Sales challenges in the local automobile industry

There was a lot of excitement in the Ghanaian Automobile Industry as the first Vehicle Assembly Plant, in the modern era, was established by Volkswagen Ghana in August 2020, followed by Toyota Ghana and others.

Users anticipated cheaper vehicles relative to newly imported models while assemblers and dealers expected an increase in sales units of the vehicles but has that been the case?

The challenges go both ways for both the assembler or the dealer and the user. In the first part, we will focus on the challenges of the assembler or the dealer in selling their products.

Image courtesy www.myjoyonline.com 

Market Size

With a population of a little over 30 million, Ghana is a small marketplace for 6 vehicle assemblers and counting. This is in addition to other dealerships that import finished products and the Pre-Owned car dealers. 

Some dealerships like Japan Motors (Nissan), Rana Motors(Kia), Toyota Ghana(Toyota), Stallion Motors (Hyundai) and others have branches across the country to help get sales to supplement the sales numbers from the capital, Accra. Vehicle sales in the capital amounts to 60% to 70% of total nationwide sales for some of these dealerships.

That is the reason why the assemblers are looking beyond the country to sell their vehicles to the West African market and beyond.

Purchasing Power

The average Ghanaian middle-class worker ranges from Ghc 4,000 to Ghc 6,000 and in most instances this is much lower.

Therefore Car dealerships target government workers, health professionals and other professionals with better and secured incomes to sell to. They include Medical Doctors, Teachers, Nurses, Miners and others.

According to www.worldsalaries.com a medical in Accra, Ghana will earn as high as Ghc 227k and as low as Ghc 71k a year. Thus the annual average of Ghc 149k for a medical doctor who is relatively “better” compared to other professions.

The Kia Picanto, a 1.0-litre engine city car is selling at Ghc 208,200* (current price) which is more than the average salary of a medical doctor. 

The purchasing power of the average Ghanaian worker is low, to afford them new vehicles. Most of them would prefer a much bigger car than the Picanto. Therefore most of them resort to imported preowned cars.

Government Policies

The Ghana Automotive Development Policy document, which is the framework for the Automotive industry, mentions Market Development and Trade Facilitation as its second thematic area.

In detail, the policy seeks to encourage Ghanaians to purchase assembled in Ghana vehicles and for Government Agencies to purchase the same. 

This should backed with enforcement on the part of the agencies. During the commissioning of the Toyota assembling plant on the 29th of June, 2021, the president of Ghana, H.E Nana Addo Danquah Akuffo Addo, in his speech mentioned that the government has directed all state institutions to purchase locally assembled vehicles to support the industry.

A mere directive will not be enough. A document to enforce this will be better even though the sales from government agencies alone can't sustain the business of the assemblers.

As I have discussed some challenges faced by local assemblers in meeting their sales goals, I will shed light on the situation of end users in purchasing new locally assembled vehicles.

Financing

Financing has been a major challenge for buyers of new vehicles. In Ghana, most car dealerships sell on an outright basis to individuals and offer credit or hire purchase options to companies and institutions only. This deters a lot of buyers since they will need a lot of cash to make a purchase. As I mentioned earlier, the purchasing power of the average Ghanaian is low.

Commercial banks have long been an option for prospective buyers who want vehicle financing. Interest rates at the banks hover around 30% per annum with payment periods ranging between 2 to 3 years.

Dedicated auto financing companies such as Auto Chek Ghana have their interest between 31% to 36% and the customer needs to pay a “customer equity contribution” of 30% of the total amount to secure the financing.

Besides the financing of a vehicle, the credit requirements of car dealerships and financing institutions are sometimes a turn-off for prospective buyers. The requirements include personal identification details, bank accounts, payslips, guarantors, cheques etc.

As the country moves to improve on people identification, I hope this would make the industry players relax their rules since people can be traced when there are challenges.

A government-backed, auto financing dedicated institution with lower interest rates can also help in bridging this gap.

Another challenge which adds up the financing challenges for most prospective buyers is the exchange rate volatility.

Most of the dealerships sell their vehicles, including the locally assembled units in mostly USD or Euros. Given the instability of our local currency, it affects the payment plans of prospective buyers. Sometimes buyers feel cheated when they are to pay me than earlier expected due to the exchange rate changes. 

These are some challenges facing automobile assemblers in the country in meeting their sales goals vis a vis prospective buyers' ability to purchase newly assembled vehicles.

About the Author

Edmond Nana Flynt is an automobile consultant, vehicle sales advisor, and team lead at Flynt Automobile. He is also the organiser of Taadi Street Auto Show, an annual car show that takes place in Takoradi - Ghana. Contact him on 0209461390 or via email at nanaflynt@gmail.com.