Auto plants may shut down amid poor sales

By Editorial Board   |   17 July 2017   |   4:20 am

The other day, operators in the automotive sector were reported to have cried out that low demand for their products might cause them to shut down their operations.

There is hardly any doubt that the subsisting economic recession in the country is taking its toll on all sectors of the economy. The arising pains, from time to time, become so heavy that even the most enduring lets out a cry of exasperation. The other day, operators in the automotive sector were reported to have cried out that low demand for their products might cause them to shut down their operations. What that means is that auto-manufacturers or assembly plants in the country have reached their wit’s end. That situation has been driven by many factors but certainly not because Nigerians no longer need brand new cars and vehicles. The forces include non-availability of financial resources needed to purchase new cars; poor state of the economy resulting from the on-going economic recession; devaluation of the Nigerian currency against major international convertible currencies; lack of or inadequate consumer finance facilities for vehicle purchase; high cost of the cars/vehicles assembled in the country; availability of cheaper alternatives especially functional second hand cars; ineffective implementation of government’s policy on ‘buy Nigerian made goods’; and inflation that has eroded the value of money.

If the auto-manufacturing companies are allowed to shut down, the inherent dangers will include loss of jobs by the employees leading to higher national unemployment rate. The Gross Domestic Product (GDP) of the country will nose-dive as the contributions made by the auto-makers will be lost. There will be decline in government’s revenue as a result of lost income taxes; industrialisation of the country will suffer a major setback; small and medium scale enterprises that provide services or supply materials to the companies will lose their contracts and perhaps, die. Local capacity and skills development will tend downwards; and ultimately, all the investment that had been made will be lost even as the government goes about in search of more investors.

Incidentally, what is happening to the business of the auto-manufacturers currently cuts across all sectors of the economy. Individuals and organisations, including governments at all levels, are struggling to make ends meet. It is incumbent on each and everyone to find innovative and creative solutions that will facilitate overcoming the current challenges posed by unhealthy economic environment. Thinking out of the box is paramount. It does not matter how long and how far and loudly the cries of drowning individuals, corporations and governments are heard, such are unlikely to produce positive solutions. That the auto-manufacturers are reported to be operating presently at five per cent of installed capacity can be noted as worrisome but such notation will not change the situation. Companies as big enough as the auto-makers should have the means of reading and interpreting goings-on in the market place as well as the know-how to generate ideas that, when implemented, should turn the table in their favour. If the directors and managers are unable to deal with ensuing challenges and as a result the companies are shut down, that will be a clear sign of leadership failure and a bad baggage they will carry around for the rest of their careers. Consequently, it is not in the interest of the leadership of the auto-companies to keep waiting until they are shut down. No amount of outcry will assure that the companies either remain productive or improve on capacity utilisation. Therefore, they should think and act.

But the auto-manufacturers would have seen the issue of low sales coming if only they had been market-sensitive. Indeed, if their marketing, research and development departments were alive to their responsibilities, they would have foreseen the situation. With such early knowledge, the companies would have strategised on how best to deal with the challenge in order to keep their operations on-going despite the country’s economic situation. One way this would have been achieved is by exploring the export market, especially in countries that are not suffering from economic recession. It would also have been necessary for the auto firms to strategically re-assess their cost profiles with a view to identifying and effectively managing major cost drivers in order to achieve lower selling prices of their products.

It is imperative, however, that it is recalled that the Federal Government not too long ago unfolded the National Automotive Industry Plan. That plan received broad-based acceptable by stakeholders, including the auto-producers. As good as that plan may be if it is not implemented in its letter and spirit, the challenges that face the automotive sector will not abate in the short to medium term. The government must therefore ensure that the implementation is driven to the extent that the intendments are achieved with the operators having little or no cause to complain. If, for example, governments and their agencies patronize domestic auto-assemblers by buying their vehicles, that will be exemplary and may encourage other corporate entities in the country to do the same. If governments’ employees are made to buy locally assembled cars, private sector operatives may also follow. This can be achieved faster if governments arrange, through the banks, new vehicle purchase finance facilities for their employees. The ‘buy made in Nigeria goods’ slogan needs to be catalysed through government examples. These initiatives will assist in solving the ‘low sales’ challenge being faced by the automotive industry.

Additionally, the production cost of the auto companies needs to be studied to reveal and rectify what drives them too high resulting in high selling prices and inability to compete with imported ones. Furthermore, issues of poor infrastructure such as power, high cost of funds, inadequate foreign exchange, non-payment of employees’ salaries by most state governments, rising cases of unemployment, depreciation of the Naira, and so on require urgent remedial attention if enduring solutions must be found. In the final analysis, government should appreciate that with the reported development, realisation of its objectives and projections in the National Automotive Industry Plan, is under threat and thus, must do something to counter the threat.




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