Surviving The Economic Slowdown in Latam 2023: Automotive Companies

The automotive sectors in Argentina, Brazil, Mexico, and Colombia are experiencing a transformative period marked by technological advancements, changing market trends, and economic challenges. As these nations adapt to global trends and consumer preferences, the automotive sector is poised to play a central role in shaping their economic trajectories in the years to come, serving the local market and exporting. Key OEMs and suppliers are adapting to industry changes, and EVs’ historical and forecasted adoption rate reflects a promising future. Governmental policies are acting as catalysts for the transition towards battery-powered vehicles, with each country contributing unique efforts to shape the sustainable future of the automotive industry in Latin America.

OEM and auto parts manufacturers, including tire, radio, and electronic producers, are deeply vested in finding logistics players with solid risk management credentials due to increased security and cargo theft threats in Mexico and Brazil. Although not a primary decision-making factor, non-compliance can lead automotive clients to switch vendors.

Precise delivery, in the form of OTIF (on-time in-full) without any damage, including packaging, is paramount. This aspect is pivotal in evaluating transportation vendors. Adhering to transit schedules is of utmost importance, as clients do not tolerate delays or early deliveries, significantly as supply chain bottlenecks have eased up. This consideration heavily influences vendor selection. For urgent deliveries, short transit times, robust customer support, and available freight space are critical for clients. Cost is of lesser importance in these scenarios.

The regional context in the past years

Several challenges have hampered the automotive industry’s results in recent years in Latin America, including the Pandemic and its economic effects, the consequences of the war in Ukraine, the chip shortage vital to the industry, rising inflation, higher interest rates, and reduced consumption levels.

“The automotive sector today faces the enormous challenge of implementing innovative solutions and strategies that allow it to integrate the various points in its supply chain. This is an important boost for all those 4PL solutions where an accurate response, greater stock control, and visibility is sought when it comes to enhancing the supply chain in the face of current demands,”

Karina Marin, Automotive Sector Manager for Maersk Mexico and Central America¹

All these factors contributed to the poor performance of the automotive industry globally. Still, specific markets fared slightly differently than others – Latin America was the region that recorded the sharpest annual decline (29%) in new car sales in 2020, with a slow recovery since then and an estimated forecast CAGR of 2.5% between 2023 and 2027.²

Between 2012 and 2022, the total number of cars per thousand inhabitants increased by 30%, reaching 227 vehicles per 1,000 inhabitants – showing steady growth in the last decade. However, it still has a long way to go to get the penetration levels in developed regions, such as Europe, which has 341 cars per 1,000 inhabitants.⁸

One major shift in the Latin American automotive market is the emergence of electric vehicles (EVs). Government incentives tied to environmental considerations, advancements in EV technology, and the growing presence of various brands offering electric car options contribute to this evolving landscape. While EVs constituted just 1.5% of registered passenger cars in the four largest markets in 2022, this mirrors a global trend toward increased accessibility, improved infrastructure, and technology enhancement. Consumer awareness regarding the long-term advantages of EVs, such as lower operational expenses and reduced air pollution, is also rising.

By 2027, EV sales are anticipated to comprise about one-third of global new car sales, signifying a transformative shift in the automotive sector. This transformation will profoundly affect various aspects of the industry, including how Original Equipment Manufacturers (OEMs) integrate new technologies into their manufacturing processes, how companies cater to consumer preferences, how governments incentivize the EV market amidst growing environmental concerns, and how the entire automotive supply chain adapts in Latin America to facilitate the advancement of EV production and distribution.

In this challenging new landscape, where international operations are increasingly interconnected and interdependent, alongside the shifts driven by the adoption of new technologies, the automotive sector must transition from a “just-in-time” model to the “Industry 4.0” model. This shift entails a complete transformation of the supply chain dynamics. Considering that a car comprises between 60,000 and 90,000 components and that, in recent years, most companies in the sector have expanded their global presence while also becoming more reliant on global partners, the need arises to establish a resilient logistics system to ensure smooth operations, mitigate unforeseen events, enhance competitiveness, and streamline production.²⁰

