THE IMPACT OF BANK CONSOLIDATION ON AUTOMOTIVE INDUSTRY FINANCING IN NIGERIA

Abstractbank consolidation on automotive financing in Nigeria.
 THE OBJECTIVES OF THE STUDY
The study examined the impact of bank consolidation     This study sets out to:
on automotive industry financing.1. To establish the effects of bank consolidation on
61 respondents selected through strategic randomcapital provision for the automobile sector in Nigeria.
sampling technique from GM Motors Nigeria Ltd2. To provide a research oriented framework for the
formed the population for the study.development of good understanding of the basic
Data was collected using a survey instrumentaspects and importance of bank consolidation as it
designed by the researcher. Chi-Square Statisticalaffects automotive industry in any economy.
method was used to test the hypotheses and all3. To determine the inherent relationship between
findings held at 0.05 alpha significant level. Thebank consolidation and capital provision for the
Analysis of the data revealed that the participantsautomotive industry
almost unanimously agreed that bank consolidation4. Determine the resent increase financial statement
had impacted positively to the automobile sector inof GM motors and the working capital available for
Nigerian economy.the industry
Based on the findings, it was therefore  RESEARCH QUESTIONS
recommended among others things that a regular       The following Research Questions will thus
review of automotive industry in Nigeria by theguild this study:
appropriate authorities while effort should be made1. In what way does the bank consolidation affect
to improve the power system (electricityfunding for the automotive industry in Nigeria?
situation) in Nigeria.2. What are the benefits that the automotive sector
 has derive from bank consolidation exercise?
INTRODUCTION3. To what extent does Banks consolidation provide
Background of the Studya vehicle for automotive industry survival in a
Mergers and acquisitions should be taken seriously asdynamic business environment?
an instrument for enhancing banking efficiency, size,4. To what extent does bank consolidation enhance
and developmental roles in every economy. Mergersgrowth in the automotive industries?
and acquisitions especially in the banking industry is5. To what extent does the resultant effect of
now a global phenomenon.banks consolidation increase the market potential of
All over the world and given the role of finance, sizethe automotive industry
has become an important ingredient for success in STATEMENT OF HYPOTHESES
the globalizing world. The last few years haveThe following stated research hypotheses will guild
witnessed the creation of the world’s bigthis study:
banking groups through mergers and acquisitions. The HYPOTHESIS 1
trend has been influenced by factors such asHo: There is no significant impact of bank
prospects of cost-savings due to economies of scaleconsolidation and capital provision for the automotive
as well as more efficient allocation of resources,industry in Nigeria.
enhanced efficiency in resource allocation, and riskH1: There is a significant impact of bank consolidation
reduction arising from improved management.and capital provision for the automotive industry in
However, the automotive industry is not left out inNigeria.
the process of alliances. Over the years the industry 
has witnessed different types of global alliances. ForHYPOTHESIS 2
instances Renault- Nissan, VW-Skoda, GM-Daewoo toHo: Banks consolidation do not provides a vehicle for
mention a few themautomotive industry survival and growth, in a dynamic
In the past, the small size of most Nigerian banks,business environment.
each with expensive headquarters, heavy fixed costsH1: Banks consolidation provides a vehicle for
and operating expenses and with bunching ofautomotive industry survival in a dynamic business
branches in few commercial centers had lead to veryenvironment.
high average cost for the industry. This in turn has 
implications for the cost of intermediation, the spreadHYPOTHESIS 3
between deposit and lending rates, and puts undueH0: The effect banks mergers does not increase the
pressures on banks to engage in sharp practices asmarket potential of the automotive industry
means of survival. In an effort to survive the hurdle,H1: The effect of banks merger increases the
the Central Bank of Nigeria introduced the 25 billionmarket potential of the automotive industry
Naira minimum capital base for banks in an effort to 
make our banks much stronger and to able to1.6       SIGNIFICANCE OF THE STUDY
compete favorably with other banks in the world inThe research is significant in the following ways:
providing credit facilities to other sectors of NigeriaFirstly, it will help investors in the automobile industry
economy.to appropriate the opportunities provided by the
However, in 2004 as part of economic reform inconsolidation exercise in that particular sector.
