Automotive Sector Overview

A Hot Tip about Parts and Accessories for Automobiles in Colombia

Last updated: 10 Mar 2011

Overview

“The automotive sector is the fourth most important industry in Colombia. The United States has traditionally been Colombia’s major supplier of vehicles, automotive parts and accessories. This sector represented 8% of all Colombian imports for the first semester of 2009. Colombia imported from the U.S. $ 11.3 billion products in 2008”.

 

After a sustained growth of 20 percent per year since 2001, the Colombian automotive sector has experienced a significant setback in 2008, according to the Colombian Ministry of Commerce, Industry and Tourism, Consequently, total sales of this sector (local market and exports) dropped by 41% with a 40% drop for utility vehicles and trucks. Domestic demand, national manufacturing sector and export reductions combined with restrictions on Colombian imports in Venezuela and Equator were the major factors.

 

In 2008, the Colombian local market experienced a 15% overall reduction. The Colombian ministry of transport has imposed a reduction on truck licensing and a program to discard trucks over 20 years old until 2010. The output of this sector in the national industry lost 5%, from 41.5% in 2007 to 40% in 2008. A significant factor was Venezuelan restrictions on imports from Colombia, reducing national exports to Venezuela by 64%, which greatly affected the Colombian automotive industrial production and national employment rate.

 

In 2009, projected sales1 of imported of vehicles will drop by 18% from 2008, from 139,554 units sold in 2008 to 114,480 units in 2009. During the first semester of 2009, the market remained stagnant, only tackling large dealer inventories. The automotive sector is gaining pace and reacting more dynamically in the second semester of 2009, boosted by new production and assembly lines and a stronger demand for auto parts.

 

In the aftermath of the global crisis, with heart-felt concern for the environment backed by stronger environmental regulations and a keen interest in becoming a competitive economy, Colombians want a more sophisticated, performing, and savvy and “smart” offer. The industry is also making a real effort to advertise and promote new models and products, seeking gains in new market shares. New players such as SEAT and Maserati are seeing more room for growth, introducing new brands in the Colombian market to offer sought-after more sophisticated designs, technology and better quality.

 

Although Chevrolet, Renault and Hyundai remain the top performers in 2008 and 2009, auto dealership owners are seeing changes in the Colombian market. More and more women and younger university-educated professional buyers are looking for brands, technology, design and security. Volkswagen, the German automaker, has performed best during this economic downturn, growing by 10% with the Jetta Jalona model. The U.S. is the main source of imports for vehicles and auto parts but Colombia is looking at China (Xinkai and Jinbei under Autogroup) and Japan (Hino and Komatsu) for lighter, more fuel-efficient, computerized, or “smart”, trucks and working equipment.

 

In general, the Colombian automotive parts and accessories sector reflects the economic state of the nation as well as the motor vehicles manufacturing/assembly sector. About 38% of all Colombia’s exports feed the U.S. market. Because of the 2008 global economic crisis and lower import demand from the U.S., Colombia’s economy has stalled in 2008 and during the first semester of 2009. However, analysts2 expect an improvement due to President Uribe’s economic policy, a stronger demand in China and Brazil for Colombian products and services, higher raw materials value and a favorable U.S. Colombian pesos exchange rate.

 

Colombia’s competitive economy provides opportunities for U.S. manufacturers, workers, and farmers. Colombia has the 3rd largest population in Latin America with 44 million people. In 2008, Colombia was the United States’ fifth largest market for U.S. exports in the region after Mexico, Brazil, Venezuela, and Chile and the 29th market for U.S. exports globally. Colombia was the 27th largest goods trading partner, with U.S. $24.5 billion in total bilateral trade in 2008. Goods exports totaled U.S. $11.4 billion and U.S. $13 billion for imports. The U.S. trade deficit with Colombia was U.S. $1.7 billion in 2008, a 90% increase (U.S.$778 million) over 2007. U.S. exports to Colombia were up 34% from 2007 and up 181% from 1994 (the year previous to the Uruguay Round). Among the top exports categories (2-digit HS) in 2008 were machinery (U.S. $2.6 billion), mineral fuels (U.S. $997 million) and electrical machinery (U.S. $950 million). U.S. direct foreign investment (FDI) in Colombia (stock) was U.S. $5.6 billion in 2007, a 21% increase from 2006, primarily concentrated in the mining, and manufacturing sectors.p>

Market Demand

According to a 2009 market forecast by Econometria S.A.3, the Colombian market will sell 180,000 units in 2009, or 18% below 2008 sales. On top of exports restrictions to Venezuela, exports to Ecuador will basically be cancelled as a result of Ecuadorian policies over political discords between both governments. Venezuela and Ecuador are the main destinations for the Colombian automotive industry exports. This loss should affect the Colombian unemployment rate as the sector generated 2.5% employment in 2008 and 2.6% of the industrial output.

