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Abstract

The study examined the impact of bank consolidation on automotive industry financing. 61 respondents selected through strategic random sampling technique from GM Motors Nigeria Ltd formed the population for the study. Data was collected using a survey instrument designed by the researcher. Chi-Square Statistical method was used to test the hypotheses and all findings held at 0. 05 alpha significant level. The Analysis of the data revealed that the participants almost unanimously agreed that bank consolidation had impacted positively to the automobile sector in Nigerian economy. Based on the findings, it was therefore recommended among others things that a regular review of automotive industry in Nigeria by the appropriate authorities while effort should be made to improve the power system (electricity situation) in Nigeria.  

INTRODUCTION

Background of the Study Mergers and acquisitions should be taken seriously as an instrument for enhancing banking efficiency, size, and developmental roles in every economy. Mergers and acquisitions especially in the banking industry is now a global phenomenon. All over the world and given the role of finance, size has become an important ingredient for success in the globalizing world. The last few years have witnessed the creation of the world’s big banking groups through mergers and acquisitions. The trend has been influenced by factors such as prospects of cost-savings due to economies of scale as well as more efficient allocation of resources, enhanced efficiency in resource allocation, and risk reduction arising from improved management. However, the automotive industry is not left out in the process of alliances.

Over the years the industry has witnessed different types of global alliances. For instances Renault- Nissan, VW-Skoda, GM-Daewoo to mention a few them In the past, the small size of most Nigerian banks, each with expensive headquarters, heavy fixed costs and operating expenses and with bunching of branches in few commercial centers had lead to very high average cost for the industry. This in turn has implications for the cost of intermediation, the spread between deposit and lending rates, and puts undue pressures on banks to engage in sharp practices as means of survival. In an effort to survive the hurdle, the Central Bank of Nigeria introduced the 25 billion Naira minimum capital base for banks in an effort to make our banks much stronger and to able to compete favorably with other banks in the world in providing credit facilities to other sectors of Nigeria economy.

However, in 2004 as part of economic reform in some emerging economies, the Nigerian banking system underwent remarkable change, in terms of the number of institutions, ownership structure, as well as depth and breadth of operations. Banks begin to merge with other banks; while bigger banks begin to acquire smaller ones while automotive industry has become an increasingly pertinent contributor to country’s’ gross domestic product, mainly through strong growth in the motor industries in terms of increasing volume of local production and number of sales. And this is not peculiar to Nigeria alone. This scenario raises the question “what impact of banks consolidation on automotive industry financing in Nigeria? It is important to envision this evolution from a life cycle of production assembly and sales that have impacted on the financial statements of GM Motors Nig LTD.

In order to sustain this process, the automotive industry as a whole requires huge capital intensity from strong and reliable financial back- up to remain viable in the economy and optimize their environmental impact, communicate positive steps to non-governmental organization and other stakeholders to discharge their social corporate responsibilities while maintaining design of product, service system from a sustainability point of view. Hence this work is set to assess the impact of bank consolidation and capital provision for the automotive industry financing in Nigeria (A case study of GM Nigeria ltd)

COOPERATE PROFILE OF GM MOTORS LTD

GM Nigeria is a foremost player in the automotive industry and one of the leading motor vehicle assemblers and marketers in the country. GM Nigeria is a joint venture company between UAC of Nigeria Plc – one of the biggest conglomerates in Nigeria and General Motors Corporation of Detroit, the world’s largest automobile manufacturers. The relationship of these two companies gives them the best support and advantage in all facets of their operations, i. e. Sales, Parts, Services and Assembling.

About GM Global General Motors Corp. (NYSE: GM), the world’s largest automaker, has been the global industry sales leader since 1931. Founded in 1908, GM today employs about 321,000 people around the world. It has manufacturing operations in 32 countries and its vehicles are sold in 200 countries.  GM’s automotive brands are Buick, Cadillac, Chevrolet, GMC, Holden, HUMMER, Oldsmobile, Opel, Pontiac, Saab, Saturn and Vauxhall. In some countries, the GM distribution network also markets vehicles manufactured by GM Daewoo, Isuzu, Subaru and Suzuki

