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Auto industry chugs along in Ecuador
The Miami Herald / March 14, 1996

By Larry Luxner QUITO, Ecuador -- Visitors eager to set foot on the Equator -- one of this country's biggest tourist attractions -- generally take a taxi from downtown Quito and head north about 15 miles along the Pan-American Highway to the famed Equatorial Monument, located at 0°0'0" in a village aptly named Mitad del Mundo (half of the world).

What they don't notice is the huge Maresa auto plant right off the highway, where several hundred factory workers literally a stone's throw from the Equator turn out Mazda 323 cars and B-2000 and B-2200 trucks for the local market, and increasingly for export to neighboring Colombia.

In fact, Ecuador's membership in the five-nation Andean Pact has been a godsend for the country's domestic automotive industry, which is going through one of its toughest periods in recent history.

Last year, Maresa and Ecuador's other three vehicle assembly plants produced 26,500 units from kits -- down from 33,869 in 1994. This year, they'll produce only 23,000, according to Marcelo Ruiz Leon, executive director of the 48-member Camara de la Industria Automotriz Ecuatoriana (CINAE), Ecuador's chief auto industry association.

"The market is depressed because of the country's economic situation," said Ruiz. "There's no purchasing power, and credit is very expensive. Interest rates are between 60% and 70%." He said that according to local press reports, anywhere from 8,000 to 12,000 cars are sitting in dealers' lots, waiting for buyers.

Manufacturers blame the lackluster economic showing on an unlucky combination of war, political scandal, power blackouts and low prices for Ecuador's chief exports. Electricity cuts of up to eight hours a day, triggered by the lack of rains that normally keep the nation's hydroelectric plants functioning, have forced the auto plants to run diesel generators. But buying the fuel to run the generators is expensive -- even in a country that exports more than $1 billion worth of crude oil a year.

On the other hand, Ecuador's membership in the Andean Pact -- along with Bolivia, Colombia, Peru and Venezuela -- has helped rescue the troubled auto industry, since it gradually eliminates burdensome tariffs between the five countries, thereby encouraging auto exports, while maintaining an external tariff against imports from outside the region.

Ecuador's most natural markets within this trading bloc are Colombia, with a population of 35 million, and Venezuela, with a population of 22 million. In addition, a separate agreement signed in 1995 by Ecuador and Chile provides for the lifting of tariffs on automotive products between the two nations by Jan. 1, 1997.

In 1994, total Ecuadoran vehicle exports were worth $71.8 million -- making that sector a less-important source of foreign exchange than oil, banana, shrimp, coffee, cacao or flower exports. Nevertheless, the number is rising fast.

"These companies would be worse off if they couldn't export," said Ruiz. "This year, 6,500 cars were exported to Colombia, and 2,000 to Venezuela. Before the Andean Pact, Ecuador didn't export or import anything."

Since 1973, when the country's auto-assembly industry began, Ecuador has assembled more than 200,000 vehicles of all types, but almost all of them traditionally for the small domestic market. Ecuador currently has four vehicle assembly operations: Omni-bus BB, with 29% of the market; Aymesa, with 28%; Maresa, with 24%, and Coenansa, with 19%. Of the 33,869 vehicles produced in 1994, according to CINAE statistics, 16,409, or nearly half, were automobiles, while 13,248 were small trucks and 4,210 were four-wheel drive vehicles.

Three of Ecuador's assembly plants are located in the Quito metropolitan area, while the fourth -- Coenansa, an affiliate of the Grupo Noboa banana conglomerate -- is located in Manabí province, along the Pacific coast. This plant, inaugurated only five years ago, assembles 11 Fiat and Mitsubishi models including the three-door Uno, the five-door Spazio, the Premio sedan and various Montero sport-utility vehicles.

In 1994, the country exported 7,275 units, a 16.5% jump over the previous year. Nevertheless, automotive imports dwarf exports by a 13-to-1 margin. In 1994, Ecuador imported $941 million worth of cars, trucks and vehicle parts, led by South Korea's Hyundai (5,210 units), Russia's Lada (3,978), Japan's Nissan (3,273) and two U.S. manufacturers, Chevrolet (2,826) and Ford (2,421).

At present, Ecuador, Colombia and Venezuela maintain a common 35% external tariff on all vehicles brought in from non-Andean Pact countries. This was lowered in January from 40%. Not surprisingly, local auto executives don't want it cut any further.

"To lower this level, especially considering the size of other countries whose production costs are less because of the volume of their markets -- such as Brazil or Mexico -- would provoke serious damage to one of the most important manufacturing industries this country has," argues a recent editorial in CINAE's Spanish-language newsletter.

Arturo Cardenas, a top executive with Aymesa, says "the industry will become more efficient because it's the only way we'll keep from losing more of the local market to foreign manufacturers that have already penetrated the market successfully." But he adds that the industry's long-term stability depends on maintaining the 35% external tariff.

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