CHALLENGE AT THE WHEEL

Colombia 2013 | INDUSTRY | INTERVIEW

TBY talks to Jorge Alejandro Mejía González, President of GM Colmotores, on investing in the production line, popular models, and the Bogotá Autoshow.

Jorge Alejandro Mejía González
BIOGRAPHY
Jorge Alejandro Mejía González graduated in Business Administration and has over 20 years of experience in Sales, Marketing, and General Management in Colombia and Latin America. He has previously worked for Finandina, Organización Carjaval, and in many other positions of seniority at General Motors. He is currently President and Managing Director of GM Colomotores.

What are the prospects for the $200 million investment in the industrial conversion of your plant in Bogotá?

The idea came as a desire to reinvent the production model. We felt the need to do so because the country's economic model is changing. We used to have a model in which everything had to be produced in the country so it can be sold. That began 56 years ago. In 1990, the president at the time opened up the economy and producers were then able to import goods to sell in Colombia. However, that was with a duty tax of, in our case, 35%. As a result, we changed some things around and began importing. We import 40% of the cars we sell and produce around 60%. Juan Manuel Santos, when he was the Minister of Economy 10 years ago, signed an agreement to completely open up the economy with 0% duty on goods from Mexico. This had been preceded by the creation of the Andean Community of Nations (CAN), which created a common market like the EU. Colombia also signed a free trade agreement (FTA) with the US, and potential negotiations with South Korea have been discussed in congress. An FTA with the EU has already passed through the European Parliament and it will pass here soon. When the model changes, we need to as well. We assemble five platforms of cars and we also assemble trucks. We have to create a model that is not only efficient, but can produce various products. It is a bit more costly than having one line producing one car. When you have to compete with the entire world, then you have to be more efficient. As a result, the model has to change.

What is your current focus in terms of models?

At the moment, we are focusing on the Chevrolet Sail and the Cobalt in Colombia. The $200 million investment is destined to improve the factory and develop new areas of opportunity while reducing costs and boosting efficiency. Part of the investment will be in the stamping plant. Stamping is important because it is one aspect of production that is impacted by logistics. When you import body parts they must not be scratched or damaged. They are, therefore, very expensive to transport. We need to develop volume. You cannot change the molds every hour to begin stamping a new part, and must be able to produce at higher volumes in order to reduce costs and boost competitiveness. Investment will be targeted at installing robots in certain areas that will boost efficiency and ergonomics at the plant.

In which segments is GM strongest?

We try to produce cars in the biggest segments. The largest segment in the country is the mini-car segment. Looking at that area, we have a 55% market share with the Spark and the Spark GT. They are both produced here. In the small car segment, we have gained a 40% market share through the Sail and Sonic models. We import the Sonic from Mexico. We believe that we can reach a 50% market share. However, the Sail is bigger in its segment with a nearly 30% share. That will not change much. If we become more competitive on the manufacturing side that does not mean that we will jump from 30% to 70%. We currently produce 60,000 cars. We would like to boost this to 100,000. Without other models, sales will not increase, but excess production can be exported. That is the key challenge.

“We import 40% of the cars we sell and produce around 60%."

What is Colombia's potential to become an export hub in the region?

Everything is in place for that to be a reality. We have to push hard for it, but it will happen. Colombia is in a special location. It has two oceans, and that gives businesses access to both the Pacific and Atlantic. It is also located on the equator and that means we're close to the US, Mexico, and Central America. We can also head south to Chile, Argentina, Brazil, and Peru. Human talent here is excellent—Colombians are hard working and well organized. The economy and the country's politics have been stable for almost a century, and the level of security is up there with the highest in the region. Based on the democratic security of the President, we are finally in a position to put an end to violence. The world is finally seeing the real Colombia. It is seeing the opportunities that it has on offer as the second highest populated country in South America.

What trends can you identify in the Colombian demand for automobiles?

Around 300,000 units are sold every year. This equates to around seven cars for every 1,000 people, and puts us only slightly ahead of Bolivia and Paraguay. Brazil, Argentina, and Chile sell around 22 cars per 1,000 people, which is three times what we sell in terms of population. Ecuador sells 10 per 1,000 people, higher than what we do. That is why there is huge potential in this market, and we are beginning to see it bear fruit.

What factors are contributing to the increasing demand for automobiles?

Statistics show that the middle class is growing quickly. A growing middle class means more money and more wealth. This creates a huge potential to sell cars. Everybody wants to have a car. The car today is like the TV was 30 years ago. Everybody wanted to have a TV. Now, everybody has a TV and a cell phone. The car is synonymous with wealth and gives you the ability to go anywhere you want. That is very important for people. The government's focus on investing in infrastructure will also impact the industry in that respect. For example, the completion of the La Línea highway tunnel will reduce travel times on one of Colombia's main east-west road connections by up to 30%. In terms of the location of our new plant, it has to be close to a major population center, and we chose Bogotá. As Bogotá is in the middle of the country, you have to pass through three mountain chains to efficiently export. The parts are imported, built, and the car is then sent back along the same route. This costs a lot and, as a result, developing infrastructure is not only important for the people, but also for the efficient production of cars.

What role are small cities playing in your overall strategy?

The changes that we're seeing in the middle class are also being reflected in small cities. Bogotá is Bogotá, and it has its own challenges. The medium-sized cities in Colombia are well developed and, as a result, I do not expect to see a lot of growth in those areas. Places such as Cartagena and Barraquilla will benefit hugely from the FTAs. Smaller cities like Armenia, Popayán, Yopal, and Barrancabermeja are also growing a lot. Five years ago, nobody had a dealership in those cities. Today, we have complete dealers, not just promotion points. People are buying more cars as they have extra disposable income. Automobiles are tools that will develop the economy, especially trucks and pickups. This is an area the country is growing well in.