Last year, Colombia was the fifth-largest U.S. export market for vehicles and second-largest U.S. automotive parts market.
For U.S. firms looking to increase their sales in this sector, Colombia offers opportunities due to its heavy concentration of automotive assembling and strategic location as a hub for entering Latin America.
Norcia Ward, Commercial Assistant, U.S. Embassy, Bogotá, Colombia, is part of the U.S. Commercial Service of the U.S. Department of Commerce’s International Trade Administration (ITA) and its worldwide export assistance network. In the Q&A below, she discusses the latest automotive sector trends and opportunities in Colombia.
Q: What kind of growth has Colombia’s automotive sector experienced in recent years?
Ward: Colombia is a major player in the regional automotive market, and currently ranks as the third-largest automobile assembler in South America (after Brazil and Argentina). In addition, after Brazil, Colombia is the second-largest motorcycle producer in the region, with an annual output of 662,000 units.
However, last year, the Colombian automotive sector experienced a decrease in vehicles sales of 10% from 2015, mainly caused by a drop in global oil prices and a weaker Colombian peso. This resulted in U.S. imports being more expensive for Colombian consumers. By contrast, 2014 had been the best year for automotive sales in recent years in Colombia.
Q: What is the economic impact of automotive manufacturing in Colombia?
Ward: Colombia’s automotive industry includes assembly of light vehicles and trucks, buses and motorcycles, and manufacturing of parts used in assembly for the Original Equipment Manufacturer (OEM) and replacement markets. Together with repair services, the industry contributes four percent of the country’s gross domestic product and accounts for nearly 22,000 local jobs.
The country has eight assembly companies, of which four are relatively large: GM Colmotores, Sofasa, Hino Motors Manufacturing, and Foton. These four companies account for a combined 96% of the country’s vehicle production.
The top-selling brand in Colombia is Chevrolet; in 2016 it sold 60,087 units and had a 24% market share. Chevrolet has held the number one position in Colombia for 30 consecutive years.
Q: What market opportunities exist for sales of U.S. vehicles in Colombia?
Ward: Overall, more than one-third of Colombia’s automotive industry consists of domestic production (CKD) while 63% is imported (CBU), mainly from South Korea, Mexico, India, Japan, China, and the United States.
Electric vehicles offer opportunities for U.S. exporters, especially in the public transportation arena. Such vehicles would have to have the requisite power to climb steep hills at elevation with a full passenger load.
Public transport systems are also being upgraded in the principal cities of Bogotá, Barranquilla, Bucaramanga, Cartagena, Cali, and Pereira, among others. Cities will increase the purchase of new vehicles and automotive parts to modernize and retrofit the old fleet.
The city of Bogotá launched the “Plan de Ascenso Tecnológico” (Technological Improvement Plan), a technology improvement plan for zero or low carbon emissions in the mass transportation sector for Bogotá, also known as the Transmilenio Bus Rapid Transit. The plan contemplates replacing the current fleet with low-emission buses.
Q: What market opportunities exist for U.S. automotive parts suppliers?
Ward: Local production of vehicles has been decreasing in the past few years. However, the high percentage of imports represents a good opportunity for imported parts and accessories, especially those from the United States, which are very well known and regarded nationwide.
Proximity is definitely an advantage for U.S. firms, and while the waiting times to receive the product is less, freight costs are sometimes still expensive. Colombia total automotive parts imports in 2016 were $3.9 billion, from which 21% ($772 million) came from the United States.
Colombia’s local production of automotive parts mainly supplies OEMs with automotive and replacement parts, and while there are opportunities for U.S. companies to supply OEMs, the best prospects for U.S. suppliers is the aftermarket sector and selling to tier-one, tier-two, and tier-three suppliers.
Although infrastructure in Colombia is improving, roads are generally in poor condition, increasing the likelihood of damage to vehicles and the need for replacement parts. The average age of freight and passenger vehicles is 16.9 and 16.7 years, respectively, which increases the need for replacement parts.
Opportunities for U.S. parts suppliers include radiators, clutches, suspension systems, brake parts, engines, shock absorbers, gaskets for engines, windshield glass, diagnostic equipment, high- and low-beam lights, air and oil filters, air conditioning, ventilating hoods, fan parts, and more. Fortunately, channels and trade shows exist to help U.S. firms connect with buyers and distributors, such as the annual Expopartes exposition and the June 8-9 trade mission organized by the Auto Care Association to Bogotá in close coordination with the International Trade Administration.
Q: Are there some differences in Colombia’s automotive aftermarket as compared to the United States?
Ward: Yes, one big difference is that Colombia only has a few automotive repair shop and detailing shop chains. So, automotive parts are mainly sold by importers, distributors, independent retail stores, independent repair shops, wholesaler, agents, and representatives. There is no Colombian equivalent to U.S. retail stores like Autozone, NAPA, Advanced Auto Parts, Pep Boys, etc. In addition, cars (private vehicles) frequently use replacement and aftermarket parts, unlike commercial vehicles (including heavy duty), which tend to use OEM parts.
Q: What are some key factors for successful U.S. supplier partnering? Ward: In order to sell to Colombian OEMs and tier suppliers, U.S. exporters need to comply with quality standards and certifications. The technical standards required by the Colombian Government are for: brake systems and components, vehicles glasses, tires (tubeless and pneumatic) and seat belts. The certifications required by the OEMs are ISO 9001 and ISO TS; OEMs might also require their own certification process. The U.S. supplier or its country distributor/importer would need to do the certification process.
