Business News
Dealers explain why ‘Tokunbo’ Cars are expensive
The COVID-19 pandemic seems to have forced the prices of used cars to soar high.
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.
Business News
ABCON asks CBN to check impact of cryptocurrencies on diaspora remittances
The association also noted that the apex bank needs to address other issues driving the patronage of cryptocurrency exchanges for remittance transfers.
The Association of Bureau De Change Operators of Nigeria (ABCON) has asked the Central Bank of Nigeria (CBN) to introduce measures that will neutralize the positive effects of cryptocurrencies as a channel for diaspora remittances.
This is to redirect diaspora remittances away from cryptocurrency exchanges to official channels and also protect such against potential disruptions.
This call was made by ABCON during its Quarterly Economic Review for the first quarter of 2021 where it commended the CBN for the N5/$ rebate scheme introduced to encourage diaspora Nigerians to use official channels to remit their funds.
However, the association noted that the apex bank needs to address other issues driving the patronage of cryptocurrency exchanges for remittance transfers.
What ABCON is saying in their statement
The association in its statement said, “It is noteworthy that public acceptability for cryptocurrency exchanges are rising which could be quite accountable for the wide drop in diaspora inflows to Nigeria. Insecurity in the country is giving it greater prominence as investors and citizens are finding Cryptocurrency a safe haven for their wealth in case of any eventuality.
In most Emerging Markets Bitcoin transfers surged last year, as the pandemic exposed the cheaper and more efficient digital remittance services. Migrants sending money across borders to their families prefer the minimal transaction costs of cryptocurrency exchanges against the exorbitant costs of traditional money transfer companies like Western Union.”
According to ABCON, “Cryptocurrency transactions are faster than the conventional transfers, which require passing through banks reliant SWIFT, the sluggish, half-century-old interbank messaging system that handles cross-border payments.
These exchanges override the political complications of official channels. The global reach of cryptocurrencies avoids the inflation risk inherent to official currencies, especially in politically unstable countries reliant on fickle foreign investors.
Thus, while we commend the efforts of CBN in introducing the package of Five Naira for One Dollar transfer, it can be seen from the analysis above that the challenges exceed just non-payment of foreign currency by the IMTCs and the exchange rate. Strategies that satisfy the most sensitive of these advantages of Cryptocurrency exchanges must be introduced to redirect flows to the official channel.”
ABCON also expressed concerns over the country’s huge unemployment rate, urging the government to apply radical approaches with the use of both conventional and unconventional economic and political tools to redress the trend.
What you should know
- It can be recalled that the apex bank had about 2 months ago, warned the Deposit Money Banks, Non-Financial Institutions and other Financial Institutions against doing business in crypto and other digital assets.
- The CBN directed financial institutions to immediately close the accounts of persons or entities transacting in or operating cryptocurrency exchanges, warning of severe regulatory sanctions in the event of any breach of the directive.
- The Securities and Exchange Commission (SEC) had a few days ago, revealed that it is working with the CBN for a better understanding and regulation of cryptocurrencies in the country.
Companies
Unilever earmarks N62 million as remuneration to its Non-Executive Directors in 2021
Unilever Nigeria has fixed its remuneration to the Non-executive Directors of the company in 2021 at N62 million.