some emerging economies, the Nigerian bankingSecondly, it will further assist entrepreneurs to
system underwent remarkable change, in terms ofunderstand the relevance of consolidation of banks
the number of institutions, ownership structure, asto capital provision and finally, it will serve as useful
well as depth and breadth of operations. Banks beginsource of material for researchers and students.
to merge with other banks; while bigger banks begin 
to acquire smaller ones while automotive industry has1.7 THE SCOPE/DELIMITATION OF THE STUDY
become an increasingly pertinent contributor toThis Study will be limited to Sixty one staffs of GM
country’s' gross domestic product, mainlymotor Nigeria Ltd. It will covers the funding of the
through strong growth in the motor industries inautomotive industry in Nigeria.
terms of increasing volume of local production and 
number of sales. And this is not peculiar to NigeriaDELIMITATION OF THE STUDY
alone. The study only looked at the impact of bank
This scenario raises the question “what impact ofconsolidation on the automotive industry. The
banks consolidation on automotive industry financingpopulation of the study covers only the staff of GM
in Nigeria? It is important to envision this evolutionmotors Ltd Oregun, Lagos. Therefore, this study
from a life cycle of production assembly and salesmay not be generalized.
that have impacted on the financial statements ofAs the researcher was the sole interviewer and
GM Motors Nig LTD. In order to sustain this process,instrument of this study, researcher bias may be
the automotive industry as a whole requires hugepossible in any of the interpretations. Though the
capital intensity from strong and reliable financial back-researcher worked hard to keep out any personal
up to remain viable in the economy and optimize theiropinions, the possibility of subjectivity may still be
environmental impact, communicate positive steps topresent.
non-governmental organization and otherAlso, it is possible that respondents didnt give
stakeholders to discharge their social corporateaccurate information about their operations in other
responsibilities while maintaining design of product,to maintain some level of social dignity. Human
service system from a sustainability point of view.Resources manager of the organization also had to
Hence this work is set to assess the impact of bankanswer interview questions from the researcher. This
consolidation and capital provision for the automotiveprovided a certain level of uncomfortableness and
industry financing in Nigeria (A case study of GMuncertainty as he was worried that he may be
Nigeria ltd)judged by his responses. And finally the dearth of
COOPERATE PROFILE OF GM MOTORS LTDliterature materials in the automobile sector also was
GM Nigeria is a foremost player in the automotivea major challenge
industry and one of the leading motor vehicle Summary of Findings
assemblers and marketers in the country. GM NigeriaThis work examined the impacts of banks
is a joint venture company between UAC of Nigeriaconsolidation on automotive industry financing, using
Plc - one of the biggest conglomerates in Nigeria andG.M Motor Ltd as a case study. Sixty copies of
General Motors Corporation of Detroit, the world'squestionnaires were distributed, fifty one were
largest automobile manufacturers. The relationship ofreturned giving 85% response rate. The results of
these two companies gives them the best supportthe findings show that: consolidation have provided a
and advantage in all facets of their operations, i.e.vehicle for automotive industry survival and growth in
Sales, Parts, Services and Assembling.a dynamic business environment.
