Demand for Toyota cars plunges as economy worsens

By AYOOLA OLAOLUWA

The persistent decline in economic activities in the country in the last four years has continued to impact negatively on the automobile industry, particularly the vehicle distributorship and manufacturing sector.
The distributorship business, which was once highly-lucrative, has taken a terrible hit since the advent of the present administration on May 29, 2015, with sales dropping to unprecedented low.
Specifically, patronage for new automobiles, including passenger cars, commercial vehicles, vans, and even heavy-duty vehicles have continued to decline year-on-year, leaving stakeholders in a dilemma.
Those particularly affected are stakeholders, who had upon the inauguration of the National Automotive Industry Development Plan late 2014, liaised with some foreign investors, to stake their resources in the emerging automotive sector.
Findings revealed that despite the increased number of local vehicle assemblers, production has dropped by half due to the current economic climate. While assemblers are forced to source foreign exchange from the parallel market to pay for Semi-knocked down (SKD) kits, limited players in the auxiliary industry keep local component content in production low and restricted to consumables. Reduced vehicle demand, according to an industry source, has forced assemblers to operate below capacity (10% -20%).
According to BusinessHallmark findings, Nigeria’s number one dealer in Toyota brands, Elizade Motors, is the worst-hit. The leading dealer now struggles to survive in the business. The Toyota brand was first introduced into Nigeria in 1965. By 1976, the number of Toyota distributors had grown to five. Ten years later, Toyota Motor Corporation, Japan (TMC) appointed two additional distributors because of poor performance by some of the appointed distributors.
At this time, Nigeria was passing through a phase of economic transformation that led to the government of General Ibrahim Badamosi Babangida adopting an economic Structural Adjustment Program (SAP) to stabilize the system. This led to major changes in the Nigerian business environment of which the automobile industry was not insulated.
By 1995, four distributors; which included Elizade Nigeria Limited were the only surviving distributors for Toyota Motor Corporation, Japan. However, for ease of business processes and efficiency, Toyota Motor Corporation, Japan, decided to consolidate its operations by appointing Toyota (Nigeria) Limited as its sole distributor in Nigeria.
This consequently paved the way in 1996 for Toyota (Nigeria) Limited (TNL) to commence operations as the exclusive distributor of Toyota Motor Corporation in Nigeria. TNL is now the sole distributor of Toyota Motor Corporation Japan in Nigeria and it markets Toyota vehicles specifically made for Nigeria through its eight accredited dealers across the nation.
For over two decades now, Elizade Motors, which has metamorphosed into three, Elizade Motors, Toyota Nigeria Limited and Elizade Autoland, has remained the exclusive franchise owner of the Toyota brand in Nigeria and has consistently, sustained the top spot for the brand in the Nigerian automobile industry.
In 2017, it established its own automobile assembly plant, and rolled out its first automobile, a Toyota Hiace. This remarkable success story is attributable to the ingenuity and resourcefulness of the board of directors under the chairmanship of Chief Michael Ade. Ojo.
His vision, industry and tireless commitment to the brand over the years paved the way for the acceptance of the Toyota brand in Nigeria. However, his son, Kunle Ade-Ojo, who took over from him as the managing director has not been able to performed the same magic, largely due to circumstances beyond his control.
The signs of distress are clear. The new tariff regime of 70 percent introduced by the Federal Government, coupled with the depreciation of the naira has led to prices doubling between 2015 and 2019 resulting in over a 60% decrease in vehicles sales.
According to a stakeholder in the automobile industry, Engineer Lekan Idowu, the industry is in serious trouble with the economic policies put in place by the administration of President Muhammadu Buhari. He added that the harsh economic climate in the country has been challenging for both government and businesses as the world recorded a decline in global oil prices (from over $120 to between $40 and $70/bbl)
“The industry relies heavily on imports for direct sales and assembly. Although cars and related components are not on CBN’s forex 41 ban list, the difficulty of obtaining foreign exchange has led to increased prices and reduced consumer demand.
“Government and corporations, the largest buyers of new vehicles have reduced or in some cases totally cancelled purchases thereby extending the replacement cycle of their fleet from four years to seven years.
“While well-off individuals, in the face of dwindling earnings and increasing inflation have seen a fall in disposable incomes which in turn is reducing their demand for new cars”, said Idowu. BH reliably gathered that sales of new automobiles by Elizade, which control roughly three quarters of the local auto market, have plunged. Financial results have been brutal too. The auto firm in its most recent financial report unveiled the worst loss in history. Toyota (Nigeria) Limited, managed by Elizade, also said importation of new cars have continued to dropped significantly.
According to Mr. Kunle Ade-Ojo, Managing Director of TNL, importation of new cars has dropped by about 90 per cent between the first quarter of 2016 and 2017 Q1. While 3,500 units were imported in 2016 Q1, only 350 units were imported in the first quarter of 2017 amidst biting recession worsened by the devaluation of naira and scarcity of foreign exchange.
Ade-Ojo also disclosed that the total retail sale for the first quarter of 2017 stood at 2000 compared to 5,500 sold in 2016, while total import in 2015 was 18,000.
