BusinessDay... the voice of business: How to develop the nation's auto industry, by Bakare

How to develop the nation's auto industry, by Bakare
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Admin on 13 January, 2008 01:00:00
 
I grew up in Nigeria. I attended Government College in Ibadan where I grew up. I
also attended the University of Southern California in Los Angeles for my degree
in computer engineering and public administration. While there I developed
interest in teaching and became the youngest teaching assistant in the
university. I was actually a lecturer in my third year as a part time job. I
started off as an assistant professor. I had a class that I taught twice a week.
It was quite an achievement for me because it was my first job. My second job
was as the president and chief executive officer of Executive Coach Builders
where we manufacture limousines. We started back in 1993 when I was just out of
the university and we turned around the company. Then Executive Coach was one of
the 30 limousine manufacturers in the United States with only about 40 in the
whole world. The company was then about the 27th leading limousine manufacturer.
But right now we are the second largest limousine manufacturer in the world. And
we still retain that position. Executive Coach is my company. It is my venture,
it is my baby.
I am now back in Nigeria after about 14 years to replicate the same kind of
success I recorded in the United States with limousine manufacturing.
My foray in car manufacturing began as a part time hobby as a student. I was
buying, refitting and reselling cars while working as a teaching assistant.
I started with some money saved from my tuition with which I bought a used car.
It was a black Nissan Pulsar. I sold the car after repairing and upgrading it
and made $2000 profit. I did the same thing over and over again and before you
knew it I became a car dealer.
We are now the second largest coach builders in the world next only to Krystal
Coach Builders which occupy the number one position. But we are expecting in
2008 to become the largest limousine manufacturers in the world. If you want to
buy limousine and you have not spoken to ECB then you have not started.
Return to Nigeria
I am not thinking of setting up similar company here now. It doesn't have to be
the same kind of business. I think the market is not yet ripe for limousine
manufacturing here. Success comes in different shapes and sizes. But I am still
within the same industry. My core competence is in automobile. It is in line
with what I do now which is retail car dealership. Being a limousine
manufacturer, you have to see things from a different perspective. So, when I
went to China to source the cars that I wanted to market in Nigeria, I didn't go
there as a naïve businessman with just cash in his pocket to buy cars. I went
there with a prepared and sophisticated eye. Being a manufacturer myself, I knew
what I was looking for. I was looking for quality, innovation, potentials and
spares back up. I was able to spot Chery right from the onset. So when I talked
about replicating the success I was talking about being able to bring in the
right automobile brand and market it effectively in a manner that cars will
become affordable in Nigeria. That is being able to lift the status of Chery in
Nigeria from the so called doormat to well sought after brand, making it a
household name. That is, if you like, lifting it from nobody to somebody.
Low Cost cars
It is true that there are low cost cars in some other countries like India and
China. But the problem here is the high cost of shipping. The cost of bringing
in cars, whether they are big or small, is the same. There is also the duty to
be paid on import. All these including VAT and other costs translate into added
cost of up to 35 per cent. For example the latest model of Toyota Camry sells
for about $19, 000 on the internet. You have to ask yourself, why we are paying
as much as six million naira for the same car in Nigeria. At the end of the day
it is not about the advertised price on the internet. You also have to look at
the infrastructure on the ground and the need to recover cost.
Again, the question of low cost cars is also relative. Right now with the naira
appreciating against the dollar, the purchasing power of the people is becoming
stronger and they are now paying less for cars. Again people still have the
option of buying cheaper cars provided they are prepared to drive without
enjoying all the options.
Producing cars in Nigeria
I believe that Nigeria is ready for automobile companies to come and establish
production lines in the country. I think that consumers are ready for it. But
when it comes to infrastructure we are not. That is the bottom-line. We don't
have what it takes like constant power supply. That is the biggest impediment.
We don't have stable power. Electricity is an issue here. We still have the kind
of power that is not constant and fluctuates. If it fluctuates it damages
equipment. There is no way you can sustain any manufacturing culture of that
magnitude and be cost-effective and efficient without steady power supply. It
does not make good business sense to the average investor.
The idea is feasible but we still have to build the necessary infrastructure
before automobile companies will begin to establish production lines here. Those
who come do not stay because of the same infrastructural challenges.
In this office we run generators 70 percent of the time. I know what I spend
buying diesel. For most investors that is the bottomline. It is all about
efficiency and cost management. How do you do that when certain things that you
are supposed to take for granted are not there and you have to pay for it. It is
like you and I having to wake up one day and finding out that we have to pay for
oxygen.
Beside infrastructure and power, distribution channel is another problem.
Getting your cars to the distribution points is also a problem because of bad
roads. The channels are important because you are looking at the whole
continent. When you start manufacturing cars in Nigeria you will not sell only
in Nigeria but across Africa. So it is important to have the right channels
through which you get your products to the various sales outlet.
So, I think the consumers are ready. I also think that the government is
lagging behind in terms of building the right infrastructure that will boost big
time manufacturing. There is so much catching up to be made before we can
persuade these manufacturers to come here. If you look at the history of
automobile manufacturing in Nigeria, they have been coming and going because the
conditions are not right. They leave because some of them come close to bleeding
to death. In other countries when you establish such factory there are some
basic things you don't have to worry about. You just pay your electricity bills
and you are done. You do not have to bother about owning a power plant to be
able to power your machines.