About GM GlobalAgain, automotive industry seems to grow due to
General Motors Corp. (NYSE: GM), the world’sbanks consolidation that can provide huge capital
largest automaker, has been the global industry salesrequirement in case of expansion through new
leader since 1931. Founded in 1908, GM todayproducts development or acquisition of small
employs about 321,000 people around the world. Itautomotive companies and this is usually a strategy
has manufacturing operations in 32 countries and itsto form global alliances designed to monopolize and
vehicles are sold in 200 countries.  GM's automotiveexpand the brand image when merger occur and
brands are Buick, Cadillac, Chevrolet, GMC, Holden,achieve in some cases political power. Furthermore,
HUMMER, Oldsmobile, Opel, Pontiac, Saab, Saturn andbanks consolidation provides a vehicle for automotive
Vauxhall. In some countries, the GM distributionindustry’s' corporate survival and growth in a
network also markets vehicles manufactured by GMdynamic financial environment as it boosts the
Daewoo, Isuzu, Subaru and Suzukistrength of automotive industry and thus it enhances
Brief History of GM Motors in Nigeriaautomotive industry’s financial capacity. Also the
1920 - Started as a Company called Miller Brothersresults showed that banks merger provides
Nigeria Limited which imported cars in to West Africaeconomies of scale and achieve some form of
1927 - Started importing completely assembledsynergy for the automotive industry and the
Bedford commercial vehicles into Nigeria.resultant impact of banks consolidation increases the
1929 - Became the Motors Department of then UAC,market potential of the automotive industry.
now known as UACN PlcThe research also revealed that banks consolidation
1931 - Name changed to Niger Motors Limited.result in a higher market price and higher earnings per
Continued importing built vehicles.share coupled with improvements in its stability
1949 - Commercial Vehicles were shipped in as doublethough opinion is divided as to whether the dividend
unit packs which contained partially assembled chassisbefore and after automotive industry alliances cannot
for two vehicles in one pack and the wheels in thebe maintained after the consolidation in order for the
second pack to be assembled locally.market price of the automotives stock to be
1959 - Established Nigeria's First Vehicle Assemblyestablished.
Plant at Apapa. The Company assembled the popularBanks consolidation seems to increase corporate
Bedford Trucks of various models.power and improve market share in some cases,
1965 - The Assembly Plant was renamed Federatedresulting in a higher price earning ratio. The work also
Motors Industries, Then popularly known as "FMI" andshowed that bank consolidation aids the automotive
the distribution arm remained "Niger Motors".industry in financing that would not otherwise be
1979 - FMI started the assembly of trucks frompossible to obtain, which helps to achieve some
"completely knocked down" (CRD) components.synergistic effect without strong bank’s financial
1980 - The Federal Government accorded FMI thecapital base.
"Progressive Vehicle Manufacturer" status, under theAlso revealed by the study is the fact that banks
Approved User Scheme. This nomenclature was toConsolidation brings about adverse automotive
attest to its high standard and quality products atindustry financial sustainable effects because the
that period. FMI and Niger Motors were convertedanticipated benefits did not materialize for expected
into divisions of UACN Plc.cost reductions were not forthcoming hence it should
1991 - UACN Plc and General Motors Corporation ofresult in higher earnings or improve its stability.
USA incorporated GM Nigeria Limited as a JointFurthermore, the findings showed that banks merger
Venture Company. The Assets of FMI and Nigeris vested in automotive industry ability to foster
Motors were then transferred to GM Nigeria Limited.growth and the resultant profitability which will
Visionotherwise be difficult and nearly be impossible
To be number one in the commercial segment of thewithout banks strong capitalization
automotive industry by providing exceptional value toConclusion
our customers.Nigerian's automobile industry is one of the continent's
Missionfastest growing sectors, but it lacks the necessary
To provide automotive products of such quality as tolocal technology and finance to fully harness its
enable our customers enjoy superior value whilepotential and contribute to national growth and
delighting other stakeholdersdevelopment. This state of affairs has ensured that
Incorporation and Addressinvesting in the sector has become the preserve of
GM Nigeria Limited is incorporated in Nigeria under thejust a few foreign companies in the automobile
Companies & Allied Matters Act 1990 as asector, largely based outside of the continent. Bank
private limited liability company, and domiciled inConsolidation introduced in Nigeria in 2005, is an
Nigeria. The address of its registered office is:expression of strong desire of Nigeria government to
31, Mobolaji Johnson Street ,reinforce an instrument for enhancing banking
Oregun Ikeja, Lagos .efficiency, size, and developmental roles in her
Principal Activitieseconomy. It is pertinent to know that this exercise
The principal activities of the company are: assemblyhas assisted the automaker industry to raise capital
of SKD (Semi Knocked Down) motor components tothat may be require in times of boom as well as
produce medium and heavy commercial trucks,depression and successful entry into products market
importation of FBU (Fully Built Unit) pick-ups,as well as into new geographical markets in Nigeria.
