Dealers explain why ‘Tokunbo’ Cars are expensive

As the outbreak of Covid-19 spread globally and gained pandemic status on March 11, 2020 governments across countries applied the total lockdown measure to curb the spread—one which completely restricted movement and brought world economies to a grinding halt.

On March 19, 2020, the US government, which is the world’s biggest economy, ordered a lockdown and a stay-at-home order for all citizens. While some companies thrived by resorting to remote work, others, such as manufacturing companies with thousands of employees working in open factories, had no alternative but to shut down. Among the manufacturing companies also affected, were those in the automobile industry.

READ: Nigeria’s auto-policy in tatters as Cars and Motorbike importation hit N1 trillion

Covid-19 hit the US automobile industry hard

The lockdown order by the Donald Trump Administration unsurprisingly took a toll on the US economy. In the automobile industry, the effect of the lockdown can be summarized into 3 main points:

• Automobile manufacturing companies stopped production.
• Fewer people sold their used cars to dealers.
• Renting companies were out of business so there was no demand for new vehicles, nor the release of used ones into the market.

READ: Gas is the new petrol – FG to Nigerian car owners

Soaring Prices

The factors listed above created a scarcity of new and used vehicles in the United States. When the lockdown was eased slightly, the demand for cars surged past available supply.

• According to the Associated Press, the current price of new and used cars post-Covid-19 has placed US customers in a very difficult position, as the drop in supply of these cars has set their prices soaring high, leaving buyers with very few options.
• The price of an average new vehicle jumped 6% between January 2020, before the coronavirus erupted in the United States, and December 2020 to a record $40,578, according to data from Edmunds.com.
• The average price of a used vehicle surged nearly 14% — roughly 10 times the rate of inflation — to over $23,000.

READ: Nigeria imported N1.28 trillion “used vehicles”, motorcycle in one year, up by 42%

How does this affect  Nigeria?

Nigeria is a huge market for used cars, given that most middle-class Nigerians cannot afford to buy brand new cars. According to car dealers in Nigeria, the United States, Germany and Belgium are the leading sources of used cars imported into Nigeria.

• Nairametrics went to car markets in three major regions in Nigeria to get first-hand reports on the prices of cars pre and post Covid-19. Gwarinpa Car Mart Abuja, Lekki Phase 2 Car Mart Lagos, and Otolo Cars Onitsha were visited and dealers were quizzed on the current prices of used vehicles in Nigeria and how the COVID-19 pandemic could have influenced them.
• A dealer called Akomas in Lekki Phase 2 Car-Mart, Lagos confirmed that the prices of used cars in Nigeria have increased significantly. He listed two major reasons behind the increase, Scarcity of salvaged cars and the increased cost of shipping due to the Covid-19 lockdown.
• On the scarcity of salvaged cars, Akomas stated that due to the Covid-19 lockdown in the United States, the number of people trading in their slightly damaged cars has seriously reduced. This has led to a scarcity of salvaged cars.
• He also confirmed that salvaged cars make up over 70% of used cars imported into Nigeria. Due to the scarcity of salvaged cars to import, the available ones have witnessed an increase in price.
• A used or salvaged Toyota Camry (Muscle), which was priced at N2.1m before the lockdown,  currently sells for between N2.5m and N2.8m.

READ: Nigerians spent N148 billion in 3 months to import used cars

Blame Covid-19

Another car dealer, Tomiwa, speaking from Gwarinpa Carmart, Abuja explained the second reason behind the Covid-19 induced hike in car prices.

• He stated that due to the Covid 19 lockdown in most countries, importers and dealers are forced to grease palms to hasten the clearing process of their car imports.
• He disclosed that this is particularly so with car dealers operating from Abuja, who make use of unofficial northern borders to bring in salvaged cars for sale.
• Due to the Covid-19 restriction across these countries, the operating cost of importing cars through these routes has increased and it reflects on the prices.
• Tomiwa explained further,  using Toyota Camry 2007 (Muscle) as an example. He said before the pandemic, the price of a salvaged Toyota Camry 2007 started from N2.2m to N2.5m. The price is currently set at N2.9 to N3.5m

READ: Toyota to cancel Land Cruiser, opens ancillary auto centre in Abia 

Higher operational cost in the East

Nairametrics finally visited Otolo cars in Onitsha where the worst batch of prices, in terms of affordability, were recorded. Prices in the used car market in Onitsha are off the charts, with the cost of a Toyota Camry 2007 Model (Muscle) starting from N3.2m upwards.

• Nairametrics spoke to a car dealer on site who confirmed that the Onitsha used car market prices are being affected by the two main reasons already stated. He added that the general rise in the price of used cars all over is due to its scarcity.
• The increased operational cost of moving the cars down to the East has doubled what it used to be before the pandemic.
• From the various first-hand reports, it’s obvious that the increase in prices of used cars in the United States has led to a consequent increase in their prices here in Nigeria.
• Hopefully, as Covid-19 vaccines are administered and countries fully open up, the automobile industry will pick up in manufacturing cars, thereby increasing sales and reducing costs.

What to know

• According to the Associated Press, the output of manufactured cars in the United States shrunk by over 3.3 million vehicles. This led to a scarcity when the lockdown was eased. The scarcity drove up the prices of used cars in the US, which happens to be the category of cars mostly imported to Nigeria.
• A salvaged car is a car that has suffered some kind of significant damage in the past and was traded off by the owner. This category of car is the most widely imported into Nigeria.
• A third reason for the increase in the price of used cars in Nigeria is the increased FX rate which ballooned from its usual N360 rate to N411.