For decades, when deciding on where to focus their marketing attention, Central America never seemed attractive as an aftermarket opportunity to sales executives. The vehicle populations were relatively small, the political and economic conditions hazardous, and the rules governing imports were a plethora of contrary regulations that made it difficult to harmonize a sales and distribution strategy throughout the region.
While it has gone mostly unnoticed during the past 20 years, Central America has matured into a vibrant, stable and lucrative market. Yes, even for the automotive aftermarket.
The development of the market shouldn’t surprise anyone who’s kept close watch of the region. The primary driver of this turnaround has been economic growth. As a sub-region, Central America was expected to grow 4 percent in 2016, as opposed to a .5 percent economic contraction in Latin America. The countries that make up Central America include Belize, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama. But within those seven countries, growth rates could vary dramatically.
In 2016, Panama grew its gross domestic product (GDP) by 5 percent, which led the region. In that same period, Belize’s economic activity shrank -1 percent, so due diligence should be used when considering a market strategy. Population demographics remain strong, with a combined population approaching 47 million people, with a significant number of millennials making up the population.
In today’s highly charged political climate, free trade agreements often are viewed with skepticism, if not outright derision. The North American Free Trade Agreement (NAFTA), a tri-lateral trade agreement between the U.S., Canada and Mexico, has its share of critics. But on purely economic terms, NAFTA has widely been considered a success.
Other efforts to emulate the NAFTA example led us to two agreements that govern the U.S. trade relationship with the region. One is the Central American Free Trade Agreement (CAFTA). This includes six of the seven countries in Central America, but not Panama. Panama has a separate agreement with the U.S known as Panama Trade Promotion Authority (PTPA). The U.S. had total exports of $30 billion in 2016 to the CAFTA region, versus imports of less than $20 billion. This trade surplus makes it unlikely that CAFTA will come under the same kind of scrutiny in the U.S. that NAFTA has.
Essentially, what both the CAFTA & PTPA agreements do is eliminate tariffs on certain goods manufactured in a participating country. In the case of automotive parts and accessories, this benefits the U.S. manufacturers, as there is little manufacturing of automotive items within Central America that gets imported back to the U.S. However, this does give American manufacturers a small advantage over their Asia-based competitors.
“CAFTA has provided us with a slightly better competitive advantage due to the reduced import duties,” says Mark Marutiak, international sales director at the Fram Group. “Of course, this applies only to U.S.-manufactured products.” He laments that due to the competitive nature of the industry, “more and more product is being sourced off shore.”
Another difficulty one might discover in trying to sell in Central America is the variation of the vehicle parc. Within the seven-country region, there are approximately 4.6 million cars and trucks in operation. Vehicle populations range from a scant 40,000 in Belize, to nearly 2 million vehicles in Guatemala. The entire region would be considered a relatively small market, even if it were one country. But we must point out that from 2005 to 2015, the vehicle population in Central America grew 87 percent.
In most of the region, used car sales far outstrip new car sales, with many of those used cars being imported from other regions. Some of the smaller countries don’t track sales or registrations by make and model, making a comprehensive vehicle in operation list virtually impossible. At a macro level, the best-selling makes and models don’t vary too much.
Toyota has been the market leader in Central America for nearly 40 years. Across the region, Toyota has an average market share of approximately 24 percent, with the Hilux pickup and Yaris small car being their two most popular models. The fastest growing brands over the past decade have been Hyundai and Kia, as they hold the second and third most market share, but they combine to form about 32 percent of the market. Nissan is a solid fourth in the region with an average 12 percent market share. Those top four brands represent about two-thirds of the overall market. The remainder of the market is made up of Suzuki, Honda and Chevrolet, each accounting for about 5 percent, while other brands have even less.
Many manufacturers currently selling in the region have dedicated sales forces designated for Latin America. Spanish is the dominant language in Central America, therefore it’s important to have your marketing programs developed with local cultural and language cues. Merely translating from English seldom suffices in such situations. Those brands that can bring quality and value always have an advantage. But there are many brands who meet that relatively low bar. The brands that exceedingly dominate in a crowded market are those that can share enhancements like electronic cataloging, marketing programs, technical and sales training and other value-added perks.
According to several manufacturers that are active in the region, the single most important thing a company can do to grow its sales in Central America is technical training. “There is not enough education on the difference between low cost/quality and high value-added brands,” said Marutiak. “Website and mobile application enhancements are absolutely required to grow business within the millennial market.”
The large manufacturers often organize both local and regional training events that cover technical issues like diagnosing a problem, installation techniques and product updates. These classes are highly prized by service professionals and are often very well attended.
If you are looking to expand into the region, it often helps to find a local representative that can navigate the landscape, and guide to customers who would benefit most from selling your products. The relatively small market size, combined with the variety of countries, often makes it hard to make individual trips to each country. Having a representative covering the market is efficient, and can alert you to potential issues before they become problems.
For those seeking to sell directly, there are several trade shows that are popular with Central American buyers. AAPEX is often well attended from people in the region, as is the INA/PAACE show in Mexico City. The newest show that has caught the attention of many in the U.S. is the Latin Auto Parts Expo, which is held in Panama City. In 2018, the show will take place in late July.
What may once have been an afterthought as far as the automotive market was concerned has matured into a potentially lucrative and growing region. While competition from Asia remains strong, the removal of tariffs through CAFTA and PTPA has given U.S. manufacturers an advantage, albeit a small one. Leveraging on high quality, high value auto parts, and promoting enhancements like customer training, electronic cataloging and strong brand marketing will put U.S. suppliers in control of their own destinies in Central America.
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