The sharp depreciation in Nigeria’s currency has raised the value of cars as an investment option with high possibility of bringing incredible return on investment. This is changing the age-old belief of a car as an asset that depreciates very fast, Daily Trust on Sunday reports.
Out of several assets one can invest in, automobiles have been largely seen as an asset that turns out to be a drag on one’s investment portfolio. Rather than yielding a return on investment, a car consumes the owner’s resources in terms of maintenance and other costs of running the car.
Economists project that the car represents a significant financial outlay that depreciates between 10 and 20 percent in the first year after leaving the dealership.
But the reverse is the case in Nigeria nowadays with many old vehicles, especially the Toyota brands, now appreciating in value beyond the expectation of the owners.
Toyota is undoubtedly the most popular brand in Nigeria. Its fuel economy is top notch and it is sold at every corner of Nigeria. The fairly used (Tokunbo) segment is about the most popular, followed by the Nigerian used segment which still has high market value.
Experts say this is essentially as a result of the naira devaluation which has made the prices of brand new cars highly expensive with Nigerians resorting to the fairly used and Nigerian used segments.
Daily Trust on Sunday reports that Nigerian currency against the dollar has witnessed gradual depreciation in the last eight years.
From between N151 and N165 to a dollar in 2011, the exchange rate is now N461 to a dollar at the official exchange market representing over 300 percent increase despite not being accessible to many dealers and automobile distributors while the exchange rate is over N740/$ in the parallel market though not recognized by the government.
It would be recalled that the dollar exchanged for N199 in 2015; N300 in 2016 and climbed the N400 mark between 2018 and 2020 even as the parallel market rate once jumped above N1,000 recently before stabilising at over N700.
The effect of this is better imagined and for the automotive sector, like others driven by imports, the drastic rise in the prices of vehicles is the resultant effect of naira devaluation.
Apart from the brand new market segment, the Tokunbo and the fairly used segments have become unbelievably more profitable for the popular brands like Toyota, Honda, Nissan, among others.
For instance, the Toyota Camry 1998-1999 popularly known as Pencil has become a well sought after Nigerian used vehicle selling as much as N1.2m to N1.5m depending on the condition. Daily Trust on Sunday reports that such a model sold for N500,000 and N600,000 between 2012 and 2015.
A car owner, Olayinka David, recalled how he bought his Toyota Camry 1998 for N350,000 in 2010 and sold it for N800,000 in 2021. Checks in most states, especially in Lagos, indicate that the old Toyota brands are still very much sought after for those who cannot afford the brand new vehicles.
And the most sought after nowadays are the 2000s models including 2003, 2004, 2005 models used for the ride hailing services like Uber, Bolt, InDrive, among others.
Checks by Daily Trust on Sunday indicate that the Tokunbo (imported) 2005 Toyota Corolla model which sold for N1m to N1,200,000 three years ago now goes for about N1.8 to N2m.
Also in the category are the 2010s, 2011s, 2012 models which have equally appreciated significantly. These categories for the Tokunbo segment sold between N3.6m and N4.5m about two years ago but now sell for N4.5m and N6m. Several other Toyota brands have equally recorded appreciable rise in value.
For the Honda, Hyundai, Lexus, among other popular brands, they have all witnessed drastic rise in value which gives the owners confidence of getting value for the vehicles anytime they decide to sell.
A brand new Honda CRV 2022 sold for N17m last year costs as much as N25m at the moment. Also, a car owner who bought a foreign used Hyundai Sonata 2018 for N9.2m two years ago was able to sell the same vehicle for N12.8m.
This is how the naira devaluation has turned many people into millionaires and changed the age-long perception of vehicles as a depreciable asset.
Should people now invest in vehicles with the hope of getting returns on investment? Certainly, under the present exchange rate regime which is still on the rise, many car owners might be smiling to the banks but economists say the benefits of such investment might be short-lived.
According to Dr Austin Nweze, investment is about taking a risk and cautioned the prospective investors in vehicle purchase to be mindful of the risk they are taking.
He said, “Investment is about confidence. It depends on individuals. If you have confidence in the economy that if you buy a car today that the value will appreciate tomorrow, it is all about the confidence that you have, you don’t just follow the herd syndrome, ‘everybody is doing it, you go ahead and do.’
“The naira is in a sorry state no doubt. It is only those who are exporting, those who are bringing in money to invest that would benefit from the naira devaluation. For instance, if I bring in $1m today, it would go a long way in the kind of investment that I want to do. And if I am exporting some items, the price I get is quite competitive. The naira devaluation is supposed to be an export-oriented strategy.”
According to him, given the devaluation of naira, any product being imported would mean that those consuming it domestically would pay more. This, he said, explains why prices of vehicles are above the ceiling.
But he cautioned that it could be risky if the naira should appreciate and the dollar depreciates. “Whatever you want to buy now, buy. If it is for domestic consumption, buy. But again, it is a risk and you consider the opportunity cost.”
But automotive experts cautioned that only a few brands of vehicles have an upscale resale value like Toyota, Honda and Nissan.
He said, “Can we say the same thing about Beetles or Peugeot 404? A number of factors favour Toyota in Nigeria. Relative affordability; parts availability, wide arrays of options and multiple and coordinated sales outlets.
“Honda and Nissan enjoy this upscale resale value. Other brands don’t. So, it is wise to invest in resellable cars, not all vehicles,” said an automotive expert, Dr Oscar Odibo.
On his part, an auto dealer, Mr Femi Olawale, said the appreciation in value of cars was essentially as a result of the exchange rate. He also said the high cost of clearing the cars contributed but cautioned that now is not the time to invest, more so when a new government is about to be sworn-in.
“It is not appropriate to invest in that for now simply because there’s going to be a change in government which will definitely bring about changes in a lot of government policies and this may affect our exchange rate as well.”
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