Harsh economic environment coupled with unfavourable government policies conspire to keep Peugeot Automobile Nigeria Limited on the sick bed

Sani Dauda, chairman of Peugeot Automobile  Nigeria, PAN, Limited, is  worried over the dwindling fortunes of the company.  Dauda may also be regretting risking his life savings to acquire the largest shares in the foremost automobile plant located in Kaduna. PAN, which in the past produced one of the first choice automobiles for the Nigerian market as well as contributed immensely to Nigeria’s economic growth, is now on the verge of collapse.

The company, whose annual production output hit 90,000 vehicles in the 1990s with about 1000 staff on its payroll, today struggles to produce 2,000 cars yearly while its workforce has been reduced to about 200.  In 2010, alone, the management laid off 565 of its remaining 753 workers and placed the remaining on half salary due to lack of funds.

Newswatch learnt that the salaries of workers which were paid promptly in the past, were now delayed because of the hard times the company is facing, while those who could not cope with the harsh economic condition have left the company. For example, the department of corporate communications which had about three principal officers as at 2010, today has only one person. It is the same ugly situation at the commercial and marketing departments as many of their old and experienced staff have voluntarily resigned.

PAN’s problems emanate from poor patronage of its products by government and the public, unfavourable government policies, inability to access funds from the capital market and high lending cost from banks. Since its privatisation in 2006, PAN suffered from perennial inadequate power supply which increased its cost of production because it had to rely on diesel to power its generators for production.

There was acute manpower shortage in the company and moreso, the environment was not conducive for the business to thrive. It was also unable to pay its taxes and as a result, the Federal Inland Revenue Service, FIRS, in September 2009, sealed the company’s premises for alleged tax evasion of N1.2 billion. It took the intervention of highly placed government officials before it was reopened by FIRS.

In the 1980s and 90s, Peugeot cars were the official choice for government officials. This is no longer the case since early 2000 when government started buying other brands of cars. Its patronage declined following the introduction of cheap, efficient and durable automobiles in the market. Most Nigerians believe that Peugeot cars are expensive to maintain, and for this reason, they prefer buying cheap, fuel-efficient and durable Japanese and South Korean cars for their official and private use.

The influx of cheap used cars from Europe and America into the Nigerian market also adversely affected the market share of PAN. Following years of no profit, Newswatch learnt that the company, through one of its subsidiaries, perfected plans to import used cars into the country in order to remain in business. Also, despite the introduction of 307 Sedan, designed to compete with other automobile products in terms of maintenance cost, PAN has not been able to find its feet.

Although the automobile industries in the country are yet to access the N50 billion earmarked by the federal government in the 2012 budget to revive the ailing automobile sector, Newswatch learnt that the inability of PAN to access the fund to shore up its business is giving the management sleepless nights. Perhaps, the decision by the government at all levels not to buy its vehicles, is the last straw that broke PAN’s back. Added to this, some state governments that owed the company over the years, are yet to pay such debts, even in the wake of the crisis three years ago.

    Musa Usman, acting head, Corporate Communications, told Newswatch that the crisis in PAN was not peculiar to the company. Rather, it was a general problem affecting almost all the manufacturing industries in Nigeria.  He acknowledged that all is not well with PAN, saying that despite the challenges, the company had never imported used cars into the country as alleged.

He explained that Shehu Dauda, the managing director of the company, was quoted out of context by some newspapers when he said at the 2010 Kaduna International Trade Fair that PAN would start refurbishing cars for its customers. According to him,   what the company initially planned was to float a subsidiary that would be refurbishing used cars of its customers from time to time. “But immediately we saw the media reports misquoting the managing director, we decided to suspend the project”, he said.

The decline in production output, according Usman, was largely because of lack of patronage as a result of the federal government’s monetisation policy introduced in 2004, coupled with the high lending costs at the money market. Responding to the allegations that retrenched workers last year were not paid their entitlements, Usman explained that the company’s new policy did not make provision for such benefit, saying: “the pension administrators take care of such since the introduction of the new pension policy in 2004.”

Bala Muhammed, a one time public relations manager of PAN, said the bane of the industry is government which had turned its back on the company by no longer buying its products.  He observed that lack of patriotism by government and Nigerians was what was killing the company. “Government has to evolve a policy to protect the industries and patronise them. That’s why I respect former President Olusegun Obasanjo. When he was the military head of state, he ensured adequate protection and patronage of Peugeot cars. He made Peugeot the official car,” Muhammed said.

Dauda, said in a paper he presented at the National  Engineering Conference in Calabar, in December last year, that availability of short-term low cost funds was one of the major challenges facing the automotive industry in Nigeria. He said that to enhance the development of the auto sector in the country, it was important for the government to refocus the banking system to create a pool of easily accessible fund among them to provide finance for local auto manufacturers like PAN.

He said: “A situation where government directs all ministries, departments, agencies and local and multinational projects contractors in all sectors of the economy including banks with which it has relationship  to source their automotive needs from local assembly plants, will go a long way to enhance development of the auto sector of the Nigerian economy.