Americas > South America > Colombia > Colombia: Looking to auto manufacturing

Colombia: Colombia: Looking to auto manufacturing

2012/04/10

 

While small in volume when compared with Northern giants Mexico and the US, Colombia has long been proud of its automotive industry. It plays a mighty role in the economy, accounting for 6.2% of GDP and providing jobs for 34,000 people. However, the sector is bracing for big changes as it confronts increased competition brought on by the implementation of new free trade agreements and an increasingly strong Colombian peso.

 

GM Colmotores, the local manufacturer of General Motors (GM) and Chevrolet brand vehicles, is the current industry leader. Historically, GM Colmotores has succeeded as an assembler of completely knocked-down kits (CKDs), which means Colmotores does not manufacture parts but locally assembles imported components In some cases, the vehicles are exported in their finished form.

The newly implemented free trade agreement (FTA) with Mexico, in particular, puts this model in danger. In an interview with local press, Jaime Ardila, the Colombian director of GM South America, explained, “We can no longer be competitive with just assembly because the costs are lower in other places, the logistics of bringing CKDs to Colombia are difficult, and we need more scale.”

The evidence of Ardila’s claim is in the numbers. Since the FTA with Mexico came into effect in 2011, Mexico has seen an 85% increase in auto exports to Colombia. Meanwhile, Colombia’s participation in the domestic auto industry is down to 32.6% from 33.5% in 2010 and 36.1% in 2009.

More telling are the remarks of GM Colmotores president, Santiago Chamorro, who informed local press, “the FTA with Mexico was a disaster for Colombia’s auto industry”. According to Chamorro, the benefits of the accord only go one way. “Last year Colombia sent only four cars to Mexico,” he said.

Auto industry leaders have also expressed their concern about the implementation of FTAs with South Korea and the US. Korean imports already account for 15.6% of the Colombia’s total automobile market and 26.5% of foreign vehicle imports. With the elimination of import duties, these numbers are sure to rise.

The FTA with the US is slightly less concerning, as the US is not a big player in Colombia’s car import market. Additionally, the import duty on American-made vehicles, which currently stands at 35%, will be reduced gradually by 3.5% annually over a 10-year period.

In addition to the new FTAs, the strength of the Colombian peso brought on by the country’s rapid growth and the development of a booming oil industry has impacted export markets. So far this year, the peso is up 8.5%, reaching a five-month high on February 3rd. The central bank has attempted to combat the peso’s rise by increasing the benchmark interest rate and going on a three-month, dollar-buying spree. So far the peso has dropped only .2% in response.

“There are two roads: the easy one, which is to convert ourselves into car importers; and the other more difficult option — to create a much stronger automotive industry,” Chamorro said.

At least for the moment, Chamorro seems to be intent on doing the latter. On February 7, GM Colmotores’ leadership, as well as Colombian President Juan Manuel Santos, gathered to lay the first brick of a new automotive manufacturing plant known as the Colmotores Industrial Zone, or ZOFICOL. The plant, which will be fully equipped to manufacture auto parts, should be completed within the next two years at a cost of $50m. The Ministry of Commerce, Industry, and Tourism predicts that, when completed, ZOFICOL will create up to 900 jobs, directly and indirectly.

The government is lending the industry a helping hand by financing the creation of an Automobile Development Centre which will work on innovative automobile technology that could make Colombia a stronger regional competitor. This project is expected to be completed before the end of the year.

Santos has further reassured the industry by claiming that the nation’s FTA negotiators “do everything possible to ensure whatever new competition there is will be fair and just.” However, Santos also warns, “The work is not just for us. The world will not permit the auto industry here to rest on its laurels.”

Indeed, Colombia’s auto industry will have to get creative about the way it does business. Its very survival and the jobs of thousands depend on the steps the country takes.

Related Articles
  • Netanyahu to pioneer new diplomatic grounds in Latin America

    2017/09/13 Defying doomsayers concerned about Israel losing diplomatic clout, Benjamin Netanyahu is headed to Bogota, Argentina, and Mexico -- part other Latin American nations. Prime Minister Benjamin Netanyahu is scheduled to depart for Latin America and the US on Sunday evening, marking the fifth time in some 15 months he will embark on ground-breaking trips to nations at no time before visited by a sitting Israeli prime minister.
  • Netanyahu’s Historic Latin American Tour to Highlight Israeli Tech Sector

    2017/09/10 Latin America is “hungry for Israeli technology,” a senior Foreign Ministry official said Tuesday ahead of Prime Minister Benjamin Netanyahu’s historic visit to the region next week. Deputy Director General at the Foreign Ministry’s Latin America and Caribbean Division, Modi Ephraim, said the visit will have historic significance, as it will be the initial by a sitting Israeli prime minister.
  • PM Netanyahu leaves on historic visit to Latin America

    2017/09/10 Israeli Prime Minister Binyamin Netanyahu will leave on Sunday evening for a working visit to Latin America. During his trip, Netanyahu will visit Argentina, Colombia and Mexico. This will be the initial visit by a sitting Israeli Prime Minister to Latin America. Paraguayan President Horacio Cartes will travel to Buenos Aires to meet Netanyahu. Netanyahu leaves for trip to Argentina, Mexico, and Columbia, then meets world leaders at UN General Assembly in New York. Accompanying Netanyahu is a delegation of Israeli businesspeople from the fields of agriculture, water, communications and energy. Members of the delegation will hold commercial meetings with their local counterparts. Eonomic events will as well be held in Argentina and Mexico, led by Netanyahu and the Argentine and Mexican heads of national.
  • UNWTO: International tourism – strongest half-year results since 2010

    2017/09/09 Destinations worldwide welcomed 598 million international tourists in the initial six months of 2017, some 36 million additional than in the same period of 2016. At 6%, increase was well above the trend of recent years, making the current January-June period the strongest half-year since 2010. Visitor numbers reported by destinations around the world reflect strong request for international travel in the initial half of 2017, according to the new UNWTO World Tourism Barometer. Worldwide, international tourist arrivals (overnight visitors) increased by 6% compared to the same six-month period last year, well above the sustained and consistent trend of 4% or higher increase since 2010. This represents the strongest half-year in seven years.
  • Odebrecht agrees to pay $220 million fine, aid Panama probe

    2017/08/02 Brazilian engineering company Odebrecht [ODBES.UL] agreed to pay $220 million in fines and will cooperate with investigators probing bribes of Panamanian officials, the Central American country's attorney general said on Tuesday. The fine included $100 million for using the banking system for illicit activities, said Panama's attorney general, Kenia Porcell.