Don’t blame auto policy for high cost of new vehicles

5th February 2018

Moses Akaigwe

As the Managing Director of National Trucks Manufacturers (NTM) Ltd, Kano, IBRAHIM BAYERO, was one of the stakeholders who supported the introduction of the Nigerian Automotive Industry Development Plan (NAIDP) well ahead of its effective date of July 1, 2014.More than three years after, he is of the view that NAIDP, generally known as the auto policy, has been affected by the economic recession of the past years, asserting that the high cost of vehicles should, therefore, not be blamed on the initiative. "But we will also stress that there has to be full implementation of the auto policy before any significant changes can be made."Bayero also spoke on the impact of the importation of second-hand (tokunbo) vehicles on the local auto industry.Excerpt:

National Trucks Manufacturers (NTM)National Trucks Manufacturers (NTM) Ltd, popularly known as Gidan Fiat back in the day, was one of the first vehicle assembly companies established as a joint venture company between the Federal Government of Nigeria and Fiat of Italy. NTM was one of five joint venture agreements signed in 1976 by the Nigerian government to propel the nation into becoming a hub for the auto industry in Africa.In 2003, during the privatisation drive of the Federal Government, majority shares of the moribund company were sold to ART Engineering & Investment as part of efforts to revitalise ailing industries in the country. The agreement between the two parties on the sale of the shares was that the new investors would revive the facilities in the company and the Federal Government of Nigeria, on its part, would conclude the design and implementation of the industrial policies, which will include a new auto policy.By 2004, the new investors in NTM had completed the revival of the assembly plant and included other auxiliary elements to the entire plant to support full assembly, sales, spare parts and after-sales units. At this point, NTM went into the full assembly of a variety of vehicles, including heavy-duty trucks, tippers, light-duty trucks, agricultural tractors, pick-ups as well as motorcycles.From Fiat/Iveco to SinotrukWith the shutdown of NTM assembly operations back in the late 1980's, Fiat eventually sold its shareholding back to the Federal Government of Nigeria, thereby effectively ending the contract for the assembly of Fiat/Iveco brand vehicles. With the privatisation of NTM concluded, the new investors were free to explore and select any brand of vehicles they wished to assemble in the plant.After lengthy discussions with several vehicle manufacturers from all over the world, the selection of CNHTC (China National Heavy-duty Truck Company) was made to provide the range of heavy-duty trucks. In 2004, NTM signed an agreement with CNHTC to import components for the assembly of a range of heavy-duty trucks in Nigeria. At the time, NTM was the first company to introduce the Chinese vehicle (Sinotruk) into the Nigerian market, and at that time the model was known as CNHTC Steyr. A few years later our principal partners developed their existing product into the Sinotruk Howo range of vehicles through their local development combined with international partnership.The reason for the popularity of the Sinotruk Howo model would be due to several factors, including its affordability and durability in the Nigerian environment. Similarly, NTM was able to make several suggestions and contributions to the development of this range of vehicles to make it more suitable to the Nigerian driving environment.At the initial stage, many customers in Nigeria were skeptical of the Chinese product due to fears of low quality but as we have always maintained at NTM, the quality of products is mainly dependent on the purchaser. As a company that is mindful of the image and focused on achieving its long term goals in the Nigerian market, NTM never compromised on the quality of components imported for the assembly of vehicles and this gave us an edge over others as our products were of superior quality and as such derived customer satisfaction.Support for auto policyAs a company involved in the assembly of vehicles, NTM saw the huge potential in the Nigerian Automotive Industry Development Plan (NAIDP) not only for the company, but for Nigeria as a whole. To be involved in some of the process for the formulation of an auto policy that would advance Nigeria's industrial development and reduce import dependency by creating a vibrant and enabling environment for the achievement of this objective, remained the duty of every well-meaning Nigerian.In all aspects of life, you will always come across the nay-sayers that wish to maintain the status quo as it is more beneficial to their business interest at the time. The major reason for this could have been that it would have been easier to continue with simply importing fully-built vehicles into Nigeria for local consumption. NTM was looking at the greater benefits that would be derived from the introduction and implementation of a holistic auto policy in Nigeria, including the eventual backward integration for component production.Four years of auto policyIt would not be possible to agree with those that say the auto policy in Nigeria has failed. I say this because despite the fact that it has been more than three years, the auto policy has not been fully implemented. The high cost of vehicles is not due to the auto policy in isolation and it will be most irresponsible for anyone to state that as the reason. Of course, there is low volume of production and this can be partly attributed to the slowdown in the economy over the last two to three years.I am sure that everyone is aware of the current foreign exchange rates in the market today and this should be compared to the time of the introduction of NAIDP (for those that require some reminder, N365 today as opposed to N200 to the dollar at NAIDP introduction, approximately). This change in exchange rate alone has significant impact on the final cost of any imported goods. The success or failure of any policy should take into account all factors of the matter before making a claim.Yes, it is true that greater patronage, both from government (as the biggest buyer in the nation) as well as from private sources, would have a positive impact on the volume of production thereby giving local assembly plants the ability to reduce the costs in some areas – economies of scale.However, the final cost of the assembled vehicle is not determined by the assembly plants alone. The current economic climate, as well as other factors such as cost of components, transportation of components by sea, by road, by rail, cost of power, interest rates, exchange rates, etc., all contribute to the final cost of the product.Time for review?We are in agreement that it is time for a review of the auto policy but not in the same sense as may have been communicated at the recent the Lagos Chamber of Commerce and Industry (LCCI) forum. The truth is that one of the fundamental aspects at the time of the introduction of NAIDP was to have a committee consisting of various stakeholders within the sector as well as government agencies to continually monitor its progress. The call for review of the auto policy from certain areas is actually a disguise for its reversal and with this, we are definitely not in agreement.If there is sincerity in reviewing the auto policy in order to modify it for the betterment of the industry, then NTM will be in full support. But we will also stress that there has to be full implementation of the auto policy before any significant changes or decisions can be made.AffordabilityWell, once again, there is only so much one part of a whole can do. As the saying goes, the sum of all parts is greater than the whole and so all stakeholders in the industry as well as the final end user need to work together for this affordability.On one side, NTM has standards to maintain as a business, and so we will never compromise on the quality of our products by introducing poorer specifications to the final vehicle. The qualities of our products are non-negotiable in the sense that they have been and always will continue to be of the best quality possible.At the same time, we are aware of the increase in costs across the board and so in order to contribute towards the reduction of the final price, we have reduced our cost of production where possible by streamlining in some cases but also reduced our profit margins on the final product.However, vehicle assemblers cannot affect the interest rates directly for the end-users that purchase our products. If you examine the interest rate changes in the last three years, you will find that it has increased, thereby increasing the cost for the end-users that borrow funds for their purchase of vehicles.We should also examine the rates that the owners of these unworthy road vehicles are offering for their services to see if they have reduced over the last three years. It is important to look at self-change before pointing fingers at others to change.As cost increases are introduced in any aspect of your business, the final sale price of your product will ultimately increase and this increment can be cushioned if you are willing to streamline production processes and make some reductions in your margins, which is what NTM has already implemented to ensure we maintain our customer base and guarantee their satisfaction.Used vehicles (tokunbo)The simple answer is yes. Tokunbo vehicles are a problem to the local industry. Despite the rhetoric, I would point out that this so-called increase in duties on tokunbo vehicles is not as a result of NAIDP. Before the introduction of NAIDP, there have always been duties on importation of tokunbo vehicles, ranging from 10 per cent to 35 per cent, depending on the type of vehicle.

