2014
“Mexico’s reforms are making the country an ever more trusted source for global automotive investors. During my administration alone, 32 new automotive projects have been established, worth a combined US$13 billion” Enrique Peña Nieto, President of Mexico
“Mexico is sending a clear message to the world: we are transforming ourselves in order to grow and attract investment that will generate well-paid employment and increase quality of life for our population,” said President Enrique Peña Nieto at the investment announcement of BMW’s first Mexican plant. As the country’s second most significant generator of GDP, the automotive industry lies at the epicenter of this economic evolution. Mexico is destined to continue strengthening its position as a key player in the global automotive industry, based on its preferential access to markets in 45 countries, highly skilled workforce, and a stable political and economic environment. This opportunity-laden setting has brought unprecedented levels of investment from foreign and Mexican companies alike. As a result, the industry has become irreplaceable, generating value added jobs, intensifying research and innovation, and further consolidating Mexico’s place in major global value chains.
As the magnitude of these new business opportunities and the timeframe within which they will present themselves becomes clear, Mexico Automotive Review 2014 is released to provide the most comprehensive overview of the industry’s operating environment, presented through the eyes of private and public stakeholders driving the industry’s development across political, business, and technological perspectives. The topics explored in Mexico Automotive Review 2014 have been carefully selected as those that will matter the most to investors seeking to capitalize on emerging business opportunities.
ALL RIGHTS RESERVED Š New Energy Connections LLC, 2014. This annual publication contains material protected under International, United States and Mexican Laws and international Treaties. Any unauthorized reprint or use of this material is prohibited. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system without express written permission from New Energy Connections LLC. Mexico Automotive Review is a registered trademark of New Energy Connections LLC. The publisher has made all reasonable efforts to provide accurate information, and the information contained in this publication is derived from sources believed to be true and accurate. However, the information in this publication should not be considered to be complete or definitive, and may contain inaccuracies or typographical errors. The publisher accepts no responsibility regarding the accuracy of information and use of such information is at your own risk. The publisher will not be liable to any party for any direct, indirect, special or other consequential damages arising out of any use of information in this publication. The publisher provides no representations or warranties, express or implied, including any implied warranties of fitness for a particular purpose, merchantability or otherwise in relation to any information provided by the publisher in this publication.
ISBN-13: 978-0-9855346-5-3
TA B L E O F C O N T E N T S 1
STATE OF THE INDUSTRY
8
NORTHERN STATES
2
LIGHT VEHICLES
9
CENTRAL STATES
3
HEAVY VEHICLES
4
DIRECT SUPPLIERS
5
INDIRECT SUPPLIERS
12
AFTERMARKET
6
NATIONAL CHAMPIONS
13
DOING BUSINESS IN MEXICO
7
RESEARCH & INNOVATION
14
FUTURE OUTLOOK
10 11
LOGISTICS
DOMESTIC MARKET & FLEETS
The automotive industry, Mexico’s second largest formal industry after the oil and gas industry, has grown exponentially since NAFTA was signed in 1994. Today the sector contributes 3.5% to the country’s GDP and generates a trade surplus of US$39 billion. 2013 saw the sector achieve both record production and export figures, strengthening Mexico’s position as the 2nd largest producer of vehicles in Latin America and the 4th largest exporter worldwide. It was a year that also saw Mexico overtake Japan to become the 2nd largest exporter to the US as near shoring practices for the North American market gained momentum. The country has also positioned itself as a top manufacturer of auto parts, currently ranked 5th worldwide, and is home to 89 of the world’s 100 leading auto parts companies. The first quarter of 2014 saw the automotive industry’s already impressive trade surplus increase 16.9% on the previous year’s first quarter, evidencing the continued and sustained growth taking place.
This chapter will provide an overview of the current state of the industry and put recent industry achievements into context based on the perspectives of the key stakeholders from both the public and private sectors. This chapter will also outline the key opportunities for growth and the main hurdles facing optimal realization of that growth.
STATE OF THE INDUSTRY
1
CHAPTER 1: STATE OF THE INDUSTRY 6
The Year in Review
9
VIEW FROM THE TOP: Mexico has not Unlocked its Full Automotive Potential
10
VIEW FROM THE TOP: Feeding Mexico a Strong Automotive Diet
10
NAFTA’s Stewardship of the Automotive Industry
14
Automotive Industry Has Clear Obstacles to Overcome
16
Guidance to the Industry’s Twists and Turns
17
VIEW FROM THE TOP: Seeking Integration for Automotive Supply Chain
18
Mexico’s Automotive Plants and Transport Routes
20
Rollercoaster Year for the Heavy Duty Sector
23
Industry Reforms Modify Supply Chain Relations
24
Significance of Auto Parts to Mexico’s Foreign Trade
26
German Knowhow Grows as Investments Flourish
27
China vs Mexico: Low-Cost Manufacturing Showdown
5
THE YEAR IN REVIEW INTRODUCTION
manufactured in May 2014, displaying an increase of 12.5%
The automotive industry is now one of Mexico’s most
over the same month in the previous year. In the first half
significant, contributing 3.5% to the country’s GDP in 2013.
of 2014, output rose 7.4% year-on-year to 1.597 million
Car assemblers and auto parts manufacturers across the
vehicles, compared to 1.488 million in the first six months
sector hit production and sales records in 2013 and further
of 2013.
investment announcements have continued into 2014. The revival of the US automotive industry has played a pivotal
Mexico’s main pull on the production front has been its low
role in the country’s success as a production hub, with the
cost labor rates, the accessibility which was optimized by
eyes of the Big Three, GM, Chrysler and Ford, focused on
the signing of NAFTA in 1994, and the country’s other 11
Mexico. However, investments are also flooding in from
free trade agreements covering 43 more nations. Mexico’s
Japanese and European investors keen to take advantage
manufacturing wages are predicted to be up to 30% lower
of the country’s proximity to North and South American
than manufacturing powerhouse China by 2015, allowing
markets.
Mexico to firmly position itself as a serious international competitor for foreign direct investment. Finally, the
Increased nearshoring for the North American market saw
country has been investing heavily in creating automotive
Mexico post record automotive production and export figures
clusters nationwide with the aim of supporting sector
for the fourth consecutive year in 2013, and Latin America’s
growth. The historic production vortex in the north of the
second largest economy currently sits at number eight in
country is seeing real competition from the central Bajio
the list of global automakers and ranks fourth amongst the
region, which is predicted to collectively account for the
world’s light vehicle exporters. Having produced 3.6% of
largest automotive cluster in Latin America by 2015.
the world’s automobiles last year, Mexico is widely tipped to reach seventh position by the end of 2014. ProMexico
Heavy vehicle production is also flourishing, and 2012
states that by 2017, the Mexican automotive industry will
was its best year for production in Mexican history, with
achieve the yearly capacity to manufacture close to 4
138,000 heavy vehicles being produced, of which 104,000
million vehicles, which would translate to production lines
were exported. A slight drop in production was seen in
assembling more than 10,000 units a day.
2013, with 136,900 heavy vehicles produced.
PRODUCTION
EXPORTS
Figures released by the Mexican Automotive Industry
In 2013, Mexico exported 2,423,084 vehicles, with
Association (AMIA) showed record production levels in
1,646,950 of those going to the US, a 9.5% increase
2013, with 2,933,465 light vehicles manufactured, 1.7% up
over the previous year. This saw Mexico overtake Japan,
from the previous year, and a huge leap from the 505,202
which had been ranked amongst the top two exporters
cars produced in 1988. Of those vehicles manufactured,
to the US since the 1970s, to become the second largest
82.1% were exported while the remaining 17.9% fed the
exporter to the US. In just two decades, exports to the
domestic market. Monthly production figures for 2014
US from Mexico have increased fourfold, and in 2015
continued to reach historic levels, with 287,488 units
the country is expected to overtake Canada as the top exporter to the US. Eduardo Solís, Executive President
TOP 10 VEHICLE PRODUCERS WORLDWIDE (million units)
of AMIA, explains, “There was a time when Mexico
25
represent more than 10%. Mexico will continue to grow,
22.11
represented 4% of the US automotive market. We now period. Mexico will continue increasing its market share in the US automotive industry, which could reach 12-13%
20
in the next three to four years.” He adds that a 1% increase vehicles, with each additional percentage point gained representing the equivalent of a new production plant and the creation of around 70,000-80,000 jobs. Exports
5.71
4.52
3.88
3.74
3.05
2.53
5
2.37
10
in market share would equate to around 140,000 extra
11.04
9.63
15
of light vehicles to Canada rose 21.7% to 194,851 units in 2013, making up for a 16% drop in sales to Latin America, which numbered just 307,581 units. Mexican exports
Source: OICA
6
China
USA
Japan
Germany
Soth Korea
India
Brazil
Mexico
Thailand
Canada
0
to Africa and Europe also dropped 20.2% and 32.3% respectively, although this was effectively balanced by a 45.4% increase in exports to Asia.
Mexico’s heavy vehicle industry association ANPACT
OEM INVESTMENT
explains that Mexico now represents 35% of global
Major global OEMs have collectively announced multi-
production compared to 16% a decade ago, and predicts
billion dollar investments in Mexico over the last year,
that the country may export 300,000 vehicles per year in
divided between new plant openings and expansion of
the next two decades. Export figures for the sector also
existing production capacity. In 2013, Nissan churned out
dropped 13.4% in 2013, however the sector is expected to
the most units, with 680,213 cars produced, making up
see growth again in 2014.
23.2% of the national total. GM came in just behind, with 645,823 cars, with Ford, Volkswagen and Chrysler rounding
DOMESTIC MARKET
out the top five. GM is investing US$691 million as part of
Domestic vehicles sales figures in Mexico surpassed 1
a US$1.5 billion overall expansion drive in North America,
million in 2013, returning to levels not seen in almost a
upgrading its facilities in Silao, Toluca, and San Luis Potosi.
decade. The last month of the year saw 119,364 new-car
Nissan is set to continue its dominance, with a capacity
purchases, the most seen in any month since December
expansion leading it toward its stated goal of producing
2007, representing an 8.5% increase from the previous
1 million cars in Mexico by 2016. Fueling this expansion is
year. However, of the new vehicles manufactured in Mexico
an impressive additional US$2 billion investment into the
in 2013, only 17.9% fed the domestic market, highlighting
OEM’s current facilities in Aguascalientes. The first phase
the export-dominated nature of the country’s growing
of the “Power 88” project, which will see Nissan increase
production capacity. Furthermore, only around 50% of
its annual production levels by 25 percent to 850,000, was
domestic automotive sales involved cars actually made
opened in late 2013. IHS Automotive has predicted that
in the country, with the remainder being fed by imports.
OEM investment levels into Mexico could amount to US$3
Despite domestic light vehicle sales increasing steadily
billion annually in the coming years.
since 2009, it has taken a full decade for figures to return to previously recorded levels. For every 1,000 people in
Nissan’s prominent place on the production charts is a
Mexico, only eight new vehicles are purchased a year,
testament to the general trend of mounting investment
figures similar to those seen as far back a 1981.
from Asia into Mexico. The ability to move parts into Mexico without tariffs is a major incentive to establish
An analysis of light vehicle imports quickly reveals the
a production base in the country, and Honda Mexico’s
Achilles heel in Mexico’s domestic market. The importation
Commercial Director, Horacio Chávez Reza, explains that
of used cars in 2013 increased by 40.8% compared
the company’s US$1.25 million investment in the central
to 2012, highlighting a major constraint on Mexico’s
state of Guanajuato represents the beginning of a new
domestic new vehicle sales. Frustration is now growing
era, with Honda North America soon to produce 95% of
at a lack of government action to curb this. Access to
all Honda cars sold in the region. North American OEMs
financing also plays a significant role in the domestic
have been taking advantage of Mexico’s strengths for
market, with only 50% of purchases being made through
longer. Ford’s first steps in Mexico were made in 1932 and
credit arrangements, far below regional averages. “The
its ever increasing faith in the country is illustrated by
government has accepted the significant role it must play
the fact that all production of the Ford Fusion for North
in fostering Mexico’s automotive growth potential,” says
America is taking place at its Hermosillo plant. Investment
Solís, “but real and rapid measures must be implemented to
announcements by Audi, BMW, and Mercedes-Benz also
address the current barriers to domestic market growth.”
highlight Mexico’s growing attractiveness for premium
MEXICO PRODUCTION 1988-2014 (million units) 3
2.5
2
1.5
1
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
0
Source: AMIA
7
vehicle production. Upon the laying of the foundation
100 leading auto parts companies, and competition is stiff
stone for Audi’s new plant in Puebla, due to open in 2016,
within the sector.
the company’s executives referred to the announcement as a dream moment. The US$1.3 billion dollar investment
HUMAN CAPITAL
is part of Audi’s race to overtake BMW as the world’s
Mexico graduates over 100,000 engineers each year from
leading premium car manufacturer, and it came as no
900 graduate engineering and technology related degree
surprise therefore that BMW announced a plant to be built
programs. While US engineers are on average 55 years
in San Luis Potosi, with an estimated annual capacity of
old, Mexico’s engineering base has an average age of 27.
150,000 vehicles. Nissan has also recently announced a
While 25% of US based engineers will retire in the next
partnership with luxury carmaker Daimler, with the two
decade, Mexico will continue to graduate hoards of young
OEMS collaborating to jointly produce Mercedes-Benz and
talent. The automotive industry is benefitting exponentially
Infiniti cars at Nissan’s third plant in Aguascalientes.
from the wealth of young engineers that are feeding the sector and are employable at a fraction of the cost of their
Localization
intensify
North American counterparts. Today, hourly manufacturing
regional procurement drives, and many suppliers have
initiatives
are
seeing
OEMs
wages in Mexico average US$2.70, exceeding the overall
accompanied their OEM clients to establish operations
national average of US$2.43, but still far below those of
in Mexico. Leading global supplier Bosch has nine plants
the US. Mexico is currently home to 40% of all automotive
in Mexico and supplies parts for virtually every aspect of
industry jobs in North America. Mexico’s major challenge, as
the automotive production cycle. With each new OEM
investment continues to pour into the country, is to ensure
plant announced, suppliers make nearby investments,
that graduates are equipped with the right skills for the
evidenced from the 25 Japanese suppliers that declared
multitude of manufacturing requirements newly established
moves to Mexico following Honda’s US$800 million Celaya
companies are demanding. Areas like the Bajio region are now
investment. Similarly, Mazda’s US$650 million investment
experiencing what some have referred to as the beginning of
in its plant in Guanajuato is attracting suppliers from both
a talent war. However universities, governmental bodies, and
Mazda and Toyota, with the new plant including capacity
private companies are joining forces nationwide to form a
for the production of 50,000 sub-compact Toyota models.
triple-helix support network for human capital development.
AUTO PARTS
EVOLUTION
Mexico has risen as a top auto parts manufacturer, and
The next step for Mexico is the move towards high-tech
is currently ranked in sixth place worldwide, after being
production and development, and the evidence points to
narrowly overtaken by South Korea in 2013. According to
this happening already, albeit to a relatively small degree.
Oscar Albín, President of the National Auto Parts Industry
According to PwC, increasing investment in Mexico’s
(INA), the sector is currently enjoying unprecedented
automotive sector has led to the creation of more than
success. In 2013, auto parts production in Mexico was
20 private and public R&D centers. Associations like
valued at approximately US$76.8 million, employing
INA and AMIA are working hard with the public, private,
637,800 workers. 90.1% of all Mexican auto parts production
and academic sectors to develop the right conditions to
was exported to the US in 2013, followed by Canada, Brazil,
support innovative production centers in Mexico. “If we
and Germany. Growth should anchor this sector through
really want to reach our potential, we need to speed up our
2014, with total auto parts production value set to reach
capacity to develop technologically advanced vehicles.
US$81.5 billion. The country already hosts 89 of the world’s
Otherwise, we will fall behind in the race,” says Albín.
MEXICO EXPORTATION 1988-2014 (million units) 2.5
2
1.5
1
.5
Source: AMIA
8
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
0
| VIEW FROM THE TOP
MEXICO HAS NOT UNLOCKED ITS FULL AUTOMOTIVE POTENTIAL AGUSTÍN RÍOS Former Executive President of INA Q: How did the Mexican automotive industry reach its
maintenance. This is due to the fact that toolmakers have to
pride of place today?
pay a fee for using primary resources, which does not allow
A: The first automotive plant was installed in Mexico in
them to be competitive. It is obvious that we all need to
1925 by Ford. Assembly plants then started to appear,
work together to help Mexico take that step. But OEMs have
but due to the lack of regulation at the time, imports far
distanced themselves from developing suppliers because
outweighed exports which caused an imbalance. In 1962,
they want to remain competitive. However, INA’s suppliers
the first automotive decree was put in place, marking the
are also facing the need to become globally competitive
beginning of the automotive industry in Mexico as it stands.
to meet growing demand. The only way for these two
In 1986, Mexico signed GATT, changing the commercial
segments to help each other is to work together to disperse
rules forever. In 1989, the last automotive decree was
cost and spread knowledge.
announced, serving as a basis for the NAFTA negotiations. We witnessed exponential growth throughout this process.
Q: What impediments need to be overcome for Mexico to
Since 1950, Mexico has weathered five major economic
produce 4 million cars by 2020?
storms but each time the country has recovered, the
A: We will soon produce 4 million vehicles. That figure is
automotive industry has distinguished itself by not only
actually conservative, given all of the country’s potential.
recovering but growing in the process.
All sectors of the industry need to negotiate in order to come to win-win agreements that will propel this growth.
Q: How has the influx of FDI into Mexico impacted local
A few years ago, INA and AMIA did not even communicate.
automotive companies?
Today, we come up with solutions together. We have
A: If you compare the number of engineers in Mexico
invited mechanics and their representatives, wholesalers,
today to ten years ago, we have seen exponential growth.
AMDA, AMIA, ANPACT, and Andellac to the International
Moreover, the quality of these engineers has greatly
Congress of the Automotive Industry in Mexico (CIIAM),
increased as well. The engineering department at UNAM
sponsored by INA. The automotive industry is crucial for
sees Mexican engineers working alongside top-caliber
the Mexican economy and this goes beyond the OEMs and
counterparts from Germany, Japan, the US and Brazil.
auto part makers. Guanajuato, Queretaro and Puebla are
This is due to the country having three major advantages:
prime examples of states that have become successful
longstanding Mexican companies with a wealth of
automotive hubs. We must work with the government
experience, joint ventures that are taking place with foreign
to reach a production of 10 million vehicles by 2030.
companies, and wholly owned foreign companies bringing
Unfortunately, Mexico has the poor habit of changing
new technology to the market. Each of these strengths has
the direction of key programs when new public figures
enabled us to enhance our understanding and innovation
enter office as they seek to implement different strategic
of the automotive manufacturing and design processes.
visions.
Q: What role are OEMs playing in developing homegrown
Q: How detrimental is the importation of used cars on the
auto parts suppliers in Mexico?
ability of the automotive industry in Mexico to realize its
A: Many years ago, when OEMs first came to Mexico, they
full potential?
taught their suppliers a lot more than they do now. Today,
A: In 2010, there were around 24.5 million cars on the
they are more reluctant to develop their suppliers, especially
streets of Mexico. 41% were over 16 years old, and yet we
those that manufacture essential auto parts. However, for
keep importing vehicles. This is a very unsafe practice.
this technological leap to truly be made, there needs to
Adding the 14% of vehicles between 12-15 years, more than
be a joint effort from OEMs, suppliers, the government,
50% of cars are old. The US and the EU have implemented
educational institutions, and even the tooling sector. The
successful programs to reduce the amount of old cars in
Mexican tooling sector is very poor as it is really only offering
the streets, but Mexico has not followed suit.
9
| VIEW FROM THE TOP
FEEDING MEXICO A STRONG AUTOMOTIVE DIET JOSÉ ROGELIO GARZA Undersecretary of Economy, Industry, and Commerce
Q: What is your vision to make Mexico an ideal investment
The decision to invest in Mexico depends heavily on
destination for automotive companies?
the capacity for exportation, and we like to stress that
A: The Ministry of Economy divides the automotive
Mexico is one of the most open countries in the world
industry in two: the domestic market, in which we place
for trade. Another important topic is the availability of
the sales of heavy and light vehicles, and the global value
capable engineers and technicians. Thirdly, there must
chain of the automotive industry. Our domestic automotive
be an availability of raw materials such as steel, gas and
industry is deeply intertwined in the global value chain and
energy. We understand their importance and we have a
Mexico has to play a leading role in both of these areas.
clear political agenda for their importation. Steel is used
We have to see how we can attract more investment, we
in a wide range of industries including automotive, so
are evaluating where we are most effective and in which
we oversee the influx of steel to ensure its constant and
areas we can improve. One of the pillars that make Mexico
efficient supply. Once companies gain more insight into
an attractive destination is its FTAs and the access they
Mexico, they are reassured by our structured policies and
offer to 45 other markets. This is a major plus as OEMs
our level of human capital. Expectations have risen for the
love being able to manufacture here and then export to
future of Mexico’s productivity and efficiency. The Energy
as many countries as possible. Another important pillar is
Reform will transform the industry’s competitiveness,
technology and we have increasingly invested in innovation
especially given how much energy the automotive industry
and technology, making the automotive industry more
consumes. To establish the level at which automotive
robust. For example, we have promoted the creation of
investment is growing, the government usually receives ten
R&D centers for Tier 1 and 2 suppliers and companies like
prospective approaches per year by companies wanting to
Bosch have answered that call.
invest here. In 2013, this figure almost doubled.
NAFTA’S STEWARDSHIP OF THE AUTOMOTIVE INDUSTRY If any evidence is needed as to how much the automotive
explains this phenomenon. “We have witnessed a great
industry in Mexico has been a true beneficiary of NAFTA,
transformation. For example, when Audi decided to come
its performance during the economic crisis does not lie.
here, it sent a different message to the world about quality.
While the globe was battered, the automotive industry
Audi is not ashamed about their vehicle being ‘made in
stood firm and weathered the storm, as Eduardo Solís,
Mexico’.” The key here is that NAFTA became one of
Executive President of AMIA states. “When placed on a line
the stepping stones upon which Mexico could continue
graph, you can see that despite the two crises of 1995 and
expanding its free trade agreements. With the automotive
2009, the automotive sector grew continuously after the
industry having become one of the clear winners since
1980s and then exponentially after NAFTA.” Mexico, now an
NAFTA, its future in Mexico is carved in stone. Unimpaired
automotive manufacturing powerhouse occupying the 8th
entry to the biggest automotive consumer market, the US,
position worldwide, producing almost 3 million units in 2013,
has been secured.
marking a 61% growth since the treaty went into effect. Spurred by Mexico’s ambitious plans and its competitive
10
NAFTA did not only open borders to encourage production
advantages, top multinational suppliers are now increasing
and a higher complexity of manufacturing processes, it
their presence here. One of the major attractive qualities of
broadened the very mindset of key automotive players
Mexico for FDI is its degree of openness seen through its
by showing them Mexico was a competitive option. Solís
many FTAs. It is important to note that FTAs like NAFTA
Q: In what ways are you helping to increase local content
This scheme began in 2014 and it is expected that 15,000
in the Mexican automotive supply chain?
heavy duty vehicles will be exchanged during the year.
