After a slow start for car sales in January, Colombia is expected to pick up for the rest of this year with an estimated 315,000 units forecast to be sold, according to research carried out by multinational Spanish bank BBVA.
Car sales for January were down 4.2 percent year on year with 19,541 units sold in the last month according to Just-Auto news website. The slowdown in sales is thought to be due to consumers waiting to see if there is a drop in the value of the peso, which spent the last year increasing.
After a slower year in 2012, the BBVA’s forecast predicts a “recovery in private automobile transactions but not reaching the peaks seen in 2011.” A drop in the cargo vehicle market is also forecast “given the high level of installed capacity built up by the industry over recent years.”
While the strengthening of the peso over 2012 meant more pressure on buyers, it also resulted in lower logistical costs for importing parts for assembly. As a result, the prices have remained relatively stable. Free Trade Agreements with the United States and Europe and possibly Korea, which is one of the biggest exporters of cars to Colombia, should help to keep the prices down in the future with a reduction in costs of importing parts.
BACKGROUND: South Korea cabinet approves Colombia FTA
A decade ago imported cars only represented 50 percent of sales, that rose to 70 percent in 2012. Around 68 car brands compete in the market. The price of iron fell by a massive 92 percent in 2012 according to Just-Auto which has also had a positive effect on the automobile industry.
Nearly 60 percent of vehicles are currently financed in Colombia, and a reduction in interest rates by the central bank should encourage more spending, lower interest rates across the board are expected for 2013 which will increase incentives to take out vehicle purchase loads.
In 2012 the average vehicle price rose by 1 percent, staying below the inflation rate which was around 2.4 percent. These low prices increased the buying power of households. According to BBVA, in 2010 a person would have needed 3.2 years of salary to buy an economy-range vehicle, this fell to 2.6 years by the end of 2012. This, along with a cut in tax on fuel prices, has enabled middle-to-lower income households to purchase a car.
It is expected that the price of larger-engine vehicles will not fall too much more as the majority of price-fall took place at the start of the FTAs. Colombia’s vehicle stock will double over 10 years according to the forecast.
Sources
- Automobile market outlook (BBVA)
- Colombia: 2013 starts slow but forecast is 325,000 units (Just-Auto)
