If We Are To Build A Nigerian Car.
January 9th, 2008The world is getting smaller. It has become a “global village” to employ an over used phrase. No one seems as distant, no place as foreign. It is easy to quickly say it the advent of the Internet and improved personal communications that has propelled this but if you step back a bit you will realize private business and the entrepreneurial sprit on which it is based is the real driving force behind the emergence of our “village”. Time and again in different industries companies gobble up each other becoming larger entities. The reason usually given is to take advantage of oppurtunites in different markets, to lower cost and thereby increasing profit. Competitors in the industry, if only to survive have to follow suit so you have fewer and fewer distinct and independent companies. Examples abound, Pfizer’s purchase of Pharmacia to become the largest pharmaceutical company in the world is only one example. In the coming months similar mergers will occur in that industry. Other examples from the oil industry will highlight Chevron’s purchase of Texaco and Exxon of Mobil.
In the Motor industry this has been going on for a long time. This is a rough picture of the industry.
General Motors: The world’s largest manufacturer-albeit hotly pursued by Toyota- making about 12 million cars and light trucks a year and owning among others Saab, Isuzu, Opel/ Vauxhall and Daewoo. It also has a separate Australian operation making cars like the Holden.
Toyota and Honda about the only independent Japanese car manufacturers left. Making over 15 million cars and trucks a year between them
Ford: Apart from its extensive American and European divisions owns Jaguar, Aston Martin, Land Rover –which may soon be sold to India’s Tata- and Mazda and a few others.
Daimler Benz after off loading Chrysler to non- industry owners, still owns the Smart brand.
Volkswagen: Apart from the Vw brand, in various ways and guises controls Seat, Skoda, Audi, Lamborghini and Bentley. Though they have allowed Porsche buy a large stake in them to keep the company German and in my view to strengthen the control the Piech family has over things.
Fiat: Owner of Ferrari and Masarati as well as all the Italian brands such as Alfa Romeo and Lancia.
You have “smaller” companies like BMW which makes the Mini and Rolls Royce, Renault owners of Nissan, Peugeot-Citroen, Rover that now belongs to the Chinese who just copy everybody, protect their growing market and bide their time. We already have evidence of their invasion here with travesties like the Chery QQ. The Koreans consisting of Kia and Hyundai, essentially having common ownership. Daewoo is dead and buried in a Kia/ Hyundai cemetery. Ssyooung has affiliation with Mercedes and the Chinese while GM has interests in Hyundai. Oh, what a tangled web…….
There are about 15 companies making most of cars and light Trucks in this world!. As is usual when a company buys another in this industry, the new owners come in to reduce costs by closing factories discontinuing marginal brands and moving production –where possible- to less costly countries. This is why Volkswagen makes some of its engines in South America and Mercedes has east European production facilities. It is all about numbers. A company making a million cars a year only has to increase prices by $50 to make an additional $50million!
A common way of saving costs is to design a range of cars with essentially the same chassis, the base on which the rest of the car is built. This is called Platform Sharing. In this way they design one car for as many brands as possible. When Rolls Royce and Bentley were the same company they did this to the extent that aside from the bonnet mascots it was difficult to tell the difference between some of the cars. If you own a VW Passat, Skoda Octavia, Audi A6 you are driving slightly different versions of the same car. The engines powering them are similarly shared so that Skoda dealer can fix your Audi!
All major manufacturers are guilty of this and make no bones about it. It is all about the bottom line. Another way of saving costs is by a process called decontenting. This is the deliberate “de-engineering” of car components, not to the point of it’s being unsafe or illegal but enough for it to be cheaper to manufacture. It invariable gives the car a cheaper feel. A good example of this is the 1992-2000 Mercedes-Benz C class. Although in this case, they have changed their wicked ways.
Taking these dynamics into account, it would be a colossal waste of money to try to buy a Nigerian car for the following reasons:
1. The demand for cars is insufficient
2. The support industries are absent
3. It is not the place of government to pursue such an undertaking.
4. The car and the industry cannot be globally competitive.
Even with the coming of consumer finance, I doubt we in Nigeria buy 100000 new cars a year. This is clearly not the kind of numbers that can sustain and industry. With global production of about 25 million cars per annum, the Nigerian market may not figure significantly with amy major manufacturer.
Of the two motor assembly plants in the country, one has been closed for almost 10 years and the other makes 4-6000 cars a year most of which are bought by government. The original template for the assembly plants was for them to import completely knocked down parts for assembly to start with and in time add value with local content from our steel and other industries resulting by now in a Nigerian car. At least that was the goal in the early 70’s when these plants were conceived. Peugeots assembled here to a limited extent has some local content. Given the realities in the industry, the pursuit of a Nigerian car may be a misdirected effort. The average car company has a research and development budget running into the hundreds of millions of dollars. We cannot muster enough money to fund research into anything that hasn’t been done years ago and even if we are able to design and improvise a rudimentary car, there will not be enough potential buyers to make it a worthwhile venture. Leaving government subsidizing the venture.
There are many indices used in measuring economic growth anything from GDP through Per Capita Income to Consumption indexes. The accuracy or otherwise of these measures are debatable but one quick way of estimating economic prosperity is the number, type and condition of cars on our roads. Given a list of five things, the average person, on being able to afford one, will buy a car. This may be for any number of reasons ranging from facilitating personal mobility to acting as a status symbol. It is therefore possible to say the increase in the number of new cars on our roads is an indication of an improved economy. The following car manufactures currently have some form of formal representation in Lagos: Audi, BMW, Kia, Daimler Benz, Ford, Honda, Hyundai, Mazda, Mitsubishi, Nissan, Peugeot, Skoda, Toyota, and Volkswagen all selling New Cars. Albeit most of these cars are sold to corporate entities and this only highlights the imbalances in our economy but they are being sold here in Nigeria. Compare this with ten years ago. To me this serves as an indication of the general direction in which the economy is traveling in. Slowly and in a circuitous fashion but definitely forward.
As the economy inches forward, and our demand for cars increase what may be important would be to continue to encourage assembly plants but driven by local demand for cars. In a world that is rapidly specializing, I suggest we should look to leveraging our low cost base and any other economies of scale we enjoy and look to the production and export of car components along the lines of how South Africa has created a niche for its self in the export catalytic converters. This can happen with the support of government through the Nigerian Automotive Council.