Nigeria’s vanishing middle class can no longer afford new cars
Car dealers in the country recently made the shocking disclosure that they do not expect sales of brand new cars to exceed 10,000 this year. In fact, the sales of brand new cars have been dropping every year since 2013 when it hit 50,000. With an estimated population of 180,000 million, only 10,000 new cars will be sold in Nigeria in 2017 to both individuals and corporates and that will rank Nigeria as one of the worst places on earth to sell new cars, an irony considering we are Africa’s largest economy.
A report on focus2move.com on the top 100 countries for sales of “light vehicles” ranked Nigeria at number 77 in terms of the number of “light vehicles” sold globally in 2016. The report estimates that the total number of new vehicles sold in the country in 2016 was only 36,000, which was lower than the 48,000 sold in the previous year of 2015. This resulted in Nigeria’s global ranking for auto market sales dropping from 71 in 2015 to 77 in 2016. If, as is projected, new car sales drop to 10,000 in 2017, the country will actually fall out of the top 100 auto markets in the world despite being the most populous African country and having Africa’s largest economy.
Based on the 2016 data, South Africa, which boast of only one third of Nigeria’s population and is the second largest economy on the continent, records the largest number of “light vehicle” sales in Africa, with about 561, 000 cars sold in the country in 2016, which is about 11.7 percent lower than the 590,000 cars sold in 2015. It ranked 23 in terms of global auto market sales down from 21 in 2015.
Egypt, Africa’s third largest economy, which has about half the population of Nigeria is estimated to have recorded 217,000 new car sales in 2016, down by 20.8 percent from the about 274,000 sold in 2015. The drop in car sales in Egypt pushed the country’s global ranking to 40 in 2016 down from 33 in 2015. There were about 164,000 “light vehicles” sold in Morocco in 2016 up from 132,000 in 2015. This improved Morocco’s ranking on the global auto market sales market to 45 in 2016 from 49 in 2015. Morocco has a population of just about 35 million people, which is about one fifth of Nigeria’s population.
Another North African country, Algeria, with a population of just about 40 million, recorded new vehicle sales of 129,000 in 2016 almost 50 percent down from 256,000 in 2015. Among the top 100 auto markets in the World, only Kenya ranked lower than Nigeria with its sales record of 13,000 cars in 2016. Now, based on car dealers’ projection, Nigeria is going to likely fall behind Kenya and out of the top 100 auto markets in the world in 2017.
Dwindling car sales in Nigeria has been fuelled by rising inflation and weaker naira which has led to a fast rise in car prices across the country. A recent report by BusinessDay shows that a brand new 1.6 litre Engine Kia Cerato automatic transmission saloon car, which used to sell for N3.6 million in early 2015 is now selling for N9.54 million. A base model Toyota Corolla, one of the most preferred brands for many Nigerians, which used to sell for N4.45 million three years ago now sells for N18.9 million
While car prices have risen significantly, the real incomes of Nigerians have actually declined in the last three years in addition to the fact that many people have been thrown out of jobs as the first economic recession in 29 years gripped the country in 2016. Companies and individuals have suffered from the effect of the recession forcing many companies to downsize and also cut costs simultaneously.
Corporates, which used to be the biggest buyers of cars, in the country for staff and business activities, have since cut down on their demand for brand new cars in a bid to control costs. Banks that used to buy cars for managers and above are now monetising such offers since the prices of the status cars that they used to buy no longer makes economic sense. A brand new Honda Car that used to cost about N5 million to N6 million, which was once the preferred car for managers, now cost not less than N13 million for the base model. Many banks are now struggling to maintain their pool cars and have resorted to outsourcing such services or even using the services of e-taxi operators like Uber and Taxify.
The truth is that even Tokunbo or second hand cars are out of the reach of most Nigerians currently. The fairly used cars that cost an average of N2 million to N3 million three years ago are now in the range of N6 million to as high as N20 million depending on the model and year of manufacture. Many Nigerians, who two to three years ago, shunned “Used in Nigeria” cars now have no choice but to seek out such cars because they are cheaper, even though, sadly they are also more likely to cost more in terms of maintenance. Others have resorted to refurbishing their old cars, replacing the engine, where it is really out of shape.
Data from the Federal Road Safety Commission (FRSC) confirm that there is a general decline in the number of cars plying Nigerian roads. Figures obtained from the FRSC 2016 annual report shows that total number of new number plates registered in the country was down by 27 percent in 2016 or 155,976, an indication that less number of cars are coming unto our roads. This not really good news as the country’s population is not declining and there is no indication that we have developed alternative modes of transport so well that people are now willing to give up cars for other forms of transportation.
The only plausible explanation for the declining car sales in the country is the obvious fact that Nigerians have gotten poorer in real terms in the last two years. Nigeria’s much hyped middle class is vanishing and is vanishing very fast. The burble that has kept many of the country’s “floating poor” as Nigeria’s struggling middle class is referred to sometimes, floating has been deflated by government’s poor economic choices in the last two years. The middle class have been swept away by the tsunami of the resulting economic hardship.
The decline in new car sales is just a reflection of how badly the country’s middle class has been hit by the country’s economic situation. Many more Nigerians are poorer than they were two years ago and have seen new cars go out of their reach. Sadly, if the middle class is in trouble, then many of those down the ladder are even in bigger trouble. The pressure at the bottom of the pyramid is getting more intense and should signal significant economic reforms to release that pressure. Rising inflation and unemployment amidst stagnant incomes have taken a hit on the purchasing power of the middle class, squeezing life out of them and consequently the economy. The decline in new car sales is just one side of a very bad state of what used to be the Nigerian middle class. They are vanishing and vanishing fast.
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