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Imported vehicles gain track to the national industry
Posted On 07 Jun 2018
Ecuadornews:
The tariff preferences of trade agreements with the European Union and Colombia contribute to the increase in the supply of cars at more competitive prices. However, national assemblers lose participation and demand incentives so that competition is not unequal and remains active.
The country’s automotive market crosses two completely different scenarios. On the one hand, the arrival of imported cars boosts sales; while the national industry loses participation.
According to the Association of Automotive Companies of Ecuador (Aeade), between January and April of this year, the share of imported cars reached 71%, when in the same period of 2017 it was 65.1%. While the participation of vehicles assembled in the country decreased from 34.9% to 29% in the same period of time.
Expectations for some entrepreneurs and concern for others, is the situation that is drawn in the scenario in the short and medium term, because the factors in both described scenarios show that the trends will continue, that is to say: growth for the import and decrease for the production.
Imports are accelerated
The general sale of vehicles is in a recovery and stabilization stage. During 2017, 105,077 units were sold, while in 2016, 63,555 were sold, that is, 41,522 less cars. However, for Genaro Baldeón, president of the Aeade, the growth has not yet reached the optimum level reached in 2011, when 141,154 motor vehicles were commercialized.
The generation of employment also measures the pulse of the sector. In 2016, when the Ecuadorian economy went into recession, 56,801 people were employed in this industry; while in 2017, the figure rose to 60,000. On the other hand, the tax collection in 2016 was $ 895 million and last year it was $ 1,238 million. So what is the problem? the national industry loses ground in front of the cars of foreign origin.
Although its sales volume remains stable, its participation and production have decreased little by little since last year. The figures for the first four months of this year are more evident. Of the 43,756 units sold, 29,780 were imported, that is, 68.1%.
Trade agreements boost the entry of foreign cars. For example, vehicles purchased from Colombia that enter Ecuador with 0% of tariffs occupy 11.2% of the market. In the first four months of 2018, 4,476 units were sold, 2,419 more than in the same period last year.
On the other hand, thanks to the agreement with the European Union (EU), effective as of January 1, 2017, the vehicles coming from this block also register a considerable growth and it is expected that this trend will continue due to the gradual reduction of tariffs that 2023 will be 0%.
Between January and April 2018, 2,779 units of European origin were sold, reaching a market share of 6.4%, while during the same period of the previous year, 658 vehicles were sold, with a 2.5% share in the market.
Diego Galindo, commercial manager of Álvarez-Barba SA representing the BMW, Mini and Porsche groups, highlighted that as of 2017, the country’s commercial houses leveraged the incentives of commercial agreements to increase their portfolio and bring new models with more competitive prices.
In the case of BMW, Galindo indicated models such as the 318 that has a price of $ 49,990 and the 320 with a value of $ 59,990, both have already included the Value Added Tax (VAT), have had a reduction of more than 20% in relation to the costs of two years ago. According to figures from Aeade, 65% of vehicles entering from the EU are sold at less than $ 30,000; 23% is offered between $ 30.00 and $ 60,000; while only 11% exceeds $ 60,000
In this year 15 new models of units of the European block entered the Ecuadorian market. But cars of European origin and Colombians are not the only ones that enter the country with force. The rest of the pie is shared between vehicles coming from Korea (15%), China (9%), Mexico (7%), Japan (7%), Thailand (3%) and India (3%).
The national industry is reversed in the market On the other side of the coin is the local industry that ensures little by little approaching a chasm, mainly due to the lack of a public policy that allows it to compete on equal terms.
The figures of the Chamber of the Ecuadorian Automotive Industry (Cinae) show that the participation in the market of assembled vehicles in the country went from 55.7% in January 2015 to 34.6% in the same month of 2018, that is to say a reduction of more than 21 percentage points.
The displacement is due to the entry of imported units with 0% of tariffs or preferences for trade agreements in force when the assemblers do pay taxes. Considering only the month of January, the percentage within the portfolio of units assembled in Ecuador by General Motors fell from 82% in 2015 to 68% in 2018; while KIA, reduced its portfolio of armed vehicles in the country during the same period, from 75% to 27%.
David Molina, executive director of Cinae, said the situation is the result of the absence, for six years, of a public policy that regulates the industry. Molina explained that the taxes for the import of the parts to assemble the vehicles, that is to say the CKD, are equivalent to 15% in tariffs, which increases the prices of the cars.
He also pointed out that as a result of the dialogue process promoted by the current government, a ministerial agreement was signed to regulate the assembly in the country. There it is demanded that the armed vehicles in Ecuador contain 19% of parts manufactured locally.
In addition, a tariff table was developed inverse to the local content that allows a reduction of the tariff on imported auto parts, insofar as the national component increases. However, this table was not discussed in the full Committee of Foreign Trade (Comex) and without its official resolution the assembly industry loses competitiveness before the importers.
Cinae considers that the application of the tariff table as an automotive policy could generate in the sector the recovery of at least 2,000 jobs and an investment of approximately $ 130 million between 2018 and 2022, by the assembly companies.
On the contrary, if we do not listen to the warnings that the union makes, it is estimated that the local participation of the industry could fall from 29% in 2018 to 19.1% in 2021, with the consequent bankruptcy of companies and unemployment, so industrialists demand a productive policy in favor of the sector.
The businessmen expect the new Minister of Economy and Finance, Richard Martinez, to resolve this situation that affects everyone. (I)
