicles soar over weak naira

The outbreak of the Coronavirus (Covid-19) pandemic disrupted the global economy with several nations facing economic stress that took new and used car prices off the limit.

Ojurongbe Damilola, head of Technical Services at Cars45, said in a recent interview that in 2015, a foreign-used 2005 Toyota Corolla on Jiji cost around N1.9 million but in 2024 the same car now goes for over N6.5 million.

He said the Nigerian used counterpart was priced at N1.2 million back in 2015, but now prices range between N3 million and N3.5 million.

In addition, the use of high exchange rates for clearing cars at the port by Nigeria Customs is impacting the prices of vehicles. The automation of the vehicle clearing process at ports in 2023 directly impacts vehicle prices in Nigeria.

As the situation leaves many with no choice, Nigerian households began to go for third-hand and even fourth-hand cars due to tough times and high prices of cars.

This development forced many to start holding onto their cars for a longer time while those in need of either upgrading their cars or buying a car for the first time now resorted to buying Nigerian used cars.

The boom in Nigerian used cars

The demand for Nigerian used cars has experienced a surge in demand, becoming the biggest beneficiary of the foreign exchange crisis.

Recent reports show that the Nigerian used car market is now valued at over $1.4 billion and is estimated to experience significant growth by year-end in 2024.

The most sought-after models in this category are Japanese brands like Toyota and Honda.