A: We have taken radical steps in developing local
These programs are geared towards the owner-operators
suppliers. Now that OEMs and Tier 1 suppliers are already
as they are more likely to buy used trucks. Most of the large
established in Mexico, we are beginning to work down
companies renew their fleets every five years and these old
the supply chain and add local content. Our approach
vehicles are then passed on to owner-operators.
is specialized as we collaborate with companies and we identify their specific needs. We help integrate local
Q: What has been the impact of the investment shift in the
suppliers into the operations of companies such as
automotive industry from the North to the Bajio region
Bosch, Metalsa, and Nemak. Through Inadem, Bancomex,
and how do you maintain a level of healthy competition
NAFINSA, SME funds, and our own programs, we can
between states?
offer a wide range of support to SMEs to help them enter
A: It is important to maintain a level of healthy
into the automotive supply chain.
competitiveness
between
states
but
the
federal
government must remain impartial. We are neutral and Q: What measures have you implemented to tackle the
we push for companies to establish themselves in those
indiscriminate importation of used vehicles from the US?
areas where they will be successful. Obviously, companies
A: This is one of the biggest concerns for the internal
analyze and evaluate where they will establish themselves.
market, both in light and heavy vehicles. These vehicles are
It is also a matter of logic. For example, if an auto part
not in condition to adequately compete against national
company wishes to supply Nissan, the logical step would
vehicles. Alongside associations like CONATRAM and
be for it to set up shop in Aguascalientes. The first step is to
ANPACT, we have created specific norms to ensure that
attract the investment into Mexico and, once it is here, we
scrap vehicles do not enter the country. These norms will
then look to see where it is viable or desirable to be placed
enforce inspections of imported vehicles to make sure they
within the industry. There are many factors that influence
are in good condition and they do not pollute. We are also
the location of a company, such as logistics, suppliers,
working alongside NAFINSA and commercial banks on
distribution networks, and access to infrastructure. As a
financing schemes which promote the sales of new vehicles.
federation, we are neutral and we do not favor any states.
The heavy duty sector has been heavily impacted by the
The decision about location is down to the companies and
importation, so we are working on a scrapping program
our role is to see that they can make the most informed
where people can exchange their old vehicle for a new one.
decision possible.
are one of the pillars that have stimulated the industry’s
which they use a car for a couple of years and then replace
expansion, “Mexico has FTAs with 45 countries, but it needs
it. Millions of cars are being replaced every couple of years.
to continue looking for new markets,” Solís comments. As a
Mexico does not behave this way, people keep their cars
country that exports 80% of its production this is critical and
for much longer.” While NAFTA has benefited the industry
FTAs like NAFTA have not only enabled Mexico to surpass
in countless ways, according to Lozano, “NAFTA states
Japan as the main exporter to the US, but have consolidated
that the US will export more to Mexico, so the situation will
Mexico’s position as the 4th exporter of vehicles worldwide.
actually worsen.”
The transformation to become a global reference for the auto industry paints a positive future landscape. Luis Lozano,
The impact has been reflected on the domestic sales
Mexico Automotive Leader at PwC, says that “with regards
of both light and heavy vehicles. “Dealers are severely
to the evolution of the automotive industry in this country,
affected; many of them cannot sell more than 100 cars
I predict we will go from the 8th production country in the
a month. Toyota has reduced its number of dealers here,
world, to being 6th in the next two or three years.”
and the American OEMs are following suit,” Lozano adds. Mexican internal automotive sales reached their highest
While consolidating the opening of its economy through
point in six years in 2013, with 1.06 million cars being
NAFTA shaped Mexico’s automotive industry, it also
bought nationwide, 7.7% higher than the figures for 2012.
opened the doors to the indiscriminate importation of
However, this uptick has not quelled fears, with experts
used vehicles from the US. For Lozano, “this is the biggest
stating figures would be far higher if adverse market
issue facing the Mexican automotive sector right now.” He
circumstances could be resolved. According to Lozano,
attributes the stagnation of the domestic market by used
solutions have been considered “but the real issue remains
units to cultural differences, “the US has this culture in
that we are so close to the US.”
11
12
13
AUTOMOTIVE INDUSTRY HAS CLEAR OBSTACLES TO OVERCOME The Mexican Automotive Industry Association (AMIA) was
facing both countries vary hugely, with Brazil exporting
established in 1951 by international industry heavyweights
just 5% of its production compared to Mexico’s 80%.
to represent the interests of the country’s automotive
Mexico looks set to continue as a major global exporter,
producers. Its current Executive President, Eduardo Solís,
with recent figures showing that the country is now
points out that Mexico is not a latecomer to the international
positioned as the fourth largest auto exporter in the world.
stage: “Mexico began looking outwards in the late 1980s,
Last year, Mexico exported a record number of 2,423,084
and this can be seen through the rise of the automotive
locally manufactured light vehicles, of which 68% went to
sector.” Of course it was NAFTA’s establishment in 1994,
the US, supporting expert conclusions that the recovery of
opening up Mexico’s economy and accelerating the
the US market has been largely responsible for Mexico’s
growth of the country’s already solid automotive industry
growing export levels. “From January to June this year,
that really saw the sector explode. AMIA’s data shows that
Mexican exports to the US market increased by 16.5%
Mexico has gone from producing 505,202 cars in 1988 to
while Japanese exports grew 3.5%, which means that
2,933,455 in 2013. “Many people think of Mexico’s economy
Mexican exports grew over four times as fast as Japan.”
as baed on maquiladoras. Not many people know that we
As a result, Mexico overtook Japan in early 2014 as the
are actually exporting more than we import. Last year
second-largest automotive exporter to the US, with some
we imported US$10.4 billion worth of automotive goods
experts predicting it will become the number one exporter
and we exported almost US$23.5billion worth. That is not
as early as next year.
evidence of a maquiladora industry but of a real value added sector,” says Solís. AMIA expects Mexico’s annual
Car assemblers and auto parts manufacturers hit
light vehicle production to reach four million by 2017,
production and sales records in 2013, which are
based on investments that have already been announced.
only likely to keep climbing and further investment announcements have continued throughout 2014. “The
In the first six months of 2014, Mexico’s vehicle production
recent investment announcements by luxury OEMs like
surpassed Brazil’s due to a 16.8% drop in the South
Audi, Mercedes-Benz, Nissan Infiniti, and BMW change
American heavyweight’s output, and an 8% increase in
the face of Mexico as a vehicle manufacturer and give the
Mexico’s production. “In 2013, Brazil produced almost
country tremendous credentials to continue its growth,”
500,000 more vehicles than Mexico, but this year already,
asserts Solís. A look at Mexico’s trade surplus and
Mexico has produced almost 300,000 more vehicles than
deficit levels shed further illumination on the growing
Brazil,” explains Solís. Despite using Brazil as a comparison
importance of the automotive sector for the country’s
to the Mexican market, Solís points out that the challenges
entire economy. Solís explains that the automotive industry currently has a yearly trade surplus of almost US$39 billion, and in the period from January to April
MEXICO VEHICLE AGE INVENTORY
of 2014, that surplus grew by 16.9%. “By April 2013, we had an $11.3 billion surplus, which increased to a US$13.2 billion surplus by April 2014. That gives you a sense of
14%
20%
the success of the industry and is testament to the value added contribution Mexico is making,” says Solís. Indeed 17%
the entire Mexican manufacturing industry had a deficit of US$3.9 billion last year, while the Mexican economy
18%
itself had a US$2 billion deficit. 12% 19%
Despite positive production figures, the Mexican internal market has not exactly followed suit. Last year, new car sales in the country rose 7.7% to 1.06 million, matching the levels of 2004. Only around half of domestic automotive
0-5 years
sales in Mexico involved cars made in the country, with the
6-10 years
rest being imported. Despite the domestic light vehicle
11-15 years
market growing steadily since 2009, it has nonetheless
16-20 years
taken a full decade for sales to return to previously seen
21-25 years
levels. “Reactivating and deploying the domestic market is
25+ years
really the number one concern of AMIA right now, and that
Source: INA
14
is the dark side of the industry. Sales might have grown in
200,000 to 250,000 missed loan opportunities due to the
2013, but mid-point into 2014, sales are actually 0.3% lower
level of perceived risk involved, but Solís is hopeful that the
than this time last year and overall current sales match
country’s Financial Reform will go some way to addressing
those of a decade ago. This constitutes a lost decade for
the problem. However, until both the used car inflow and
the Mexican domestic market,” says Solís, who believes
the access to finance issues are resolved, Mexico’s internal
that domestic sales should be at 2 million units, but many
market will continue to underperform, he warns. “Brazil
obstacles need to be overcome before such potential can
has higher interest rates and taxes, and yet they sell 19
be realized.
vehicles per 1,000 inhabitants while we sell nine. We have
“In 2013, Brazil produced almost 500,000 more vehicles than Mexico, but this year already, Mexico has produced almost 300,000 more vehicles than Brazil” Eduardo Solís, Executive President of AMIA
A major obstacle to revitalizing the domestic industry is
similar per capita incomes, so there should not be such
the constant influx of used cars from the US. According
a big difference,” explains Solís. The clear constraints on
to a study conducted between A.T. Kearney and AMIA
the internal market do not mean that opportunities do not
analyzing key constraints to Mexico’s automotive industry
exist however. Solís explains that Hyundai is the newest
growth, the excess inflow of used vehicles from the US is
member of AMIA, having recently made the move to
the main barrier. Stricter regulation is key, Solís explains.
Mexico. “Hyundai is coming to sell vehicles in Mexico with a
“The government will play a big role in whether or not
modest view of what it can achieve, but the possibilities are
the Mexican automotive industry will grow. If the right
interesting enough. The Hyundai niche represents about
operating environment is put in place alongside Mexico’s
3%, which is what Chrysler has already been selling for
automotive experience and its competitive advantages,
Hyundai, and the company expects to be able to increase
the possibilities are tremendous.” A second barrier is the
that a little to a 5-6% market share,” says Solís.
current availability, or lack thereof, of financing in the Mexican market. Solís explains that 50% of vehicles sold
According to AMIA, Mexico’s future lies in its potential
in Mexico are financed, but he states this figure should
to scale up the automotive production value chain and
be closer to 70%. “We have the opportunity for growth,
become a center for R&D development. Solís points out
but it is not happening because Mexican law helps the
that the automotive industry is the single most important
borrower more than the lender. For example, if a person
sector for CONACYT. US engineers are an average of 55
stops making their car loan repayments in Mexico, it can
years old today, while their Mexican counterparts are 27
take a lender up to three years to recover their vehicle. By
years old. In five years, 20% of US engineers are going to
contrast, in the US, if a person stops paying, a vehicle will
retire. “This will lead to a tremendous move of engineering
be repossessed a week later,” says Solís. During the time it
centers to Mexico, and with the 100,000 engineers
can take a lender to recover a vehicle, the value has usually
graduating here yearly, we have a huge opportunity,”
depreciated substantially. AMIA studies point to about
concludes Solís.
PRODUCTION DEC 2012-JUNE 2014 (thousand units)
287 246
238
238
Feb 2014
Mar 2014
Apr 2014
255
249 164 Jan 2014
255
285 241
238 Apr 2013
259
238 Mar 2013
239
246 Feb 2013
266
242
150
180
200
Jan 2013
250
255
300
100 50
June 2014
May 2014
Dec 2013
Nov 2013
Oct 2013
Sep 2013
Aug 2013
Jul 2013
June 2013
May 2013
Dec 2012
0
Source: AMIA
15
GUIDANCE TO THE INDUSTRY’S TWISTS AND TURNS Leading information provider IHS Global Insight is working
manufacturer’s objective and the reality about the actual
hard to calculate what direction automotive industry
volume that is produced. In the same vein, it may not make
concerns will take over the coming years. Guido Vildozo,
sense to look at sales projections in the earliest stages of
Light Vehicle Sales Forecasts Manager for Latin America
production, but IHS believes it is imperative. “We look at
of IHS, explained that the company’s analysts focus on
potential sales in certain countries compared against new
establishing the state of the industry for both sales and
and competing models, and then predict where the models
production. “The sales side has a unique set of issues such
are geographically and how much they are trying to sell.
as credits, used-car imports, and growth projection. For
All of this is very important information for a producer or
production, which is receiving a lot of investment, the
potential producer,” explains Vildozo. The average new
concern is always where the industry is going to go next,”
car plant does not see a return for two decades, and the
says Vildozo. Up to this point, the Mexican automotive
average new powertrain site does not see returns for 15
industry has been majorly dedicated to exporting to
years, hence making it all the more crucial for producers to
the US, but IHS sees Mexico becoming a replacement
understand the market.
production hub for some previously key manufacturing regions throughout the world. Chrysler’s recent decision
Given the range of its services and breadth of data, it is
to use Mexico as a base of production for cars to export
clear how IHS can help OEMs understand the market. But
to China is a key example of this phenomenon. “From
helping suppliers with different concerns and different
IHS’ perspective, the next step is going to be the hardest
budgets requires a modified tack. Dary believes that
because Mexico has a limited supplier base that needs
suppliers should utilize IHS’ market expertise throughout
further development. Suppliers are currently acting on
the entire production process, as “both the start and end
more of a free market basis in response to the needs of
of production are milestones for any supplier. If a supplier
every OEM, but there is no aggregate vision of what needs
can be provided with the accurate timing for when a
to happen,” says Vildozo. “Mexico is competing with the
model is going to start being produced, it is ahead of the
other Latin American giants for manufacturing, but these
curve in terms of responding to the request for quotation,
have already set firm goals for the future.”
and in understanding what the volumes are going to be.
“The next step is going to be the hardest because Mexico has a limited supplier base that needs further development”
Guido Vildozo, Light Vehicle Sales Forecasts Manager for Latin America of IHS
16
IHS Automotive has established partnerships with the
It can therefore set up capacity at the plant accordingly.”
local trade, manufacturing, and auto parts associations
Armed with this insight, Dary maintains that the suppliers
in several countries to ensure that its data comes directly
have the battle largely won, as they can go to the OEM
from the source, including close partnerships with major
better prepared than their competitors. “A supplier that
OEMs and Tier 1s. Roughly 60% of the Tier 1 industry are
does not currently do business with any OEM might be
clients of IHS Automotive, according to the company’s
reluctant to invest in expensive consulting advice, but
Sales Manager for Latin America, Raul Dary. In terms of
it should definitely do so,” Dary states. “That company
key opportunities for OEMs that IHS’ extensive analysis has
should have a good understanding of the programs that
identified in Mexico, Vildozo is conservative. “There is only
are about to start, as well as the attributes of the vehicle
limited room for surprises showing up in the future. The
that is going to be produced, in order to be prepared
one area that leaves room for exploration is the premium
and serve that demand,” says Dary. This is particularly
sector, in which we have seen Audi take the first step, but
important when establishing a plant, as many suppliers
that is premature, taking into account that the drivers for
get burned from pouring too much capacity into their
this move were Argentina and Brazil. At this point, there is
plant, resulting in huge financial outlays. “Excess capacity
a little bit of uncertainty as to whether that quota is going
is never good. If a plant is running at 50%, it becomes
to be extended past the first quarter of 2015,” says Vildozo.
very difficult to get to a break-even point, let alone the
According to IHS, there is often a difference between the
ability to go beyond it,” concludes Dary.
| VIEW FROM THE TOP
SEEKING INTEGRATION FOR AUTOMOTIVE SUPPLY CHAIN RICARDO HANEINE Partner at A.T. Kearney Q: How is Mexico positioned in the global automotive
imported from the Midwest of the US, and transportation
industry?
costs are high. Several large global steel manufacturers
A: We look at how Mexico is positioned to participate and
have announced the creation of new plants for that type
compete within North America, Europe and Asia, based
of steel in Mexico, and this shows the value of a deeper
on the development of the global automotive supply and
supplier base. Another aspect would be to build up the local
value chains. Mexico is fairly well positioned in terms of
Mexican car market. We used to sell around 1.5 million new
the level of productivity combined with the cost of labor.
cars in Mexico every year but this has dropped to around
China was historically more competitive but the trend in
800,000 because of used car imports from the US, which
the last three or four years, with the revaluation of the
has created a distortion in the prices of cars in the country.
yuan, has made Mexico more competitive. That is why
However, the slowing down of the new vehicles market in
Mexico is now in the top two for exports to the US, which is
Mexico has not only been due to the importation of used
the only sector where China has not displaced Mexico. Our
cars. The penetration of financing for cars by banks and
focus looking ahead is on how to bring more added value
lenders has been low. In the US, 90% of cars are obtained
to the Mexican automotive sector. One important factor
through financing, and this figure is between 50 and 55%
in this is the human talent aspect. Are enough engineers
in Mexico. Increasing financing will increase the number of
graduating? Are they graduating with the right skillsets, or
new cars being bought, as will regulations controlling used
do OEMs have to train them from scratch?
car importation. NAFINSA has been giving guarantees to the banks in order to encourage them to finance cars. To
Q: How can this added value be brought to Mexico’s
date, the lack of a national registry has made it risky for
automotive supply chain?
banks to engage in automotive financing here, but that is
A: We look at whether Mexico has evolved from
being addressed. The local market should eventually pick
a
sophisticated
up to its full potential of 1.3-1.4 million new cars being sold
manufacturing processes. 80% of our production goes
a year. Right now, the local market accounts for 20% of
to exports but how much value added is generated in
production, and showing OEMs that this could increase
our country? The automotive sector accounts for 3.5%
to 30-40% should provide a nice incentive for future
of GDP and around 20% of Mexico’s exports, but the
investment.
maquiladora
industry
into
more
contribution to GDP should be much higher. The other aspect to ensure value added is to have more suppliers.
All our projects have led us to one question. Should
In many instances OEMs have arrived to Mexico with their
Mexico’s strategy be to continue being the producer and
own pre-established group of Tier 1 suppliers. These Tier
exporter of car parts and components, or should it seek to
1 suppliers often feel the Mexican supply market is too
export fully integrated cars? Many OEMs see that Mexico
fragmented and fear that the production of scale they
has the potential to increase car exports, which allows
require cannot happen here. We need to understand
the integration process to happen and begin building
how to build up our Tier 1, 2 and 3 suppliers to overcome
the needed talent, technology, and suppliers to generate
the stagnation this leads to.
much more added value. Mexico has been selected by many OEMs above other emerging markets that are
The strength of the local supply chain is key to bringing
centers for production, manufacturing, and design within
more OEMs to Mexico. Profit margins are very small in the
the automotive industry, such as Brazil, China, and Eastern
auto parts industry and we have looked at specific projects
Europe. The integration of the supply chains within NAFTA
to address this. We identified that high-resistance steel is
has been a huge help but suppliers and providers still need
key for the development of cars, but that the steel that
to fulfill the conditions and requirements that the OEMs
is manufactured in Mexico is more of a commodity. The
demand, in terms of the quality and service levels in their
sort of steel needed for the automotive industry has to be
supply chain.
17
| MEXICO’S AUTOMOTIVE PLANTS AND TRANSPORT ROUTES A 1
B
2 3
Baja California
Aguascalientes
Jalisco
Toyota 1
Nissan 8
Honda 17
A Hyundai Translead
Nissan 9
B Kenworth
10 Daimler Group - Nissan
State of Mexico
(2017-2018)
Fiat-Chrysler 18
Sonora
18
8 10
17
GM 19 San Luis Potosi
Ford 20
F Cummins
J Volvo
Chihuahua
11 BMW (2019)
K Isuzu
3 3 Ford
12 GM
L Freightliner
Coahuila
Guanajuato
Hidalgo
4 Chrysler engines
13 Mazda
M Daewoo
Chrysler 5
14 Honda
N Dina
Fiat 6
15 GM
GM 7
16 Volkswagen engines
Morelos
Freightliner C 7
G Hino
21 Nissan
Nuevo Leon
Queretaro
Puebla
Navistar D 7
H Volkswagen
22 Audi (2016)
Mercedes-Benz E 7
I Scania
23 Volkswagen
2 Ford
9
Port of Manzanillo
Port of Lazaro Cardenas
D E C 6 4
5
7
11 F 12
Port of Altamira
G 16 15 14
13
H I
M 19 20
L
N
J 18 K
21
Light Vehicles
22 23
Heavy Vehicles
Port of Veracruz
Highways
Railways
19
ROLLERCOASTER YEAR FOR THE HEAVY DUTY SECTOR 2014 is proving to be a hectic year for the heavy duty
overtake Germany as the number one exporter of Class
segment, including production records, plummeting
8 vehicles. As all class segments experienced a rise in
domestic sales and increasing exportation levels, which
production levels, ANPACT took note of an untapped
is gearing up to see industry records being broken.
segment in Mexico: Class 2b and 3 trucks. Mexico has
Miguel Elizalde Lizárraga, the Executive President of
a dedicated association that deals with light vehicles,
ANPACT, stated as much in a press release, predicting
AMIA,
that 2014 would be the heavy duty sector’s best year,
segment, but no association has done the same for the
as long as production numbers maintained the pace
middle segments. This gap led ANPACT to expand its
registered during the first half of the year. Elizalde
services, moving from focusing only on Class 4 to Class
Lizárraga attributes this boost to growing demand from
8 vehicles and up to include Class 2b and 3 models. “We
the US. “The economy of the US has been stable and
began to notice that our associates, while offering their
more industrial exports have been sent there. As a result,
customary Class 7 vehicles, were now including Class 3
manufacturing levels have risen.” In the first half of
units in their product portfolio,” says Elizalde Lizárraga.
2014, exports increased 50% for all heavy duty vehicles
This meant that ANPACT had to undergo a restructuring
compared to the same period in the previous record year
phase to accommodate this budding market segment.
2012. This growth has opened the doors to new potential
Upon including these new classes, Elizalde Lizárraga
markets for Mexican vehicles. For example, Colombia
discovered that while the government offers financial
used to be Mexico’s second largest export destination for
incentives for heavy and light vehicles, no such financial
heavy duty vehicles, but it has now fallen to fourth place.
schemes existed for other segments of the industry. “All
For Elizalde Lizárraga, this creates a perfect opportunity
regulations and norms must be applied nationwide in
to increase trade relations. “Colombia is a great potential
order to put all manufactured vehicles under the same
market to increase exports of heavy-vehicle units. This
standards, including Class 2b and 3,” he states.
while
ANPACT
represents
the
heavy
duty
will happen as long as Colombia changes some of its regulations and enforces the scrapping program to
Nevertheless, while Mexico catapulted to second place
incentivize the renewal of fleets and purchasing of new
worldwide as a main exporter of Class 8 vehicles, and
units.”
manufacturing levels soared to new heights, sales in the domestic market plummeted to an all-time low. Compared
This rise in production has led Mexico to become the
to 2013, sales dropped by 16.2%, but the drag factor this
second largest exporter worldwide of Class 8 tractors
caused on production levels was compensated by the
and trailers, having exported 63,040 units in 2014. The
boost in exports to the US. Elizalde Lizárraga attributes
vast majority of these vehicles were destined for the US,
this decrease in the domestic market to a variety of
representing 90.5%, followed by Peru with 2.6%, and
reasons. The first factor is the economic situation in Mexico,
Canada with 2.1%. Germany maintains its overall global
our economic growth from 3.9% in 2012 to 1.1% in 2013.
leadership with 85,509 exported units, but Elizalde
“Since internal sales are closely correlated to Mexico’s
Lizárraga believes that Mexico has the potential to
economic growth, this reduction had an impact on sales.”