It dropped to 7000 in 2016, while Toyota had a share of 43 per cent of the 2015 imports and 38 per cent in 2016. He attributed the reduction in importation to high duty of 70 per cent which, according to him, dissuades many companies from importing new vehicles. For instance, duty on Land Over alone is over N15m.
He said the auto industry was badly hit by devaluation and the instability in Forex market, adding that proper financial and cost management and prioritization helped the company in weathering the storm. Confronted with these daunting challenges, the firm had no other option than to cut cost.
According to BH findings, apart from closing some of its outlets scattered across the country, the firm had also been laying off staffs. An affected worker who spoke with our correspondent on the condition of anonymity, said the firm’s travails began manifesting around 2015-2016.
“When business started stuttering, we were placed on half salary. When things got worse, some were asked to go. I was among the lucky ones that survived. Unfortunately, when our Ibafo outlet was shut last year, I was also asked to go. Before it was eventually shut down, TNL used the Ibafo section to deliver vehicles to customers based outside Lagos.
It was also gathered that the fortune of Elizade and other auto dealers operating in the country worsened during the 2015 and 2019 general elections, as most politicians and political parties decided to go for fairly used vehicles popularly called ‘Tokunbo’.
In its quest to reposition the company and gain more market share of the automobile industry, the management of Elizade Motors diversified into marketing other brands by partnering with Chinese brand, JAC Motors, to open a new assembly plant and showroom for Made-in-Nigeria JAC vehicles.
The plant manager of one of the leading brands in the country who spoke with BH noted that to say investors are in a dilemma would be an understatement, as majority of them have either given up hope that anything meaningful would come from new auto policy.
“The situation of things in the auto industry is very bad. The outlook is gloomy. Transactions at the end of the third quarter of 2018 were nothing to cheer. In fact, the performance index by the end of 2018 did not usher even a reflection of hope, as majority of the emerging plants have had their most horrible year ever, downsizing workforce and under-utilising their plants”, he said.
The Principal Partner, Media Advocate Limited, an automotive resource and marketing communications company, Manny Philipson, said stakeholders in the automobile sub-sector were not expecting any meaningful patronage from politicians, who ordinarily couldn’t leverage the economy in the last three and half years.
“A significant percentage of the automobile merchants came from purchases initiated by the corporate sector of the economy, with little or no demand from the financially-stifled public sector.”
The last two electioneering process according to Philipson, did not in any way contribute significantly to the economy, and the situation was worsened by the Economic and Financial Crimes Commission (EFCC) constant trail of the well-heeled, allegedly believed to have benefited from the previous government.
“I think this is the worst political dispensation we’ve had ever in Nigeria”, Philipson said. Also speaking, the Deputy Managing Director of Massilia Motors, Kunle Jaiyesimi, said “Normally, election periods should have been a good time because of the expectations that they will pump in money.
“Usually they will buy and rebrand but this time around, they patronise fairly used. For example, Lagos State APC previously bought new buses and rebranded them, but this time around they bought fairly used Toyota Sienna buses. Importers of new vehicles and even assemblers have not felt the impact of the general elections on our businesses.
“When the auto policy was introduced, the National Automotive Design and Development Council (NADDC), threw the carrot that the 35 per cent levy will be used for auto finance, that they will work out something with the Bank of Industry (BoI), and some commercial banks whereby they will give out loans at single digits. But what we have seen is we have been paying the 35 per cent levy, and we are not getting the benefit. Some of us that are into assembly operations are affected the most.”
President of the Nigeria Automotive Manufacturers Association (NAMA), Adetokunbo Aromolaran, said economic downturn took a toll on vehicle market with plummeting sales and subsequent production cuts across plants.
He said demand for cars systematically dropped from 600,000 in 2014 to 350,000 in 2015, to 170,000 in 2016, 120,000 in 2017 and down to about half of that figure last year because of the prevailing situation.
The Deputy Managing Director, Kewalram Chanrai Group, Victor Eburajolo, said people were not buying vehicles because prices of vehicles soared above the purchasing power of millions of people.
“In a situation like ours, you don’t go for luxury; you go for the basic items so that you can survive. The depreciation in the naira compared to dollar made prices to go up. We use to sell Pajero for N14 million but the price has moved to 26 million.
“We cannot produce because you produce to meet demand. Whether you assemble here or not, there is little difference because you are bringing in the parts in dollar.”
The Managing Director, Nigerian Ports Authority (NPA), Hadiza Bala-Usman, while speaking recently in Lagos, said that revenue on car importation into the country dropped by 20 per cent last year, owing largely to the Federal Government’s Automobile Policy.
She warned that the revenue dip was a bad omen for the government’s overall revenue take and called for the urgent review of the policy in order to reduce the losses. She stated that contrary to the government’s expectations, the policy had not achieved its objectives, while on the other hand, the agency continued to lose revenue that would have ordinarily accrued from car importation.
“We have written Mr. President on this policy and we will continue to defend our position that it (policy) should be reviewed, because the government runs the risk of losing both ways.
“We have recorded a drop in revenue by 20 per cent. How many cars are being manufactured and how many Nigerians can really afford to buy brand new cars?
“So, the implication is that while the government is losing revenue on importation, the manufacturing or assembly plants are not achieving the aims of the policy,” the MD stated.