FTA and geographic proximity provide competitive advantages
Manufacturers and distributors of automobile parts, components, and accessories and automobile care equipment ought to consider growing their businesses by exporting to Central American countries such as El Salvador and Guatemala. That was the message of a recent industry briefing sponsored by the United States Department of Commerce and the Auto Care Association, a Washington, D.C.-based industry group. “International growth opportunities are an increasing focus for our organization and our members,” said Andres Castrillon, senior counsel for international affairs at the Auto Care Association. “Sometimes the best growth opportunities lie outside the borders of the United States.” In the polling of Auto Care Association members, Central America emerged as a key growth market for the auto industry, Castrillon noted. “We tend to think of these countries as small,” he said, “but the region as a whole is the third largest export market for the U.S. in Latin America and our thirteenth largest goods trading market.” Several factors militate in favor of U.S. exporters considering Central American markets to grow their businesses. “There is a growing middle class in these economies and their buying preferences are changing,” said Castrillon. “Consumers are becoming more sophisticated and they appreciate and demand U.S. products. There is a growing population of older cars that are getting past their warranties,” which is increasing demand for auto care and the parts and equipment that go with that.  The geographic proximity to Central America gives U.S. exporters a leg up over their Chinese and Japanese competitors, according to Castrillon. The existence of DR-CAFTA, the free trade agreement with the Dominican Republic and Central American countries now in its tenth year, provides another advantage, as U.S.-origin goods enter those countries with no, or drastically reduced, import tariffs. “DR-CAFTA made trade between the United States and Central America comprehensive and reciprocal,” said Ana Polanco, a trade advisor at the U.S. embassy in Guatemala City. “We can counsel U.S. exporters on how to fill out certificates of origin to show that products were manufactured in U.S. and get the benefits of the free trade agreement.” The U.S. exported $350 million in auto parts and related products to Central American countries in 2015. Guatemala is a country around the size of Tennessee with a population of five-million people concentrated, with 3.5 million, in the capital of Guatemala City. The country saw a 3.7-percent increase in gross domestic product last year. Guatemala’s economy is overwhelmingly agricultural and also has a small textile manufacturing sector. “There is no heavy manufacturing in Guatemala,” said Polanco. “Almost 100 percent of all auto parts are imported. That makes Guatemala a great opportunity for U.S. exporters.” Guatemala imported $45 million in automobile aftermarket products in 2014, 36 percent of that from the United States. “We believe there is an opportunity to make that 36 percent grow,” said Polanco.  The country’s vehicle population equals 2.5 million, including motorcycles. Most Guatemalans keep their vehicles for between seven and nine years, and, due to poor road conditions, are in need of repair on a regular basis, according to Polanco. Bumpers, tail lights, wheels, and brakes are among the parts most in demand in the country. Tire repair and electronic diagnostic equipment as well as tire balancers and compressors are also in high demand. There are over 1,000 spare parts dealers and service agents, ranging from old and large companies to smaller entrepreneurs, in the country. “Industry players are open to new supply alternatives, but the market is driven by price,” said Polanco. “Unusual products offer a great opportunity to enter the market especially if pricing is competitive.” Guatemala City is a two to four hour flight from many U.S. cities and many U.S. carriers offer daily nonstop flight. Boasting both Atlantic and Pacific coasts, shipping to Guatemala is convenient both from U.S. East Coast and West Coast ports. El Salvador is located by the Pacific Ocean, also bordering Guatemala and Honduras. The United States dollar is the leading currency in the 8,000 square-mile country and its banking sector is in the hands of private investors, including foreign entities such as Citibank as well as Mexican and Colombian banks. El Salvador’s top industries include textiles, food and beverage, pharmaceuticals, paper and cardboard, and plastics. The U.S. exported $3.3 billion in goods to El Salvador in 2014, including $58 million of the total of $188 million in automobile aftermarket products. “The sector is highly competitive and price sensitive,” said Sandra Hernandez, a trade advisor at the U.S. embassy in San Salvador. “The market is mainly supplied by imports. Consumers are receptive to U.S. goods, which are seen as high quality and with outstanding customer service. There are opportunities for U.S. suppliers to gain market share.” Japanese, Korean, Chinese, Colombian, Brazilian, and German automobile aftermarket products are also exported to El Salvador. More 900,000 vehicles populate the country and over 57,000 new vehicles were imported into El Salvador last year, an increase of 18 percent. Cars constitute 45 percent of Salvadoran vehicles, with pickup trucks making up 22 percent and motorcycles, 18 percent. As with Guatemala there are large numbers of aged vehicles in El Salvador and a high demand for repair services. Ignition parts, engine parts, suspensions, filters, gaskets, tires, and diagnostic and other specialized equipment are some of the items in highest demand, according to Hernandez. “There are no restrictions on U.S. new or remanufactured parts entering the country,” she said. “Used tires may be imported based on the same standards as with other Latin American countries. Labeling and packaging are also not major issues in El Salvador. New and remanufactured parts from the U.S. enter El Salvador at tariffs of zero to one percent but must pay a value-added tax of 13 percent.” Travel to and from El Salvador is easy, said Hernandez, with flights from most cities of between three and four hours. The Auto Care Association is leading a trade mission to Central America in June.  Trade missions to have been confirmed for June 21 and 22 to Guatemala and for June 23 to 24 to El Salvador.