HEAVY DUTY PRODUCTION APRIL 2014 (thousand units)
56.90 2003
123.27
101.45
86.74
78.93
86.34
84.40
56.64
55.70 2002
44.70
60
50.10
60
69.0
90
92.30
120
138.07
132.73
150
Source: AMIA
20
Jan-Apr 2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2001
2000
0
IMPORTED USED HEAVY VEHICLES JAN 2009-FEB 2014 1-5 years
within the sector. “The industry has certain regulations that all trucks must comply with, such as mandatory seatbelts, fire extinguishers and other criteria pertaining
16
to the physical and mechanical conditions of the units,”
6-10 years
9,080
Elizalde Lizárraga describes. The previous regulation
11-15 years
14,302
made allowances for extra weight capacity as long as
16-20 years
18,180
trucks complied with certain safety standards like ABS
21-25 years
6,543
brakes and specific horsepower. “The new NOM-012 is
26-30 years
2,981
proposing that double-articulated trucks will continue
31-35 years
716
to function under these standards, but single trucks and
36-40 years
284
buses will be allowed to move at their highest possible
41-45 years
106
weight capacity without these safety characteristics in
46-50 years
18
place.” Elizalde Lizárraga attributes this revised NOM-
51-55 years
11
012 as an attempt by the government to help operators
56-60 years
1
continue their businesses since they cannot afford to buy
More than 60 years Subtotal
4
newer, safer trucks. But ANPACT has an alternative in
52,242
mind. “If operators cannot purchase safe vehicles, safety
72
standards should not be lowered. Instead, you encourage
52,314
operators to buy these safe vehicles through financial
Not identified Total
incentives.” Although NAFTA allows the free flow of The second factor is the Fiscal Reform since, according
goods and states the regulation of heavy duty vehicles
to Elizalde Lizárraga, carriers and fleet owners are being
from 2009 to 2019, it also has specific environmental
more cautious about renewing their fleets until they are
regulations that must be followed. “The units that are
fully familiarized with the workings of the reform. The third
being imported conform to EPA 98 and these should
and most important variable has been the indiscriminate
not be allowed to enter Mexico, given that the country’s
importation of used trucks, where Elizalde Lizárraga
emissions standard mandates that all vehicles must meet
sees the biggest growth potential. He points to other
is EPA 04.”
“The imports of used trucks accounted for the majority of the 16.2% drop in the sales of new trucks in Mexico sold last year. Capturing that segment back would mean opening up a major market slice” Miguel Elizalde Lizárraga, Executive President of ANPACT
imbalances in the Mexican market, such as Mexico being
For Elizalde Lizárraga, it is crucial that all norms for the
the second-largest exporter of fifth-wheelers while being
automotive industry in the US and Mexico work together
the largest importer of used fifth-wheelers. The problem is
to promote better technology and vehicles, which is
further compounded by Mexico having become the main
particularly important for the renewal of the vehicle park.
importer of used trucks from the US, beating out Nigeria.
“Once all our standards are aligned with those in the US,
Where some would see this only as a negative situation,
Mexico will stop receiving all these obsolete vehicles.”
Elizalde Lizárraga sees a silver lining. “The imports of used
For the heavy duty sector, the federal government has
trucks accounted for the majority of the 16.2% drop in the
taken an important step in deterring the entry of such
sales of new trucks in Mexico sold last year. Capturing that
units by bringing Mexico closer to US standards with the
segment back would mean opening up a major market slice,
publication of the new NOM-086. This norm is renewing
which would make a huge difference to the industry. Our
outdated criteria and Elizalde Lizárraga predicts that, if
best ever year was 2007 when we sold a record number
correctly implemented, it will keep a portion of the older
of 51,000 units. If we compare this to the first semester of
vehicles off the roads. “This norm had not been updated
2014, we are 35% below that record sale.”
for the last ten years, so the new version will bring us closer to US standards,” he states. For the next few years,
High on ANPACT’s agenda is the promotion of a
ANPACT will continue to focus on improving safety and
legal framework and financial assistance scheme that
environmental regulations. “These norms must also be
encompass all segments of the industry. One of the
accompanied with aggressive financing schemes and
norms at the center of safety regulations, NOM-012, is
scrapping programs for operators,” concludes Elizalde
undergoing several changes, and has stirred controversy
Lizárraga. Source: INA
21
22
INDUSTRY REFORMS MODIFY SUPPLY CHAIN RELATIONS were previously unaccounted for. Deloitte also works with local suppliers, given the need for these to develop at the Tier 2 and Tier 3 levels of the supply chain. Nonetheless, in order to function as indirect suppliers for leading international companies, these local suppliers need to demonstrate their competitiveness. This is where Deloitte comes in. “Within the scope of our management consultancy, we advise clients on what sort of structures they need to have in place and Manuel Nieblas Rodríguez, Manufacture Industry Leader at Deloitte
Gabriel Renero, former Partner at Deloitte Consulting
then help them to implement those systems. SMEs have a lot of opportunities from a technological, process, and human capital standpoint, and we are trying to help them become
Among those advising the automotive industry, Deloitte
more sophisticated and grow as suppliers,” says Renero.
holds pride of place as its own executives say it offers its services to 80% of OEMS and Tier 1 companies in Mexico.
“The most familiar explanation of Mexico’s poor domestic
This position has been attained while Mexico has become
market is the influx of used, American cars. But while
highly competitive as a destination for foreign automotive
this is being worked on, there also needs to be better
investment. This trend has been characterized by mammoth
communication between the OEMs and the dealers. For
announcements such as Audi announce a plant in Puebla
example, a customer might enter a dealership looking for
and the BMW plant in San Luis Potosi, which have helped to
a black car with a sunroof, but the dealership only has a
keep global interest high in the Mexican market. But Gabriel
red car without a sun roof available. If this is successfully
Renero, a former Partner in Deloitte’s consulting arm, sees
sold to the customer, the OEM will receive an update from
potential developments outside the norm. “There is a big
the dealership indicating that red cars without sun roofs are
opportunity for Chinese manufacturers here. They are trying
selling well, when really the true demand was actually for
to understand how the North American market works and
the black car. This shows how recording and communicating
what they need to do in order to break into it,” he says,
the real need of the consumer is therefore key to increasing
adding that “as it stands, Chinese manufacturing is not up to
sales.” Deloitte has found this miscommunication extends
the standards required by the US for the most part. However,
to the dealership network where confusion often exists
Latin America is a good test market for them, with Mexico
about who owns customer data, how dealers should
being a particularly good opportunity.” He believes that with
report information, and to what extent this information is
the country having piqued the interest of Chinese investors, it
confidential or shareable. Many of the OEMs that have been
has secured automotive investment for many years to come.
in Mexico for a long time grew by implementing different systems for all different aspects of the sales process,
For companies unfamiliar with the Mexican tax situation,
which has resulted in many different solutions for how the
Deloitte also offers advice on tax compliance, transfer pricing
information is stored and shared. Renero suggests that all
and international taxation issues. Manuel Nieblas Rodríguez,
of this information should be integrated into one single data
a Partner specialized in auditing, explains that the most
system, which analysts could then use to mine data.
relevant issues in Mexico’s 2013 Tax Reform involve customs and importation duties. “Companies will need more capital to
As for the future of Deloitte’s services in the automotive
fund the VAT payments that are now necessary,” says Nieblas
industry, Renero predicts that the company will receive a
Rodríguez, “We are still waiting for the final regulations
raft of requests for market entry strategies as all aspects of
and requirements regarding certification to avoid the VAT
the industry grow. “Mexico may not have a large domestic
payments. The results of that will reveal the impact more
light vehicle market, but it is one of the most competitive
clearly.” However, Renero seeks to clarify one matter. “By the
markets in the world. Mexico is a price-sensitive market
very nature of their businesses, all of our clients are used to
but the luxury car segment is the fastest growing area. The
a certain level of change and uncertainty within the industry.
other sector that is creating a lot of demand for advice
This is to be expected in evolving markets around the world,
will be technology. With the development of high-tech
and most executives within the sector are used to witnessing
prototypes such as autonomous vehicles, inquiries will
change.” Therefore, Deloitte does not believe that changes
come regarding how these changes to the industry’s status
in the Mexican market are of much concern, especially when
quo will be assimilated by the consumer. Of course, this will
it comes to initiating or continuing investment. Instead,
call for a lot of interesting debate as the population tries to
companies are seeking the best way to assimilate costs that
find the balance,” concludes Renero.
23
SIGNIFICANCE OF AUTO PARTS TO MEXICO’S FOREIGN TRADE “Mature markets in Western Europe, the US, China and South
transmissions, make up 7% of Mexico’s total manufacturing
Korea should not expect to see soaring growth from their
GDP, whilst the automotive industry as a whole represents
automotive industries in the next five to six years,” predicts
16%. During 2013, Mexico was the world’s sixth largest
Oscar Albín, the Executive President of Mexico’s National
producer of auto parts with a production value of US$76.8
Autoparts Industry association (INA). He estimates that
billion, having been overtaken for fifth place by South Korea
these markets will see an average annual growth of 1.5% over
due to demand for home-sourced auto parts from Asian
that period, as opposed to a 5.8% average in Latin America
giants Hyundai and Kia, despite recording a 9.6% average
and India. Mexico’s automotive industry, in particular, is well
annual growth for auto parts over the last three years.
positioned to continue capitalizing on regional demand,
Electrical components are the most produced auto parts in
offering 16% savings on production costs when compared to
Mexico, making up for 17.4% of total production. Explaining
the US. The country is also benefiting from China’s reduced
the breadth of Mexico’s auto parts production capacity,
cost competitiveness. As a result, Mexico enjoys a positive
Albín says, “in Mexico, one can find every single component,
trade balance within the automotive sector, which reached
bumper to bumper. That being said, we are importing sub-
US$38.7 billion in 2013.
components to produce all these parts. For example, major
“We are not against the importation of used cars as this is an essential basis of our FTAs. However, there is a clear imbalance with the current situation” Oscar Albín, Executive President of INA
Vehicle production in Mexico is on target to exceed 4 million
lighting companies such as Philips, Hella, and Osram do not
units by the close of the decade, with export markets for this
have local production so they import electric bulbs for head
output expected to diversify. Back in 2002, 85% of Mexico’s
and tail lamps that are made in Mexico.” In 2013, the sector
vehicle exports went to the US, but this figure dropped to
employed 637,800 people and this is expected to rise to
68% in 2013 as the Canadian, Latin American, and European
almost 800,000 by the end of the decade. INA calculates
markets grew in importance. It is predicted that Mexico will
that each job created by an OEM leads to seven jobs being
produce 24% of NAFTA’s predicted 17.9 million vehicles by
created in the auto parts sector. US$57.83 billion in auto
2020. Albín believes that Mexico actually has the capacity to
parts were exported from Mexico in 2013, with 90.1% going
surpass this target, and to represent up to 50% of NAFTA’s
to the US, followed by Canada, and Brazil.
vehicle manufacturing. However, he stresses that increasing the country’s capacity to produce technologically advanced
The total value of Mexico’s auto parts production is forecasted
vehicles is crucial. Auto parts, including engines and
to reach US$81.5 billion in 2014, and is set to top US$94 billion
AUTO PARTS PRODUCTION BY COUNTRY 400
1st
350 300 250
2nd 3rd
200 150 100
Source: INA
24
13th
17th
22th Others
10th
Sweden
9th
France
8th
Spain
Mexico
South Korea
Germany
US
Japan
China
0
Brazil
7th
Italy
6th
Thailand
5th
India
4th
50
AUTO PARTS PRODUCTION MEXICO 2005-2019
57.60
55.76 2008
94.74
93.71
92.98
87.61
81.49
76.80
39.94
57.70 2007
49.29
40
54.56
60
73.13
67.99
80
91.50
100
20
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2006
2005
0
by 2020. The northern states maintain their historic hold on
balance between the countries due to the fact that Mexico
the industry, representing 53.6% of auto parts manufacturing
does not have exports to either of the Asian powerhouses.
activity. However, a huge influx of investment has seen the Bajio claim over 26%, followed by Coahuila with 18.2%. The
Looking to the future, INA sees Mexico’s success as being
move towards the center of the country is testament to the
dependent on the evolution of two major axes. The first
increasing diversification of export destinations, with access
is the promotion of the domestic market to a level that
to ports becoming increasingly important. Albín believes that
encourages significant investment, and the second is the
the major Latin American economies must work together to
development of Mexico as a top three destination for the
ensure that this diversification continues. “We need to work
design and production of vehicles and their components.
closely with Argentina and Brazil to develop synergies that
Tackling the first hurdle cannot be done without addressing
will benefit us all. We must also ensure that any such benefits
the inhibiting effect of used vehicle importation from
are balanced, as in the past, some countries have benefited
the US, which equated to 644,209 vehicles in 2013. The
more than others in certain similar situations,” asserts Albín.
cascade of used cars into Mexico has led to a situation
Figures show that harnesses were Mexico’s most exported
where 20% of cars on the road today are over 25 years old.
auto part in 2013, followed by seats and related parts, as
“We are not against the importation of used cars as this
well as airbags. With growth of 28%, electrical parts saw the
is an essential basis of our FTAs. However, there is a clear
biggest increase in exportation compared to 2012, followed
imbalance with the current situation. Cars that are only fit
by catalytic converters which experienced a 26% increase.
for scrap in the US are being imported for use in Mexico
In terms of imports, the US remains the largest supplier of
and this must be regulated,” says Albín. INA believes that
auto parts to Mexico, followed by China and South Korea,
the battle on this front can only be won in time through the
providing 54.6%, 11.7%, and 6.1% respectively. Mexico’s
application of emissions standards, mandatory mechanical
reliance on imports from China and South Korea is something
tests, and increased regulation to allow only vehicles in
that INA hopes will change as it has created a negative trade
good condition being imported.
14.2%
0.3%
0.2% Hidalgo
Chiapas
Zacatecas
Mexico City
Morelos
State of Mexico
Nuevo Leon
Chihuahua
Coahuila
0
Sinaloa
0.7% Tlaxcala
0.4%
0.9% Durango
0.5%
1.4% Baja California
1.7%
1.8%
3.3% Jalisco
4.8% Aguascalientes
3.6%
5.3% San Luis Potosi
20
Sonora
5.7%
6.3% Queretaro
Tamaulipaas
6.3%
40
Guanajuato
7.3%
60
6.5%
10.5%
80
Puebla
100
18.2%
AUTO PARTS PRODUCTION BY STATE
Source: INA
25
GERMAN KNOWHOW GROWS AS INVESTMENTS FLOURISH Mexico was the emerging market most extolled at the 2014
operations in Mexico have seen the company invest a total
World Economic Forum in Davos, with some US$7 billion
of US$8 billion. Its plant in Puebla, one of the largest in the
in investments being announced by global conglomerates
world, employs a work force of 17,000 employees, and has so
including PepsiCo, Cisco, and Nestlé. Along with Japan,
far produced more than 10 million cars for the global market.
much of the automotive investment into Mexico is coming
Mercedes-Benz also has its production sights set on Mexico,
from Germany. A significant chunk of the US$10 billion in
with the company’s Mexico President Pedro Tabera saying
automotive industry investments projected to enter Mexico
that “the existing automotive industry and the number
in the coming years is set to come from German entities
of cars being produced are a few of the great advantages
such as BMW and Daimler as well as major suppliers. The
in Mexico. The supply chain is also robust and there is a
President of the Mexican-German Chamber of Commerce
good labor force with low salaries.” The premium OEM has
(CAMEXA) Johannes Hauser explains that “there has been
identified opportunities in the local market and is planning to
a long history of German companies investing in Mexico,
branch out into the market for new generation compact cars
and today the automotive sector in the country is the most
through its A, B, CLA, and GLA classes. Whilst Mercedes-
important as far as Germany is concerned.” CAMEXA is part
Benz has not yet produced vehicles in Mexico, whisperings
of a three-pronged German investment promotion drive
of an imminent investment have been confirmed. Daimler will
powered by the German Embassy, Germany Trade and
produce small Infiniti and Mercedes-Benz luxury vehicles in
Invest, and CAMEXA.
collaboration with Nissan in Aguascalientes.
A CAMEXA survey released in the last quarter of 2013 reveals
The hype surrounding the impending announcement of a
that the investment intentions of German automotive industry
production plant investment by another premium German
players in Mexico remain strong, as 61% of interviewed German
OEM, BMW, paid off and those that placed their bets on
companies currently in Mexico have further investment plans
the Bajio as the location of choice were only slightly off
for 2014. In addition, 43% of these plan to increase their
the mark. At the start of July 2014, BMW finally confirmed
workforce in the coming year. These positive expansion
a US$1 billion investment in Mexico’s state of San Luis
projections come despite a general market slowdown seen
Potosi. BMW’s first plant in Mexico is scheduled to begin
in 2013. 75% of companies surveyed in 2012 reported profit
production in 2019 and will employ some 1,500 staff. The
increases, whilst only half of these reported growth in 2013.
announcement of a production plant by one of the most
Of those companies that did see growth in 2013, only 19%
technologically advanced OEMs can also only mean
reported an increase of more than 10%. Hauser stipulated
good things for Mexico’s future as a contender for R&D.
that the survey highlights a consistently positive trend in the
Indicating that technology development within Mexico by
development of German industry in Mexico. “Most companies
notoriously meticulous German OEMs is perhaps not such a
want to invest in the country and many plans to hire new staff.
far off dream, BMW’s Marketing Manager Hernando Carvajal
But we know that companies with a focus on the domestic
reveals that “BMW is currently only industrializing products
market have had a much more complicated time than those
in Mexico that have been developed by our headquarters.
with export-minded activities.” The survey also revealed that
However, this is an area that will certainly present long-term
the security perception of Mexico in Germany is improving.
opportunities in terms of generating more local R&D, not
Over half of survey respondents indicated that the security
only for BMW but also for the whole industry.”
situation was having a diminishing impact on their business operations, with just 39% reporting that insecurity affected
Suppliers themselves have seen no shortage of opportunity
their business compared to 49% in 2011.
brought about by the influx of German OEMs, with many Tier 1s following their clients to establish plants in Mexico.
26
Hauser’s reference to Germany’s long history of investment
Even before BMW has made a single car in Mexico, it
in Mexico is clearly evidenced by the celebration at the
is already contributing to the country’s supply chain
beginning of 2014 of Volkswagen’s 50th year of operations
development. “BMW is providing an example of how you
in the country. The OEM’s production levels in Mexico have
can integrate local companies into the supply chain. It
increased in the last five years to over 600,000 cars and
has actually developed a dedicated program for Mexican
500,000 engines. Marking the commencement of its sixth
suppliers as it is purchasing almost US$2 billion a year for
decade in Mexico, the OEM giant simultaneously announced
production sites all over the world. Audi will be the first
the onset of production of the seventh-generation Golf in
company to produce premium cars in Mexico, and will
Mexico, demonstrating its confidence in the country as a
increase the quality and technological capabilities of local
long-term automotive production hub. Volkswagen’s 50-year
suppliers,” explains Hauser.
CHINA VS MEXICO: LOW-COST MANUFACTURING SHOWDOWN On the global economic stage, China has played the role
spending spree of US$10 billion for manufacturing sites
of the unstoppable cost competitor to perfection by
in Mexico. The main pillar that has helped Mexico lure
producing cheap manufactured goods. But an old actor is
billions in foreign investment and spur the creation of a
making a comeback. For the first time in a decade, Mexico
dynamic manufacturing sector has been its cheap labor.
is becoming a credible competitor to China. Mexico’s share
Traditionally, China’s greatest advantage was its low
of North American production has tripled to approximately
labor costs that were a fraction of the hourly wage of
20% since 1994. Coupled with the 2008 recession, this
factory workers in Europe or the US. Nevertheless, the
has heralded a significant shift of production to Mexico
wage gap between China and Mexico has been closed,
from both the US and Canada. By 2020, Mexico will have
with a Chinese factory worker earning about US$4.50
the capacity to build one in every four vehicles in North
per hour compared to US$2.70 for their Mexican
America, a massive leap from one in six in 2012. Low labor
counterpart. Mexican wages that were once nearly
costs, geographical proximity, and government incentives
double China’s are now 20% lower, and are predicted
have each helped spur the shift, and with such favorable
to be 30% lower by 2015. Additionally, Mexican factory
conditions, transnational companies based in China are
wages are considered to be among the most stable in the
now considering relocating to Mexico to better serve the
world, even when accounting for inflation. This stability
NAFTA region and its surrounding markets.
is attractive to companies looking to make long-term investments in new offshore manufacturing sites. Some
Since NAFTA, trade relationships between the US,
regions in China have even experienced wage increases
Canada, and Mexico have significantly strengthened.
of up to 20% per year. Cheap labor costs have proven to
Economists have identified that the American economy
be a double edged sword for Mexico’s economic growth
benefits
manufacturing
and stability. While these stood as a pillar for attracting
to Mexico rather than to China since there is more
far
more
by
outsourcing
FDI, they are predicted to drag the economy in the long
production sharing. For example, 40% of the parts used
term. Between 2005 and 2012, labor income per capita in
in Mexican manufacturing come from the US, while
Mexico fell 6% according to the National Council for the
only 4% of parts used in China have a US origin. Also,
Evaluation of Social Development Policy (CONEVAL).
Mexico has more FTAs than any other nation, covering 45
Lower income means less private consumption, which
countries, which is more than the US with its 20 partners
in turn represents two-thirds of the GDP. Approximately
and China’s 18 combined. Mexico’s close proximity to
58% of the active Mexican labor force is informally
the biggest consumer market in the world, the US, is
employed, which signifies weak tax revenues and many
another major advantage. Shipping times between
workers having little power to demand higher pay.
Mexico and the US are significantly less versus China and the US, which results in a cost advantage and the
As Mexico treads the wage tightrope, the commercial
opportunity to create leaner supply chains. Additionally,
relationship between China and Mexico is evolving.
if quality issues with products should arise, it is easier,
According to ProMéxico, Mexican exports to China in
less expensive, and more efficient to send products back
2013 amounted to US$6.4 billion while imports from there
to Mexico for reprocessing. In fact, goods can be shipped
reached US$61.3 billion, of which 92% corresponded to the
from a manufacturing site in Mexico to North America
procurement of parts and components. In the past, this
in less than a day thanks to existing road and railway
commercial deficit with China was seen as a disadvantage,
connectivity. However, to ship from China to the NAFTA
but Mexican companies can now be competitive in the
region can take several weeks, and factors such as
global value chain. Furthermore, close ties with China
customs delays can introduce potential unknown costs.
enable Mexico to increase its exportable portfolio of goods to balance out and counteract this commercial deficit. As
There are other less obvious advantages to manufacturing
more investors evaluate the possibility of relocating to
in Mexico, one of them being the protection of
Mexico, the second step will entail incentivizing Chinese
intellectual property. It is important that a nation’s legal
investors to move to Mexico to better serve the NAFTA
infrastructure ensures the security of products and a
region. China is no longer seen as an invincible opponent
company’s ability to secure its investments in product
from the point of view of competitiveness, but as a
development. Mexico has clear norms delineating this
strategic partner. According to Ildefonso Guajardo, the
issue and companies seem to have more confidence
Minister of Economy, both countries will benefit far more
in
from a strategic collaboration than simply moving from
Mexican
courts
enforcing
intellectual
property
rights. Notably, the automotive industry is going on a
trade conflict to trade conflict.
