Nigerians cash in on used cars as weaker naira fuels demand

As Nigeria grapples with fluctuating exchange rates and high inflation, used car resale values are rising, making car ownership, once seen as a liability, now an asset.

The country’s heavy reliance on imported vehicles, coupled with exchange rate volatility and inflation, has led to an increase in the cost of replacing vehicles.

Car dealers in Nigeria stated that the rising cost of used cars in the country is mainly driven by two factors, which are foreign exchange rates and import duty charges.

In October 2023, the price of the dollar in the parallel market moved to N1300 from N736 in January and at the end of the year trading, the naira depreciated by 96.55 per cent year-on-year as the dollar was quoted at N907.11 on the 29th of December compared to N461.61 quoted at the end of 2022 at the Nigeria Autonomous Foreign Exchange Market (NAFEM), data compiled by BusinessDay from the FMDQ indicated.

At the end of 2024, the dollar was quoted at N1,535 on December 31, the last trading day of the year in the Nigerian Foreign Exchange Market (NFEM), indicating a decline of N628 within a year.

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Oluwafemi Ogunbadejo, a car dealer and CEO of World Claw Automobile, told BusinessDay that as the naira weakens, both the purchase cost and import duty for foreign used cars (Tokunbo) become significantly higher.

Ogunbadejo cited an example: importing a 2010 Toyota Corolla could cost around N9 million (including clearing), with a resale value of about N11 million, offering low-profit margins and slow turnover. In contrast, locally used cars especially from people relocating abroad can be bought for N6–N7 million and resold quickly for N8 million, yielding faster sales and better profit.

“I’m going to buy a foreign car of 2010, Corolla, for like, probably 9 million with clearing and duty to Nigeria, and I’m going to sell it at the end of May for 11 million, and it might take like, probably 2-3 months. So, it doesn’t pay very well, the profit is very small.

“But I can get someone that’s travelling out of the country, having that same car, and want to sell it for 7 million, or 6 million Naira and I will sell it, maybe 8 million, within one week, I’ve gotten 1 million.

“So, if I am selling a used car, that is okay, I need to fix one or two things. I make a million Naira from each car, and I sell 10 in a month, that will have been 10 million in a month, rather than waiting for myself to buy the Tukumbo, that can take me like 10 months,” he said.

Ogunbadejo said that this shift has made locally used cars not only more affordable for buyers but also more profitable and faster to sell for dealers, which is a stark contrast to imported cars, which now sit unsold for months due to high upfront costs and shrinking profit margins.

“I have a vehicle now. It came in October last year, I’ve not sold that vehicle and it has tied over 30 million Naira down. If I borrow that money from a financial institution, and I’m going to pay interest on it, at this moment, I’m at a loss.

“So, a lot of people now prefer to buy a used car, at a particular amount, and use the other money to put the car in the right state or the right condition,” he noted.

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A new report by Cowrywise, titled ‘The Economics of Car Ownership in Nigeria,’ showed that while a car loses its intrinsic value through depreciation, its replacement value in Nigeria can increase over time.

The report classified cars as consumable assets that depreciate and do not generate income, but their resale value in Naira can effectively soar due to the weaker Naira and inflationary pressures.

This allows Nigerians to capitalize on the higher replacement cost when they sell their vehicles.

“Interestingly, despite depreciation, replacement value can offer partial upside. Due to Nigeria’s heavy reliance on imports, exchange rate volatility and inflation often increase the cost of replacing vehicles, even used ones.

“Based on current assumptions, the annual increase in replacement value is N1.73 million per year and N144,473 per month. This means that although a car loses intrinsic value through depreciation, it may still command a higher replacement cost over time, making it a partial hedge against inflation,” the report stated.