Brief History of GM Motors in Nigeria

1920 – Started as a Company called Miller Brothers Nigeria Limited which imported cars in to West Africa
1927 – Started importing completely assembled Bedford commercial vehicles into Nigeria.
1929 – Became the Motors Department of then UAC, now known as UACN Plc
1931 – Name changed to Niger Motors Limited. Continued importing built vehicles.
1949 – Commercial Vehicles were shipped in as double unit packs which contained partially assembled chassis for two vehicles in one pack and the wheels in the second pack to be assembled locally.
1959 – Established Nigeria’s First Vehicle Assembly Plant at Apapa. The Company assembled the popular Bedford Trucks of various models.
1965 – The Assembly Plant was renamed Federated Motors Industries, Then popularly known as “FMI” and the distribution arm remained “Niger Motors”.
1979 – FMI started the assembly of trucks from “completely knocked down” (CRD) components.
1980 – The Federal Government accorded FMI the “Progressive Vehicle Manufacturer” status, under the Approved User Scheme. This nomenclature was to attest to its high standard and quality products at that period. FMI and Niger Motors were converted into divisions of UACN Plc.
1991 – UACN Plc and General Motors Corporation of USA incorporated GM Nigeria Limited as a Joint Venture Company.

The Assets of FMI and Niger Motors were then transferred to GM Nigeria Limited. Vision To be number one in the commercial segment of the automotive industry by providing exceptional value to our customers. Mission To provide automotive products of such quality as to enable our customers enjoy superior value while delighting other stakeholders Incorporation and Address

GM Nigeria Limited is incorporated in Nigeria under the Companies & Allied Matters Act 1990 as a private limited liability company, and domiciled in Nigeria. The address of its registered office is:31, Mobolaji Johnson Street , Oregun Ikeja, Lagos .

Principal Activities

The principal activities of the company are: assembly of SKD (Semi Knocked Down) motor components to produce medium and heavy commercial trucks, importation of FBU (Fully Built Unit) pick-ups, marketing and distribution of vehicles through its network or branches and dealers nationwide. The company provides product support for parts and service at its Oregun plant, Port Harcourt branch, Abuja branch and through its numerous Parts and services dealers. The company is also involved in provision of technical training for employees, dealers and fleet customer’s personnel. The company’s product range includes Isuzu Light, medium and heavy commercial vehicles (all with various body applications).   Shareholding Of Gm Nigeria Ltd According to the register of members at 31st December, 2007, the following shareholders of the company held more than 10% of the capital issued shared capital of the company:

Source : financial statement GM motors 2007  

1. 2 STATEMENT OF THE PROBLEM

Serious national efforts towards the development of the automotive industry in Nigeria took place in the early 1970s, with initial joint venture agreements between Peugeot and Volkswagen companies. By 2001, there were over 20 different enterprises manufacturing different types of vehicles, from boats to trucks, including motorcycles and bicycles automobiles in Nigeria. The capacity utilization of the majority of these companies is, however, very low, largely due to the high cost of importing the components needed to assemble vehicles, non government patronage and poor capital base of some of these organizations. By the introduction of the policy of bank consolidation a lot of Nigeria feels that the banking sector will see to the end of this problem. But on the contrary, Nigeria roads are littered with imported second hand vehicle, many of them as old as 10 years, as the country is an attractive dumping ground for all kinds of toxic waste while a lot of automotive companies in Nigeria winding up. Hence this study is sets to examine the impact of bank consolidation on automotive financing in Nigeria.

THE OBJECTIVES OF THE STUDY     

This study sets out to:
- To establish the effects of bank consolidation on capital provision for the automobile sector in Nigeria.
- To provide a research oriented framework for the development of good understanding of the basic aspects and importance of bank consolidation as it affects automotive industry in any economy.
- To determine the inherent relationship between bank consolidation and capital provision for the automotive industry
Determine the resent increase financial statement of GM motors and the working capital available for the industry   

RESEARCH QUESTIONS        

The following Research Questions will thus guild this study:
- In what way does the bank consolidation affect funding for the automotive industry in Nigeria?
- What are the benefits that the automotive sector has derive from bank consolidation exercise?
- To what extent does Banks consolidation provide a vehicle for automotive industry survival in a dynamic business environment?
- To what extent does bank consolidation enhance growth in the automotive industries?
- To what extent does the resultant effect of banks consolidation increase the market potential of the automotive industry  

STATEMENT OF HYPOTHESES

The following stated research hypotheses will guild this study:  

HYPOTHESIS 1

Ho: There is no significant impact of bank consolidation and capital provision for the automotive industry in Nigeria.
H1: There is a significant impact of bank consolidation and capital provision for the automotive industry in Nigeria.  