27
28
Vehicle production in Mexico is forecasted to increase 39% by 2017, after record figures were already posted in 2013. An impressive 2,933,465 vehicles were manufactured in the country last year, of which 82.1 % were exported. Mexico’s 18 production sites in 11 states are being steadily added to as new plant investments continue to be announced by OEMs, and it is no longer just the historically outperforming Northern star that is rising. With Mexico’s export base seeing steady diversification, the North American border is no longer the final frontier, and access to Mexico’s ports has become critical for many. This has led to the firm positioning of the central region of the country as a hub for the Mexican automotive sector, and the area has seen unprecedented investment in recent years.
This chapter looks at the importance of the expanding presence of the light vehicle OEMs in Mexico’s development as an automotive manufacturing hub, as well as the development ambitions of the major players. Key OEMs discuss the crucial decisions underlying their investment moves within Mexico, the changing role of Mexico in the global supply chain, ambitions to initiate more in-country value added activity, and the impact of the sector’s development on the domestic supply chain. It examines the production levels and expansion plans of the top producers and looks at the impact of growing competition on the sector. As well as strategic insights directly from the CEOs, leading Purchasing Managers shed light on the factors driving procurement programs as localization measures create opportunities for Mexico’s supply base.
LIGHT VEHICLES
2
30
CHAPTER 2: LIGHT VEHICLES 32
VIEW FROM THE TOP: Mexican Market Must Break Decade-Long Stagnation
33
VIEW FROM THE TOP: Purchasing Strategies in New Automotive Landscape
34
VIEW FROM THE TOP: Original OEM Presence Continues to Invest
37
Securing Rock Solid Presence from Small Market Share
38
50 Years of Evolving with Mexican Automotive Dreams
39
VIEW FROM THE TOP: Matching Right Vehicles to Desires of Mexican Market
40
VEHICLE SPOTLIGHT: Volkswagen Golf VII
42
VIEW FROM THE TOP: Innovation and Brand Image Ensure Continued Success in Mexico
44
VIEW FROM THE TOP: Bringing Right Premium Models to Mexican Market
46
British Luxury Brand Keeps on Roaring
49
Safety and Trust Key to Claiming Slice of Premium Pie
50
VIEW FROM THE TOP: French Giant Seeks to Bring Diversity
52
VIEW FROM THE TOP: Record Production Levels Depend on Strong Supplier Base
52
Experienced Player’s Next Steps
54
VIEW FROM THE TOP: Mexico Benefits from Yen Exposure Vulnerabilities
54
Mazda SkyActiv Raises the Bar
57
VIEW FROM THE TOP: Younger Customers to Anchor New Era in Mexico
58
Preserving Iconic Status with Niche Market Share
59
Impact of Recalls on the Wider Automotive Industry
31
| VIEW FROM THE TOP
MEXICAN MARKET MUST BREAK DECADE-LONG STAGNATION EDUARDO SOLÍS Executive President of AMIA Q: What are the main priorities of AMIA and how do you
In Mexico, there is currently no such incentive. Five years
interact with the government to address your concerns?
ago, there was a 30% return on taxes, but this was taken
A: We have four major elements. The first is to reactivate
away completely after we lobbied for it to be increased.
the domestic market. We must do something to bring
This is because the government sees these incentives as
back the internal market to where it ought to be. 2013
a cost, not an investment. It viewed Mexico’s tax return
closed with the sale of just over 1 million vehicles internally
as creating a hole in its finances. That was under another
in Mexico, just above the 2012 sales of 980,000 vehicles.
administration and different legislatures, however. We
The market should be at 1.8-1.9 million vehicles at least.
must now work with the government that is currently
Despite the almost 9% increase from 2012 to 2013, the
in place.
numbers we have now are still too small. These numbers are similar to the ones that were seen ten years ago, and
Q: Do you believe Mexico missed the opportunity to
highlight what I call the “lost decade” in the domestic
establish a Mexican OEM?
automotive market. The numbers for the first quarter of
A: Today, I believe we still have the opportunity to create a
2005 were the same as those seen in the first quarter of
Mexican OEM. We need a major Mexican tycoon to decide
2014, and this comes after a period of constant growth in
that they want to get into the automotive industry. An
the internal market. The second pillar is to ensure the right
OEM was almost created through a joint venture between
business environment. We now need to continue working
Grupo Salinas and a Chinese firm, but the project was
on the supply chain, incentives, cost of utilities, human
shelved during the crisis of 2008. Mexico will eventually
resources, and quality. The third pillar is international
have a Mexican-owned OEM, but I do not think that this
market access. We have FTAs with more than 40 countries,
is absolutely vital. The automotive industry has already
but for a country like Mexico that exports more than 80%
become very globalized. For example, how American can
of its production, it is very important to continue looking
we say General Motors is nowadays? Therefore, OEMs
for new markets. Last year, we created a new agreement
being present in Mexico is more important as opposed to
with Peru and consolidated the existing one with Central
whom they are owned by.
America. We are on the right track, but we must continue to actively expand our markets. The fourth pillar is the
Q: What is your outlook on the potential growth of the
scaling up of the value chain all the way to engineering,
Mexican automotive industry?
innovation, and research and development. Studies show
A: Export growth depends on the demand of the
that more engineers are currently graduating in Mexico
countries on which our production depends. The US
than in the US, and we need to take advantage of that.
has been growing steadily since the 2008 crisis. That
We need to present Mexico not only as a manufacturing
crisis hit the Mexican automotive industry hard, and we
country but also as an engineering base. Thankfully, we
have been gradually recuperating. The contraction in
have already begun this transformation, and companies
the European market has also been a big loss for us, as
are taking notice of this.
Europe represents 8.5% of our total exports. We need to increase our presence in those markets we are already in.
32
Q: Does AMIA directly lobby for the creation of R&D
For example, while Japan has decreased its exports to
projects for the Mexican automotive industry?
the US, Mexico will continue increasing its market share.
A: We do lobby the OEMs to bring their R&D projects
We could be as high as 12-13% in the next three to four
to Mexico, but the government has to create the
years. A 1% increase for Mexico in the US automotive
right incentives and implement an adequate business
market share represents about 140,000 vehicles, so each
atmosphere in order for them to reap the benefits. For
percentage means a new plant, which requires a relatively
example, if a company takes an automotive R&D center to
big investment, the economic benefits of which should
China, it will receive a 100% tax return on its investment.
not be underestimated.
| VIEW FROM THE TOP
PURCHASING STRATEGIES IN NEW AUTOMOTIVE LANDSCAPE RAYMUNDO GARZA Purchasing Director of General Motors México Q: How does Mexico match up to other emerging markets
across the entire supply chain. We make outsourcing
as a procurement and production base for GM?
decisions based on a variety of factors, and cost is just one
A: A number of factors distinguish Mexico, including the
of those. Quality is one of the most important factors so
availability of raw materials and labor costs. Labor costs
we assess suppliers’ manufacturing capabilities to ensure
are extremely important to optimize manufacturing
that they can consistently meet our quality requirements.
capabilities, and we have lower labor costs here in Mexico
We hold our Tier 1, 2, 3 suppliers responsible for ensuring
than even markets like Thailand. Of course the other
they can meet these strict standards. We are moving in
major benefit is being close to our biggest market, the
the direction of selecting suppliers that are close to our
US, which enables us to optimize our logistics costs. There
facilities in order to reduce costs. In terms of logistics, we
are other potential benefits that come from using Mexico
have different strategies to optimize the process. Of course,
as a production hub, such as the government’s efforts to
we are always trying to optimize the costs of moving goods,
reduce energy costs. If Mexico is successful in doing that,
such as using trains instead of trucks where possible. This is
it really will be extremely competitive. The impact of the
a big country and we are working with the government and
automotive industry on the entire economy of Mexico has
suppliers to try and improve infrastructure.
the potential to be huge over the next couple of years, given how far its economic impact would be felt. I have
Q: Only 15% of GM’s parts and vehicles produced in
seen this happen in other countries, and I do not think
Mexico remains in the country. Do you see this changing
people here really even realize how big the impact can be.
in the future? A: The vast majority of our production goes to North
Q: What key factors are currently influencing purchasing
America. What will change is that the amount of components
strategies within the industry?
produced in Mexico will increase for the cars being produced
A: Purchasing managers are always looking for alternatives
in Mexico. Currently 50-70% of the parts are produced here,
to reduce costs. That applies to all areas, including
but we would like to increase that to 90%. Logistics are very
manufacturing, quality, and logistics, in order to make sure
expensive, and the goal will always be to produce needed
we bring the best value for the company. Our strategies
components for the cars as close to the production plants
also revolve around the availability of HR, particularly
as possible. That means aiming to produce components in
technical expertise, and the capability of the graduates
Mexico for Mexico, while the same applies in the US.
coming out of university. Other areas of concern include the environment, the availability of credit, and so on.
Q: In what ways is GM helping Mexican engineers to develop the right skillsets to succeed in the automotive
Q: How does GM approach supplier development to
industry?
create mutually beneficial OEM-supplier relations?
A: Mexico has a lot of public and private establishments
A: In general terms, we work in partnership with our suppliers
and the government is working hard to make sure that the
both globally and locally to try and bring technology to
right programs are in place to train engineers. A number
the market. To create this sustainable relation, we support
of states are prioritizing engineering studies that focus on
suppliers through a variety of programs. We encourage
aerospace and automotive, which is a new development.
them to develop their skills so that they can establish long-
I do not foresee a big problem concerning a shortage
standing relationships with us, by ensuring that they fully
of HR. This might become an issue in certain areas but
understand our requirements. Our Mexican suppliers are
it can be overcome. Doing so is really about private
taking the same approach as our global ones by investing in
companies working together with the public sector and
R&D and innovation. They really understand what they need
the government. GM provides training to its suppliers and
to do to be successful, not only in Mexico but also in the
we work together with public institutions to enable them
global market. We must ensure that quality is maintained
to offer the same training to their workers.
33
| VIEW FROM THE TOP
ORIGINAL OEM PRESENCE CONTINUES TO INVEST GABRIEL LÓPEZ President and Director General of Ford Mexico
Q: You came to Mexico in 2010 when the automotive
and our local sourcing of materials. Ford has long had
industry was mired in recession. What were your main
an engineering presence in Mexico, because plants need
concerns and priorities at the time?
a support presence, but it was becoming more and more
A: The crisis was not over when I arrived, but we could
difficult to get good quality engineers in Detroit. This was
see the light at the end of the tunnel. The industry was
largely because the financial crisis forced people away
still in recovery, especially in North America, which is the
from Detroit and engineering careers lacked a glamorous
market that affects Ford the most. Our main objective at
perception in the US in the 1990s and early 2000s. The
the time was restructuring Ford North America along with
number of people in the engineering field has been
the rest of the corporation. We had to undergo a strong
dropping over the years in the US, Europe, and Japan. In
restructuring in terms of engineering and production
contrast, the Mexican government decided to promote
capacity. The second area of concern was to grow our
engineering as a career in universities, and the country
presence in Latin America by increasing our manufacturing
is now producing more engineers than the entire EU. On
facilities and engineering capabilities. This plan has been
top of that, the cost of an engineer here is about half of
very aggressive, and we have invested a little over US$5.5
the cost in the US, while we knew that labor in our plants
billion in Mexico since.
was highly skilled and disciplined. For these reasons, we decided to increase the amount of engineers we had in
Q: How exactly did you improve Ford’s production
Mexico. Our objective was to have 1,000 engineers by
facilities?
the end of 2013, although it is also a matter of the work
A: We grew the capacity of our plant in Hermosillo, which
they are tasked with. An engineer straight from university
used to be the sole global production facility for the
understands the basics of engineering but not the unique
Fusion. It will now also be produced in Flat Rock, Michigan,
complexities of the automotive industry. We put our
as Hermosillo can no longer satisfy production demand
engineers through a very aggressive and comprehensive
alone for two reasons. Firstly, demand has increased as the
training plan that includes time in the classroom, as well
industry has recovered. Secondly, the Fusion has been more
as time spent at Ford’s main engineering facility in Detroit.
successful than we planned for, with our segment share in
The complexities of the tasks being delivered by our
the US growing faster than expected. We also decided to
Mexican engineering team have been increasing over time.
build a second engine plant in Chihuahua alongside the
Our local team will soon be able to develop the top hat
one we have had there for 30 years. The second plant will
of the vehicle, which is the main driver of the purchasing
produce the V8 engine for large and medium-duty trucks
decision of customers. The team will be able to develop full
like the F-Series. That plant started up in 2010 and we
top hats in 2014, which shows their capability has grown
have dedicated a lot of time to ensure it reached a stable
to be on par with other engineering facilities around the
level of production. We also fully refurbished our oldest
world. Ford’s core engineering is still done in Dearborn,
Mexican plant in Cuautitlán. Throughout its history, that
Michigan, and Cologne, Germany, but Mexico is third in
plant has produced a range of vehicles, ranging from full
terms of capability. We have tried to replicate the same
car assembly to a half truck, half car production until 2007.
processes in Brazil and China, but the performance in
But the plant was inefficient and not of the quality Ford
Mexico has been the best.
expected. We totally refurbished it and turned it into a car assembly plant. In 2010, it began manufacturing the Fiesta.
Q: What advantages has Ford received from being an early investor in Mexico?
34
Q: Why did Ford decide to make such a large investment
A: We have been in Mexico for 88 years, so it is natural for us
in Mexico?
to make regular investments as our need for extra capacity
A: In parallel to developing our plants, the most challenging
has increased. Ford has also wanted to take advantage of
undertakings were to grow our engineering capability
the competitive cost and quality benefits Mexico offers.
The availability of both skilled and low-skilled labor has
They created a process which takes thirty minutes using
been a major attraction. About 50% of the population
mathematical models in software that designs the piece
here is younger than 25 years old, which will lead to a
itself. We have been using the same processes forever and
steady workforce supply over the next 20 years. Mexico’s
suddenly these young engineers in Mexico are surprising
12 free trade agreements also offered many benefits
us with new innovations. This has made Ford’s top product
for us. While other countries have built walls to protect
management developers stand up and pay attention.
themselves, Mexico really opened itself up to the free flow of merchandise around the world. The influx of investment
Q: What is Ford’s strategy for investing in new technology?
is also bringing opportunities in terms of suppliers coming
A: Ford invests in technology because it is part of how it
in, which gives us more options as there used to be only a
views the automotive business. We have always tried to
few suppliers in Mexico. Five years ago, we were purchasing
innovate for our customers. This started way back when
around US$500 million of production materials in Mexico,
Ford was the first to use the assembly line. Ford’s main
while last year we bought over US$9 billion of materials in
philosophy is not to have technology for technology’s
Mexico. We have been investing in our plants but also in our
sake, but to apply it to a wide selection of vehicles and
suppliers. This investment has helped to grow their capacity
make it available to the masses. We are not Mercedes-
so they can supply high-quality, low-cost materials to our
Benz or BMW that use technology to justify a premium
plants in Mexico and around the world.
brand. We want everyone to be able to benefit from better safety, lower emissions, and lower congestion. We are also
Q: What have been the key achievements of Mexican
working on telematics, data exchange, and alternative
engineers that have forced the industry to recognise their
fuels. The future of propulsion systems is a matter we
strengths?
have been tackling for some time. We are asking what the
A: Firstly, our engineering management team in Mexico
engine of the future will be like, whether it will be electric,
has a great deal of experience and has put together an
hybrid electric, or the fuel cell. Nobody knows for sure. It
excellent employee development plan. The team members
will depend on which technology becomes affordable for
are offered the chance to develop their management skills
the masses and meets their requirements. Electric vehicles
as well as their technical skills. Going from 100 engineers to
have the lowest level of emissions from production to end
1,000 means you need to find those people that can make
user, but their limited cruising range and lengthy refuelling
the right decisions and train them as supervisors, managers,
time does not make them useable for the masses. The
and directors. Developing your business also means
battery life and capability is increasing but we do not know
retaining the right people and removing the ones that will
how far they will improve. For now, hybrids are the most
not get where they need to be. We were disciplined in
viable choice, as drivers can use the electric or gas modes.
implementing the required procedures to control operations and work flow. Discipline was built in from the bottom up to
Q: Mexico has a young population, which is great from
make sure that everybody knew their priorities and which
a sales perspective. What should make Ford the car of
issues needed to be tackled at the right point in time. We
choice for these new consumers?
have very strict metrics to monitor performance, and when
A: There is a lot of potential for growth but many things
we measure these results, we see that the Mexican team
need to happen for it to materialize. For the last few years,
has really outperformed other teams. We will move beyond
local sales have stalled at around 1 million new units, dipping
the top hats and increase its ability to deliver sophisticated
to 700,000 during the deepest part of the recession. By
engineering and design projects.
comparing the Mexican market with the Brazilian market, Mexico should be selling about 2 million units. In 2013, it sold
Every single engineer in Mexico has some objective
near to 1.1 million so we have a long way to go. As for why
that Ford does not have elsewhere in the world. These
customers should choose Ford, we have the right strategy
objectives revolve around innovation, including very
in terms of product. We offer the same products all over the
complex designs, like the surface of the roof trim. The roof
world, so no one feels left behind. Why should consumers in
trim may look simple but it is incredibly complex to design,
Mexico not have access to the same model of the Fiesta as
as it must comply with safety and appearance requirements
those in Paris? The other elements center around our core
while also being high quality and low cost. This was done
areas. Safety is key and we are the only manufacturer in
at our design center in the US where designing that
Mexico to offer airbags in all of our units. We are constantly
one piece could take six weeks. We assigned this task
working to ensure we have the best fuel economy and the
to a group of young Mexican engineers and asked them
best quality. We have made vast improvements in these
to reduce the process time from six weeks to one day.
areas but a lot of work remains to be done.
35
36
SECURING ROCK SOLID PRESENCE FROM SMALL MARKET SHARE Peugeot Mexico’s Director General, Raúl Peñafiel, states
small and reasonably-priced cars, loaded up with the latest
that
concerning
safety items and can rest easy in the knowledge that they
the Mexican market. “Four years ago, Peugeot had a
will be driving a rare car in this market. The ideal customers
particularly Eurocentric way of thinking. Fully entering the
for Peugeot are young, middle-class professionals, a more
global environment forced us to make certain adaptations,”
discerning level of clients for whom the European range of
he explains. “We realized we were arriving too late to the
vehicles is thought to be best-suited.
Peugeot
has
changed
its
attitude
markets and sometimes released products which were not ready for the conditions of markets like Mexico, Chile, or
To maintain this level of proximity with the customer, Peugeot
Nigeria.” He explains that Peugeot began a new chapter
had to make sure that its quality processes and dealers were
four years ago, with the French automaker vowing to
rock solid. To ensure this solidity is maintained, it has rolled
improve its positioning in the global market. In 2012, Europe
out the “Peugeot Cumple” program, which sees all its dealers
accounted for 37% of Peugeot’s sales, which reached 43%
having to be certified by Deloitte on certain quality standards.
in 2013 and is forecasted to increase to 50% in 2016. “This
“Through those standards, they must follow our processes
does not mean that Peugeot is focusing too much of its
in their workshops and in their commercial activities. If
attention close to home as its annual global growth of 10%
they do not achieve this certification, their profitability will
in 2012 was also fueled by sales in China and the Americas,”
suffer. If they still do not achieve it after a year, they lose
explains Peñafiel. Where Argentina grew 28% in 2013,
our business,” explains Peñafiel. He adds that this complex
Peñafiel states that the sales targets for Mexico and Chile
system does not intend to punish the dealers but is a part
were to increase sales by 40% in the same year.
of Peugeot’s capacitation program. This program has also sparked collaboration with the Technological Institute of
Peñafiel states that these high growth expectations are
Queretaro, in which a virtual workshop was created for use in
accompanied by a new strategy for the launching of new
industrial and engineering classes. The reach of this resource
vehicles, one in which Mexico has been included from the
has been extended outside the academic sphere as it is
very beginning. The particular demands of the Mexican
also used to train Peugeot’s aftersales team. This capacity
customer were taken on board for the launches of the
building program, coupled with Peugeot’s modest size in
Peugeot 208, 301, and the 308, winner of European Car
Mexico, has allowed its dealers in Mexico to have the parts in
of the Year, as well as the Tepee multi-purpose vehicle.
stock to meet 96.7% of customer problems. This even beats
The fall-out from this strategy led to a situation where
out the objective service rate of 95% Peugeot has achieved
Peugeot’s dealers in Mexico grew worried that repairs and
in France. For the remaining 3%, Peugeot is able to dispatch
aftermarket services had dropped. “This indicates that
the spare part and have it at the right distributor in 72 hours.
the jump in quality and our adaptation to Mexico’s market conditions were successful. This has become a challenge
To cut down on any problems, Peugeot is seeking to equip
for our dealers since they have to sell a lot of cars to
its vehicles in Mexico with the latest safety solutions but this
compensate, but it is good news for us,” says Peñafiel.
has not always been a priority for the Mexican consumer, according to Peñafiel. He admits that not all Mexican
However, Peugeot still has ground to make up in Mexico in
consumers are aware of the importance of safety, but this
terms of brand penetration, as opposed to its well-known
is no real concern for Peugeot which makes sure to include
status in Argentina where it claims 10% of the market. In
ABS, Isofix systems, double airbags, and emergency brake
Mexico, Peugeot’s market share is just 0.6%. Part of Peñafiel’s
assist in its vehicles. “You cannot find these systems in our
priorities for the future is to roll out a brand image strategy
competitors’ standard range of cars. Peugeot operates
to increase sales. Executing that strategy in Mexico differs
within 1% of the market but the customers that buy our
widely from Peugeot’s strategy in markets where it is already
vehicles will always have access to both safety and
strong. “Other markets involve a lot of benchmarking. There
comfort. Utilizing technology to create a difference in the
are instances where Peugeot is the leader and everybody
brand is crucial.” The carmaker’s latest slogan “Motion &
looks at what we are doing. In other cases, we view what
Emotion” is tied into its vision of a new driving experience.
others are doing. Although Mexico is heavily influenced by
For example, Peñafiel notes that Mexican drivers of the
the US, the Mexican customers also look to the example of
208 have noticed its cockpit is organized differently than
Europe. We find a space in the market among those who are
the Mexican norm and the driving position is also different.
keen to drive a different car.” Peñafiel explains that it is the
He states that Peugeot knew this design would stand out
unique advantages of the Peugeot brand that will attract
in Mexico from the very beginning. “It may be seen as a risk
Mexican drivers, listing as advantages that they will find
for us, but it will be a real advantage in Mexico.”
