Caribbean aftermarket forecast: Cloudy with some sun

March 23, 2016
The Caribbean market is home to an incredibly diverse population of cars, trucks and motorcycles, with each country having a unique profile of vehicles on their roads. The brands represented there do have some things in common.

When one thinks of the Caribbean, images of warm beaches and cold tropical drinks probably spring to mind. So one could be forgiven for overlooking the large, lucrative aftermarket that sits just off the U.S. shore.

The Caribbean aftermarket is not one market, but encompasses a variety of small markets with a handful of medium sized ones. Each market has a slightly different vehicle parc, and each market has a slightly different way of doing business.

Taken together, the 28 Caribbean nations and protectorates have approximately 43 million people. This would rank among the top 30 most populous countries in the world, if the Caribbean were one country. However, this is not the case.

The Caribbean market is home to an incredibly diverse population of cars, trucks and motorcycles, with each country having a unique profile of vehicles on their roads. The brands represented there do have some things in common. Japanese vehicles have dominated the region for the past 30 years, and continue to play a large role. The past 10 years has seen a large increase in Korean vehicles and Chinese-made vehicles are becoming popular on some islands. Puerto Rico holds the largest share of U.S. domestics brands, at just about 25 percent, while in the rest of region, U.S. domestics account for about 15 percent.

Population plays an important role in the size of the individual markets throughout the Caribbean. A secondary factor is the relative wealth of each nation. Income disparities have a direct impact on the size of the vehicle park. A case in point is the difference between Puerto Rico and the Dominican Republic. While Puerto Rico has a population of about 3 million people, it has nearly 1.9 million motor vehicles. The Dominican Republic, with more than three times the population, approaching 10 million people, has only 1.2 million vehicles in operation.

Cuba, with a population of nearly 11 million people, has a reported vehicle population of about 450,000 cars and trucks. So it’s evident that economic conditions will play a significant role in determining aftermarket opportunities. It should also be noted that Cuba is currently sanctioned by the U.S., and it’s contrary to U.S. law to trade with Cuba without obtaining a special license.

By far, the largest market for U.S. firms seeking to sell in the Caribbean is Puerto Rico. Since Puerto Rico is a U.S. protectorate, there are no export restrictions and all transactions are conducted in U.S. dollars. Puerto Rico has been in the midst of deep recession since 2008. In fact, it is seeking permission from the U.S. Congress to declare bankruptcy and restructure its debts. The long period of economic instability has had devastating consequences for the economy as well as the aftermarket.

Puerto Rico is one of the few Caribbean nations with a net population loss each year as more and more Puerto Ricans seek better economic opportunities on the mainland. Unemployment on the island is at 12 percent and continues to rise, while 45 percent of the population is on some form of government assistance.

But the vehicle parc is still consistent in keeping with long-term trends as Toyota dominated the market with a 26.7 percent share of 2014 vehicle sales. The Japanese makers combined had a remarkable 56.5 percent share of all 2014 sales in Puerto Rico. The U.S. domestic three combined for a 19.7 percent share, closely followed by Korean brands Hyundai and Kia at 19.0 percent. The remainder of the market share belonged to the European brands. Total 2014 sales were 92,352 units, which was down 13 percent from 2013. While the final figures for 2015 auto sales are not yet available, there should be a dramatic decline even from the 2014 numbers.

Due to the dire financial crisis, the government of Puerto Rico recently passed Act 72 to change the Sales & Use Tax Code of the island. In effect, Act 72 imposes an 11.5 percent tax on any goods imported into the island. This tax is paid directly by the importer at the port when the shipments arrive. According to Manufacturer’s Representative Elena Lopez of FL & Associates, the tax has impacted sales into the territory.

“Having spoken to several customers, the new law has affected their decision purchases from suppliers substantially,” Lopez said. Nobody is holding extra inventory. Lopez also said that there is no way to gage how 2016 is going to look because there is no solution to the financial crisis on the horizon.

Lopez points out that while Puerto Rico may not be the most positive spot to do business in the Caribbean now, the Dominican Republic has been a big bright spot. She points out, “the Dominican Republic market has the best outlook for 2016. The Dominican Republic is the only country in the Caribbean with an economy that is growing on a yearly basis since 2013. This is due in part because of the CAFTA-DR agreement done with the USA in 2007.” The CAFTA-DR is the Central American Free Trade Agreement that was passed by Congress in 2005. It includes six Central American countries plus the Dominican Republic.  

The agreement has had a positive influence on sales of aftermarket products from the U.S. Lopez says, “The free trade DR-CAFTA that was effective in 2009 is helping the ‘Made in USA’ imports. Since it is an annual reduction in the import tax imposed on goods, every year the sales numbers are increasing. It also allows Dominicans to import vehicles made in the U.S., or those whose parts are at least 35 percent U.S. origin to that market, mostly free of customs duties since January 1, 2015.” 