HYPOTHESIS 2

Ho: Banks consolidation do not provides a vehicle for automotive industry survival and growth, in a dynamic business environment.
H1: Banks consolidation provides a vehicle for automotive industry survival in a dynamic business environment.

HYPOTHESIS 3

H0: The effect banks mergers does not increase the market potential of the automotive industry
H1: The effect of banks merger increases the market potential of the automotive industry  

1. 6 SIGNIFICANCE OF THE STUDY

The research is significant in the following ways: Firstly, it will help investors in the automobile industry to appropriate the opportunities provided by the consolidation exercise in that particular sector. Secondly, it will further assist entrepreneurs to understand the relevance of consolidation of banks to capital provision and finally, it will serve as useful source of material for researchers and students.  

1. 7 THE SCOPE/DELIMITATION OF THE STUDY

This Study will be limited to Sixty one staffs of GM motor Nigeria Ltd. It will covers the funding of the automotive industry in Nigeria.  

DELIMITATION OF THE STUDY  

The study only looked at the impact of bank consolidation on the automotive industry. The population of the study covers only the staff of GM motors Ltd Oregun, Lagos. Therefore, this study may not be generalized. As the researcher was the sole interviewer and instrument of this study, researcher bias may be possible in any of the interpretations. Though the researcher worked hard to keep out any personal opinions, the possibility of subjectivity may still be present. Also, it is possible that respondents didnt give accurate information about their operations in other to maintain some level of social dignity. Human Resources manager of the organization also had to answer interview questions from the researcher. This provided a certain level of uncomfortableness and uncertainty as he was worried that he may be judged by his responses. And finally the dearth of literature materials in the automobile sector also was a major challenge  

Summary of Findings

This work examined the impacts of banks consolidation on automotive industry financing, using G. M Motor Ltd as a case study. Sixty copies of questionnaires were distributed, fifty one were returned giving 85% response rate. The results of the findings show that: consolidation have provided a vehicle for automotive industry survival and growth in a dynamic business environment. Again, automotive industry seems to grow due to banks consolidation that can provide huge capital requirement in case of expansion through new products development or acquisition of small automotive companies and this is usually a strategy to form global alliances designed to monopolize and expand the brand image when merger occur and achieve in some cases political power.

Furthermore, banks consolidation provides a vehicle for automotive industry’s’ corporate survival and growth in a dynamic financial environment as it boosts the strength of automotive industry and thus it enhances automotive industry’s financial capacity. Also the results showed that banks merger provides economies of scale and achieve some form of synergy for the automotive industry and the resultant impact of banks consolidation increases the market potential of the automotive industry. The research also revealed that banks consolidation result in a higher market price and higher earnings per share coupled with improvements in its stability though opinion is divided as to whether the dividend before and after automotive industry alliances cannot be maintained after the consolidation in order for the market price of the automotives stock to be established.

Banks consolidation seems to increase corporate power and improve market share in some cases, resulting in a higher price earning ratio. The work also showed that bank consolidation aids the automotive industry in financing that would not otherwise be possible to obtain, which helps to achieve some synergistic effect without strong bank’s financial capital base. Also revealed by the study is the fact that banks Consolidation brings about adverse automotive industry financial sustainable effects because the anticipated benefits did not materialize for expected cost reductions were not forthcoming hence it should result in higher earnings or improve its stability. Furthermore, the findings showed that banks merger is vested in automotive industry ability to foster growth and the resultant profitability which will otherwise be difficult and nearly be impossible without banks strong capitalization

Conclusion

Nigerian’s automobile industry is one of the continent’s fastest growing sectors, but it lacks the necessary local technology and finance to fully harness its potential and contribute to national growth and development. This state of affairs has ensured that investing in the sector has become the preserve of just a few foreign companies in the automobile sector, largely based outside of the continent. Bank Consolidation introduced in Nigeria in 2005, is an expression of strong desire of Nigeria government to reinforce an instrument for enhancing banking efficiency, size, and developmental roles in her economy. It is pertinent to know that this exercise has assisted the automaker industry to raise capital that may be require in times of boom as well as depression and successful entry into products market as well as into new geographical markets in Nigeria. The primary purpose of corporate entities has been to increase the financial and operational strength.

