From N900,000 to N4.5m. How the Cost of an Engine Rose in 6 Months at Ladipo Auto Spare Parts Market

How would you feel if you found yourself paying nearly the same amount you spent on purchasing your car just to replace its engine?

Between May 2023, when President Bola Tinubu officially took the reins of governance and now, the value of the naira has plummeted, and the auto spare part market is not exempt from the impacts of the economic hardship bedevilling the nation.

On February 6, an X user wrote, “Nigerian customs hiked duty for spare part imports from N4 million to almost N8 million. Same for most other imports. As you guys are blaming the dollar price for the price increases, let us also give customs their due credit. They too are contributing.

As of Friday afternoon, when FIJ checked the customs exchange rate on the federal government’s single-window trade portal, one US dollar was equal to N1,472 naira. This exchange rate, as of May 29, 2023, when the president was inaugurated, was just N422.30 to one dollar.

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A screenshot of the website with the customs exchange rate
The customs exchange rate as of May 29, 2023

For auto spare parts dealers in Nigeria who import their goods, the tripling of the exchange rate means they now spend more to buy. Another consequence is an increase in the price of spare parts for retailers and consumers.

FIJ visited the Ladipo auto spare part market in Lagos State on Friday, February 16, to speak with traders on how the current economic reality affects their business.

Ladipo auto spare part market Photo Credit: Abimbola Abatta/FIJ

CUSTOMERS BEAR MORE BRUNT

While conversing with traders at the market, our reporter learned that even though the economic hardship is hitting hard on both customers and sellers, the former are much more affected.

“Prices are changing, and the way prices are changing is alarming. Let’s say you buy at the rate of N1 million, and by the time you ship it and add other expenses, you have spent N1.3 million. You had planned to sell for around N1.4 million or N1.5 million, but you hear that the market price has increased. You definitely won’t sell at that rate anymore. You will have to adjust the price so that you won’t run at a loss and ahead of when you will restock,” said the secretary to one of the traders in the market.

While also revealing that the process of shipping imported goods can be quite tedious and money-demanding, the secretary told FIJ that it all boils down to the unfriendly policies the government put in place.

“Sometimes, it is not even about buying. You might buy it at a cheaper price, but when it gets to Nigeria and you want to clear it, it becomes even more expensive. Everything centres on the government’s policies. This is what is killing this country,” she said.

“If there can be a change, then maybe we can get to see the light at the end of the tunnel because, even as things stand now, the end of the tunnel is still dark. The light we used to see at the end of the tunnel has gone completely dark.”

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While underscoring the unpredictability of prices in the market, she said this has also slightly affected the rate at which customers purchase auto parts.

“People buy stuff every day, but the thing is, the rate at which you sell is no longer the same as before. If you want an item worth N2, for instance, and you decide to save up to meet the cost, by the time you have the money and you come the following week, you will hear that the price is no longer N2. It has increased,” the secretary said.

“The worst part is that the increase is not even by 50 kobo. Imagine what you priced at N1.5 million last week now going for N1.7 million or more. This affects whether people buy or not.”

A section of the auto spare part market Photo Credit: Abimbola Abatta/FIJ

FROM N900,000 TO N4.5 MILLION WITHIN SIX MONTHS

According to Ugonna, one of the traders at Ladipo, the cost of goods is rising rapidly rather than gradually. And consequently, customers feel the impact more severely than sellers.

He revealed to FIJ that sellers will make sales regardless of the economic conditions, although the frequency and rate at which they sell may vary. To compensate for reduced frequency and cover their expenses in the changing economic environment, Ugonna said, sellers sometimes adjust their prices as they deem fit.

“This increase in the cost of goods happens geometrically, not even arithmetically. Imagine an engine sold for N3 million on Thursday and the following morning, it sold for N4.5 million,” he said.

“The customers are suffering more from this economic meltdown than us. A man was told that a gear would cost N700,000. He then thought perhaps if he came down by himself, he could find cheaper ones, so he did not transfer the money immediately. By the time he came to the market, it had increased to N1.2 million. He had to buy it with a lot of lamentation.

“We that are selling will surely sell whether the economy goes up or down. The only thing is that the rate at which they sell may fluctuate and the cost will increase, not even because of the import price but because if they used to sell seven items weekly, people can no longer buy at that same frequency, and they now sell three or two products. Sellers will then have to look at their expenses and set their prices to keep up with the drop in sales frequency.”

Inside the auto spare part market Photo Credit: Abimbola Abatta/FIJ

Ugonna explained that a stable dollar-to-naira exchange rate would benefit the country at large.

“What affects prices mostly is demand and supply. A Toyota Sequoia engine sold for N900,000 six months ago. Economic change, demand and supply have now increased the price to N4.5 million. For a Toyota Sequoia engine that is Nigerian-used, the price is now N3 million compared with the N900,000 it was sold for months ago.

“The gearbox of a particular type of car was sold for N700,000 months ago. It was more expensive than its engine because of demand. Usually, a gearbox is not supposed to be more expensive than the engine of the same car.

“Also, the class of people who use a product determines the demand. For import duty, there is a fixed price. What makes it increase is the exchange rate. If you are importing products, you convert your naira to dollars, and now you have to pay more. Also, when you want to clear the purchased items, you will pay a duty of up to 30 percent of the buying cost. Because the prices of the products are changing, there will be an increase in the costs of clearing.”

The auto spare part market Photo Credit: Abimbola Abatta/FIJ

2024 HAS WITNESSED INCREASED COMPLAINT FROM CUSTOMERS

“Customers were not complaining so much last year. But this year, it’s been one complaint after another,” said Ebuka, a trader who deals in engines and gearboxes at the market.

He, however, noted that they (sellers) were also impacted by the changing economic conditions, citing how the hike in the costs of spare parts contributed to decreased purchasing power.

“I buy my market from the warehouse, so I don’t have to deal with the hassles of import. My boss, however, imports. But the economic issue affects us too. Last year, we still bought Camry’s engine and gear for N1 million, but now it’s almost N2.2 million. Before now, N10 million would get you a lot of goods, but now, after buying two to five engines, at most, the N10 million is gone,” he explained.

“It is also affecting customers in that it is those who have the money who can afford these things now. The Corolla gearbox I sold the previous day used to be around N600,000 to N700,000 last year. But it’s now sold for at least N1.6 million.

“What I notice is that more people can no longer afford to buy car parts due to the consistent increase in prices. There is one particular engine that was N1 million last year. This engine is about N3 million today. Let’s say someone bought a car at a rate of N3 million to N3.5 million in 2018 or 2019 and you wanted to replace the engine today. You might have to pay about N3 million. That is the current situation. If the person couldn’t afford it, he would either sell off the car or abandon it.”

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WHAT A STRENGTHENED NAIRA CAN DO

According to Ebuka, the current economic reality will not improve unless the government implements actionable measures to strengthen the naira.

“In terms of patronage, we make sales, but it’s not like before because prices are high. In August/September, this gearbox was sold for N450,000, and N600,000 in December. Now, it is N1.1 million. If this thing continues until December, it will be more drastic,” he said.

“The major thing the government can do is put measures in place to strengthen the naira. This will make things easier for everyone, both sellers and customers.”


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