Bello is a crime-ridden blue-collar suburb to the north of Medellín that in recent years has suffered from both white-collar corruption by its local politicians, and a surge in criminal gang activity, leading to a crisis in homicides, intimidation and extortion. Several factories operate in the area along with Mitsubishi Electric, including a Whirlpool Haceb joint venture, and a Yamaha Incolmotors motorcycle joint venture (both 10 minutes further north in the calmer suburb of Copacabana). The Mitsubishi factory builds elevators, escalators, and air conditioners, along with other electrical products.

According to the El Colombiano article, no one has yet claimed responsibility for the threats, and Mitsubishi has reported it to the police, where it is being handled by the National Police’s GAULA unit, which specializes in dealing with crimes such as kidnappings, extortion, and abduction.

General Eliecer Camacho, commander of the Metropolitan Police of the Aburra Valley told El Colombiano that “We are verifying that it is actually a direct threat against some citizens, but we can not dismiss any kind of threat, especially if it is against recognized companies that are producing economically for our country and generating employment. ”

Bello is the location of an armed struggle between the Niquia Camacol, Mesa and Pachelly gangs. The government has sent in army troops to reinforce local police contingents.

When asked about the situation, by Finance Colombia, Mitsubishi Electric of Colombia only responded “No tenemos declaraciones al respeto.” (We don’t have statements about it).

“You could say that this is a year of transition, and we are adjusting ourselves to a new reality.” – Juan Carlos González of Yamaha Incolmotos

Globally, Yamaha sold approximately 12 million motorcycles in 2016, bringing in around $8.3 billion USD in global sales. More than half the company’s sales came in Asia, where populations are huge, budgets are small, and streets are crowded.

Latin American, by contrast, represents just a small piece of the global pie, with about half a million motorcycle sold in the region. Brazil is the largest market in this part of the world and Colombia, where its business is done through Incolmotos Yamaha, comes in second. Add in Mexico and Argentina and those four countries account for about 80% of Yamaha’s sales in Latin America.

For a time, Colombia, with a population of around 50 million people and many motorcycle riders, represented a good location for expansion. But an economic downturn since 2014 has disrupted that story of growth, which Juan Carlos González, manager of production management at Incolmotos Yamaha, explains by looking back to last decade.

(Photo credit: Loren Moss)

Back around 2004, says González, there were really just four major players in the Colombian motorcycle market: Yamaha, Honda, Kawasaki, and Suzuki. But soon after, more competition started to enter the scene, with low-cost bikes from Chinese and Indian companies putting price pressure on the established sellers.

“In the Colombian market, the Japanese brands are not economical brands,” he said. “They are high-value brands, because their development and production — which in the beginning were completely in Japan — have a cost for quality.”

This didn’t change Yamaha’s operating strategy, however. The company, which operates from its main plant in the town of Girardota in Antioquia not far from Medellín, didn’t race to begin offering budget bikes. It was happy to instead position itself as the aspirational choice for many Colombians. Perhaps they would start out with a Chinese model, but in time they could trade up — with some dreaming of models like the R1M that has a retail list price of nearly $25,000 USD.

“It’s hard to acquire a Yamaha motorcycle,” said González. “Yamaha doesn’t have any economical motorcycles, and it isn’t going to have any either. Because to produce a motorcycle with the standards of quality of the Yamaha brand costs money, so it’s a perception of value.”

(Photo credit: Loren Moss)

Ultimately, he sees the introduction of the low-cost models as a benefit to the Colombian market. By definition, those new imports were competing for the same limited pool of bike riders as Yamaha. But the Japanese firm hasn’t lost any sizable market share over the past decade. In a way, the Chinese and Indian motorcycles were actually going up against public transportation and helping expand the market rather than taking customers away from Yamaha.

With new low-cost options, many Colombians earning low wages could, for the first time, validate buying a motorcycle rather than taking the bus or the metro, says González. And once they became a rider, they likely wouldn’t go back to the bus. On the contrary, they will likely start to consider buying a higher-end option in a few years when their paycheck improves and it’s time to make another purchase.

“The market has continued to contract.” – González

“For us, our aim is to have a minimum of 20% market share,” he said, stressing that Yamaha’s goal in Colombia is “to be visible” and provide financing options “so that, little by little, they can acquire our products with legal credit.”

This strategy hasn’t been smooth sailing, however. The Colombian economy is highly dependent upon oil, and when the price of a barrel of crude fell precipitously toward the end of 2014, it sent shockwaves throughout the economy. The peso lost about a third of its value within a year, inflation spiked, and consumer confidence began to wane. “Obviously, the market contracted,” said González.

The administration of President Juan Manuel Santos and Colombian Congress also passed a tax reform late last year that increased the nationwide value-added tax (VAT) from 16% to 19%. This has strained margins, and he says that Yamaha’s Colombian operations have overall effectively suffered around a 50% currency devaluation to their bike sales price over three years.

(Photo credit: Loren Moss)

“We have not passed on all that devaluation that we suffered to the public price,” he said. “We made improvements in our internal offices, negotiations with suppliers, and some was passed on. We passed on only about 15% or 18%.”

The entire market has felt the effects. “There are items in the economy that are out of reach because first you have to subsist,” he said. “You have to buy food, you have to have clothes, you have to pay for education, and then come the other expenses which in some cases can be considered a luxury item, like a motorcycle. That’s why the market has continued to contract.”

