Vehicle assembly in Colombia began in 1956 when the government signed an agreement to build Austin trucks locally. Colombian entrepreneurs soon saw the opportunity to invest in technology to be part of the necessary OEM supply chain. But those with up to 57 years of experience are in danger of disappearing unless they make radical decisions.
Local assembly spawned a light technology OEM parts industry supplying assembly plants with wheels, tyres, trim, batteries, suspension and brake parts, wiring, glass, fuel tanks, exhaust systems and, in recent years, thermoformed plastics like front bumpers which help assemblers meet the 35% regional local content rules imposed by the Andean Automotive Agreement (AAA), signed 20 years ago.
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This AAA was created to harmonise the Andean countries’ automotive industries in a decade in which those nations began to sign free trade agreements. Ecuador, Venezuela and Colombia agreed tariffs of 35% on vehicles imported CBU but no duty on CKD kits for local assembly.
This scheme worked very well for both assemblers and OEM supplers, taking into account that in 1991 Colombians bought 49,000 new vehicles (90% locally assembled) units and, in 2011, volume rose to about 325,000 (but only 35% were locally assembled), down from 50/50 local/import five years ago.
According to DANE (official statistics office) and Acolfa (the Colombian OEM supplier guild), 2011 saw Chevrolet, Renault, Mazda and Hino Trucks buy US$5.7bn worth of parts from regional OEM suppliers. Of the total, 81% were used in locally assembled vehicles for domestic sale and 19% was exported.
Assembled vehicle exports accounted for $290m that year. The top five foreign markets for Colombian assemblers were Ecuador, 61.9%; Panamá, 5.5%; Perú, 6.2%; Chile, 3.7%; and Costa Rica, 1.0%.
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By GlobalDataOEM parts exports now account for about $499m, just 9% of domestic OEM supply sales. These exports are mainly represented (58.6%) by just five product lines: batteries, 20.1%; radial tyres for commercial vehicles, 16.0%; radial tyres for passenger cars, 12.4%; glass, 6.0%; and other parts, 4.0%.
The main OEM parts exporters are: Michelin, 16.9%; Goodyear, 14.4%; Mac lead batteries, 7.8%; Incolbestos brake pads, 4.0%; AGP armoured glass, 3.3%; Willard lead batteries, 3.0%; Gabriel shock absorbers, 2.3%; Dana, 2.2%; Vitro glass, 1.5%; Madeal aluminium wheels, 1.3%; and Cofre brake parts, 1.3%.
And the main export markets are: Ecuador, 24.9%; Brasil, 18.0%; Venezuela, 14.3%; US, 7.5%; México, 6.1%; Chile, 5.9%; Perú, 5.3%; Italy, 3.6%; Panamá, 2.8%; and Guatemala, 1.6%.
One key local industrial group has provided OEM parts to assemblers since the 1950s: the Chaneme Group, led by CEO Nayib Neme (the founder’s Lebanese nephew) which has made its fortune manufacturing suspension and brake parts, stamped and cast wheels, spark plugs, clutches and rollers, among other parts. Neme declined to be interviewed by just-auto.com.
All OEM supply factories are close to assembly plants in Bogotá and Medellín, about 1,000 km away from the coast. This plus the 35% local content rule and the 35% protection tariff on vehicles imported fully assembled has led to an uncompetitive industry.
Luis Garay, a Colombian Central Bank researcher, said recently: “Industrialisation in Colombia has only served to enrich a few pockets, not the country.”
The industry has been affected by globalisation. Free trade agreements have come into effect in the past five years. Méxican vehicles began to arrive duty free; those from Brazil and Argentinia at a reduced import duty rate of 15%; and, last year, new FTAs with the US, Europe and Korea came into effect which means that, in six to nine years, there will be no tariffs on vehicles from the main producer nations, except Japan, which signed an Economic Partnership Agreement with Colombia.
The Colombian government saw 20 years ago competitive and comparative disadvantages of the assembly industry but the multinationals operating plants here thought protection would last forever. Instead, FTAs are allowing in competitively priced CBU vehicles and imported parts. So the 300,000-unit market now has the potential to grow to 500,000 with tariff trade barriers removed.
So, can the OEM suppliers survive? just-auto.com asked to interview Camilo Llinás, president of Acolfa, but, though he agreed to do so by e-mail, no reply was received to our questions.
The only way to survive in this highly competitive autoparts world is to be competitive with low production costs and innovation but high volume and economies of scale are hard to achieve in a country where local assembly is so diverse in terms of models made. Chevrolet builds the Spark, Optra, Aveo and nine truck models; Mazda the 2, 3, New 3 and pickups, and Renault the Logan, Duster, Sandero and Clio I.
Colombia also has not developed any design or technology industry which could be considered autonomous enough to contribute to global car production. Local OEM suppliers really only produce parts designed and developed elsewhere unlike Brazil, México and Argentina, the Latin American countries that can develop and build cars from scratch.
One possibility is that FTAs mean open markets in both directions and some Colombian assemblers are taking advantage. Renault’s Medellín factory is assembling the Duster SUV under a global-integration OEM scheme and exporting it in the thousands to México. GM, which is soon to inaugurate its stamping plant to press Sonic II body parts, will supply both domestic assembly and export.
Mazda, on the other hand, seems likely to close its Bogotá plant and import duty-free from its soon-to-open México plant, giving that efficient new factory more economy of scale, although its president was reluctant to talk about that.
