Colombia offers heavy-duty, off-highway export opportunities to aftermarket

July 22, 2016
From an aftermarket perspective, this growing Colombian economy offers many opportunities for auto parts manufacturers in both the light-duty and heavy-duty segments. Colombia is the fourth largest economy in South America, behind Brazil, Argentina and Chile.

High in the Andes mountain range, Colombia sits atop the South American continent, both physically and metaphorically. From a physical perspective, this mountainous nation of 46 million people is surrounded by natural beauty. From the peaks of the Andes, to the beaches of Cartagena, Colombia’s natural beauty is unrivaled.

From a business perspective, Colombia also is riding high among the nations of South America. From an aftermarket perspective, this vibrant and growing economy offers many opportunities for auto parts manufacturers in both the light-duty and heavy-duty segments.

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Colombia ranks as the fourth largest economy in South America, behind leaders Brazil, Argentina and Chile. Currently, Colombia has a gross domestic product (GDP) of about US$505 billion, which ranks 29th in the world. While Brazil’s economic woes have dragged itself and most of the continent into slower economic growth or downright recession, Colombia’s economy has proven resilient during the past five years.

In fact, while Argentina and Brazil were in recession during 2015, Colombia managed to grow its GDP by almost 3.4 percent. According to the International Monetary Fund, that growth is estimated to increase to 3.7 percent in 2016. While this growth rate is a bit slower than Peru or Bolivia, their economies are significantly smaller. Given that 87 percent of Colombia’s population is under the age of 55, there is a strong demographic bias for continued economic growth for several decades.

The overall economy in Colombia is strong and getting stronger. Colombia is a commodity-based economy, driven largely by agriculture (coffee, cut flowers and bananas lead the segment) and by mining (gold, coal and emeralds). This leads to a strong demand for vehicles that can navigate the mountainous terrain, while carrying large loads of cargo and people.

The total number of vehicles in operation in 2015 was 2.6 million, which represents a growth of more than 500,000 units since 2010. According to the Automotive Aftermarket Suppliers Association’s (AASA) 2016 World Automotive Market Report, the 10-year growth pattern in the market represented a compound annual growth rate (CAGR) of over three percent. And that CAGR lags significantly behind the other market leaders in South America.

In 2011, the United States entered into a trade promotion agreement (TPA) with Colombia that eliminated tariffs immediately or had the effect of diminishing them over the following decade. Without tariffs, exports to Colombia have grown dramatically since 2012. Overall, the TPA has taken a US$8 billion trade deficit and turned it into a $2 billion trade surplus in 2015. In fact, from 2011, when the TPA was first signed in October of that year, through the end of 2015, U.S. aggregate exports of transportation-related equipment to Colombia rose 41 percent, from US$870 million to US$1.228 billion.

Retail automotive sales of new vehicles were down significantly in 2015 from 2014. The decline was nearly 12 percent for the overall market. Chevrolet maintained its position as market leader, racking up its third year in a row with the best-selling vehicle, the Chevrolet Sail. While Chevrolet has a combined market share of 23.7 percent, that’s down from 25.0 percent in 2014.

Renault and Kia both increased market share in 2015 to 17.8 percent and 9.9 percent, respectively. However, all three market leaders saw significant volume reduction from 2014 levels. As of June 2016, the market was still struggling, down an overall 12 percent year over year. As mentioned earlier, the Chevrolet Sail was the best-selling vehicle in the market, while the Chevrolet Spark, Spark GT and Tracker all placed in the top 10 models. The Sail, a variant of a model developed by China’s GM Shanghai Motors, and the Spark, a variant of the Korean Daewoo Matiz, are produced by GM Colomotores in Bogota. The Renault Sandero, which was the second most popular model in 2015, is produced in Brazil for South American markets.

In fact, most vehicles that are sold in Colombia are not normally offered for sale in the U.S. The Colombian market favors mini-cars with small engines in its urban areas, and industrial type vehicles for use in more mountainous regions.

The number of vehicles sold in 2015 that are of North American manufacture is almost anecdotal. A smattering of Dodge Journeys, Ford Explorers and Chevy Cruzes. Luxury European brands don’t fare much better, representing less than 3.5 percent of the total market, combined. With so few North American applications available in Colombia, U.S. exporters need to be mindful of their product portfolio when trying to sell there. This is particularly true for light-duty aftermarket.

Although the heavy-duty (HD) segment is much smaller by volume, it does represent an opportunity for U.S. based exporters. International, Kenworth and Freightliner are among the top brands of HD trucks used in Colombia. Given the fact that brands like Hino, Volvo and Scania are also common in the U.S., HD suppliers might have a more appropriate portfolio of products that are suitable to the Colombian market already on their shelves. In December 2015, the Donaldson Company, a worldwide manufacturer of HD filtration products, opened two new distribution centers in Colombia to service that market.

An off shoot of the HD industry is the lucrative off-highway equipment market, in particular mining and agricultural equipment. As mining is a critical industry in Colombia, maintaining the equipment is an important part of keeping its economy rolling. Common equipment in this sector would include Caterpillar and Komatsu parts. Likewise, in agriculture settings, John Deere, Navistar and other American brands of farm equipment require good sources for both OEM and aftermarket products.

Doing business in Colombia has its unique aspects. Business is conducted formally, and it is customary to wear conservative attire, such as dark colored suits, when making sales calls – especially on a first visit. While punctuality is a bit more relaxed in Colombia, foreign visitors should do their best to be on time. Personal relationships play a huge role in advancing business activity. Once there is a personal comfort level between buyer and seller, business dealings become less formal, and are conducted with the ease that comes with familiarity. Culturally speaking, there is a strong avoidance of uncertainty, and there is a risk averseness that comes with that. Therefore, it is important to be clear when making presentations, and it is wise to have of all of your facts checked.  

Colombia uses the peso as its unit of currency, and it is currently trading at about 3,000 COP to one U.S. dollar. During the past decade, the currency has been relatively stable, trading between 1,800 and 2,400 COP to the dollar. However, since 2014, the rapid rise of the U.S. currency has caused it to jump as high as 3,500 to the dollar, and it has recently settled in at approximately 3,000.

As with any foreign market, sellers should exercise the appropriate risk management strategies to reduce their exposure to currency fluctuations. Most buyers in Colombia will readily agree to transact business in dollars, but a rapid change in exchange rates may hamper the customer’s ability to pay.

In the light-duty aftermarket segment, the most serious impediment to doing business for U.S. parts makers is the lack of commonality with vehicles sold in North America. And with the relatively modest number of cars in operation in Colombia, a broader regional strategy may be needed if an organization is considering ramping up production for aftermarket parts suitable to that market. However, as U.S. transportation related exports to Colombia have grown 41 percent during the past five years, there seems to be significant export opportunity, at least in the HD and off-highway segments of the market.

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