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  March 11th, 2016 | Written by

Central America Has Growth Potential for U.S. Exporters

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  • Central America emerged as a key growth market for the auto industry.
  • Central America is the third largest export market for U.S. goods in Latin America.
  • The DR-CAFTA free trade agreement means U.S. goods enter Central America duty free.

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.

Central America emerged as a key growth market for the auto industry, said Andres Castrillon, senior counsel for international affairs at the Auto Care Association, an industry group.

“We tend to think of these countries as small,” he said, “but the region as 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.

The U.S. exported $350 million in auto parts and related products to Central American countries in 2015.

Guatemala, a country of five-million people which saw a 3.7-percent increase in gross domestic product last year, imports almost 100 percent of its auto parts are imported. “That makes Guatemala a great opportunity for U.S. exporters,” said Polanco.

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,” she added.

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.”

El Salvador, with its dollarized economy, bought $3.3 billion in U.S. goods in 2014, including $58 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.”

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,” said Hernandez.