The Dominican market may be opening for U.S. suppliers, but by no means is it an easy market to tackle. There are 40 brands of vehicles representing almost 200 different models currently being sold on the island. With total vehicle sales about 20,000 units per year, that means there is a lot of differentiation. For the 2012 sales year, Hyundai was the dominant brand with a 17.6 percent share of the market. Market share leaders by region were as follows: 31.6 percent, Japan; 26.1 percent, Korea; 16.7 percent, U.S.; 8.3 percent, Europe; 7.3 percent, China. The Dominican Republic has 3 million motorized vehicles, but 53 percent are two wheeled (motorcycles and scooters).  A manufacturers product portfolio should include some coverage for those types of vehicles if any significant market share is expected to be gained.

While almost no supplier can expect to carry parts for every vehicle, Lopez points out that North American suppliers need to do more. She pointed out that most of the factories she represents only cover half the SKUs her Dominican customers are looking for.

“Import parts from Asian brand applications must be a major part of what a supplier should consider when entering this market. Since the GDP per capita is only approximately $10,000, prices are always a big factor in this market and something that we must take in consideration always.” And competition from low-cost suppliers is always there.

In fact, the rather low per capita GDPs throughout the Caribbean region have put pressure on big branded suppliers. While brands are certainly recognized and present in the market, they command a smaller share than they once did. One distributor said, “Price is always the issue, and quality never seems to be.” He pointed out that a branded ball joint from the U.S. might sell for $16, but the customer prefers the Chinese import that is selling for $8. However, successful brands are overcoming these issues with emphasis direct engagement with the installer community. Many premium suppliers are offering signage, technical training and sales education for the installer clients. So while there is intense pricing pressure, a well-presented brand with a clear engagement strategy can overcome some of this pressure.

Other large vehicle population markets in the Caribbean that might be considered are Trinidad and Tobago with about 500,000 vehicles in operation, followed closely by Cuba at around 450,000. Though trade with Cuba is still mostly prohibited, there has been recent discussion on lifting those 50-year-old sanctions. There are many older American vehicles that are still operating in Cuba, and the opening of that market would be a boon to vintage parts suppliers. Barbados, one of the wealthier Caribbean islands, has about 135,000 motor vehicles, but has a population of less than 300,000 people, which makes it the highest percentage of per capita vehicle ownership in the Caribbean.

The many smaller islands that represent hundreds of thousands of vehicles, operate a little differently. But first consider, is it practical to have an export strategy for each of these islands? Probably not. And many auto parts professionals on smaller islands don’t necessarily have the volume or need to buy directly from manufacturers. Instead, they very often find solutions much closer at hand.

Frank Arenal, president of Ignition and Fuel Systems Corp., a San Juan, Puerto Rico based distributor, says, “Small surrounding Islands do get most of their parts from Puerto Rico, though some buy from exporters in Miami as well.” He also concedes that while bigger two- or three-store chains might buy from him in Puerto Rico, they just as often might buy directly from the U.S. or from Panama. But that still leaves plenty of business for him and others. “They come here, pack parts in their luggage and head home. Business has a funny way of finding itself,” said Arenal.

Along with the diversity of vehicles in the Caribbean, there is also a rich diversity of languages and cultures. English, Spanish, French and Dutch are widely spoken throughout the region, as well as the local creole dialects of each language. This makes it difficult to tailor a one size fits all marketing message to the region. It’s also difficult to travel to each of the 28 markets individually, as desirable as such a trip might be. So it’s prudent to develop a sales and marketing plan or plans that specifically target each particular segment of the market.

Various strategies that might help develop a successful market plan include hiring a local sales representative. Typically, sales representatives are familiar with local distributors, customs and market conditions. They are often good sources of market-specific vehicular data as well. Due to its proximity to the U.S., many Caribbean distributors attend shows like AAPEX, and at least in the case of Puerto Rico, several distributors belong to U.S. buying groups.

There aren’t any major trade shows held directly in the Caribbean, but two regional shows often attract Caribbean buyers. One is PAACE Automechanika, which is held in Mexico City each July. The other, more recent show, is the Latin Auto Parts Expo, which is held in Panama every June.

Linda Bassitt, president of Latin Auto Parts Expo, a Miami, Fla. based company, says the show is widely attended by buyers from the Caribbean. She points out that at the 2015 show, there were more than 3,000 attendees from 60 countries, including 14 of the 28 Caribbean region nations. Bassitt made the case for U.S. exporters to exhibit at the event by saying, “We feel confident that the products and services companies that exhibit at the Latin Auto Parts Expo will hit their market target in Latin America and the Caribbean.” While the show covers a range of products and services for the aftermarket, nearly 32 percent of attendees expressed a particular interest in parts and components, while an additional 10 percent said they were interested in tools and equipment. Bassitt said that there are attendees from 11 nations that the U.S. has free trade agreements with that participate at the Expo.

It would seem that the trade winds are mostly favorable to U.S. companies that seek to do business in the Caribbean. Once the storm clouds have passed Puerto Rico, there will be strong pent-up demand that needs to be satisfied. With sales growing in the Dominican Republic year over year, companies with the right product portfolios for the region will stand to do well.

And perhaps soon, there may be a new emerging market in Cuba. Certainly, with the highest population of any Caribbean nation, Cuba is poised for strong growth once sanctions are lifted. For U.S. suppliers, ensuring that you have the proper product portfolio is as important as packing the right sunscreen before heading down to the region.

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