37
50 YEARS OF EVOLVING WITH MEXICAN AUTOMOTIVE DREAMS Few car companies have been part of the tapestry of the
car similar to the Golf has the technological advancements
Mexican automotive industry as much as Volkswagen.
that the new Golf has. The Golf VII not only looks good, it
Its flagship vehicle, the Volkswagen Beetle, remains one
also has more innovation than before. The new generation
of the most evocative cars in the country decades after
of engines offers the entire spectrum of alternative drives.
its launch in Mexico. Known as “Vocho” or “Vochito”, the
The Golf VII marks the start of a new era for the world and
Beetle has been part of the lives of many Mexican families
for the Volkswagen brand in North America.”
that found it a reliable yet economic car. This sentimental attachment to the Beetle was addressed by Ildefonso
According to Hinrichs, this success in Mexico today is
Guajardo, Mexico’s Minister of Economy, during the
proof that Volkswagen was strengthened here as the
celebration to mark the 60th anniversary of Volkswagen
local automotive industry grew. “Since 1974, Volkswagen
doing business in Mexico and 50 years since the creation
has manufactured 10 million cars and 11 million engines
of Volkswagen de México. Guajuardo referenced the 1970s,
in Mexico. Puebla is the fifth-largest Volkswagen factory
a decade during which “the Vochito was the first car of
outside Europe and ships products to all the markets where
many young professionals. The personal story that many
we are present,” explains Hinrichs. But the assembled
Mexicans have with Volkswagen is reflected in the great
dignitaries were quick to add that Volkswagen’s influence
story that the company has built alongside the Mexican
in Mexico went beyond mere economic contributions.
economy,” he stated.
“The impact of the company could also be measured in more than three generations of men and women who have
When the company arrived to Mexico in 1964, it was
contributed to the development of the state of Puebla
unsure of what the real opportunities in the market would
where the company began operations 50 years ago,” states
be. “Volkswagen found in Mexico a fertile land within the
Rafael Moreno Valle, Governor of Puebla. “Many German
closed economy that the country had at the time. Back
workers and former workers of Volkswagen Puebla have
then, the challenges were hard since the only true incentive
decided to stay in Mexico and make the country their
was the growing domestic market as opportunities for
home. The contribution of the German community to the
internationalization
cultural, economic, social, and academic life of Puebla has
were
scarce,”
explains
Guajardo.
However, over the years, Mexican economic policy changed
been of utmost importance.”
toward turning the country into a free market economy. Mexico has signed international agreements with 45
50 years after the company first opened its doors here, it seeks
countries such as NAFTA or GATT. “This has allowed the
to remain a bastion of economic growth and employment,
automotive industry to plan its production facilities in
a fact brought home by Winterkorn announcing a new
Mexico to export vehicles to other regions, which has
investment. “We are satisfied with the ambitious government
transformed the Mexican industry,” explains Guajardo.
here, which is why Volkswagen stands firm by its side and by
According to AMIA, from January to May 2014, Mexico
the side of its plants and team in Mexico,” he stated. As a sign
produced 287,488 cars compared to the 255,474 units
of commitment, Volkswagen will invest US$7 billion in the
made in the same period in 2013. In that same year, 191,205
North American market until 2018, of which a large part will
vehicles were exported from January to May, compared to
be destined to Mexico to continue its shared success story
234,629 vehicles over the same time in 2014. These figures
with Mexico for the next 50 years.
show a growth of the automotive industry in the last year with 12.5% in production and 22.7% in exports. The foreign exchange generated by the automotive industry is now bigger than coming from the oil and gas sector. As Mexico has evolved, so has Volkswagen. The celebration came with the announcement that Volkswagen’s plant in Puebla would produce the Golf VII, a car that CEO of Volkswagen de México, Andreas Hinrichs, refers to as representing the essence of Volkswagen. “Volkswagen de México has a promising future now that the production of the Golf VII is on its way, while other members of the Golf family are soon to follow,” explains Martin Winterkorn, Chairman of the Board of Management of Volkswagen AG. “No other car apart from the Golf has its own automobile class, no
38
| VIEW FROM THE TOP
MATCHING RIGHT VEHICLES TO DESIRES OF MEXICAN MARKET ANDREAS HINRICHS CEO of Volkswagen México Q: What is the difference between VW’s current
A: In the past, we supplied our customers with the right type
production platform and its next generation platform, and
of vehicle for Mexico: simple, robust, affordable, and with a
what does this shift mean for your suppliers?
low maintenance cost. The Beetle was so successful that it
A: VW’s next generation platform allows for different cars
is still here. It was the best car for Mexico at that moment,
to be built on the same platform. It allows for the same
but we now have to change since the country is changing.
car components to be used on the Polo, the Golf, or other
Mexican customers will no longer only accept cars that
vehicles. This reduces the required investment levels, allows
are affordable; they also look for the latest technology.
us to have closer cooperation with our suppliers, and means
In the future, they will look closely at a wider range of
that we will be able to reduce the cost of parts. Suppliers
elements so VW’s philosophy has to be different from
play an active role in the development of parts, and the next
in the past. Customers must have a clear understanding
generation allows for them to expand their business. A lot
about what they get from VW, whether from a car that
of parts require the participation of suppliers across the
costs US$10,000 or one that costs US$100,000. We have
value chain, and the next step is to involve more suppliers
vehicles in Europe or the US markets that include a lot of
lower down the value chain. If we do not have the right
advanced technological components but we also offer
infrastructure to source parts here, we may need to get
lower price vehicles that come with less technological
them from more expensive markets like Europe. Therefore,
components.
VW pushes suppliers to set up a strong foundation in Mexico. VW is not building up this production capacity on
Q: What are the points that you will emphasize to the
its own. The new plants of companies like Nissan and GM
Mexican consumer in order to grow your market share?
also help, as each step builds up supplier infrastructure. The
A: Our target for 2018 is to be the number one car seller in
announcement that Audi will build a new plant in Mexico is
Mexico. We will achieve this by bringing a greater variety
good news as it improves infrastructure.
of VW products to the country. SUVs are the main growing segment here so we need to have a locally produced SUV.
Q: How much of VW’s research and development takes
At the moment, the new Vento is being made in India but
place in Mexico?
we have to produce the next Vento in Puebla as it could
A: We have a development department which employs 900
well be the right car for Mexico right now. We are already
people but we are planning to increase our development
producing a hybrid Jetta but it is more expensive than the
activities over the next three to four years. Mexico has a lot
ordinary version, so 99% of production currently goes to the
of potential, but progress must be made step by step so
US or Europe. That could also become a potential product
the whole country can grow. For example, India developed
for Mexico so we are analyzing the right time to sell hybrids
at a drastic pace but is now slowing down since not all
in Mexico. One strong point for VW is the technology and
industries were able to follow. Everybody is discussing
the design of its cars. After three years, our design and
R&D in Mexico but few are actively working on it. It would
technology still hold up and the vehicles fetch a good price.
be more interesting for a country like Mexico to increase
Our cars need to look good, have a high safety rating, and
production and increase the number of people working
provide new technologies to our customers, which is why
in the industry. The first step for a market like Mexico is
we are improving technology for hybrid and electric cars.
to have an industry capable of producing high volumes
By 2018, VW needs to reduce its energy consumption, waste
before moving on to develop a strong R&D capacity. A lot
production, and water and gas consumption by 25%. The
of countries are forgetting this first step.
use of renewable energies and other technologies is helping us reach our targets, which is good for the environment
Q: VW in Mexico is traditionally associated with the old
while also reducing our costs. When we speak about this to
Beetle. What is your future positioning strategy for the
Mexican customers it helps us gain a positive image, but at
Mexican market?
the moment such initiatives will not help to sell cars in Mexico.
39
| VEHICLE SPOTLIGHT: VOLKSWAGEN GOLF VII Volkswagen has a proud history and a promising future in
a day, reaching 150 units by May. In July, this level had risen
Mexico. One car in particular is a symbol of this successful
to 250, still far below the Puebla plant’s designed capacity
union: the new Golf VII. The Golf is a compact car that has
of 700 cars daily. Historically, the Golf is Volkswagen’s best-
been produced since 1974, and which has been marketed
selling model and its arrival underscores Volkswagen’s
worldwide across seven generations. Volkswagen invested
commitment to Mexico as an automotive hub. Since its arrival
US$700 million in the modernization of the plant’s
in 1964 to the present day, Volkswagen has invested a total
infrastructure in Puebla to produce the latest iteration,
of US$8 billion in Mexico and its Golf VII signals its ongoing
with production having started on a GTI model and two-
commitment to Mexico. This has been set in stone with a
door and station wagon models to begin later in the year.
confirmed investment of US$7 billion that will be allocated in
In January 2014, the plant began to assemble seven units
North America in the period to 2018.
The new Golf VII comes equipped with the latest
and 150PS respectively, or 1.6l and 2.0-litre diesel
technological innovations of the Modular Transverse
engines with 105PS and 150PS. The Golf VII has a
Toolkit (MQB), defining as an intelligent lightweight
theoretical fuel consumption of 3.2l/100km and CO 2
automobile. Compared to previous generations, the
emissions of approximately 85g/km. Early production
Golf VII features a number of new safety systems, which
of the Golf VII will be destined to the US, Canada,
include multi-collision braking system, adaptive cruise
Brazil, Argentina, and the local market. In addition to
control, lane keeping assistant, driver fatigue detection,
the new Golf, the Puebla plant also builds the Coupe
and an automatic parking system. Its various models
and Cabriolet versions of the Volkswagen Beetle and
come with a range of potential engines, including 1.2
Jetta. In terms of technology, these models are also set
and 1.4-litre turbocharged petrol engines, with 85PS
to be equipped with the MQB.
| VIEW FROM THE TOP
INNOVATION AND BRAND IMAGE ENSURE CONTINUED SUCCESS IN MEXICO PEDRO TABERA President and Director General of Mercedes-Benz MĂŠxico Q: Mercedes-Benz had its strongest year in 2013, with 1.46
Secondly, we offer competitive prices, which will open
million vehicles sold worldwide. What role did Mexico
up the potential market even more. Finally, we rely on
play in this growth and how has its position evolved in
our finance company. Mercedes-Benz Financial Services
your global operations?
finances 40% of our sales but this will probably increase
A: 2013 was a very successful year for Mercedes-Benz.
in the future. The car market is constantly evolving and
Our sales in Mexico increased by more than 20%, very few
there will always be needs to address. We already created
countries can boast such figures, but we still have room
new segments with our M-Class and CLS-Class. We even
for improvement here. The premium segment is still a
generated unforeseen market needs with the Smart car.
small part of the total market, but it will continue to grow
Previous Smart models only had two doors but the new
due to the stability of the Mexican economy. In terms of
generation of the Smart car will have four. We see a huge
premium brand sales, Mercedes-Benz is not number one
market that will allow us to grow in the Mexican compact
yet. However, our latest generation of compact cars, the
segment.
A, B, CLA, and GLA classes, has been released in Mexico and will claim the number one spot in three to four years.
Q: What challenges do you face as a late entrant in the
Our image is fairly young in Mexico as we have only been
compact cars segment?
here for 20 years, as opposed to 120 years in some other
A: Being the first in a certain segment does grant us the gift
countries. Despite being a young brand, studies show we
of time, as we saw with the Smart and the CLS. But entering
are the top premium brand choice for quality, technology,
a segment does not depend on how late or early you do
and security.
so, we just have to bring better designs and innovations than our competition. Mercedes-Benz has always been a
Q: How do Mexican customers stand out in their design
pioneer, we are the OEM that invests the most in R&D by
and performance preferences?
far. We created the first diesel car, we designed the ABS,
A: Mexican customers are similar to US customers as they
and we are the owners of a Formula 1 team. This shows just
tend to prefer SUVs with powerful engines and a strong
how far ahead we are in terms of innovation.
performance. This distinguishes them from European consumers who tend toward compact and hatchback cars.
Q: What are the possibilities of manufacturing a luxury
Petrol prices continue to increase, but this is not a deciding
car in Mexico?
factor in the purchase of a vehicle so far, as people still
A: Mexico is producing over 3 million cars due to its good
want large cars with powerful engines. Our most popular
cost competitiveness, a strong labor force and solid
model in Mexico is the C-Class, which is a medium-size,
logistics. It would be beneficial for the image of Mexico to
luxury sedan. Right now, our consumer segment continues
produce premium cars. Mercedes-Benz mainly produces
to be that with the highest purchasing power, but our
in Germany, with plants in Hungary and Tuscaloosa,
strategy is to branch out to other segments through our
Alabama. Our market in China continues to increase,
new generation of compact vehicles.
and we hope to sell 500,000 cars there by 2020. India is gaining potential and we are already leaders in Japan.
42
Q: How much space is there for other segments and how
The automotive market in Europe will remain stagnant
do you continue to create new demand in the market?
in the coming years. We are very competitive in the US
A: We have three main strategies to successfully expand
market and we do want to open a factory in Mexico,
into new market segments. The first is to reach new
after also considering the US and Brazil as potential
potential customer through diversification of products.
locations. It will all depend on the incentives we receive
We are bringing in the A and CLA classes as well as the
from the government, as Mercedes-Benz already has the
GLA, which is our compact SUV. These new products
infrastructure, the labor force, logistics, and prices. The
are particularly targeting young adults and women.
final decision will be taken in late 2014.
Q: How do you promote Mexico as the ideal destination
technology cannot be transferred to a smaller vehicle.
for investment to your HQ in Germany?
For example, the BAS Plus cannot be incorporated into a
A: One of the great advantages Mexico has is the existing
Smart as this particular technology costs more than the
automotive industry and the number of cars being
vehicle itself. But a Smart can have the Tridion Safety Cell
produced here. The supply chain is robust and there is a
which makes the car as safe as the D-Class. A particularity
good labor force with low salaries. The number of FTAs
of Mercedes-Benz is that our engineers work across the
is another plus: producing cars in Mexico would allow
whole spectrum of our vehicles: they are involved in the
us to export them to more than 70 countries. These are
R&D for the Smart as well as the A-Class, S-Class, and SLS.
the main points that make Mexico a potential candidate
It is not the size of the car that makes it strong but the
for manufacturing. It is clear that we need another plant
technology it carries within.
in the NAFTA region, which represents 25% of our sales right now. This region will not increase like Asia but it
Q: As innovations like autonomous cars continue to
will definitely grow more than Europe, and we want it to
advance, a concern is that the enjoyment of driving will
represent 30% of total sales for Mercedes-Benz.
diminish. How reticent are customers to innovations that might impact the driving experience?
Q: How do you source your suppliers and are Mexican
A: People were cautious when cars changed from manual
suppliers as competent as those from places like Japan
to automatic, but it was accepted in the end. A car is there
and Germany?
for transportation purposes. When on a plane, people
A: We have a very good supplier market and we do not
want to arrive to their destination but they do not seek to
have any problems with the international and national
fly the plane. Autonomous driving is a technology that will
companies based here. In terms of innovation, the
come with time and which will enjoy a smooth transition.
relationship with suppliers is getting closer and some of
In Mexico, a car is not only a necessity but also a status
the evolutions are made in the supply chain and not in the
symbol. This is not an idle belief, people want to go to the
OEM. We work very closely with exclusive suppliers, and
best restaurant and also want to have the best car. We are
one of the main advantages of being our exclusive supplier
seeing a trend in Europe where young people no longer
is that we are the only brand that can afford to make a lot
want to drive because it means paying taxes and petrol, so
of investment in R&D. At the early stages innovations can
they walk, cycle, or use public transport instead. This is not
be very costly and there are brands that cannot afford this.
the case for Mexico. Young people like powerful cars as a
We are always striving to be a step ahead in the market
symbol of independence and status.
and our vision is always directed to the future. Q: As a company that invests heavily in R&D, what are the challenges of transitioning from a prototype to the actual application of a product into the market and the vehicle? A: We are not always successful in the application of innovations, since they are sometimes deemed to be unimportant or irrelevant when compared to other products. We continue to be leaders in Europe, Japan, and the US. The consumers always want innovations and we have unique qualities that allow us to offer the best technology. For example, our security items have really taken prominence in the market. Our BAS Plus emergency brake assist was a unique innovation developed by our own engineers. We have over 6,000 engineers in R&D working on a wide spectrum of trends from autonomous driving and comforts to sustainability and security.
Q: What are your expectations for 2014 in Mexico? A: We trust in the Mexican market because it has great
We will always aim to build the best car for every segment.
potential, not only in general terms but in the premium
Making a car lighter does not mean it is weak or unsafe,
segment as well. We hope the government will promote
and we make sure that our cars include all the security
the industry and develop Mexico’s high potential in the
items available. The only obstacle is that certain security
premium segment. There is a good future for Mercedes-
innovations can only be produced in larger cars as the
Benz in Mexico.
43
| VIEW FROM THE TOP
BRINGING RIGHT PREMIUM MODELS TO MEXICAN MARKET HERNANDO CARVAJAL Marketing Director of BMW Mexico Q: How has the marketing strategy for BMW evolved to
Q: Which role does constant investment in technology
boost sales in parts of the world such as Mexico?
play in living up to the customer expectations associated
A: We are focusing on promoting the same brand strengths
with a premium brand?
in Mexico that have kept us the number one premium
A: We invest in technology because we believe it is the
brand in the world. The real factor that singles BMW out
way forward. For somebody to be willing to pay more for
is the driving experience, referring to the joy and the
a car, we have to be able to offer a compelling product,
pleasure of driving a BMW car, as well as the technology
especially from a technology perspective. Technology is
and design facets of the brand. We also keep innovating
integral to the way that a vehicle is designed and built.
and pushing the boundaries of what efficiency can achieve
The way we use technologies in the engines is how we
since customers expect a BMW to be extremely powerful,
can keep being relevant in an era where government
but also efficient. We are positioned as a leading premium
conditions increasingly require manufacturers to ensure
OEM in Mexico and we keep on pushing those brand
vehicles emit less and less CO2. This is especially difficult
facets. Mexico is a relatively small market in comparison
to achieve in large premium vehicles, but we firmly
to our other main global markets today, but it represents
believe that investing in technology will enable us to
some of the fastest growth at more than 19% annually. This
produce lighter vehicles and more efficient engines. That
makes it a strategic market for us and we are projecting
way, we can offer both an efficient car and a premium
very healthy growth for this year. Mexico represents an
brand driving experience.
important market in the Americas region and is definitely one to watch.
Q: What makes the i brand technology unique? A: We designed the i brand to be electric from the ground
Q: What are the particular demands of Mexican customers,
up. The vehicle is fast, it accelerates swiftly, and is very
and how are you tailoring your products offering to meet
agile. That is due to the fact that we have built the vehicle
these?
with composites and kept the weight down while the
A: You would not envisage that our target market is being
center of gravity is low, making the car extremely agile. In
driven by fuel economy considerations when purchasing a
research projects such as the Mini-e and the Active-e, we
car. However, it is definitely driven by the technology that
adapted a regular vehicle chassis to an electric powertrain,
creates fuel economy. That means that we have to keep
so we adapted a vehicle designed for internal combustion
pushing the message of efficient dynamics and offer top
propulsion for an electric powertrain. With the i brand, we
efficiency while making the car more fun to drive. This
opted for an architecture that puts all of the features of
key aspect really resonates with the Mexican market and
the power train as low to the ground as possible. We call it
our customer group in particular. Whether we are talking
the drive module, and it is entirely made out of aluminum.
about direct injection, a turbo engine, hybridization, or
The passenger seat, which we call the life module, is all
electric powertrains does not matter so much as long
built in carbon fiber. This is the first mass production car
as the end product drives very well. Every single OEM is
to be built with carbon fiber, which has allowed us to keep
under pressure to deliver smaller, more energy efficient
the weight relatively low. This also means that we are able
vehicles, but those units are often perceived as not
to use the electric powertrain more efficiently as well as
being very fun. We aim to deliver efficiency with a lot of
creating a car that is extremely fun to drive. The technology
fun. We have two hybrids on the market right now each
is designed to take this sort of powertrain to another level,
with 240 horsepower. We have also just introduced the
making the i brand car different from anything else out
BMW i brand, which is an all-electric vehicle that offers a
there in the market.
normal BMW driving experience. We are firm believers in
44
delivering what the customer expects so that they do not
Q: How does the car itself fit into BMW’s wider i
have to sacrifice driving pleasure for efficiency.
philosophy?
The car is in fact just one aspect of the whole puzzle. The
i Wallbox domestic charging point for electric vehicles,
way we source the materials is another important part
developed with Schneider Electric. In addition, we are
of our i philosophy. We have a partnership with SGL to
working with different companies such as Carrot, a car
produce the carbon fibers, which are taken to Germany
sharing company, and Ecobici. We will increasingly try
for production in our Leipzig plant. The energy to produce
to work with these sorts of service providers, and we
the car comes from hydro-electric power. The whole
are already making plans to bring the i brand to Mexico
concept was built on the idea of sustainability to ensure
because we believe that if there is any city that is suitable
personal mobility in the future and solve common mega-
for this it is Mexico City.
city problems. The whole i brand is built on the premise of individual mobility and the car is the central part of that.
Q: What current models are doing particularly well in the Mexican market?
Q: Is your customer base ready for this type of vehicle,
A: Mexico is a sedan and SUV market, and models such
and how big do you expect the potential market to be?
as the 3 Series and 5 Series perform very well. We have
A: The premium segment worldwide is huge, but
a very strong product pallet for this market. We have
conditions obviously have to be right for these vehicles
just launched our 4 Series, which we know will resonate
to be successful. It is difficult to imagine now how much
very well with the Mexican market. The 4 Series is very
the market will change in the future when compared to
dynamic, modern, and above all fun to drive. All of those
the evolution of electric vehicles in the past. Electric
cars are micro-hybrids and all possess engine start/stop
vehicles were not sold en masse in the past because the
systems and break energy regeneration. We focus on
infrastructure and mindset was not in place to support
these technological aspects to remind consumers that
sales growth. Looking at the development in Northern
these cars are also very energy efficient vehicles. Towards
European countries, where there is heavy taxation of
that end we are also introducing hybrid models. We are
CO2 emissions, we can see a far greater penetration of
selling the Active Hybrid 3 and we have launched the
electric vehicles. This will start happening more and more
Active Hybrid 5. We used the Mini E program in Mexico,
globally, making it easier for people to make that purchase
not for sale because that vehicle was never sold in any
decision. It is definitely nowhere near being a done deal
market, but to test the market reaction. We are trying to
in Mexico, but we are working with our partners, and
learn from local market needs what we need to do with
even our competitors, to ensure that the right conditions
our technology to ensure that we bring the right products
are created in the country. Everybody has electricity
to Mexico. We believe there is quite a bit of fuel in the
in their household so the source exists. The story today
premium segment in Mexico and we are expecting good
is about changing the paradigm and mindset. We are
growth. We are also developing our distributor network
definitely confident that electric vehicles will become a
to support this. Our distributor network is our face to
trend in the future, given the climate change conditions
the customers and we need to develop a very close
and government regulations. We are seeing a change in
relationship with them.
the basic S-curve of technology. The internal combustion engine was devised over 100 years ago, and today we
Q: How do you create the right buzz around new products
are essentially using the same basic technology. The only
when you are launching them?
thing changing is efficiency. Prices will also come down
A: This has definitely become more of a challenge.
when electric vehicle technology is produced in greater
However, one of our strengths is that we will be seeing
numbers, allowing it to reach a much wider customer base.
quite a bit of movement over the next year, involving the
Non-premium brands are doing a lot of electric research
launch of a number of new product lines. Creating the right
as well, which is indicative of a wider change taking place
buzz around new launches is becoming more complex, but
in the mindset.
the top priority for us is getting people behind the wheel. We know that if we get people to experience the feeling of
We are working together with local government officials
driving a BMW, we have a very good chance of converting
and we are talking to our competitors about the
that into a sale. We tend to extend our efforts on that aspect,
proliferation of electric mobility. We are all sure that this
while tailoring our communication on the technology and
will be a reality in the Mexican market, although it will start
the aspiration of owning a BMW. I believe the electric car
small. Local governments are showing more attention for
market will provide substantial opportunities for us. There
better air quality and living conditions. If the conditions
is going to be quite a proliferation of new models in that
are there, then an uptake of this technology will happen.
segment, which will allow us to focus on highlighting BMW
We will continue developing that technology, such as the
vehicle efficiency.
