Colombia’s Automotive Industry At Risk

The automotive industry in Colombia is at risk of suffering further decline. General Motors and its factory had been in Colombia for 68 years, before announcing their decision to shut down their assembly operation on April 26, 2024. This announcement has deepened worries about a deindustrialization process in Colombia. 

The company argued that industrial production had not been profitable for a while, and with sales plummeting, the situation had become unsustainable. Employees who had been with the company for 40 years have been let go, forced out of the company they helped build. 

What other manufacturer has recently left Colombia?

Colmotores (General Motors) has abruptly joined the infamous list of assembling factories that have left Colombia. On May 2, 2014, Mazda also shut down its operations. The Japanese brand started importing its vehicles to the country from Mexico, Japan, and Thailand. To provide some perspective on why Mazda decided to leave Colombia, their Bogota factory was only producing 1000 vehicles per month. In comparison, Mexico produced 50,000 vehicles in the same time frame. 

The automotive industry has been a key part of the Colombian economy for the last 50 years. An example of this is the industry’s impact on the national GDP. The automotive industry represents 6.2% of the country’s industrial GDP, especially significant when measuring a country’s grade of industrialization. It grossed COP 2.4 trillion, which equates to US$0.60 Billion in 2021. 

The industry generates almost 25,000 direct jobs and almost 100,000 indirect jobs in Colombia. When measuring how many jobs this industry generates, one must also take into account car workshops, as well as other car-related jobs which are quite common in many of the country’s most important cities. 

How does the automotive industry in Colombia fare against regional powers?

Besides the positive effects that the automotive industry has on Colombia’s economy, we must also look at the manufacturer’s interest which, quite simply, is to maximize their profits. Let’s look at the wider context. In Latin America, the largest producer of vehicles is Mexico, which produces almost 4 million motor vehicles every year. The second largest producer in the region is Brazil, which produces almost 2.3 million units every year. 

Both countries have much larger industrial capabilities than Colombia, and this is well reflected in their production. In 2023, Colombia only produced 34,700 motor vehicles. These comparisons may seem unfair, given that Mexico and Brazil clearly offer more favorable economic conditions for the global automotive industry. Mexico has trade agreements with more than 40 countries, but the crown jewel is the North American Free Trade Agreement (NAFTA), which was recently renegotiated. This agreement has eliminated tariffs on automobile trade between Mexico, Canada, and the world’s largest market, the United States. 

On the other hand, Brazil has a considerable market size. Its remarkable growth in internal demand for cars, and its potential to export to other South American countries, makes it an ideal location for the automotive industry. Mexico’s automotive industry is also very export-oriented, and its geographical proximity to the United States makes exporting to this market relatively simple.

History of car manufacturing in Colombia

Colombia’s initiation into the automotive industry was mainly thanks to the ISI model of the 1950s. This model is the Import Substitution Industrialization. The logic behind it, and the one many Latin American countries besides Colombia also adopted, was that if countries started manufacturing goods, such as cars, instead of importing them, then they would eventually industrialize like northern countries. 

This is how the automotive industry came to be in the country. By the 1950s, the government had applied the ISI model, which in turn implemented policies to encourage domestic production and reduce imports. In other words, Colombia, along with other Latin American countries, gave great conditions for the automotive industry to establish itself in the region. 

On the downside, this model was heavily reliant on foreign investments, mainly because they helped the industry meet its demand for cars in the internal markets. This reliance was what eventually ended up bringing down Colombia’s growth in the industry, as the debt crisis of the 80s and the implementation of Neoliberalism made it very difficult for people to afford the cars that were locally produced. 

Other factors have also been significant. For instance, the lack of a qualified workforce was another factor that differentiated both historical and current Colombia from Brazil and Mexico. 

This is why Colombia has seen a consistent deindustrialization in terms of the automotive industry. Indeed, production trends have been on a continuous decline, signaled by a sustained increase in imports. At least this is what the Colombian Association of Auto Parts Manufacturers claims. The following statistic backs up their statement: A decade ago, domestically assembled cars covered 50% of the market. Today, they represent less than 25%.