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Corporate customers - a growth sector for OEMs in Colombia

Colombia is the third largest automotive manufacturer in Latin America, producing vehicles for international brands, like GM, Chevrolet, Isuzu and Volvo. Given that the automotive industry has experienced mixed fortunes of late, what are the prospects for OEMs in LatAm’s fourth largest economy?

Colombia is one of the primary automotive markets in the region (after Mexico and Argentina). According to the Ministry of Transport, at the end of 2016 there were 13 million vehicles on the country’s roads. 2014 was Colombia’s best year for auto sales.

A drop in global oil prices, devaluation of the Colombian Peso and slowdown in economic output led to a dip of 10% in 2015-16. The situation wasn’t helped by tax reform which raised VAT from 16% to 19% and slowed consumer spending.

So, given the challenges, why are OEMs still upbeat about the Colombian market?

More than 200 foreign companies have arrived in Colombia in the past five years alone. These include Facebook, Furukawa (a Japanese fibre optic firm) and India’s motorcycle manufacturer Hero MotoCorp. Italian deluxe car brand Ferrari has also set up shop.

But it’s not just new money, existing operations such as mining are modernizing and major infrastructure building programmes are creating jobs and opportunities in construction and engineering. The ratio of vehicles in the corporate sector is low and OEMs see this as their golden opportunity.

“Businesses need more vehicles.” states Sergio Ramirez, brand manager at Volkswagen Colombia. “They need to be more efficient and productive and vehicles help in that respect.”

VW set up shop in Bogota four years ago and has seen its biggest percentage rise in sales within the corporate sector. Whereas VW Colombia’s consumer market has dipped 3-5% in the past two years, corporate sales have increased 5-10%. VW sales overall in Colombia were up 38.1% in Q1 2017.

Given there are over 100 brands in competition in Colombia alone, including European, North American and Japanese, how can premium brands like VW compete?

“We can’t compete on price but we can on value, which is more important to the corporate sector.” Ramirez explains. “Also, there are only maybe 10 brands competing for the this market. They want a good relationship with a big company, good service and the back up for their investment.”

Most corporate fleet customers are large international businesses that negotiate price, volume and terms with VW’s European parent company based in Germany. It’s then up to Ramirez and his  team to deliver the vehicles, plus all services (maintenance contract) that may be part of the package locally.

“We have a direct relationship with the importer and corporate customer.” he adds. “Without us there’s little choice for this level of customer. The auto market is not set up in Colombia to deal with them and their calibre of requirement.”

The service and maintenance element is offered through the dealer network.

Unlike in European countries, where markets are more developed and there are tax incentives for the financing of company vehicles, in Colombia it makes developing a comprehensive offer (the relationship, maintenance and everything in one package) challenging. The hope is this will soon change and in the meantime, OEMs are priming themselves to handle the demand.

26/07/2017  |  Alison Campbell

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