Banks, consolidation has helped in playing important roles of supporting the real sector like automotive industry in a global context hence banks have remained a new phenomenon in financing big projects in automotive industry in the corporate business world. Outside the capital provision the automobile sector in Nigeria has also experienced a lot much neglect than other sectors ( Abiodun 2008). In seeking to achieve success in this sector vigorous efforts should be made to counter some of this factors which are known to have hindered achievement in this sector in the past like; power, local content policy and restriction on the importation of cars which can be locally assembled here. Effort should be made to sustain this little improvement that has been recorded in this sector as result of bank consolidation.  

RECOMMENDATION

Based on the findings from the study and the facts at the disposal of the researchers, the following recommendations are made Regular and study review of the automotive parts/components development industry in Nigeria by the appropriate authorities Government should provide incentive measures to encourage the local auto makers for  ensuring compliance with approved local programmes; The right of inspection and other quality assurance activities in factories, ports and roads in pursuance of minimum standard of automobile on Nigeria Roads by the appropriate authorities Regular evaluation of the pricing structure and quality of the products of the assembly plants to ensure international competitiveness; Forecasting the demand and supply patterns for various types of automotive vehicles produced in Nigeria and the basic raw material requirements by the appropriate authorities

The automobile sector should liaise with relevant organisations charged with the production of raw materials (such as sheet metal alloy and special steel) and make sure is available when needed Finally, The Nigerian government as a matter of urgency should articulate policies that can promote the development of local technology. Basic technical capacities which should include discouraging imports of completely built up units, providing incentives to local assemblers to increase local content in production (tax reduction and subsidies) and regulations to ensure local content in varying percentages.      

Since so many people buy used cars throughout their lifetime it makes sense to know which are the best and the worst used cars to buy. One of the best used cars you can buy is one that is owned by an elderly person who can no longer drive. This stage will have taken several years to reach though, and during that time their vehicle will have been driven less and less, making the total number of kilometres very low compared with the age of the car. And since it wont have had much use, it is not likely to be worn out.

And if you are out and about looking for private sales in used cars, noticing if the person has a double garage will give you a clue to the condition of the car. If cars are kept out in the street they suffer weather damage from rain, heat and maybe even hail. A car that has been kept in the garage will be in better condition.

But what about the worst used cars? Once of the worst used cars would have to be an x-taxi. Taxi-drivers are notorious for their rough driving and handling of the taxis they drive; you only have to ride in one to know that. A taxi is also likely to have clocked up a great deal of mileage and have worn parts for that reason.

Another no-no is that rusty old bucket in the used car lot that has been there since the year dot. It may have a great price tag, but that will be the only great thing about it. If it had been that great to start with, it would have been claimed by a new owner long ago.

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Hybrid cars are fast gaining popularity these days. And that’s because these cars seem to be the smartest option for car owners. Hybrid cars, as its name suggests, can run on both electricity and regular fuel. Hybrid cars can either be diesel-based or gasoline-based, depending upon how the manufacturer had created them.

Simply stated, hybrid cars can run both on fuel and on batteries. Just charge the car for sometime before going out on a trip and you’ll have reserve fuel just in case you ran out of gas on an abandoned town. For shorter trips, the electricity mode is the best option. Hybrid cars are still in the development stages. And there are lots of countries that are yet to see these types of cars arriving at their shores.

Hybrid cars are created primarily with the aim of reducing the demands for petroleum. With the sky-rocketing value of fuel prices, it seems not practical to own a car any longer. But thanks to hybrid cars, there’s a light at the end of the tunnel. It could just be the solution to the rising fuel costs.

But more than fuel efficiency, hybrid cars are environmental friendly too. These cars don’t emit gases that may cause greenhouse effect on the environment. This especially true if the car is running on electricity mode alone. Therefore, these cars contribute to the wellness of the Earth, which had actually suffered much from carbon monoxide emission in the last three centuries.

Car makers all over the world are currently busy at work making prototypes and models of new hybrid cars to hit the market. The cost of these cars can be really expensive, given the fact that there are not that mass produced just yet. However, it is expected that one hybrid SUV should sell at only $23,000 very soon. That is the ideal price of these cars, which can be considered affordable given the country’s financial situation.