It hasn’t all been bad. Amid the downturn, Yamaha has looked to find new customers.

Of the roughly seven million motorcycle riders in Colombia, nearly one-third are women, according to Incolmotos. The percentage hasn’t always been that high, and the company has specifically tried to target this market in recent years by producing smaller bikes suited to their needs and offering safe-driving education resources to help women feel more comfortable in the crowded roads of cities like Medellín and Bogotá.

Incolmotos, as it showcased at the Feria de las Dos Ruedas motorcycle fair in Medellín in May, now offers at least four scooters in Colombia as well as several small, sporty bikes, like the Líbero 125 and SZ-RR, that can be bought for around $1,500 USD. “Women slowly have dared more and more to become more autonomous in their transport, and that’s why these scooter-type motorcycles are so important,” said González.

(Photo credit: Loren Moss)

The company is also benefiting from operational improvements made earlier this decade, said Alba Lucia Yara, who is in charge of the development of local parts for Incolmotos Yamaha. The company formed an alliance with the assembly companies of two other Japanese brands, Honda and Suzuki, to start a training program in 2010. This also included partnering with the National Service of Learning (SENA), a public institution in Colombia that looks to provide workers with in-the-field professional development.

Colombian law mandates that a certain percentage — at least 17% — of the vehicle must be locally produced in order to avoid a hefty 25% tariff.

The Colombian public science agency Colciencias has also played a role in improvements. By incorporating innovative production methods into the plant, such as aluminum injection technology and better mold casting, it has helped save costs on imported products.

Others in the wider assembly industry, including Renault and Mitsubishi, were receptive to collaborations as well, and the Medellín-based startup accelerator Ruta N has worked with this network to promote competitiveness, innovation, and shared research.

This isn’t solely for efficiency gains. Colombian law mandates that a certain percentage — at least 17% — of the vehicle must be locally produced in order to avoid a hefty 25% tariff. According to González, if Yamaha imports a fully assembled motorcycle — known as “completely built up” — then the bike is subject to both the 19% value-added tax and the tariff.

On the other hand, if it comes “completely knocked down” and is then assembled in Colombia along with locally produced parts, that import tax only amounts to 3%. The company, he says, often makes the built-up vs. knocked-down decision based upon expected sales volume of a specific model.

(Photo credit: Loren Moss)

If it is a super premium bike that will only sell a small number of units, then Yamaha may just import the bike from a plant in Asia and pass the extra cost on to the high-end consumer. But if sales will be significant, it makes sense to incorporate the assembly into its plant in Antioquia and then have a lower price point that will encourage more sales.

Increasing efficiency at its plant and maturity as a producer in the market is paying dividends, says the company.

Though it can vary case to case, González says that “the price goes down dramatically” and it is imperative that the plant maintains a 17% average of locally sourced work across its product line. “If you don’t comply with that 17% minimum on average…the fines are very, very high,” he said. “So you have to be very careful.”

Now, Incolmotos Yamaha produces many parts in Colombia that it previously imported, including chassis, suspension, steering forks, rear crank handles, lights, and footrests. “We work with competition and with other sectors in order to work towards some common interests,” said Lucia.

Increasing efficiency at its plant and maturity as a producer in the market is paying dividends, says the company. These aren’t glory days for anyone selling motorcycles in Colombia, but the executives are optimistic that the company is now set up better than ever to reap major rewards when the market turns back toward growth.

“The market has continued to contract, and has prevented the tendency towards growth from continuing,” said González. “You could say that this is a year of transition, and we are adjusting ourselves to a new reality.”

Bank of America and HSBC Securities served as global coordinators, joint bookrunners and mandated lead arrangers. The rest of the syndicate was made up of Bank of Tokyo-Mitsubishi, Sumitomo Mitsui Banking as mandated lead arrangers and joint bookrunners, and Citigroup Global Markets, JP Morgan Securities, and Mizuho Bank as lead arrangers.

The loan was authorized by the Ministerio de Hacienda y Credito (Finance Ministry) on December 22, by degree #4783, and the deal was signed on December 29 by the banks and Juan Esteban Calle Restrepo, general manager of EPM.

83% of the loan will go towards energy, such as the Ituango Hydroelectric Project, and 17% will go towards EPM’s waterworks businesses.

The loan is disbursable over a 12 month period and has a term of 5 years. The interest rate is LIBOR+1.40%. The loan will finance the investment plan and $12.4 billion 2016 budget for EPM, approved by the board of directors on November 24 of last year.

“This operation represents a diversification of the sources of financing for our enterprise, and the consolidation of a long-term commercial relationship with this important group of international banks that back the growth strategy and diversification of projects and businesses of Grupo EPM,” said Calle.

“The competitive conditions practiced in this operation ratify the trust and the solid reputation that EPM projects in the international financial environment, even amidst an economic landscape of high volatility in international markets.”

Over the next four years, EPM plans to make $2.4 billion USD in investments to develop expansion projects, modernization and growth in the energy, gas, and water sectors, along with social responsibility and environmental programs that will contribute to sustainable growth of the enterprise and the areas in which it operates.

Photos of loan closing courtesy of EPM