It is also important to offer value-added and innovative products, customized solutions, competitive pricing, and fast delivery times. Colombian consumers appreciate U.S. products due to their excellent quality, but Colombia is a very price-driven market, and competitive prices are a decisive factor when competing in this market.
The manufacturing of Colombia’s automotive parts its concentrated in Bogotá, which accounts for 80% of national production, with the rest located in major cities like Medellin, Cali, and Bucaramanga. U.S. suppliers that want to position and develop their automotive parts/brands need to invest in marketing campaigns to supply their distributor network and sales representatives.
In May 2016, the first Automotive Manufacturing Meeting took place in Bogotá, which connected suppliers with automotive manufacturers and tier-one and tier-two suppliers. There is not a set date for the next show. The show is organized by ACOLFA (Colombian Association of Automotive Parts Manufacturers).
Q: To what extent has the U.S.–Colombia Free Trade Agreement (FTA) benefited the U.S. automotive industry?
Ward: Under the United States - Colombia Trade Promotion Agreement that entered into effect on May 15, 2012, some parts and automotive parts (which were previously assessed a tariff of 13% on average) currently enter the Colombian market tariff-free, while tariffs on other parts will be reduced to zero during the next two-to-five years. Vehicles tariff are currently 14%, they will be reduced to zero during the next five years.
Q: What are some challenges U.S. firms in Colombia’s automotive sector?
Ward: Colombia does not allow imports of used vehicles or motorcycles. The Andean Automotive Policy bans imports from other countries of used cars, trucks, motorcycles, and buses, as well as new vehicles from previous years. Imports of used automotive parts from other countries are also banned.
With the implementation of the FTA with the United States, Colombia is accepting re-manufactured automotive parts. U.S. companies compete with quality and state-of-the-art products, while firms from many Asian countries have obtained a larger market share by pursuing a low price strategy.
Colombia has trade agreements with more than 30 countries, making the automotive industry more internationally competitive. More than 100 countries compete in the Colombian automotive sector. Mexico, South Korea, the United States, Japan, Germany, Brazil, and China have the highest market shares of automobile imports. China, the United States, Japan, Brazil, South Korea, and Mexico have the highest market shares in automotive parts imports.
Colombia is currently in the process of updating its vehicle safety regulations via Resolution 3752 (in effect since January 1st, 2017) and Resolution 3753 (there is no set implementation date—tentatively mid to end of 2017). Once the technical specifications for these new requirements are released, importers will have to test their vehicles at a locally approved laboratory to ensure they meet the new requirements.
Currently, U.S. automotive makers are unsure if vehicles compliant with Federal Motor Vehicle Safety Standards or the United Nations Economic Commission for Europe requirements will meet the new requirements. The Colombia Ministry of Transportation is currently accepting self-certification (Certificado de primera parte) in accordance to international technical standards certified in the country of origin, until the new technical standard is released.
In March 2013, Colombia imposed a one-for-one scrapping requirement as a condition for the sale and registration of new freight trucks. This policy cost an estimated$750 million in lost U.S. truck exports during the past three years, according to industry representatives. In February 2015, Colombia’s Ministry of Transportation issued a regulation, without public consultation or a transition period, expanding mandatory scrappage to a new vehicle segment—cars, trucks, minibuses, campers, and dump trucks used for “special public service.”
In 2017, Colombia implemented a new “cupo” system that essentially imposes a 15 percent tax on imports of new trucks. The system is set to expire on December 31, 2018, at which point the market is scheduled to be open to imports of trucks and “special public service vehicles” with no restrictions
Q: From your experience, are there some “lessons learned” among U.S. companies exporting to Colombia’s automotive industry?
Ward: It is very important that when meeting with Colombian distributors/dealers/importers, the U.S. supplier has information on current trends in Colombia’s automotive industry. In order to sell in Colombia, some parts need to comply with technical safety standards, such as brake systems, glass, tires, and seat belts.
The products manufactured by U.S. companies have great acceptance, thanks to the high and superior quality standards, providing the customer with reliability, guarantee and safety. At the same time they are recognized for their advanced technological development, both in the product and in the production processes.
The American automotive industry is a pioneer in the development and research of technologies and new products, capable of satisfying the consumer, always complying with standards of international quality facilitating entry to the different markets, among them the Colombian market. Many of the most recognized brands in the market are of U.S. origin. U.S. companies base their competitiveness on the quality and support of their solutions.
Q: What are some tips for doing business in Colombia?
Ward: I would recommend U.S. businesses do the following:
- Secure an agent, representative, or distributor in Colombia.
- Translate materials into Colombian Spanish.
- Perform direct marketing and personal visits to potential buyers.
- Colombia has relatively high interest rates for loans. Export-Import Bank finances export through various loans, guarantees, and insurance programs to facilitate exports of U.S. goods and services to Colombian governmental and private companies.
- The U.S. Commercial Service recommends that companies check the Office of Foreign Assets Controls OFAC list every three to six months at a minimum to ensure that their business partner or potential business partner is a trusted and legitimate national.
- Identify partners and conduct a background check (International Company Profile).
- Include arbitration clause in contracts.
- Be familiar with local laws and regulations.
- Keep good after-sales service arrangements.
- Formality, personal relationships, and trust when negotiating agreements and contracts is important.
- Always get legal advice.
Q: How can the U.S. Commercial Service assist U.S. automotive firms?
Ward: Our office in Colombia is part of the global U.S Commercial Service network of 108 offices across the United States and in U.S. embassies and consulates in more than 75 countries that helps U.S. companies export. Services include trade counseling, market intelligence, business matchmaking, commercial diplomacy, and other customized services.
Curt Cultice, is senior Communications specialist, at the U.S. Commercial Service.