45
BRITISH LUXURY BRAND KEEPS ON ROARING The UK was once the world’s largest exporter and second
to make notoriously heavy SUVs lighter and so invested
largest producer of cars. In recent years, it has taken a
heavily in this area. All of the Land Rover engines are now
back seat, in terms of volume, in the global automotive
super-charged, and the smaller 2-liter engines boast 240hp
industry production chain. The Financial Times has
while start-stop engine technology also helps to improve
forecasted however that annual UK vehicle production
performance and reduce consumption. “Keeping up with
will once again reach, and this time surpass, historic peak
consumption norms and requirements for many brands
levels achieved in 1972 by 2017. Furthermore, in spite of
means producing smaller vehicles, but we are relying on
the smaller role the UK has played in manufacturing, the
technology without having to reduce the size of the vehicle.
country has remained a bastion of design and innovation,
The competition is definitely starting to take note of what
and little has been done to reduce the esteem in which it is
we are doing but we have a ten-year head start on other
held in this respect. Joseph ChamaSrour, Director General
players,” explains ChamaSrour.
for Jaguar Land Rover in Mexico, explains this further. “The UK has been a constant source of luxury vehicles, with
Whilst the Jaguar Land Rover consumer demographic
brands like Mini, Aston Martin, Rolls Royce, and Jaguar
certainly represents a small segment of the Mexican market,
Land Rover all enjoying high levels of prestige. All of
the company is enjoying increasing success. “From 2011 to
these brands are reputed for their British craftsmanship, in
2012, our sales grew 70%, from 2012 to 2013 this was 44%,
making handcrafted products that represent the ultimate
and we are on target to grow another 25%. In three years,
in refinement. The UK is not particularly known for its
our sales have tripled,” says ChamaSrour. This equates to
industry today but it is hailed for the strength of its design.”
1,500 vehicles sold in 2013 and an expected 2,000 for 2014, giving the company a 0.5% share of the market. However,
The Jaguar and Land Rover brands are undoubtedly strong
ChamaSrour reasons that a quick look at the automotive
examples of British success stories, and the company
purchasing choices of the top 300 leaders listed by Mexico’s
proudly asserts that all of its production, design, and
renowned Lideres magazine would show a 50% penetration
assembly efforts remain based in the UK. In 2008, India’s
level for Jaguar Land Rover. As this segment of the market
Tata Motors bought the company for US$2 billion and
is also not a natural consumer of the infamous second-hand
turned a profit of over US$3 billion in 2013, making it an
cars imported from the US, the company enjoys a natural
undeniably successful acquisition. Throughout its history,
protection from the associated constraints felt by larger
Jaguar Land Rover has managed to cultivate and retain a
volume OEMs. What does impact its sales levels, however,
strong brand perception synonymous with luxury, quality,
is the perceived security issues that accompany luxury car
and provenance, and whilst the UK might be a long way from
ownership. ChamaSrour says this is an issue particularly
Mexico both geographically and figuratively, ChamaSrour
for the Jaguar brand, which represents just 10% of the
explains that Jaguar Land Rover enjoys a strong brand
company’s sales. “There are not many Jaguars seen on the
image here. “We recently conducted a survey, which
road. For this reason, it can be too ostentatious a choice
revealed that the association with the UK in Mexico is very
for some.” The strategy for the Jaguar brand therefore is
strong and positive, particularly in terms of the Land Rover
to progressively bring more accessible units with a broader
brand. Interestingly, there are particularly strong aspirations
appeal to the market in order to increase the number of
towards owning a Land Rover. The respondents that did not
units on Mexico’s roads, making people feel safer with the
own a Land Rover had extremely high perceptions of the
brand, as well as attracting a younger consumer in order
brand and desired to own one of our cars.”
to rejuvenate the brand’s image. 2015 will see the launch of a car with a larger appeal, which will be available for
46
The handcrafted design elements that feature in the
purchase in a US$50,000 price range and is designed to
company’s vehicles remain a major pull, with leather and
compete with cars such as the BMW 3 Series and Mercedes
wood interiors being a standard in them all. The high-end
C-Class. There will also be a Jaguar crossover presented to
traditional feel of the vehicles is matched by equally high-
the market to appeal to the segment demanding an SUV-
end technology, with Land Rover producing the world’s only
style vehicle. ChamaSrour does not believe that introducing
two all-aluminum SUV models. Land Rover has pioneered
wider volume cars will impact the brand’s boutique luxury
the all-aluminum SUV, with the Range Rover and Range
image in any way. “The cheapest car in our line will be
Rover Sport being the only two such models in the world
US$50,000 so we remain quite exclusive. An average Audi
today. The technology featured in such SUVs was ten years
costs US$41,000, an average Mercedes-Benz or BMW
in the making and began with design efforts for Jaguar.
costs US$47,000, and an average Jaguar Land Rover costs
The company initially recognized the benefits of being able
US$83,000. We are therefore on the same level as Porsche,
which is our direct competitor,” says ChamaSrour. The
Another factor that distinguishes and constrains the
company has also commenced a product introduction drive
luxury vehicle market is the high prevalence of cash
for Mexico, which began with the arrival of the F-Type to
buyers. Credit purchasers still remain limited in Mexico
the market in 2013 and the launch of the F-Type Coupe in
as 80% of Jaguar Land Rover’s customers buy in cash.
June 2014.
It has therefore become clear that in order to attract significantly more customers, the company has to
The boutique feeling that accompanies the brand can really
increase the current 20% of customers that purchase
be personified by the Director General’s own approach to
vehicles through credit. “It is fair to say that there is a big
customer service, with ChamaSrour saying “all customers
segment of the market that would buy one of our cars if
have direct access to me as the Director General, and I am
they could purchase it on a three-year payment scheme,
available 24/7 for their needs.” Another crucial element
for example,” reasons ChamaSrour. For this reason
is the aftersales service. “Service is extremely important
Jaguar Land Rover has launched a strategic association
and in this vein, the supply of parts is a crucial element.
with BBVA Bancomer to offer attractive financing and
When people buy a luxury brand vehicle they often worry
leasing plans.
that they will have to wait a long time to get parts,” he explains. To ensure speedy parts delivery, the company has
Looking to the future, it seems inevitable that Jaguar
established a large warehouse in Mexico City. According to
Land Rover will have to expand production beyond the
ChamaSrour, this allows it to deliver ordered parts on the
British Isles. China is the number one market for the
same day in 90% of cases within Mexico City, and outside
company today, and it is already making plans to open
of that within a day. All Jaguar Land Rover vehicles come
a plant there. ChamaSrour explains that company’s UK
with a three-year, 100,000-kilometer warranty which gives
capacity for production is maxed out, with the plant there
bumper-to-bumper coverage. ChamaSrour insists that
currently running 24 hours a day. Therefore, producing
this, along with the technical capacity needed to service
in China will free up more volume in the UK. “Right now,
the cars, should sufficiently incentivize customers to
our biggest challenge is that we have a greater demand
return to the dealerships for service. “In the first quarter of
than we can supply. Some of our Range Rover models
2014, employees in our nine dealerships took a total of 800
have a four-month waiting list in Mexico, and those cars
training classes, varying from technical to management
sell for US$175,000,” says ChamaSrour, adding that “we
training depending on the relevant specialization. An
have also been looking at Brazil as a potential production
average service man probably took about 11 classes in
base for South America. That market is so closed that
the same period. We are investing in this level of training
producing outside of it is not as economical in terms of
to make sure that we can identify issues as soon as they
taxes and duties, and opening a plant there makes sense.”
arise,” says ChamaSrour. The level of technology in Jaguar
Whether or not the company will ever produce in Mexico
Land Rover vehicles means that virtually everything is
is unknown, but ChamaSrour does not completely rule
computerized, allowing technicians to assess the vehicle’s
it out. The US market is the company’s second largest,
health and history at the touch of a button. This highly
absorbing 60,000 vehicles a year, and Mexico may well
technical vehicle diagnosis ability requires specially trained
turn out to be a logical North American production site
technicians that can read the data properly.
in the future.
47
48
SAFETY AND TRUST KEY TO CLAIMING SLICE OF PREMIUM PIE
Luis Gerardo Sánchez, Director General of Volvo Auto de México
Volvo’s journey in Mexico
The improvement of Volvo’s sales in the Mexican market
began in 1999 but was
does not just depend on its own actions, as Sánchez well
affected
major
knows. For the Swedish carmaker’s target segments to
hurdles, the sale of Volvo
by
two
grow, it needs car sales in the Mexican market to break
to Ford and the 2008
out of their rut. Sánchez believes this will finally start
financial crisis. Luis Gerardo
to happen due to encouraging signs coming from the
Sánchez, Director General
government and financial sector. In preparation for such an
of Volvo Auto de México,
expansion, Volvo is working on expanding two important
explains this journey. “After
areas, its dealer base and its brand image. “We currently
it was purchased by Ford,
have 20 dealers and three sales points, which we want to
Volvo’s goal in Mexico was
continuously expand,” says Sánchez. “But along with this,
to grow the premium sector. We began selling around 1,500
we are trying to build on the public awareness of Volvo
vehicles a year, which grew to 3,600 in 2005,” he explains.
as a premium brand. People should consider Volvo as an
This figure could have kept on growing but the worldwide
attractive, safe vehicle that is fun to drive.”
recession in Mexico and the US, as well as Ford’s intentions to sell Volvo, caused a perfect storm that stopped this growth
Although the look and feel of Volvo’s cars is evolving,
in its tracks. By 2009, Volvo’s sales had plummeted to 900 a
Sánchez is keen to point out that the company’s Swedish
year. After China’s Geely purchased Volvo in 2010, it chose to
background and association to safety will remain to be
start reinforcing operations in Mexico. “Our dealer network
seen as real competitive advantages. “There is a very subtle
was developed, and new products were brought to the
difference between the perception of luxury and premium,
market to ensure that growth returned,” said Sánchez. One
and Volvo fits into the premium category. Our Swedish
favorable aspect that Volvo is counting on in a country as
heritage and synonymous quality association is one of our
enamored with used cars as Mexico is the resale value of its
major values,” he explains. Volvo is not interested in trying to
vehicles. Volvo’s worldwide growth strategy aims to reach
outperform other OEMs in terms of razzle-dazzle as “it is not
sales of 800,000 by 2020. While the Asian market is a key
a showy brand.” Instead, according to Sánchez, its cars aim
component of the Volvo sales machine, developing markets
to “provide quiet luxury for self-confident people. People do
like Mexico are not being dismissed. Today, Volvo’s sales in
not buy our cars to show off.” He acknowledges this may
the country stand at about 1,700 units per year, representing
have been a hindrance in the past, allowing buyers to see
0.4% of its global annual sales of 427,840 for 2013. Knowing
Volvo as a step toward the premium market rather than a
that sales got as high as 3,600 in the past, Volvo has set a
full part of it. “We are working on changing this perception
target of 10,000 annual sales in Mexico for which it has
to reflect the reality that Volvo is a genuine premium brand.”
prepared a specific pipeline of vehicles. Ultimately, Volvo will be able to bank on its safety record, 2013 saw the launch of the V40 Cross Country, which
which has always been at the forefront of its communication.
Sánchez says was well-received. 2015 will see the launch
In 1994, when the company first started importing vehicles
of the new XC90 SUV, a car with which Volvo saw some
to Mexico, customers preferred paying less for units without
success in the past. “The XC90 was a huge success when
airbags but this has been changing. Sánchez recounts how
it was originally launched in Mexico. It contributed to the
customers have returned to Volvo after having bad accidents,
increase in 2005,” explains Sánchez. Predicting which
seeking to buy a new Volvo car out of appreciation for its
vehicles will succeed in which market is a natural part of
safety. Each accident involving a Volvo vehicle around the
any pipeline, but Volvo is not simply trying to recreate past
world is relayed back to Sweden, where a team of engineers
glories. According to Sánchez, the success of the XC90
scrutinizes what could have been done to prevent each
back in 2005 showed the demand for larger, quality cars
single accident. Seeking to stay at the forefront of security
with high safety levels. He says that back then, no other
technology, Volvo’s new V40 Cross Country hatchback
premium brands matched the product offering of the
comes equipped with the first pedestrian airbag, front-
XC90. “The updated XC90 will have an entirely new look
mounted to protect anyone being hit. These safety features
and will include a number of innovative features. We are
are being rolled out in Mexico at a time when Sánchez sees
aiming to bring a new look to Volvo. Volvo has historically
continuously growing awareness about the need for safety
had a colder look from the outside with a very warm
measures. This will make Mexico an interesting part of one of
driving experience inside. The new model will change this,
Volvo’s most intriguing commitments: to have zero fatalities
so that the external experience will surprise people.”
in collisions involving a Volvo by 2020.
49
| VIEW FROM THE TOP
FRENCH GIANT SEEKS TO BRING DIVERSITY CHARLES CLAUSSE Director General of Renault Mexico
Q: What role has Mexico come to play in Renault’s global
in the automotive industry. Without doubt it has been
and regional growth strategies and how has it evolved?
very productive and profitable for both brands. Carlos
A: International development is one of the key factors in
Ghosn has stated that creating and furthering the
Renault’s growth strategy. We have expanded operations
development of profitable synergies between brands
in Russia through an alliance with AvtoVAZ, and last year
is the foundation of the alliance. Thanks to this, many
Renault was the market leader among the international
industrial and commercial projects saw the light of day,
brands in the country and ranked second in the local
including Renault Mexico. In 1999, the CEO’s of Renault
market. Another example is China, where last December
and Nissan announced the return of Renault to Mexico
we signed an agreement with Dongfeng enabling Renault
with the support of Nissan. In 2000, Mexico became the
to create an industrial facility in the country. The Latin
first country where Nissan and Renault shared industrial
American region is the second in importance for the
capacity and commercial experience. Thanks to the
international growth objectives of Renault Group. South
alliance, Renault’s return to Mexico after 14 years was a
America plays a very important role in our growth
success. When Renault returned to Mexico, the brand
strategy, together with the industrial facilities the group
was able to benefit from the experience Nissan had in
has in Brazil, Argentina, and Colombia. With a local market
commercial and business development in the country and
of over 1 million vehicles, our strategies for Mexico are
integrate Nissan dealers into the Renault network.
centred on gaining market share with products adapted to local needs. In December 2013, our market share was
One of the main pillars of the alliance is to have separate
around 2.2% and our strategies focus on gaining more
brand identities while allowing for the sharing of best
market share with each passing year.
practices and profitable synergies, always with a winwin focus. The analysis and research of new synergies
Q: What strategies does Renault have in place to increase
is continuous and applies to different areas such as
its market share?
purchasing, engineering, industrial activities, logistics,
A: The first step entails introducing new models to the
and HR. The alliance in Mexico is recognized as one of the
market. Koleos was one of the first vehicles to be part of
best in the world thanks to the synergies that have been
our new growth strategy, which was launched in 2009.
created.
Nowadays the bestselling car in our range is Duster, launched in Mexico in April 2012. Since its international
Q: Being two companies with development strategies,
launch in 2011, it has been an international success with
what have been the challenges that you have encountered
more than 1 million units sold worldwide and the same goes
in the development of the alliance in Mexico?
for Mexico with over 20,000 units in almost two years. Our
A: Each brand has its own development strategy, meaning
second most sold car in Mexico is the Fluence, an attractive
that despite the alliance, we compete with vehicles in the
sedan that satisfies the necessities of the consumer in this
same segments. The principle of the alliance in terms of
market segment. We will continue to focus on the main
commercial life is that every brand has its own objectives.
market segments as well as light commercial vehicles
Competition in the markets remains part of the game,
because there is an important opportunity for growth in
and to divide market segments between the two brands
that sector.
would be impossible in many respects. The nature of the alliance depends on the country. In Mexico, Nissan has a
50
Q: Which role has the alliance with Nissan played in the
bigger market share, but in France, Brazil, or Argentina for
development of Renault’s positioning in the Mexican
example, the situation is reversed with Renault being the
market?
leader. The ultimate vision of the alliance is to optimize
A: The Renault-Nissan alliance has been present for 15
synergies without altering brand identities in order to
years and it is considered the most successful alliance
create profitable economies for both brands.
Q: Do you intend to develop production capacity in
A: We were offering the Koleos 4x4 in Mexico, but the cost
Mexico in the coming years?
of production was higher than for the 2x4 version of the
A: We do not have local production in Mexico; instead
car. Mexico is a price-driven market and we decided to
we import from Colombia, Korea, Argentina, and Spain.
stop supplying the Koleos 4x4 as there is no market for
In other countries, we share facilities with Nissan, but no
this product in the country. The market demands a 2x4
concrete project has been confirmed in Mexico. However,
vehicle for this segment since the 4x4 are more driven as
we are working on it.
pick-up trucks.
Q: How are you harnessing new technologies to improve
In the same vein, we launched the Duster 2015 in Mexico in
your product offering in the Mexican market?
May 2014 that will be price competitive and offers options
A: Our strategy as a brand is to incorporate innovations
for both urban environments and off-road settings. Its
across all vehicle segments and make mobility and
five models range in price from MX$229,000 (US$17,500)
innovation accessible to all. Technology and innovation
to MX$289,000 (US$22,200). The Duster SUV was first
have always been important for Renault, and alongside
launched in Mexico two years ago, and with 23,000 vehicles
Nissan we have made important advancements with
sold since then, it has become one of our biggest sellers here.
electric vehicles (EVs). The number of EVs sold by the alliance in 2013 topped 66,809 worldwide, and 37,000 of
Q: How do you deal with the differences in purchasing
those were Renault vehicles. Renault is the first brand in
behaviours
the world to offer a range of four EVs. With 37% of the
European counterparts?
market, Renault is the leader in the commercialization of
A: In Mexico, people tend to have a faster approach when
EVs in Europe. The most important part of an EV is the
buying a car. People want to see the car, make the decision,
battery and our innovation in batteries allows us to sell the
and take the car right away. If we fail to fulfill their needs
vehicle in Europe at the same price as a thermic car. At the
in a short period of time, it is likely that the customer will
end of 2013, we presented the EV Twizy and Kangoo to
compare the car with other brands and buy a car that is
the Mexican market. Customers representing international
available right away, as they do not want to wait. We have to
brands with a presence all over the world have proven to
handle our stock with care, and we have to be very careful
be very interested in the EV Kangoo model in order to
because we do not produce in Mexico as other brands do.
between
Mexican
customers
and
their
integrate them into their fleets. We offer our customers the opportunity to acquire the EV Kangoo or Twizy
Q: How do you develop your dealership network to be in-
through Renault Enterprises, although these vehicles are
tune with the needs of the consumer market?
not yet available in our dealership network. International
A: Customer service quality is a very important issue for
companies contacted us directly as they were familiar
our brand. With 90% of clients recommending the service
with these models and were interested in acquiring them
received by us, Renault Mexico has the highest quality in
for use in Mexico. We could say that our strategy with
aftersales and customer satisfaction compared to the rest of
enterprises is proving to be popular, so EVs are soon to
Latin America. It is important to be close to the dealerships
be introduced. It took more time than we expected for
in order to understand what the customer wants and take
clients to get used to the idea of owning EVs. The project
their opinions into consideration. We have expanded our
is there, the economic equation is interesting for the
dealership network to 63 sales points, and as we grow in
customers, and Renault has the possibility of introducing
volume we will need a network that will expand with us.
this new technology to the Mexican market and many
Firstly, we have to ensure that the dealerships offer the
other international markets. It is important to have private
best quality in sales and aftersales service, while following
and public partners that will support the development of
our standards and the brand strategy. In the upcoming
the needed infrastructure as, for example, we have done
years, we will develop new dealers in order to keep up with
with supermarkets in France. Offering EVs to the general
our expansion plans. An interesting and differentiating
consumer market will depend on different factors, but
factor that distinguishes Renault in Mexico is the antique
the crucial one is the access to charging stations. This is
car clubs, which are very active and passionate, and they
why the enterprises commercialization model that we are
are our real brand ambassadors. These clubs transmit the
promoting is much closer to reality than selling EV’s to the
history of the brand, and it is important to maintain this
general public in Mexico.
time continuity because it gives us unique brand identity and brand strength. Through these clubs, we join the past
Q: What were the reasons behind the decision to only
and the present, allowing the customers to see our origins
offer the Koleos 2x4 and stop offering the 4x4 version?
and have a different vision of our brand.