marketing and distribution of vehicles through itsThe primary purpose of corporate entities has been
network or branches and dealers nationwide. Theto increase the financial and operational strength.
company provides product support for parts andBanks, consolidation has helped in playing important
service at its Oregun plant, Port Harcourt branch,roles of supporting the real sector like automotive
Abuja branch and through its numerous Parts andindustry in a global context hence banks have
services dealers. The company is also involved inremained a new phenomenon in financing big projects
provision of technical training for employees, dealersin automotive industry in the corporate business
and fleet customer's personnel.world.
The company's product range includes Isuzu Light,Outside the capital provision the automobile sector in
medium and heavy commercial vehicles (all withNigeria has also experienced a lot much neglect than
various body applications).other sectors ( Abiodun 2008). In seeking to achieve
 success in this sector vigorous efforts should be
Shareholding Of Gm Nigeria Ltdmade to counter some of this factors which are
According to the register of members at 31stknown to have hindered achievement in this sector in
December, 2007, the following shareholders of thethe past like; power, local content policy and
company held more than 10% of the capital issuedrestriction on the importation of cars which can be
shared capital of the company:locally assembled here. Effort should be made to
Shareholdersustain this little improvement that has been recorded
Number of Sharesin this sector as result of bank consolidation.
Percentage Held (%) RECOMMENDATION
UAC of Nigeria PlcBased on the findings from the study and the facts
72,000,000at the disposal of the researchers, the following
60recommendations are made
General Motors, USA- Regular and study review of the automotive parts
36,000,000components development industry in Nigeria by the
30appropriate authorities
Staff of GM motors Nigeria - Government should provide incentive measures to
 Â Â Â         10encourage the local auto makers for  ensuring
Source financial statement GM motors 2007compliance with approved local programmes;
 - The right of inspection and other quality assurance
1.2       STATEMENT OF THE PROBLEMactivities in factories, ports and roads in pursuance of
Serious national efforts towards the development ofminimum standard of automobile on Nigeria Roads by
the automotive industry in Nigeria took place in thethe appropriate authorities
early 1970s, with initial joint venture agreements- Regular evaluation of the pricing structure and
between Peugeot and Volkswagen companies. Byquality of the products of the assembly plants to
2001, there were over 20 different enterprisesensure international competitiveness;
manufacturing different types of vehicles, from boats- Forecasting the demand and supply patterns for
to trucks, including motorcycles and bicyclesvarious types of automotive vehicles produced in
automobiles in Nigeria. The capacity utilization of theNigeria and the basic raw material requirements by
majority of these companies is, however, very low,the appropriate authorities
largely due to the high cost of importing the- The automobile sector should liaise with relevant
components needed to assemble vehicles, nonorganisations charged with the production of raw
government patronage and poor capital base ofmaterials (such as sheet metal alloy and special steel)
some of these organizations. By the introduction ofand make sure is available when needed
the policy of bank consolidation a lot of Nigeria feelsFinally, The Nigerian government as a matter of
that the banking sector will see to the end of thisurgency should articulate policies that can promote
problem. But on the contrary, Nigeria roads arethe development of local technology. Basic technical
littered with imported second hand vehicle, many ofcapacities which should include discouraging imports of
them as old as 10years, as the country is ancompletely built up units, providing incentives to local
attractive dumping ground for all kinds of toxic wasteassemblers to increase local content in production
while a lot of automotive companies in Nigeria winding(tax reduction and subsidies) and regulations to
up. Hence this study is sets to examine the impact ofensure local content in varying percentages.