How automotive policy can boost Nigeria’s economy - PAN MD

You came in less than a year ago. What was the situation you met on ground and what is your plan to move the company forward?

When I came in May this year, I met a company running fairly well. The former management met a company that was almost dead. So I want to praise the efforts made by the former Managing Director, Alhaji Ibrahim Boyi and his team, for bringing back some life into the company.

I met a company operating at the SKD (Semi Knocked Down) level and our plans are to take it back to the CKD (Completely Knocked Down) level of production for at least two models.

Alhaji Ibrahim T. Mohammed is the Managing Director (MD) of Peugeot Automobile Nigeria (PAN). In this interview, he speaks on his plans for the company, the challenges facing the automotive industry and how the sector can impact positively on Nigeria’s economy.

What new light would you bring into production?

Well actually, this is a company that has installed capacity to produce 60,000 vehicles in a year; this is a company that was employing over 4,000 people and at that time, Nigeria’s population was far less than what we are today. But we find ourselves today producing less than 2,000 cars a year. For any objective manager that comes here, his target should be how to raise production to that level of 60,000 and probably even surpass it and to see that we are employing the same or even more number of people.

Today, we are producing at SKD level , we want to see how we can immediately move to CKD and the expansion of the production capacity. These are the main objectives that we have put before us - to make sure that we arrive at least at what we were doing before.

What are the challenges limiting this ambition?

The main challenge we are having now is the shrinking size of the industry. This is an industry that is supposed to be selling about 500,000 vehicles in a year but today the number of vehicles that can be bought or the size of the new cars market has shrunk to less than 20,000 vehicles in a year.

There are about 50 companies in Nigeria that are claiming to be automobile manufacturing companies.

Why are there fewer new cars in the market?

It is because, if you remember, at the time we were producing 60,000 vehicles an NCE holder coming out of a College of Education was qualified to have a loan to buy a car. Anybody who came out of the university, immediately after the youth service, and had a regular job, was qualified to collect a loan which was sufficient to buy a car. This class of buyers has since disappeared.

If you look at the minimum price of cars that we produce today in Nigeria, they are in the region of N6 million. How many people in Nigeria can afford a N6 million vehicle? We want to push the idea of vehicle finance facilities to help expand the market.

Do you have challenges on the automotive policy?

Yes, we believe the policy is not sufficiently strong on implementation and regulation. Like I told you earlier, up to 50 companies in Nigeria today are claiming manufacturer status. The policy should have elements that enable you to ascertain the companies that really qualify as manufacturers.

For you to be a manufacturer, there are certain equipment and machinery that must be in your factory and you must be able to assemble vehicles for you to be a manufacturer. There are some companies that claim they are manufacturers but are only importing fully built units of cars and benefiting from the customs duty concessions provided for manufacturers. That is why we want the policy to provide for checks and balances and ensure that those that are not manufacturers are not allowed to bring in vehicles at concessionary rates.

Are there any encumbrances to the endorsement of this policy?

We think that the strongest aspects of this policy may not have been sold to the decision makers. The policy is forward looking in terms of the long term development of the value chain activities. There are those who believe the government is losing revenues but this is not an accurate representation of the situation. When we aggregate the gains from the value added, the economy is better off with the policy.

How will PAN benefit from the policy?

We believe intervention funds will increase capacity utilisation and reduce unit costs of our products. The vehicle finance facilities will enable more people to purchase our products, thereby increasing the size of the new cars market. This would lead to more employment and increased GDP.

There is the influx of

used vehicles. Do you think the closure of borders will also help organisations like yours?

When you see things happening in an economy, they happen for certain reasons. One, why do we have less people buying new cars? I talked about that before. So the main thing is the depreciation of our currency, the currency has so depreciated that the same car of 4,800 is now N6 million.

Influx of second hand vehicles is like a child of necessity. Nobody really wants to buy a second hand car; everybody will want to buy a new car. People buy second hand cars because that is what they can afford. Truly those second hand cars compete with us at a point.

On the issue of closure of border, it is a positive thing as far as I am concerned. There is no country in the world that would allow every rubbish to come to them in the first place. Here, they compete with our local products.

The more we produce internally, the more the supply and the prices will gradually begin to come down. So closing the borders is a positive thing for Nigeria but the only thing is that we must do it strategically to know when to close it and when to open it and what regulations to put in place for goods coming into Nigeria.

Do you support Nigeria doing what other countries did, like Ethiopia, by raising import duty for certain vehicles?

Yes, that is exactly what I am saying. If I am producing a new car and selling it at N6 million and another company can import a second hand car and sell at the same price, of course you are reducing my market. But if the same type of car would be bought at a price that after addition of duty payment it would have a cost price of say N7.5m, people will have a rethink; Should one buy a second hand car at N7.5m or buy a new one at N6 million? So it is now increasing my market and reducing the size of the market of the second hand vehicles. But for me, I do not belong to the school of thought that believes in taking punitive measures on the lower segment of the market.

My position is that the focus should be on cars that are for the higher class, because whatever you do, the person who can only afford a car of N1.5 million or less cannot afford a new car, so why do we need to put heavy duty on him?

In the past, Peugeot was regarded as government car brand but things changed. How is it so?

I can tell you that it has not significantly changed. Over 60 percent of our market today is the public sector market. Till date, there is that policy of government that MDAs should be purchasing locally produced vehicles. At a time, there were only a few local manufacturers but today, there are many companies all claiming to be manufacturers as I said earlier. These companies are also receiving government patronage.

Is there anything that you will call an edge that your products have?

We compete on our historical product quality and durability as reflected in the evolution of our products. We also compete favourably on overall cost of ownership, when you look at our service cycles of 10,000km and the real value of our 3-year warranty. Our fuel economy is also widely acknowledged. We have a wide service coverage area that enables us to support end-users of our brand more effectively.

You were at one time talking with the Kaduna State government on a possible partnership. How far have you gone on that?

After AMCON’s takeover of PAN, there was an arrangement to sell the company to new investors. The Kaduna State government, partnering with Dangote Industries and other bodies went on to bid for AMCON’s stake in the company but they were not successful. I am also aware that there is an arrangement between Dangote, Kaduna State Government and Peugeot Automobiles, France, to form another company but that company has no relationship with us. What I can assure you is that, we are still in relationship with Peugeot, France.

We are continuing as a multi-brand company with the objective of producing cheaper and more durable vehicles.