Breakdown by country

Argentina

The Argentine automotive industry is considerably smaller today compared to its peak period between 2003 and 2013. This decline can be attributed to economic recessions, uncontrolled inflation, and decreased demand from its car export destinations. Even before the pandemic, the market had experienced significant setbacks, with a 48% decrease in passenger car production between 2018 and 2019. The pandemic exacerbated this situation, leading to an additional 19% reduction in production between 2019 and 2020.²¹

According to 2022 data, Argentina is the third largest passenger car market in Latin America, behind Brazil and Mexico, and approximately 70% of the vehicles produced in the country are exported, of which 63% go to Brazil. Local political instability and high inflation will continue to impact the sector in the country, however, the recovery of Brazilian demand is a good sign for the Argentine automotive industry and the overall situation is expected to improve in the coming year, additionally, the countries signed an agreement that will allow free trade in the automotive industry, coming into effect in 2029.²³ According to ADEFA (Association of Automobile Manufacturers Association), the data published for 2023 continues to show steady improvements over the 2022 data.²⁴

After the surprise primaries in which libertarian candidate Javier Milei won the most votes, Argentina’s political future looks even more uncertain. The candidate, considered an extremist by many, was a political outsider until 2021 and has radical proposals for the economy, from dollarizing the country to shutting down the Central Bank and ending currency controls. Assuming he is actually elected and somehow gets the political support (which he doesn’t yet have) to put into practice the policies he is promoting in his campaign, the dollarization of the country would open up opportunities for foreign private investment in the country and possibly an opportunity to reduce wage costs.²⁵

Car Makers in Argentina

• The largest companies in the sector in Argentina are Toyota, Ford, and Fiat, but the country also has a significant share of Volkswagen, Renault, and Peugeot.²⁶
• In early 2023, the Stellantis group, owner of Fiat and Peugeot, announced an investment of USD155 million in Argentina to buy part of a copper mining company, a strategic raw material for the future of electric mobility and to achieve the company’s plan to become carbon neutral by 2038.²⁷
• Ford completed in 2023 the modernization of its General Pacheco plant, which cost USD660 million and provided the technological advancements to produce the new Ranger.
• Analyzing the accumulated data for 2023, the brands with the most cars registered in the country were: Toyota, Fiat, and Renault.
• The most registered passenger cars in the year were Fiat Cronos, Peugeot 208, and Toyota Etios. The most registered commercial vehicles in the year were Toyota Hilux, VW Amarok, and Ford Ranger.²⁸

Logistic Players in Argentina

• Dachser Argentina, a subsidiary of global logistics provider Dachser, inaugurated its dedicated Automotive Desk at its Mendoza facility at the end of 2020. Dachser serves OEMs as well as third parties involved in the automotive industry. The hub in Mendoza can connect the central Atlantic and Pacific routes and two critical warehouse distribution zones in Mendoza and Buenos Aires.²⁹
• Crane Worldwide Logistics also offers logistics solutions for the automotive sector: customs brokerage services for imports and exports, transportation management, warehousing solutions, and supply chain management.³⁰
• CEVA Logistics is a specialized service provider in the automotive sector, focusing particularly on the tire product line. The company holds a significant presence in Argentina and, during 2022, entered into a 3-year agreement with Volkswagen. This partnership aims to establish connections between pivotal points in the supply chain at the Córdoba industrial center. CEVA Logistics will oversee various aspects, including inbound logistics, direct parts warehousing, inventory line process management, part selections, and the supply of components to their designated points of use within the production line.³¹

Brazil

In 2022, the ten largest automakers in Brazil, in terms of revenue, were: Fiat, Toyota, Chevrolet, Volkswagen, Jeep, Hyundai, Renault, Nissan, Honda, and Caoa Chery.³² However, the sector still suffers from the economic consequences left by the pandemic, such as high interest rates, which directly impact vehicle sales.