American car manufacturer General Motors is expected to release new models of hybrid cars in the near future. They are looking to make cars better than their foreign competitors, which are currently enjoying good market sales as far as this car line is concerned.

However, there are still a lot of things to address when it comes to hybrid cars, more particularly consumer-related issues. Even if these cars are jumping in their popularity, not all people appreciate these cars just yet. There seems to be a need for intensive promotion in the market to let consumers know about their options. For some people, hybrid cars look intimidating and a little too futuristic. Others stick to traditional cars because they already know their way around them, as far as repair and maintenance are concerned.

But other than these concerns, hybrid cars are expected to stay for a while in the automotive market. There will always be a need for these cars and it would come a time when people would start looking for them and prefer them over the cars they knew so well about. Manufacturers are eagerly waiting for that time.

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I am just back from a media event organised by Hyundai. No, it was not the launch of a fancy car. It was, instead the launch of H S Lheem, the new Managing Director and CEO of Hyundai Motors India to the Indian media. It was a necessity as the post-Subbu Hyundai needs someone with whom the media can relate to. It becomes a neccessity also because Mr B V R Subbu, able manager and craftsman that he was, ensured that during his tenure he enjoyed a near dicatator like status in HMIL. There was a numero uno in B V R but there was never a number two. Subbu was also popular in the media, most of whom was easily manipulated by him for his personal and HMIL’s advantage.

Mr Lheem came across as an interesting person too. He came across as very affable and warm, in street lingo – a simple dude. However, he seems to be under-trained for the job of the head of HMIL. Its difficult to explain the feeling when the head of a carmaker seems to be too eager to disclose forward model programs to the media. Sample this. New diesel Sonata Embera? End of the year. Diesel Getz? Sure! we are putting a 1. 2 -litre diesel in the Getz. By the end of the year again. Getz left-hand-drive for the export market? Nopes. Not on this platform. Maybe on the next one. New Santro? Yes, under testing. People mover? Nopes, nothing in the global portfolio. One-tonne truck? Yes, the Porter is coming. we are struggling with the pricing. Half-tonne truck? No. Sigh! Tough to take on the Tata Ace on pricing. New Accent? How many times do I need to tell you that the new Accent is on its way. Look at the Verna, that’s the one. Did we leave anything? If you remember to ask any more forward plans just call on my mobile.

I could imagine the Hyundai India sales team pulling their hair in a corner.

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Have you ever wondered about the differences in the tastes of men and women when it comes to cars? Clearly, men prefer cars that look tough and masculine and ooze power while women prefer cars that are “cute” and stylish, right? Well, that’s true to a certain extent, according to a recent study on car ownership between the sexes. However, what may be surprising to some is that there are areas of common interest between men and women and that both actually share a liking for the same favorite cars.

According to registration records for new 2005 and 2006 car models (January 2006 to the present), men love luxurious, high performance cars, preferably with a horsepower of 367 or more. On the other hand, women prefer cars that are affordable, practical and safe. They also put a premium on design flair in their cars as evidenced by the popularity of the Eclipse Spyder convertible, which had the highest percentage of female registrants of any car on the market. The preferred horsepower for the women’s cars were way below the standards of men, with the top five models having only an average 172 hp compared to 367 hp in the men’s favorites. It was just like you expected, right?

It was interesting to see the Mitsubishi Eclipse Spyder on top of the list of women’s favorite cars. If you take a good look at it, it does somehow seem like a feminine-looking car. But hold it. The Eclipse Spyder also happens to be the car of choice among 34. 2% of male registrants. In fact, the study showed that registration records indicate that men sometimes buy feminine cars but women rarely purchase male-oriented, testosterone-fueled sports and luxury cars.

The thing is, what really makes a feminine car? I mean, I always considered the Mitsubishi Eclipse Spyder to be a masculine car ever since I first saw it in the 2003 movie “2 Fast 2 Furious,” particularly since it belonged to the angry, muscular ex-convict played by Tyrese Gibson.

The next popular cars for women were the Toyota RAV4 sport utility vehicle (SUV) and another Mitsubishi favorite, the hardtop Eclipse coupe. The men’s favorites were the Honda Acura NSX sports car and DaimlerChrysler’s Mercedes-Benz S55 AMG performance sedan.

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