 

Econometria S.A. concluded that the production in 2009 would see a 38% reduction from 2008. By May 2009, 14,146 new vehicles were sold against about 14,500 units sold in average during the past six months, confirming a downward trend in the market. The first semester of 2009 showed a significant change in trends among imported vehicles, local production (47%), and cars and utility vehicles (68%) breakdown compared to the respective breakdown (46% and 69%) in 2008. Taxis, vans, and commercial vehicles sales were stable. In contrast, merchandise vehicles sales dropped significantly during this time frame. During the first semester of 2009, 1200 pick-ups and 600 freight vehicles were sold from 1600 pick-ups and 1000 freight vehicles sold during the second semester of 2008.

 

In general, several factors affect the Colombian market demand, such as:

• Age of vehicle fleet (the avererage lifespan of most of the 3.4 million motor vehicule in Colombia is 12 to 15 years).

• Topography (geological location of consumers and urbanization)

• Lack of infrastructure (about 80% of Colombia’s cargo and passenger transportation is moved by land)

• Economy

• Trading agreements

• Price competition

• Peso reevaluation and stabilization

 

Colombia ranks solidly among progressive, developing countries with well-diversified agriculture, resources, and productive capacities. However Colombia’s topography challenges transportation. The population lives in the northwestern one-third of the country, the vast majority living within the valleys formed by three major ranges of the Andes Mountains. Intercity land travel has always been difficult. Colombia’s mountains remain a challenge to the construction of highways and railways. Infrastructures are not adequately developed and need substantial investments.

 

Due to a 50-year-old armed conflict, economic and social factors, the main cities, especially Bogota, Medellin, Cali and Barranquilla, keep receiving large numbers of displaced and infringed people. Colombia’s public transport system is poor and slow with endemic problems of traffic, accidents and pollution. The majority of the population depends on public transportation. In 2008, local and national government started to make a real effort to improve this challenge with a long-term positive impact for the automotive sector:

• The Colombian ministry of transport and the national highways institute (INVIAS) have committed 2.8 billion4 Colombian pesos (COP) to build 1100 miles of roads and highways connecting the main ports, cities and key border entry points within the next three years5.

• Since 2005, the ministry of transport has carried out a program of modernization and re-emplacement of the Colombian trucking and public transportation fleet; targeting over 20 years old obsolete vehicles. With new funding, the goal is to discard 5,000 vehicles between 2009 until 2010. Owners receive the right and subsidies to buy new vehicles.

• Bogota’s new public transport system, the “Transmillennium6”, was praised by the New York Times in 2009 for being one of the best efforts in the world for providing efficient, energy-friendly and safe transportation in the second-largest city of Latin America. Public transportation companies need to keep their vehicles in good condition.

 

Despite a challenging economic environment in 2009, the local market keeps offering excellent discount prices and financing for the purchase of new vehicles with approximately over 43 brands and 250 models available. Lower interest rates, a large credit offer, better priced products due to the recession and international trade agreements will boost the sector. Also, within the next coming years, approximately 2.1 million motor vehicles manufactured in the 70’s or before and others manufactured during the 1971-2000 period will need to be dismantled to comply with local government regulations to renew the Colombian fleet and to avoid the pollution caused by old engines.

 

International trade agreements, with Mexico, impact demand for new vehicles and auto parts. Under the trade agreement with Mexico, imports of motor vehicles, automotive parts and accessories get a 6 percent import duty or an incentive for about 5,000 new vehicle imports in 2008. Upon approval and implementation of the U.S.-Colombia Trade Promotion Agreement, 53% of U.S. industrial exports will receive duty-free treatment. Tariffs on another 23% of exports will be eliminated over five years and the remaining 24% over ten years. Tariffs on priority automotive products, including large-engine 4x4 vehicles, engines, brakes, shock absorbers, and other autoparts will be phased out immediately upon implementation of the agreement. Colombia will eliminate its prohibition of remanufactured automotive goods, as defined in Chapter Four – Rules of Origins, upon entry into force of the agreement as well as most tariffs over 10 years.

 

Local production remains important but imports have kept significant growth since 2005 due to foreign products price competition, a large inventory of parts and accessories, and an increase of car maintenance facilities. However, foreign subsidiaries manufacturers are important players with 116,406 units produced in 2008, 34,480 vehicles imported and 22,272 exported. Despite a significant downturn, American technology remains the leader with Colmotores, the local General Motors subsidiary, having the largest market share, with 57,740 motor vehicles sold in 2008 (down from 95,207 in 2007), followed by the European Sofasa with 39,553 down from 47,000 in 2007) and in third place the Asian Compañía Colombiana Automotriz (Mazda vehicles manufacturer) with 19,113 units sold.

 

According to the Colombian Association of Freight Transporters (Colfecar), cargo vehicles annual sales have significantly decreased in 2008. In the first semester of 2009, approximately 4,352 new trucks were sold, down from 8,781 the first semester of 2008, and 10,098 the first semester of 2007. The large demand of imported and locally made automotive parts and accessories of 2006 to 2007 has slowed down with no strong rebound in view.

 

According to Macias Osario, vice-president of the Colombian Association of automotive parts makers, passengers’ transportation services should keep growing due to restrictions in the main urban areas to control traffic and air pollution and slow improvements of roads and highways. Fleet owners indicated that they transported approximately 7.2 million passengers throughout Colombia in 2008.

 

 

By Ricardo Roldan

Read the full market research report

 

 


Posted: 29 April 2010, last updated 10 March 2011

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