It is true that some companies take the pains to build own power plants in some
countries like India. But they have the market and the population to justify
such risks. If you do that in Nigeria, how much volume do you think you can
produce in Nigeria to justify that? It is about volume.
Even in South Africa with less population the companies record higher volumes
because the purchasing power in that country is higher. We have the number that
buys cars in Nigeria. But most of the cars people buy are used cars. In places
like India, China and South Africa majority of the citizens are buying brand new
cars. Here in Nigeria we buy a lot of cars, but people buy more of tokunboh
cars. If you are buying more of used cars, it will be difficult for car
manufacturers to establish here.
But the good news is that the purchasing power is getting up there. The reason
why South Africa is selling more cars is because of a well entrenched consumer
financing programme. Now we just started it here barely a year ago. Two years
from now you are going to see a lot of new cars on the road because we now have
consumer financing. That is the first step.
But in terms of manufacturing we are not yet there. First the volume has to be
there. When you sell a few thousand vehicles a year that is not enough to
establish a plant.
My goal is to be able to sell an appreciable number of cars; that will push us
to take it to the next level. If I am able to sell 20, 000 of a particular
model, I will then consider setting up a factory to manufacture cars in Nigeria.
It all depends on the market. If sell good number here and I am also able to
export to other countries, there is no doubt that we will then be selling cheap
cars in Nigeria. The price will then come down like it has done in other
countries where companies are now competing to produce low cost cars for the
people.
Government
However I think that we are on the right track. First of all the buyers have to
be there. And for the buyers to be there, the people have to be financially
empowered. That is where consumer financing comes in. That is already in place.
That is key to any kind of manufacturing. Then the next thing is developing the
right infrastructure. The truth is that infrastructure in this country has been
destroyed and neglected for so long. I think the government is trying to get it
off the ground again.
We just have to get our infrastructures right not just for the manufacturing
outfit but for the benefit of every Nigerian. You know how much you spend on
diesel. Nigerians probably spend five per cent of their income buying diesel to
power their homes which they don't have to buy. If you can fix power supply that
will mean that everybody will automatically get a raise in their earnings. That
is what it means. It is also important to fix the roads. If you have good roads
that will mean that our cars, our tyres will now serve us better.
Executive Coach Builders
In 2008 we are going to bring in luxury coaches built by ECB our company in the
United States. It is a luxury segment. It is however not for everybody. It is a
high ticket item, but those that can afford it will definitely enjoy it. It is
the whole essence of luxury. We actually do customisation. We have a particular
brand called the diplomat. We take an SUV and convert it into a limousine
without cutting or stretching the car. So when you see the car going down the
street, you think it is a regular SUV. It is the kind of reconfiguration that
will give you a mobile office. For top executives, that is the way to travel. It
is a way to enjoy luxury without being noticed.
Chinese cars
So far, so good. Chery has been doing wonderfully well in Nigeria. We have been
blessed, we have been so fortunate. I think we got it right with Chery from the
start. We have been fortunate because we are selling the right products. Once
you have the right product, the rest will depend on your personal ability, your
management and marketing skill as well as the experience that you acquired over
the years. That is what you use to back it up. Like I said, we have been very
fortunate because the product is very well received and we have recorded quite a
bit of success. This is actually our second year in the market. We came in at a
very innovative time by pioneering consumer financing. When I came in there was
a paradigm shift. Then it was all about the customer coming in with their own
cheque. They have to save for up to five years to buy a new car or how ever long
it took them to make enough savings. Now today if you decide to buy a car, it
takes about 30 days because you have to come up with ten to 20 percent. That
probably changed the way people think about buying new cars and also positively
affected the volume of cars being sold now.
The only problem I see is that we are going to be a victim of our success in
future because of the state of infrastructure. Our roads, in the condition they
are, may not be able to accommodate the massive influx of vehicles that are now
coming in. And every time we have consumer financing, you find out that the
purchasing power of the average Nigerian consumer is substantially increased
which is important for an economy to grow. It is good that more Nigerians are
now able to buy cars which is why you have the volume of traffic being
experienced on the roads.
It is being great talking about Chery which is the product we are pushing in
Nigeria.
In China Chery is the number three automobile product for all the international
brands; Honda, Toyota, Volkswagen, BMW and all the others. But it is actually
the number one indigenous, Chinese made automobile product. This year alone
Chery is building over 700,000 vehicles. That is quite an amazing achievement.
In their first seven years they built only 500,000. But this year alone which is
their tenth year they are building 700,000. One thing about Chery is that its
models cut through the lines. There are cars for everybody. A car like the QQ
which sells from N1,000,000 to a car like C5 which sells for up to N4 million.
Right now we are bringing in about seven models. Chery actually has 10 models
currently and next year they are going to launch three additional models. They
also have future plans to build minibuses. It is the only Chinese automobile
company that have full range of options that are available in the market. It is
not something that is common in most Chinese products. They actually compete on
such a high level in China with all the other big names in the world.
In Nigeria we have only being around a couple of years. But I can tell you that
we are constantly gaining market share better than any other automobile company
in Nigeria.
My dream is for every family in Nigeria is to own a Chery car. Chery can do for
Nigeria what the Japanese and the US car companies did for their nationals. In
about three years it is going to be a paradigm shift.