Yet, some unscrupulous elements decided to use the auto policy as a way to take advantage of the unknowing public.The NAIDP (or auto policy) simply introduced a standard duty rate for all tokunbo vehicles at the flat rate of 35 per cent. Before the introduction of NAIDP, a second-hand SUV was charged 35-50 per cent import duty. Now, the rate is a flat 35 per cent import duty. Why then have some dealers in second-hand vehicles increased their final sale price by up to 70 per cent and stated it was as a result of NAIDP?And with the closure of the land borders, I am not sure if that has had the desired effect as many unscrupulous elements, once again, find ways of circumventing the system to import through the land borders. So despite the attempts by the Federal Government to reduce the import of tokunbo vehicles, it has had limited impact.Once again, we come to the point that there is need for the full implementation of NAIDP, which includes in it a National Vehicle Registration System. This system will require any person or company importing new or second-hand vehicles into Nigeria to be registered on the database.Once the vehicle reaches Nigeria, the importer will be responsible for making all duty and tax payments and then inputting the details of the vehicle (engine, chassis numbers or VIN plates) as well as evidence of the port of import and duties paid on to the database.The other government agencies like the Customs will also be checking and verifying these details. Before the vehicle can be registered with Federal Road Safety Corps (FRSC) and Vehicle Inspection Organisation (VIO), the details will have to be cross-checked before issuance of the vehicle plate number and vehicle license. In this manner, there will be proper checks in place to ensure that all vehicles are imported through the proper channels and the proper duties are paid.Without the full implementation of this vehicle registration system, we doubt that these measures will have any positive impact on the reduction of importation of tokunbo vehicles.It should also be mentioned that the government has not banned tokunbo vehicles. It simply reduced the need for their importation. Many corporate organisations and individuals change their new vehicles after a period of three to four years. So, locally assembled brand new vehicles will be available as second-hand vehicles in the Nigerian market after this period. What it means is that these measures are also not aimed at eliminating the need for tokunbo dealers but simply to bring them fully into the fold of the new auto industry.Installed capacity for trucks in NigeriaYes, the installed annual capacity of NTM alone can satisfy the total demand of the Nigerian market for brand new heavy-duty trucks. So, the combined capacity exceeds that annual demand. Therefore, there should be no doubt in anyone's mind about the ability to meet local demand. We can categorically state that NTM alone can meet demand of the local market for not only brand new heavy duty trucks but also for agricultural tractors, if we are to go by the official import statistics released every quarter or every year of brand new vehicles. The question then should be, if a single local assembly plant, like NTM, can meet these demands, why is the patronage from government and private sources not being given?