At the end of May 2023, the Vice President (who is also the Minister of Development, Industry, Trade, and Services) announced a government incentive package for all cars up to R$120,000 (approximately US$ 24,000) with the reduction of some taxes during the month of June 2023, ranging from 1.5% to 10.9%, based on factors such as the car’s price, energy efficiency, and the extent to which its components are domestically manufactured.³⁴

According to Anfavea (National Association of Automotive Vehicle Manufacturers), the incentive caused vehicle sales to increase by 7.4% during the month of June, but it was not enough to alleviate the automakers’ inventories, which ended up reducing production by 17% during the same period.³⁵ Anfavea expects sales of passenger cars, commercial vehicles, trucks, and buses in 2023 to grow 3% this year to 2.2 million units.³⁶

With the end of the incentive program – which had an impact only on automakers’ stocks, but not on production itself – several automakers decided to further reduce the pace of production. In July, seven factories in the country had stopped or reduced production, impacting more than 12,000 workers.³⁷

While the automotive sector faces challenges, Chinese manufacturers are showing heightened interest in the Brazilian market. Notably, two brands, BYD and GWM, have recently announced plans to establish factories in the country. Their emphasis lies in hybrid and electric cars, which they already offer at notably competitive prices despite being imported.³⁸ In addition, other Chinese companies have signed a letter of intent to build factories in the country with a focus on manufacturing electric buses.³⁹ This trend will likely accelerate as Brazilian authorities told Reuters  in mid-September that they are planning to end the 35% import levy exemption on imported EV vehicles in phases over the course of the next year.

These developments reinforce the importance of EV manufacturing and how logistics players tailor their services to a new generation of Brazilian OEMs.⁴⁰

Logistic Players in Brazil

• Simpar is a Brazilian holding company that controls seven companies operating in the logistics, mobility, and concessions sectors, including JSL (transportation company), Movida (passenger car rental company) and Vamos (truck rental company). JSL is a road freight carrier that has extensive experience with the automotive industry, operating in cargo transportation, internal logistics and warehousing.⁴¹
• Cargolift is a logistics company that operates in the automotive industry with cargo transportation, inventory management and internal logistics, serving major automakers in the country.⁴²
• Veloce operates in the logistics market, offering transportation services (national and international), warehousing and distribution, as well as supply chain consultancy. The company serves automakers with road, sea and air transportation.⁴³
• Sul Atlântico offers road transportation logistics services in Mercosur. Based in São Paulo, it serves everything from the automotive industry to chemical and refrigerated cargo.⁴⁴
• Borghetti is a Brazilian company with more than 30 years in the market and specializes in road freight transport for Mercosur, with more than 900 vehicles and 20,000m2 of warehouses and logistics centers.⁴⁵

Colombia

The Colombian automotive market is experiencing a downturn in 2023, with sales significantly lower than the previous year. Notably, July marked the lowest sales volume of the year, reflecting a steep 43.7% decline compared to the same period the previous year. The cumulative figures for January to July also reflect a substantial drop of -29.4% compared to the same period in 2022 with a sustained decline in vehicle registrations since August 2022.

In 2023, the ten largest car brands in Colombia, based on sales, are Renault, Toyota, Chevrolet, Mazda, Kia, Suzuki, Nissan, Volkswagen, Ford e Foton.⁴⁷ According to Andemos’ Automotive Sector Opinion Survey, several variables, including the economy’s slowdown, falling consumer confidence indexes, exchange rates, pricing, inflation, credit availability, and interest rates, impact the market performance.⁴⁸

The country has only three vehicle manufacturers: Renault Sofisa, GM Colmotores, and Hino (a small truck producer). At the beginning of 2022, GM Colmotores announced an investment of USD 50 million to modernize the plant in Bogotá over the course of the year and at the end of 2022, Renault Sofisa announced that it had achieved positive results with a 25% growth in its production and 56% of the exported volume.⁴⁹

Logistic Players in Colombia

• Kuehne Nagel is a Swiss-based global logistics company operating in Colombia and offering specialized services for the automotive industry, such as fleet management, battery supply chain, inbound and production logistics, after-sales, and packaging services.⁵⁰
• Fanalca is a leading Colombian company in the field of distribution for the automotive sector, which also manufactures motorcycles, cars, and auto parts.⁵¹
• Envia is a Colombian logistics services company that handles the transportation of documents, parcels and also goods and parts. It has 21 Operations Centers and more than 150,000m2 of operating area between warehouses and service centers.⁵²
• Suppla is a Colombian logistics engineering company with more than 73 years of experience specializing in planning and managing all of its clients’ logistics operations, from warehousing and distribution centers to transportation.⁵³

