Car sales in Peru have grown consistently since the early 2000s with more than 190,000 units bought in 2012. This represents year-on-year (y-o-y) growth of 27.9%, meaning the industry booked its best year yet. As of July 2013 the sector was on track for almost 11% y-o-y growth, with 119,808 units sold during the first seven months of the year and total sales by the end of 2013 expected to reach 210,000 units. New vehicles represent just over 30% of car sales.

While domestic car sales have trailed other Latin American economies in recent years, Peru is now on a par with Colombia and Ecuador, each selling one car for every 150 inhabitants annually. Chile, an economic benchmark for many nearby economies, previously sold nine times as many cars as Peru. In 2012 the figure was double. The luxury segment (cars costing $35,000-160,000) registered the most growth, increasing more than 30% y-o-y as of the first half of 2013.

Growth has been primarily driven by passenger vehicles, which accounted for 67.5% of all sales in 2012. Commercial vehicles, which include vans and pick-ups, represented 20% and benefitted from solid performance of sectors such as mining, construction and agro-industry. Trucks and industrial vehicles made up around 11%. The only segment that did not grow was buses, due to pending public transportation reforms.

Positive Indicators

The gradual opening of Peru’s economy, marked by a reduction in import duties and low inflation, has allowed importers to expand their offering and keep prices accessible to the burgeoning middle class. Vehicle loans have grown in line with overall sales, which were up 12.5% y-o-y in May 2013. As of June 2013 the number of vehicle loans reached 72,529, a rise of 12,625 over the same month in 2012. The total value of loans reached $715m, a 21% y-o-y increase.

More participation by commercial banks has led to a diversification of consumer loans, including leasing schemes, while interest rates have maintained an average of 8-9%, encouraging borrowing. Specialised car loan providers also entered the market, while brands themselves have stepped up their in-house credit lines facilitating new car sales of 30% of the total.

Regulations have been amended to curb the high level of used car imports, particularly buses and vans, which until 2002 accounted for around 80% of all vehicle imports. Due to financial barriers and increased supervision at the ports this has been reduced to 5%.

Brands & Buyers

Of the 80 vehicle brands available, around 80% are Asian and are sold through subsidiaries of regional or international groups with the financial capacity to establish outlets in new regions and undertake multimedia marketing campaigns. Regions outside Lima now account for around 30% of sales. “Some 3380 more cars were sold in the regions alone in 2012 than in the entire country five years ago,” Ivan Besich, executive director of the Peruvian Association of Automotive Representatives, told OBG.

Challenges Ahead

While economic fundamentals support continued growth in coming years, challenges also remain. The growth in extractive industries has put a lot more trucks on the roads, while plans for the expansion and improvement of roads have yet to be realised, burdened by lengthy land disputes. The resulting severe congestion may affect new car sales.

Another issue is poor fuel quality. Refinery owners Repsol and PetroPeru have yet to upgrade their installations to international standards. Current high levels of sulphur harm both the environment and modern engines designed for cleaner combustibles. “While still manageable for the moment, the low-quality fuel is set to erode demand for some brands if the issue is not addressed shortly,” Besich told OBG.

For the time being importers are continuing their expansion of luxury brands catering to commercial and high-end personal users. There are eight luxury brands in the market, while marques like Hummer, Jaguar, Rolls Royce and Lamborghini are scheduled to enter the market in the next two years. Announcements of – and some experiments with – mass transit systems, is also expected to kick off a dormant demand for buses.