51
| VIEW FROM THE TOP
RECORD PRODUCTION LEVELS DEPEND ON STRONG SUPPLIER BASE IGNACIO ALTAMIRANO Purchasing Manager of Nissan Mexicana Q: What are the pillars of Nissan’s business strategy in
45 countries have put it into a position of strength, as all
Mexico?
the countries concerned account for almost 65% of the
A: Nissan has a very clear and aggressive growth strategy.
world’s GDP. These are all countries that will buy vehicles
Our ‘Power 88’ strategy sets out this growth vision, which
from Mexico. Nissan now exports to 100 countries from
is to hold 8% of the global market share by 2016. Mexico
Mexico, which is clear evidence of the country’s reputation
is becoming increasingly important for Nissan’s global
as a quality production hub.
operations. Last year, the Mexico team achieved the best sales and manufacturing performance levels of Nissan
Q: With recent OEM investments, Mexican suppliers can
operations. As a result, Nissan Mexicana received the Global
select who they want to work with. Why would a supplier
Nissan President Award 2013 for best performance within
want to work with Nissan and vice versa?
the Nissan Corporation. Mexico has become a benchmark
A: Nissan is a very good company to have as a customer
for manufacturing worldwide. This is reflected in our new
as we have always been fair with our suppliers. We are the
Aguascalientes plant, which is the best performing plant in
leading automotive company in Mexico, in terms of sales
our global operations. Last year alone, we produced almost
and production. We are also a very strong company that can
684,000 units between our Morelos and Aguascalientes
ensure sustainable growth. We look for suppliers that have
plants while our domestic sales grew around 13%.
a global footprint and can facilitate contracts effectively at competitive pricing levels. We have no doubt in the
Q: Is the perception of the ‘Made in Mexico’ production stamp
capability of local industry players. Key suppliers in Mexico
improving to match other major global production hubs?
have experience exporting to the main global markets such
A: The country has demonstrated it has good quality and
as the US, Japan, and Europe. They have proven themselves
productivity at a competitive price. Mexico’s 12 FTAs with
to be capable and can compete with the industry in any part
EXPERIENCED PLAYER’S NEXT STEPS One of the most-recognized Asian players in the market,
Managing Director of Hyundai Motor Mexico. “Sharing a
Korean OEM Hyundai, was an early believer in Mexico’s
distribution network with Chrysler allowed Hyundai to prove
automotive production power. Having decided to make
the quality of its vehicles among more customers and create
Mexico its first overseas investment 25 years ago, its Tijuana
a positive image for the brand in Mexico.” The company is
plant has been manufacturing chassis and boxes for trucks
now working on increasing its visibility and opening up
since 1991. The US$250 million that the OEM has poured
Hyundai’s own distribution channels. Hyundai has decided
into the plant over the years stands testament to Hyundai’s
not to run its distribution network alone, and has picked
commitment to the country, which is now complemented
representatives to establish 20 dealerships across the
by an increasing focus on sales and distribution.
country. Albarrán says this decision came from the respect Hyundai has for the market. “Our job is to produce cars
52
Hyundai is currently seeking to sell vehicles through
and then pass them down to distributors that know how to
different channels. Starting in 2000, it began selling its
sell cars to the final customers. Those dealers have all our
vehicles through Chrysler-Dodge dealerships. “Since 2000,
support,” states Albarrán. He is aware of the opportunities
Hyundai sold near 350,000 vehicles in Mexico, mostly small
that the Mexican market still has to offer and states that
vehicles. This marked a good start and a very important
the market should expand if the right conditions are given.
endeavor for us. Throughout this time, Hyundai was able
“Judging by the reforms taking place, by the way Mexico
to learn a lot about the market and understand the habits
is playing in the global market, and improved credit for
and needs of Mexican customers,” explains Pedro Albarrán,
automotive purchases, we believe this market will continue
of the world. The companies that operate internationally
move knowing that having talented people on both sides
already have all of the resources in order to supply any OEM.
helps the entire industry.
Technologically, all OEMs have different approaches so we do have a supplier development group which helps companies
Q: How is Nissan optimizing its logistics to meet its
to understand the Nissan mindset and way of doing business.
production goals?
Nissan challenges its suppliers to understand our way and to
A: Logistics was a key part of developing our growth
apply it. We are increasing production in Mexico but we may
strategy, as producing 1 million vehicles by 2016 is
not greatly expand our supply base. We seek to keep the
complex. We conducted a study that showed the actual
same amount of suppliers but increasing the volume given
capacity of logistic companies is very limited in terms of
to each supplier. We also share future technologies with our
equipment. They do not have sufficient resources, such
suppliers in Mexico through an exchange process.
as the number of trucks needed to transport the cars. We are not a logistics company, but we need to be involved in
Q: Producing 1 million vehicles in Mexico by 2016 will
order to ensure that our vehicles reach their target market.
require major investments from both Nissan and its suppliers. How much risk is involved for both sides?
Q: What potential do you see for green vehicles and
A: This is a shared risk for both OEMs and suppliers. Nissan has
production strategies in Mexico?
a projected goal and we have made supporting investments
A: The Nissan Leaf is a very successful electric car that
to ensure we reach our targets. If we fail, then Nissan will
arrived in Mexico in the second quarter of 2014. In terms of
lose out financially. Likewise, suppliers make investments for
a clean manufacturing process, our Aguascalientes plant
the future knowing that there are risks involved. Growth and
now gets 45% of its energy from wind power and 5% from
risk are always interlinked. We continuously take steps to
biogas, which equates to a 50% reduction in fossil fuel
minimize risk and close communication with our suppliers
based electricity use in one year. We also aim to reduce
is one of them. The preparation needed to achieve this
emissions by using suppliers based close to our plants.
level of production does not just involve more buildings or
Also in Aguascalientes, we are developing a supplier park
machines, it also involves more people. Our HR department
with the help of Vesta, which will hold about nine critical
is planning extensively for this by approaching universities
suppliers. JATCO, our transmission supplier is already
directly to ensure we have sufficient man power for the
there, having made a US$220 million investment and a
future. To protect our personnel, we have agreements in
capacity of 400,000 transmissions. Posco, a steel blanking
place with our suppliers. If we can see the benefits of one
supplier, is there as well and we are looking to bring in
of our employees moving to a supplier, we will support the
other essential part suppliers.
to grow. While it is difficult to estimate this growth rate, we
the whole vehicle cycle. This experience starts with the
want to be a part of it.”
design of the dealerships and stretches to the service that customers get from sales personnel. “We have great
The Hyundai Elantra, the Grand i10 and the SUV ix35
dealerships with strong customer areas to look after clients
are the anchors of the company’s distribution in Mexico.
and provide them with an unforgettable service,” comments
For Albarrán, the models brought to Mexico are proof
Albarrán. “Hyundai takes a proactive approach by reminding
of how much Hyundai has advanced in terms of design.
customers that already own a Hyundai car to bring them
The advancements were made based on studies carried
to approved dealerships for maintenance.” Albarrán also
out by Hyundai to understand market needs, and these
mentions that Hyundai established a warehouse in Mexico
models were then adapted to Mexico, such as raising them
City to store the brand’s auto parts, making the city its
slightly to account for the speed bumps and potholes that
logistical center in the country. “Dealers usually have basic
are found on Mexican roads. “We studied the market. The
parts for minor and common needs, but when something
Mexican market is quite unique, Mexicans are looking for
more specialized is needed, they can call us before 10am to
the comfort found in American cars but they also want
get a same-day delivery.”
European designs. Evidently, we tried to cover a lot of those characteristics,” explains Albarrán.
In 2014, Hyundai wants to sell 8,000 vehicles and double that number for 2015. “We are looking to grow by
Taking a step in the distribution of its own cars puts some
exceeding our customers’ expectations at this time. We are
pressure on Hyundai’s product offering. As such, the
offering things that no one else is offering in a way that no
company understands the importance of service during
one is doing,” says Albarrán.
53
| VIEW FROM THE TOP
MEXICO BENEFITS FROM YEN EXPOSURE VULNERABILITIES LEOPOLDO ORELLANA President and CEO of Mazda México Sales and Commercial Operations Q: Why was Mexico chosen for Mazda’s recent major
whenever the yen strengthened, Mazda’s results weakened
investment in production outside of Japan?
substantially. Mazda was also the Japanese OEM with the
A: One of the main reasons for our major investment in
highest levels of local sourcing from within Japan. For these
Mexico was that we were seeking to relocate investment
reasons, we were more vulnerable than other companies to
from Japan to emerging economies. After an extensive
currency fluctuation. For that reason, removing production
analysis of several countries, Mexico was chosen. The
from Japan was a strategic decision for Mazda in order to
main advantages that we identified here were Mexico’s
create a low-cost base for production as well as a regional
labor force, its FTAs with 45 countries, and access to a
base for the Americas.
45 million-unit market. That allowed Mexico to stand out considerably from Brazil for example, which is a closed
Q: How established is your current supplier base around
market. The site that we chose in Salamanca has excellent
Salamanca?
highway connections, a railway nearby, and good airport
A: There are three key suppliers from Hiroshima that
access. We are able to build local content in Mexico from
are now based in Salamanca to support our investment.
suppliers that are already established here. Although
The Salamanca government has been very professional
domestic demand in Mexico is not growing exponentially,
and supportive in helping suppliers to come to Mexico,
the expectations are that the regional market at large will
which has been immensely helpful. We are also working
keep growing. Looking at all of the factors in Mexico’s favor,
with suppliers that were already based here, and we are
it really is almost impossible for senior managers to choose
developing them in order to increase our local content
an alternative location for investment in this region.
levels. NAFTA regulations allow a five-year grace period for reaching the required 62% of local content, allowing us
Q: What were the main factors that led to Mazda moving
to have just 50% during that period.
away from home-based production? A: Prior to the establishment of the Mexico plant, 80% of
Q: To what extent is increased Japanese penetration
the production of Mazda was based in Japan. This provided
propelling production sophistication development locally?
excellent quality and a high technology base for the company,
A: The Japanese heritage of quality and technology
however, we were highly leveraged to the yen, meaning that
is undoubted and this is now being brought to the
MAZDA SKYACTIV RAISES THE BAR
54
Mazda has developed a series of technologies, known as
Current combustion engines waste about 70% of the
SkyActiv, that increase fuel efficiency and engine output,
fuel combustion energy before this is transferred to the
while offering additional benefits such as increased
wheels. Mazda aims to make combustion more efficient
safety performance. The focus of SkyActiv is on engines,
by developing engines with improved combustion ratios.
transmissions, bodies and chassis, sleeker external designs,
The SkyActiv G 2.0L engine improves fuel economy by
and lightweight structural components. The Mazda6 and
15% even when using regular gasoline. To achieve this, the
some versions of the Mazda3 and the CX-5 use SkyActiv
Mazda engineering team placed a dome on each piston to
technology. Leopoldo Orellana, President and CEO of
raise the compression ratio. The problem with this design
Mazda México Sales and Commercial Operations, explains:
is that fuel and air, when combined, ignite too soon. Mazda
“The economies of scale for hybrid and electric vehicles
therefore used cutting-edge engineering to prevent the
are just not there yet. For that reason we are focusing on
chamber from getting too hot. A high pressure fuel injector
making fuel engines much more efficient and this is why we
fires gasoline into the cylinder at 3,000psi to help keep
have developed the new SkyActiv technology.”
it cool. To get the hot air out without sending it into the
Mexican market. Our plant in Salamanca has world-
Q: What is the role of the partnership with Toyota in your
class technological processes in place, which is helping
Mexican activities?
to further develop the human talent in this area. For
A: We will be building approximately 50,000 Toyota cars
example, the height of the assembly line in Salamanca is
a year in Salamanca. We only share the production so the
adjustable according to the processes taking place, which
information remains individual, and Toyota plans its export
results in better working conditions for the technicians.
strategy independently. The technology of the car is going
One of the defining qualities of Mazda worldwide is the
to be new generation Mazda technology, while Toyota
flexibility of its assembly lines. Being able to change
is developing the top hat. The benefits for both Toyota
models within the same assembly line is a major benefit.
and Mazda are huge; it gives Toyota a production base in
Nevertheless, improving processes in assembly lines
Mexico and allows us to enjoy economies of scale.
through technology creates small benefits at a time; it is a slow march toward progress.
Q: What are Mazda’s priorities for the next year in Mexico? A: We are focused on consolidating the Mazda facility
Q: How challenging has it been to carve a market niche for
in Salamanca, where we are currently producing the
Mazda in Mexico?
Mazda3. We will start production of the Mazda2 at the
A: Mazda has been in the Mexican market for just nine
end of 2014 and our project with Toyota will be launched
years, which is less than half as long as many other
in 2015. The Salamanca plant has a capacity to produce
Japanese players. When we entered the market, Ford
230,000 vehicles a year. On the commercial side, Mexico is
was a partial owner of Mazda and that gave us an
currently the 8th market for Mazda worldwide. We want to
advantage. According to stock exchange regulations that
increase our current 3.7% market share to around 4-5%. To
gave Ford control of Mazda, we could not compete with
achieve this, we will need to compete with bigger brands
each other. Mazda was therefore able to take advantage
that offer older generation technology to the market. We
of Ford’s dealer network and we were able to pick the
are looking for new dealerships in places like Campeche,
best dealers. We spent a lot of time studying the market
Pachuca, and border cities. At the same time, we are
and understanding the motivations of the dealers, who
perfecting our aftersales customer service, which is one
were looking for an appealing new brand. On the other
of our main strengths. We eventually want to enter the big
hand, the consumer market was a challenge. We had to
Latin American markets, and Mexico could provide an ideal
effectively communicate our brand in a market saturated
export base for that. Our original plans for that market
by many brands. The perception of Mazda was one of
changed when Brazil adjusted its importation levels, but
a high technology Japanese brand, which was positive,
we hope to once again revisit that. We have not been part
and our sporty styled models helped differentiate
of the export quotas to Brazil as the country has enforced
ourselves from the competition. Mazda offers the soul of
a requirement for OEMs to have production in Brazil and
a sports car in a high technology brand, even if you are
Mexico at the same time in order to export there. Another
driving one of our SUVs, and that helped us carve out a
tax was created that amounted to about 30%, placing our
unique niche.
cars outside of that market for now.
other cylinder, Mazda added a longer exhaust manifold.
drive feel. Mazda thought of the first-gear smoothness
Overall, SkyActiv engines improve oil pump efficiency by
and controllability of a traditional automatic transmission
74%, water pump efficiency by 31%, friction on pistons,
and the direct connectivity and fuel efficiency of a manual
rods, and camshafts by 25%, and reduces the effort the
transmission, ultimately integrating the torque converter
engine exerts to suck in fresh air by 13%.
of a traditional automatic and the clutch of a manual. The SkyActiv Drive 6-Speed automatic transmission has an
In addition to engine efficiency, a car has to be responsive.
advanced control module that shifts with quickness and
A poor transmission will not allow the engine’s power to
precision, thus improving fuel economy by 7%. The SkyActiv
be efficiently transferred to the wheels. SkyActiv improved
Platform (body and chassis) is based on high engineering
fuel efficiency and responsiveness of transmissions. The
and uses intelligent materials, such as high-tensile steel that
torque converter transfers engine power to the transmission
is lighter yet stronger than conventional steel, to reduce the
through fluid, but the loss of power transfer through the fluid
car’s weight by 100kg, improve body rigidity by 30%, and
affects fuel efficiency. Mazda developed a torque converter
improve car crash safety performance. The suspension was
with a lock-up clutch, which locks the torque converter’s
also redesigned to make the car more agile at low speeds
turbine to the impeller to improve fuel economy and direct
and more stable at high speeds.
55
18% of North America OEM camshaft market and 5% worldwide. Casting and Machining
• CAMSHAFTS • CRANKSHAFTS • PRECISION SHAFTS • CARRIERS • BRACKETS
SOME OF OUR OEM COSTUMERS: CHRYSLER MAZDA TRANE
VW AAM GMC
KAWASAKI DAIMLER TRUCKS COPELAND
Tel.: +52 (461) 598 6500 y 175 5000 Fax.: +52 (461) 611 5224 arbomex@arbomex.com.mx www.arbomex.com Norte 7 #102 Cd. Industrial Celaya, Guanajuato, 38010, México ISO-TS16949:2009 / ISO-9001:2008 / ISO-14001:2004
56
| VIEW FROM THE TOP
YOUNGER CUSTOMERS TO ANCHOR NEW ERA IN MEXICO HORACIO CHÁVEZ REZA Commercial Director of Honda Mexico Q: What role does Mexico play in Honda’s global
institutions to deal with this issue. We are trying to get
operations?
more attractive plans specifically for the Fit through those
A: Honda started operations in Mexico in 1995 but we recently
financial institutions. AMIA also needs to work closely with
entered a new era for Honda Mexico with the opening of the
the government to address the issue of access to finance.
plant in Celaya. This plant is designed to expand production
Almost 70% of sales for this segment could potentially be
within the compact vehicle segment, which is very important
done through credit, so it is an important thing to resolve. In
for us. The first model to be produced there will be the Honda
terms of offering the right vehicles, the Fit is already in the
Fit, which is our last model not currently being produced in
Mexican market but its new model is loaded with technology
the US. Our main strategy is to build cars where the customers
and features, which is exciting for the young buyer. We have
are, and Honda North America will now produce 95% of our
been trying to make a product that is fun to drive and also
cars. This is not a strategy formulated purely for the benefit of
environmentally friendly, which we have achieved with the
emerging markets, as we opened our most advanced plant in
Fit. The new Fit will include the new Honda Earth Dreams
Japan last year. Logistics concerns are of great importance,
engine technology, making it one of the most fuel-efficient
and Mexico’s location makes it a very strong asset in this
vehicles in the market. Our new transmission plant will also
area. Celaya represented an US$800 million investment for
build CVT transmissions, which are more fuel-efficient.
the automotive plant, and a US$450 million investment for the transmissions plant. The transmissions plant will start
Q: To what extent do you drive demand for hybrid
operations in the second half of 2015.
technology by bringing the cars to the market? A: We have already brought the technology to the market
Q: What drove the strong growth that Honda experienced
but the demand is very low. It is a niche market, and we
in 2013?
are still wrestling with the cost of the new technology.
A: The Honda brand grew by 11.5% in 2013, and the Acura
The demand for the hybrid car that we introduced was
brand by 18.8%, which represented 11.8% growth for a
initially quite good, as consumers that are interested
company as a whole. We did very well in the SUV segment,
in environmentally friendly, low-consumption vehicles
which is our second-largest segment due to the CR-V. The
were immediately attracted to us. However, those niche
new MDX was launched at the end of 2012 and quickly
buyers cannot sustain the market indefinitely. Therefore
became our best-selling model in Mexico. The Honda Civic
this technology needs to have a broader reach to
did very well too, as we have been using it to target younger
enable producers to supply the cars. As the technology
generations. Appealing to that customer base is always a
becomes increasingly utilized in developed countries, its
challenge but we believe the Fit will allow us to target this
cost will lower and it will become more widely available
younger audience more effectively. Our brand image had
in developing countries. These vehicles could play a
started to become more associated with older family-style
significant role in helping reduce pollution problems in
cars, and we want to change that by highlighting products
Mexico but no infrastructure is in place.
that are ideal for the younger buyer. Q: How do you envision Honda’s future in Mexico? Q: What is your main strategy to more effectively reach
A: We foresee our CR-V continuing to be our strongest
this younger segment?
model, but we want to double our sales in the Fit segment
A: Our dealer network is the most important aspect, as it
as the first target for 2014. The Fit will be in the subcompact
enables us to be close to our customers. We will be expanding
premium segment, which is not a huge segment, but for us
our dealer network by about 20% while implementing this
can represent a big increase in sales nonetheless. We will
new marketing strategy. Financing presents an area of
also be bringing a new small CUV to Mexico called Vezel.
opportunity for us as well, and we are working closely with
Vezel is already produced in Japan, but at the end of 2014
our dealer association which has strong links with financial
we will also produce it in Celaya.
57
PRESERVING ICONIC STATUS WITH NICHE MARKET SHARE The vision that Antonio Barceló, President of Subaru
dealership base from 15 to between 30 and 35 dealers, and
Mexico, has for his brand’s future in Mexico is an original
to keep introducing new models and technologies. In 2014,
one. By 2017, Subaru aims to capture 1% of the Mexican
five separate Subaru models will hit the Mexican market.
sales market, representing around 10,000 vehicles sold.
“Introducing a model every couple of months will give
This target has been carefully chosen to maintain Subaru’s
our brand a dynamic image that is not common in small
exclusive status. “Subaru is a niche player; we do not want
brands like ours,” states Barceló. The company believes
to follow in the footsteps of our competition like Nissan or
that its core focuses of technology, safety, boxer engines,
other big players,” said Barceló. “Our strategy is to attain
all-wheel drives, and CVT transmissions will differentiate
a target market share of between 1% and 3% in countries
the brand. “The boxer engine is one of the key advantages
including Australia, the US, Canada, Japan, and China.
present across all our vehicles, and is part of the Subaru’s
Subaru does not want to position itself in the 10% to 20%
brand culture. It gives the vehicle a center of gravity that
market share segment. We construct our brand as a niche
leads to smoother driving and safety conditions. The
player and it is important to maintain that distinction.”
engine is also located below the feet, making it safer in
This strategy is evident in the way Subaru carries out its
case of a crash,” says Barceló. Much of Subaru’s R&D is
manufacturing. The company’s two main manufacturing
focused on solutions aiming to prevent collisions. It is
plants are in Japan and the US and a cautious approach
working on its own version of eyesight technology, which
is taken to regional investment, with a capacity of 1 million
sees two cameras mounted on the rear-view mirror that
vehicles being seen as the optimum level.
detect approaching obstacles and automatically decrease the car’s velocity. This is already on the road in the US and
However, despite these two plants being based in
Japan, and is soon coming to Mexico. Subaru’s vehicle
Subaru’s largest markets, the carmaker sees expansion
safety technology is not being pushed merely for its own
into surrounding developing economies as natural for two
merit, with Barceló explaining that “technology is one of
main reasons: to increase vehicle sales, and to establish a
the strategies used to maintain market share, given how
competitive supplier and manufacturing base. As a major
attractive it is to customers.”
manufacturer and exporter of cars, Mexico is perfectly positioned to benefit from this strategy. Subaru currently
This confidence is based on the appeal of its technologically
holds 2.7% of the US market and sees neighboring Mexico
advanced cars in the US, especially the Impreza WRX and
as a market worthy of more aggressive commercial
WRX STi. Barceló believes that this has led to significant
strategies. “Subaru wants to recreate its US success,
brand loyalty for Subaru, pointing out that 60% of the
where sales have doubled over the past four years, in
OEM’s clients in the US come from direct recommendations
Mexico and establish a strong base in the country,” says
by Subaru owners. It is this loyalty bred from the premium
Barceló. He adds that beyond this, Subaru’s headquarters
driving experience that Subaru hopes will be replicated
in Japan see Mexico as a market with very high potential
across the Mexican market. Defining Subaru as a premium
in its own right. Barceló points to the fact that a decade
brand also means providing first class after sales services,
ago both Brazil and Mexico had yearly car sales of 1
and this aspect is not being neglected, with Barceló
million but today Brazil sells more than 3 million units
explaining: “If one of our cars spends more than three days
while Mexico’s internal sales remain frozen at the same
in a workshop, we will lend another one to the customer.
level. Subaru believes that growth in the Mexican internal
We are launching this strategy in Mexico to help us support
vehicle sales market is inevitable. One major obstacle that
our warranty repair time.”
Subaru has to overcome is the time needed to build up its brand awareness as one of the newest entrants to the
Subaru currently has no plans to open a facility in Mexico
Mexican market. “We are undertaking a big marketing
but recognizes that additional facilities may well be
campaign to support brand awareness, and develop an
created as the brand grows around the world. One of the
understanding of Subaru as a premium Japanese brand
challenges facing each OEM working in Mexico is how to
offering the highest technology and safety standards,”
boost its locally sourced content. Looking ahead, Barceló
explains Barceló.
accepts that the company may not always be able to count on its technology and components coming from Japan.
58
Fortunately for Subaru, the brand’s success in the World
“In the US plant, some components are already being
Rally Championships has gone some way to positioning
sourced from US suppliers. Subaru’s production volume
it in the minds of Mexican consumers as a performance
will continue to grow and it will be increasingly important
brand. Further pillars of this strategy will be to expand the
to source components and parts locally.”
