What is in this article?:
- Colombia Ready With Program to Prop Up Auto Sector
- Suppliers Also to Benefit
The primary objective of the scheme is to help the domestic industry recover market share from inexpensive imports, notably by slashing tariffs on parts and materials imported for vehicle assembly.
Four automakers account for 99% of local vehicle production.
Suppliers Also to Benefit
While the principal beneficiaries of PROFIA will be the assembly sector, it also was designed with an eye on auto-parts production. Whereas PROSEC removed tariffs from everything used in production, in Colombia 5% to 10% tariffs will remain on imports of any parts similar to those produced locally.
In addition to PROFIA, the government has looked to boost the auto sector with $25 million of favorably termed credit for parts manufacturers and with investment in a new specialist research and training center.
For Montes, PROFIA is a sign of the strength of the Colombian market.
“What it shows is the maturity of a sector that has managed to bring two fundamental actors, assemblers and parts manufactures, into alignment in a new scheme to level out the playing field, so that everyone can share and grow.”
However, many inside the industry do not share his rosy assessment.
“The PROFIA program is like a Band-Aid on a gaping wound,” Zuloaga says. “The impact will be minimal.”
Experts doubt PROFIA will be sufficient to offset what they consider an overvalued Colombian peso, and the sector’s vulnerability to several free-trade agreements recently passed or under negotiation.
Mexico remains the main worry due to its proximity and superior economies of scale, while concerns are mounting over a deal struck in 2013 with South Korea, as well as others currently under discussion with Turkey and China.
“We have to re-evaluate or renegotiate some of the FTAs so they are more balanced and don’t damage the auto sector,” says Camilo Llinas, president of ACOLFA, the association of local auto parts makers.
Also, he says, demand for autos in Colombia is hampered by poor infrastructure conditions in the country, notably a crumbling road network and high transportation costs.
As a result, even the associations involved in lobbying for PROFIA regard the program as at best a step in the right direction. Industry representatives now are calling for further measures such as 50% tax breaks and public-services subsidies, as well as drastic action to overhaul infrastructure and logistics.
Nevertheless, optimism remains that the size of Colombia’s internal market and its steady economic growth mean that given the right conditions, the sector still could thrive.
“I am sure that if we sort out some of these circumstances, and with the help of the government, that this sector could be a driving force,” Llinas says.