Mexico

The automotive industry in Mexico has emerged as a significant player on the global stage, solidifying its position as one of the world’s top automobile producers and exporters.⁵⁴ Mexico’s automotive sector represents approximately 4% of the country’s GDP, 20.5% of industrial GDP, and 30% of all the country’s exports.⁵⁵ Now vehicle manufacturing has completed more than 12 months of consecutive year-over-year increases, on course to return to pre-pandemic levels.⁵⁶

• Vehicle production, exports, and sales: According to INEGI data, in 2022, unit production in Mexico increased by 9.2% with respect to 2021. In addition, domestic sales of light vehicles grew by 7.0%. According to projections, light vehicle production in 2023 is expected to increase by 5.6% over 2022, reaching approximately 3.5 million vehicles.⁵⁷
• Mexico’s position in global automotive production: Mexico remained in seventh place among the top vehicle-producing countries in the world during 2022, with China, the United States, Japan, India, Korea, and Germany leading the list.⁵⁸
• Auto parts industry: In 2022, Mexico’s auto parts industry grew 13.35% over 2021. This growth is expected to continue through 2023. In addition, auto parts production is expected to increase due to the introduction of new production lines by manufacturers such as BMW, Audi, and Tesla.⁵⁹
• Electric vehicles: In 2022, 51,065 vehicles with electric technology were sold in Mexico, representing 4.7% of total light vehicle sales in the country. Electric vehicle production in Mexico is expected to increase significantly from 2023 to 2030, reaching 4.6 million units.
• Investment in the automotive sector and nearshoring: The origin of companies nearshoring facilities to Mexico is led by China with 40%, the United States 20%, Japan 11%, and Germany 9%.⁶⁰

In 2022 and 2023, more than USD 3.5 billion have been announced in investments from various companies associated with the Mexican Automotive Industry Association, which will be allocated to battery and EV production activities, automation of production lines, implementing processes powered by renewable energy sources and various initiatives to modernize industrial parks.⁶¹

By 2023, Mexico is expected to produce a total of approximately 221,970 electric vehicles, representing a 179% growth compared to 2022 and 6% of the total light vehicles produced in the country. In addition, the commercialization of electric vehicles will see triple-digit growth, with the entry of several Chinese brands, such as BYD and ARRA, which began selling in the country in April this year.⁶³

Among the largest manufacturers present in the country are Volkswagen, Ford, General Motors, Nissan, Honda, Toyota, Audi, Fiat, Mitsubishi, Kia, Peugeot, Volkswagen, and Volvo.⁶⁴ In March 2023, Tesla announced that it will build its largest factory ever in Mexico, creating between 5,000 and 6,000 jobs.⁶⁵

Logistic Players in Mexico

• DHL Supply Chain: DHL provides comprehensive supply chain and logistics solutions to the automotive industry, including warehousing, transportation, and distribution services. It helps automotive manufacturers manage their complex supply chains and meet production and distribution demands.
• Penske Logistics: Penske offers a range of logistics services tailored to the automotive sector, such as transportation management, distribution, and inventory optimization. They help manufacturers streamline their operations and manage their supply chains effectively.
• Ryder: Ryder provides transportation and supply chain solutions for the automotive industry, including dedicated fleet management, transportation management, and supply chain consulting. Ryder offers unparalleled logistics, supply chain infrastructure and distribution services for cross-border freight to the auto industry. In Laredo handles over 11,000 cross-border movements per day.
• Expeditors: Leading FTZ operations across the border, offering bonded warehouse, vendor-managed inventory, cross-dock, and transload. The company has 18 owned offices at the border with more than 450 employees. In 2022, opened a 1.2 mn sq ft facility in the border.
• J.B Hunt: It offers the most robust intermodal solution in Mexico with a sizeable FTL and LTL trucking operation in the US. It has over 110,000 53-ft intermodal containers, 6K tractors, and 40K trailers in Mexico. It is working on constructing a new transloading facility in Laredo for Mexico’s outbound rail and highway transport in the US.

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Next Steps

Contact us to find out more about how our market intelligence can give you a more strategic understanding of how the logistics markets in these countries — or in Latin America in general — are shifting. Our team can help you find new growth opportunities, deliver competitive intelligence about your rivals, find the right partners to help you expand your operations and much more.

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