• Wednesday, June 19, 2024
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Nigerians shift to locally used cars as prices soar on volatile naira

Nigerians shift to locally used cars as prices soar on volatile naira

With the prices of brand new and foreign used cars going out of the reach of many, Nigerians are now sourcing for locally used alternatives to meet their mobility needs.

Prices of new and foreign used cars started soaring gradually after the devaluation of the naira in 2019. Then, the exchange rate of the Naira to dollars weakened to N470 per dollar, and the situation worsened after the pandemic spiked global inflation.

Nigeria’s inflation rate accelerated to 33.69 percent in April, according to the National Bureau of Statistics (NBS), and this is also adding to the hike in commodity prices.

These spikes caused the naira and foreign exchange rate to suffer further shocks resulting in higher prices of cars.

The high exchange rate of naira to dollar, which settled at N1462.59/$ in the Nigerian autonomous foreign exchange market (NAFEM) as of May 22, is also worsening prices of foreign and Nigerian used cars.

BusinessDay discovered that the high prices of new and tokunbo cars are not only forcing many Nigerians to hold onto their old cars for long due to lack of money to buy new ones but to also resort to buying locally used cars.

For instance, in 2015, a foreign-used 2005 Toyota Corolla on the Jiji platform cost about N1.9 million but now, it’s over N6.5 million, marking a substantial increase in price.

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

Similarly, its Nigerian-used counterpart was priced at N1.2 million back in 2015, but now the price ranges between N3 and N3.5 million.

Checks on the Jiji platform, an e-commerce platform, shows that a Nigerian used 2010 and 2013 Toyota Corolla cars are priced at N7.2 million and N9.6 million respectively.

Adedayo Oyewole, a dealer, who sales Nigerian used cars in the Sango-Ota area of Ogun State, said he shifted to selling only Nigerian used cars because people are no longer buying tokunbo cars due to the high prices of cars in the market today.

“Foreign used cars are expensive and even we dealers are not even buying anymore because they stay longer in the showroom. I had people in America who used to ship cars to Nigeria for me to sell but they no longer bring those cars for two reasons including high cost of clearing and low demand on the part of consumers.

“It is now very expensive to clear cars from the port due to the high and volatile exchange rate for calculating Customs duties and the implementation of the Vehicle Identification Number (VIN) valuation policy both of which makes the tariff on imported cars high,” he said.

Oyewole said the lull in the demand for foreign used cars is not only making cars stay longer in the showroom but also discouraging investors because it ties money down for a longer time.

Also speaking, Ojurongbe Damilola, head of Technical Services at Cars45, said Nigerian used cars have experienced a surge in demand and have become the biggest beneficiary of the foreign exchange crisis.

“The shift in demand towards Nigerian used cars shows the impact of the FX crisis on consumer preferences within the Nigerian automotive market,” he said.

According to him, government policies including changes in import tariffs, taxation, and regulations such as the proposed automation of the clearing process at ports in 2023, directly impact vehicle prices.

He added that before the FX crisis worsened in 2023, a foreign-used Toyota Corolla was sold for N4.5 million and a Nigerian-used option was sold for N2.5 million.

Before the COVID-19 pandemic, Nigerian consumers’ preference was focused on imported foreign used cars known as ‘tokunbo’ due to the hike in prices of brand-new vehicles. This major determinant led to the growth of the used car market in Nigeria.

According to Mordor Intelligence’s 2023 Nigeria’s Used Car Market Analysis, Nigeria’s used car market size is estimated at $1.14 billion in 2024, and is expected to reach $1.74 billion by 2029, growing at a compound annual growth rate (CAGR) of 8.90 percent during the forecast period of 2024-2029,

The report stated that prices of new cars shot up extensively as of July 2023 because of the devaluation of the naira, and the increase in exchange rates for clearing imports, which has had approximately a 15 percent impact on the prices of new cars.

The report further revealed that the spike in new vehicle prices deters some of the customers from purchasing brand-new vehicles, subsequently leading to the surging demand for used cars in Nigeria.

One of the major challenges faced by the used car market is the increasing prices across Nigeria, attributed to the hike in tariff by the Nigeria Customs Service in 2022.

The report estimated that the price of Tokunbo cars increased by almost 100 percent in the Nigerian used car market as of July 2023.

On how the Nigerian used car market operates, Babatunde Kazeem, a Lagos-based ride-hailing driver, who does car business as a side hustle, said he sources Nigerian used cars that the engines are still in good condition, refurbished and sells them to buyers at a higher price.

According to him, people consider the price of the tokunbo equivalent of the car before fixing the price of the Nigerian used version.

He said the strategy that enables dealers like him to get cars that are still in good condition, is to go for vehicles used by women because the female folks don’t usually use vehicles roughly.

“I also help car owners to sell their old cars. If the owner wants to sell the car for N2.5 million, I can fix the price at between N2.7 and N3 million so that the extra money on top will be mine after selling the car,” he explained.