IMPACT OF RECALLS ON THE WIDER AUTOMOTIVE INDUSTRY The automotive industry is heading toward a record
of powerful and dangerous explosives in inflators that
number of safety recalls, amounting to 31.4 million vehicles
require careful handling and precise calibration. Takata
in the first six months of 2014. No OEM has been left
uses ammonium nitrate in its inflators, an explosive
unscathed in this process, and each year, carmakers issue
compound that is volatile and highly sensitive to moisture.
600 or more recalls, with the exception of a short period
A Defect Information Report by Takata identified several
during the economic crisis in 2009 and 2010. The number
manufacturing problems with its inflators, including at
of recalls continues to climb and this jump is the result
plants in Monclova, Mexico, and Moses Lake, Washington.
of tighter safety scrutiny and more companies using the
According to Reuters, these problems were due to a
same parts. The slightest fault can impact millions of cars
glitch that meant the inflator propellant in the bags
from multiple OEMs like a domino effect. Worldwide, the
could burn too quickly and blow apart the metal casing
value of automotive warranties being called upon can be
surrounding it, sending out hot gas and shrapnel. The
estimated at US$40 billion per year which correlates to a
issues in this recall became twofold with the insufficient
loss in sales of 3-5% in the OEM business.
communication
between
OEMs
and
suppliers,
and
problems with record keeping. The Wall Street Journal There are countless possible reasons behind vehicle
found that Takata’s records had proven to be incomplete.
recalls. The perfect storm comes about when several
The
OEMs share the same supplier and as a result, parts have
also confirmed that it had discovered a problem with
the same defects. Sharing suppliers is a common strategy
records kept at its plant in Monclova, Mexico. This forced
that allows car makers to save money on parts through
automakers to widen the recalls to cover vehicles that
economies of scale, but it heightens the risk of large-scale
might have inadvertently received the faulty equipment.
recalls. In 2014, seven major OEMs, Nissan, Mazda, Honda,
The problems with the air bag inflators have led to recalls
Toyota, Ford, Chrysler, and BMW disclosed that they would
of 10 million vehicles since 2009. Despite this massive
recall millions of vehicles combined, all equipped with air
recall, it is important to note that airbags, including those
bags that could explode under certain circumstances.
made by Takata, have saved countless lives since their
These airbags were supplied by Tokyo-based Takata
widespread adoption in 1990.
company’s
representative
Toyohiro
Hishikawa
Corporation, one of the three major manufacturers of airbags and related components to major OEMs around
Recalls may wreak real damage to brand names and
the world. Honda, Mazda, and Nissan recalled 2.9 million
hurt trust in manufacturers, a situation no OEM wants to
cars worldwide, with Honda recalling 2.03 million vehicles,
find itself in. In 2014, GM was rocked by this process of
Nissan 755,000, and Mazda 159,807.
reverse logistics, having to issue 48 recalls which affected approximately 20 million vehicles worldwide, accounting
In a letter addressed to the US National Highway Traffic
for 17% of all recalls. These have varying degrees of
Safety Administration, Takata described the research being
safety concerns; for example, 3.2 million vehicles were
conducted to better understand the causes of incidents
recalled for possible faulty ignition switches. With GM
related to airbags. “The regions of Puerto Rico and Florida
under scrutiny, Chief Executive Mary Barra stresses
where
incidents
the importance of enforcing safety measures. “We are
had occurred have exceptionally high levels of absolute
going to continue to look at the data that we get, and
humidity, and that exposure to that level of humidity, in
we are going to take the action that we need. If we find
conjunction with potential processing issues during certain
an issue, we are going to deal with it,” she explains. The
manufacturing time periods that may influence aging
company raised its expected second-quarter charge for
stability, are the focus of Takata’s current research and
recall expenses from US$400 million to US$700 million.
investigation efforts,” read the letter.
This experience has led GM to state it would change its
the
six
potentially-relevant
rupture
culture, putting an ever higher priority on vehicle safety Moreover, this particular recall highlights the increasing
by emphasizing rigor and discipline in its analyses and
number of complex components in modern vehicles
decision-making process involving not only recalls but all
that can increase the number of accidents, especially
other safety related matters. The consumer market has
when used in areas such as the engine compartment
attached little stigma to GM’s safety recalls, with sales
that undergoes high temperatures as well as mechanical
rising in the US by 7% in April over the same month a year
and chemical loads. In order to work, airbags need to
ago. In Mexico, GM’s first quarter proved to be profitable
inflate in less than half the time it takes to blink, just 40
as well, with sales rising 2.6% with 79,591 units compared
milliseconds on the passenger side. This requires the use
to 2013’s 77,561 units.
59
Although significantly smaller than the light vehicle segment, the medium and heavy truck and bus segment is flourishing in Mexico, with 12 heavy vehicle and two engine manufacturers staking a presence in eight states in the country. Mexico’s heavy vehicle industry represents 35% of global production compared to 16% a decade ago, and the country is predicted to triple exportation over the coming two decades. 2012 saw Mexico produce 138,000 heavy vehicles, of which 104,000 were exported, representing the best year in terms of production in Mexican history. Increased competition combined with a year of regulatory change resulted in a slight drop in production in 2013 to 136,900, but the industry’s key players are confident that positive growth lies ahead. As with other segments of the Mexican automotive sector, the heavy vehicle industry is drawing mounting attention from Asian producers, and an increased penetration of lower cost options is forcing traditional dominators to innovate to stay ahead.
In this chapter we look at what is next for the main players in the Mexican heavy vehicle market in view of regional and global ambitions and expectations, while also focusing on the role the country is playing in the global supply chain. Included is also an analysis of the factors impeding the growth of the internal market, including the impact of the country’s aging fleets and used heavy vehicle importation.
HEAVY VEHICLES
3
CHAPTER 3: HEAVY VEHICLES 64
VIEW FROM THE TOP: Natural Place to Build Heavy Vehicles
65
VIEW FROM THE TOP: Engine Market Leader Eyes Larger Market Share
66
VIEW FROM THE TOP: Diverse Product Portfolio to Maintain Market Share
68
VEHICLE SPOTLIGHT: Kenworth T680
70
VIEW FROM THE TOP: Mexico Becoming Leader for NAFTA Truck Production
73
Heavy Trucks Born with Pre-Planned Second Life
74
VIEW FROM THE TOP: Combination of German Leadership with Mexican Touch
76
VIEW FROM THE TOP: Japanese Truck Leader Offers Personal Touch
77
Changing Heavy Duty Purchasing Patterns
78
VIEW FROM THE TOP: Forging a Niche amidst Strong Competition
79
Trusted Partner to Mexican Coach Fleets
82
Homegrown Body Builder Looking to Future
84
Unique Characteristics in Luxury Commercial Segment
85
VIEW FROM THE TOP: Brazilian Body Builder Comes to Rely on Mexican Engineering
86
VIEW FROM THE TOP: Bus Maker Pushes for Increased Sustainability
88
VIEW FROM THE TOP: European Models Take on Big-Nose Truck Dominance
89
VIEW FROM THE TOP: Gas-Powered Vehicles Future of Mexican Fleets
90
Mexican Bus Technology Finding Footholds Abroad
91
VIEW FROM THE TOP: Unique Korean Models in the Mexican Market
63
| VIEW FROM THE TOP
NATURAL PLACE TO BUILD HEAVY VEHICLES MIGUEL ELIZALDE LIZÁRRAGA Executive President of ANPACT
Q: What are the characteristics of a typical fleet in Mexico?
not the best year for the industry. Exports dropped by 13.4%
A: The average fleet age of buses and trucks is 17 years,
due to the economic situation in the US and changes in the
and for trucks alone, this rises to over 18 years. This is
rules in Colombia. This caused a chain reaction for exports
almost double the average fleet age in countries such as
and when sales drop, so does production.
the US. The benefits of having newer fleets include more efficient diesel consumption, reduced emissions, and better
Q: What is the biggest impediment to internal sales, and
road safety. Congress is proposing reforms designed to
what can be done to mitigate the current problems?
encourage the renewal of fleets. Right now, any bus used
A: Our biggest concern is the growing importation of used
on a Mexican federal highway cannot be older than 15 years.
vehicles. Last year, around 40,000 vehicles were sold in
However, there is no such limit for cargo and heavy duty
Mexico but an additional 12,000 were imported from the US,
trucks. Additionally, there are 140,000 registered carriers,
of which 85% were 10 to 20 years old, and the remaining 15%
and 80% of those are owner-operators, namely individuals
were over 20 years old. Some rules have been implemented
who own between one and five vehicles. Many owner-
to curb this, with SEMARNAT restricting the importation
operators have problems due to their lack of experience
of vehicles complying with EPA 98 or older regulations.
in business management. We are therefore working with
However, these restrictions have not been implemented
the government to create a mandatory requirement that
effectively due to the uptake of an amparo legal procedure,
owner-operators receive some training.
which allows for these rules to be circumvented. If the Supreme Court decides that the new rules implemented by
Q: How rapidly are production levels of heavy duty
SEMARNAT should be enforced, then it must also resolve the
vehicles growing in Mexico?
amparo issue. I hope that we can soon decrease the influx of
A: 2012 saw Mexico produce 138,000 vehicles, of which
old vehicles in order to improve the national market. In 2007,
104,000 were exported. It turned out to be the best year of
Mexico sold around 52,000 heavy duty vehicles compared
heavy duty production in Mexican history. To mark ANPACT’s
to 40,000 in 2013. This is selling ourselves short as ANPACT
20th anniversary, we conducted an in-depth analysis of the
predicts Mexico could reach sales levels exceeding 62,000
export market and concluded that heavy vehicle exports
by enacting legal reforms, providing training, financing, and
might rise up to 300,000 in the next 20 years. ten years ago,
enforcing scrapping projects.
Mexico represented 16% of the North American production
64
of heavy duty vehicles, but this has almost reached 35%. In
Q: What measures must be taken to improve access to
the same period, US production went down from 75.6% to
financing for owner-operators?
60.3% and Canada’s dropped from 8.4% to 2.3%. Mexico
A: In Mexico, more than 80% of heavy duty carriers are
is becoming the natural place to build heavy vehicles in
owner-operators, and these traditionally do not do well in
North America, and the relocation of manufacturing lines is
administrating their businesses. The majority of them do
proving this. The projected growth of exports to 300,000
not keep accounting records, they sometimes do not even
heavy duty vehicles does not only depend on Mexico
have bank accounts. To counteract this, we will implement
claiming a larger market share for production, but also in
administrative training for owner-operators through 2014.
exporting more to Asia, Australia, and Central America. Last
Our biggest challenge is that many of them cannot show
year, Mexico was the seventh largest producer of heavy duty
documents to support the success of the business in order
vehicles in the world, the third in America, and the fourth
to secure financing to purchase vehicles. We are working
largest exporter worldwide. Ten years ago, Mexico was the
with NAFINSA on schemes in which an owner-operator
ninth largest producer, which shows our rise in terms of
can use a federal permit as collateral for receiving credit.
production. Now, this sector employs 144,000 people, of
Getting financing from the Mexican government is not
which 22,000 are direct jobs, which translates to a current
cheap. These programs have interest rates ranging from
potential to produce 174,000 vehicles. However, 2013 was
13-15%, as compared to 4% in Brazil.
| VIEW FROM THE TOP
ENGINE MARKET LEADER EYES LARGER MARKET SHARE IGNACIO GARCIA Vice-President of Mexico & Central America of Cummins Inc. Q: How did Cummins reach its strong position in the
engines and then return to us. We have the most developed
Mexican market?
distribution network for parts and for services in the region,
A: Cummins’ growth story in Mexico began in the 1950s
which allows us to be ahead in terms of repair times and
when it began importing parts and providing services in
availability of parts and technicians.
the country. In the 1960s, we supplied engines to DINA, which was the only public company producing buses and
Q: How do you approach your aftermarket offerings?
trucks in Mexico. In the late 1980s, the government sold
A: Some customers like to have their own repair shops,
DINA to the private sector, and Cummins purchased a
especially big fleets and bus companies. They do not tend
50% share in DINA. The border opened up not long after
to go to distributors for repairs, while other customers
that and the industry grew massively as a result. Today,
use third party repair companies. Some OEMs want to
Cummins employs close to 6,000 people in Mexico
keep close control over their technology and control
across its manufacturing plants, aftermarket services and
the repair business, but customers are increasingly
corporate headquarters. The domestic Mexican market
demanding engines that they can fix themselves without
represents US$950 million for Cummins, and we export
the involvement of the OEM. We train technicians to repair
about US$1.2 billion of products to different Cummins
our engines, and only 10% of engines are serviced by the
plants around the world. We also buy about US$700 million
pure Cummins network, 50% are serviced by OEMs, and
worth of goods from Mexican suppliers, half of which are
the rest by third party technicians or customer shops.
used at our plants here and the other half are exported. Of the US$700 million we source in Mexico, about half covers
Q: What role is technology development playing in your
gears, electrical harnesses, sensors, castings, and forgings.
growth ambitions? A: We are consistently bringing new technology to the
Q: Where are you focusing your product offering in 2014?
market. Since Mexican emission regulations are behind those
A: Eight out of ten trucks in Mexico use Cummins engines.
in the US, we are using 2007 regulation engines but we
In the mid-range trucks segment, for Class 5 to 7 trucks, we
would like to start using EPA 2010 or Euro IV engines. The
hold about 38% of the market. In the urban bus segment,
main issue is that low sulfur diesel is currently available only
we have 15% of the market but we expect that to reach 30%
in a few cities, which is enough to cover 30% of demand. The
in the next few years. We are currently introducing our 2.8
government is saying it will import more to reach 50% but it is
and 3.8 liter engines to the light duty truck segment that
waiting on private sector investment. To support this, we will
consists of Class 3, 4, and 5 trucks. We have sold close to
make our Euro V engine available at the end of 2014. Natural
3,000 engines to that segment in the last two years, and we
gas engines are also an option, but the infrastructure is still
see this increasing to 2,000 engines a year. The plant making
developing. Mexico City has 17 points where you can get
the Chrysler RAM truck in Saltillo produces 600 trucks
natural gas, so the capability is there. We have implemented
a day with our engine for the US and Canadian markets.
a project with a fleet of 50 natural gas buses in Guadalajara,
In terms of manufacturing in Mexico, we focus mainly on
and another with 20 buses in Mexico City.
components for fuel systems, crankshafts, cylinder heads, alternators, and filters. We make more than 850,000
Mexico probably has the capacity to participate in R&D for
filters a week in our filter plant while also remanufacturing
components but I do not see it becoming a major center
250 engines per day for global demand. The automotive
for full-scale R&D. Large companies are building global
boom brought in a lot of competition from companies like
capability networks where different sites around the world
Caterpillar, Detroit Diesel, and Volvo, but the fact that we
participate in different aspects of the design and work
are still market leaders, while the majority of our customers
together 24/7. Mexico can be part of such a design network
produce their own engines, shows how much we have to
but will not do it on its own. The engineers here are still
offer. We have seen OEM customers switch to use their own
lacking knowledge, so their skills need to be improved first.
65
| VIEW FROM THE TOP
DIVERSE PRODUCT PORTFOLIO TO MAINTAIN MARKET SHARE RENATO VILLALPANDO RIVERA Director General of Paccar Mexico Q: Paccar (Kenworth’s owner) recently carried out an
Q: The Mexican market is affected by used trucks coming
investment of US$400 million. How was it allocated, and
from the US. In what ways are you trying to solve this
how did this change your production focus?
problem?
A: Paccar invested US$400 million in developing new
A: We are very concerned with this influx of used vehicles. In
products that we have begun to manufacture in Mexico.
November 2013, the amount of imported trucks amounted
This investment covered the design of the products, the
to 65% of Mexico’s monthly production. If nothing is done,
technology, and all aspects related to validation and
the amount of imports will equal the level of production. This
certification, as well as the manufacturing readiness.
is an unfair treatment for our entire industry and the Mexican
Since these products are completely new to the market,
government has to take urgent action. We are pushing for
they have to undergo a series of validations. Paccar has
regulations that would ensure any imported trucks are of
three plants that build these products: two are in the US
the right quality and age. The internal market is beginning to
and one is located in Mexicali. The time process from the
feel the pinch. Those that buy new trucks are not interested
start of R&D to the validation of one of our products can
in the imported ones, but the prices of used trucks have
range from four to five years. This is an extensive process,
dropped. The import of used trucks has devalued the entire
especially when compared to the validation process of a
used trade market. Customers used to trade three trucks to
light vehicle.
buy a new one, now they need five or six.
Q: What main differences have you identified between the
Q: To what extent do you consider your conservative
Mexican, Canadian, and American consumer markets?
nature to be an advantage?
A: It is fortunate that the Paccar brands have been in
A: In Mexico, we have held more than 50% of the market
the Mexican market for a long time and enjoy a strong
share in the 54 years we have been present here. People
reputation for high quality, reliability, durability, and are
know the Kenworth brand as a standard for quality. When
supported by a strong aftermarket dealer network. On
customers see a really new product, they will ask about the
average, 60% of the tucks in Mexico are dedicated to
aftermarket support, how well prepared we are to support
double trailer applications with more than 65-tonne gross
these new models, and where they can be taken to be
combined weight (GCW) rather than 36-tonne GCW
serviced. All these factors weigh heavily on the mind of the
in USA and Canada. During the product development
customer. Newer brands coming into Mexico have to deal
stage, the needs of the Mexican customers are taken into
with this aftermarket challenge, but we have the advantage
consideration to provide adequate solutions. For example,
here. Competition is getting tougher every day and more
the new product line includes the modernization of the
products are available in the market but we are setting a new
vehicles’ look, technology, serviceability, and comfort.
standard of quality and innovation with our new products.
The diagnostic processes are very meaningful for the end
66
customer as they spend more than 80% of the time behind
Q: In what ways are you continuing to improve your
the steering wheel. Little things mean a lot to them, so we
aftermarket service alongside the new vehicles that are
ask ourselves the right questions. How can we make the
being launched?
engine oil easier to check? Is the hood too heavy when
A: Another new product that was recently launched in
being lifted? How can it be made lighter so it can be lifted
Mexico is the new Paccar MX-13 engine. This engine was
with one arm? All these questions are taken into account
launched in the US three years ago but we are now releasing
when designing the trucks. One of our unique features
the Mexican version which has different emissions levels.
involves the clutch pedal. Normally, it takes a 35-pound
In Mexico, we are required to comply with EPA 2004, This
effort to engage and disengage the clutch. To reduce this
engine represented a new challenge to us. Currently we
effort, we hydraulically assisted it, giving our new models
have 130 service points, which is one of the largest networks
50% less stress on the clutch pedal.
in Mexico for any brand. Over the next three years, we will
be doubling our service capabilities, including certified
Q: How are you helping to bring hybrid technology to the
technicians and physical locations where customers can
Mexican market?
take their vehicles. The first phase of this plan is in process.
A: Hybrid technology is fairly new to the Kenworth
We have around 200 technicians trained to support the
product line. We began with a hybrid electric and diesel
new engines and trucks, while another 100 technicians were
combination, which is widely used in Coca-Cola’s fleet in
trained during the first quarter of 2014. All the spare parts
the US. In Mexico, we have about a dozen trucks using
are available at every dealership and our distribution center
this technology. It is not cheap and we need government
in San Luis Potosi. Launching a new product entails many
incentives in order to promote it. Unfortunately, hybrid
factors so we have made sure that the customer support is
technology is not really being embraced in Mexico.
there throughout the whole process.
Kenworth is also a leader in natural gas trucks. Part of the production for these types of vehicles is taking place
Q: Why does Paccar’s engine for Mexico differ from the
in Mexico but all are exported to the US. Five to six of
US version in terms of its EPA requirements?
these trucks are built each day at our Mexican plant.
A: This was a technical decision. For Paccar to apply lower or
This technology is aimed for shorter distances, so the
higher emission requirements to its technology, there needs
autonomy of hybrid trucks poses a challenge as they
to be the right level of sulfur content in fuel for the engine
need to carry large volumes of gas. We are seeking ways
to operate correctly and obtain the desired emissions level.
to allow trucks to go beyond their current range of 80 to
We can bring more complex technologies to the Mexican
100km without needing to refuel. Currently, these natural
market, but these will not provide the expected results and
gas trucks are ideal for urban use. Mexico City would
the components may be damaged by the quality of Mexican
be very suited to receiving them due to its pollution
fuel. Mexico does not have the right fuel to meet higher EPA
problems, and this technology will be coming to Mexico
requirements. There is a plan to improve the quality of fuel in
very soon.
Mexico but for the moment, the government cannot impose higher standards. The oil industry does not have sufficient
Q: What strategies do you have in place to capture
volume capacity to support this type of fuel, but we hope
new markets and what areas of opportunities have you
that the Energy Reform will result in increasing investment
identified?
in refineries so they can produce the right kind of fuel
A: Our market share of 54% is considerable, and we will be
at the required volumes. With these new rules in place,
able to gain additional market share in the future. The new
customers will have a certain timeframe to comply with the
products we are releasing are a statement that Kenworth
new legislation. All new trucks will be designed to comply
continues to be ahead in terms of product and technology.
with the emissions levels and older models will continue
We are aiming to secure more market share through these
to operate with the new fuel in older engines. Paccar has
new products but it is not our main concern. We have been
played its part in the evolution of emission requirements in
leaders in the tractor business for a long time and we are
Mexico. In 2004, Mexico moved to comply with EPA 98 and
now diversifying our portfolio for heavy duty trucks. In the
switched to EPA 04 in 2007. There has been progress but in
future, we want to become leaders in Class 7 trucks and
that time, the US has raced ahead.
smaller trucks as well.
67
| VEHICLE SPOTLIGHT: KENWORTH T680 The Kenworth T680 sets the bar high in the heavy duty
50-year tradition in Mexico has been focused on operational
sector. Its flowing lines have been tenderly honed through
efficiency, which is reflected in the T680 featuring a special
an exhaustive design process that culminates in ideal
aerodynamic package along with the optimized powertrain
airflow efficiency. The brand’s owner, Paccar, states that
combination of the PACCAR MX-13 engine or the Cummins
the craftsmanship that went into the T680 establishes
ISX15 engine integrated with the Eaton Fuller Advantage
a new standard, as its aerodynamics are improved by
10-speed automated transmission. The PACCAR MX-13
10% compared to previous models. This is achieved by
engine promises cost savings of US$4,000 per vehicle and a
incorporating longer side extenders for the T680 76-inch
fuel efficiency gain of 8% over the next best competitor. This
(1.93m) sleeper, lower cab fairing extenders, aerodynamic
is sure to resonate deeply with fleet and owner operators
mud flaps, and exhaust cut-out covers. The heavy duty OEM’s
that are looking to save money on fuel costs.
Paccar feels that what sets the T680 apart from its
resolution 7-inch color screen. NaviPlus also provides
competition is that during its design process, operators
wireless, hands-free telephone services. The T680 is
were consulted to evaluate the characteristics to be
designed to maximize performance in regional and line
included in the unit. The interior design systems bring
hauling, pickup, and delivery operations. The storage
together a sense of control with ergonomic comfort. The
capacity has been increased by 65%, and noise reduction
sleeper stands out because it offers a spacious and modern
reaches 40%, and its windshield is 50% bigger than
interior with homely amenities that bring an enhanced
comparable models, providing enhanced aerodynamics.
sense of ease. The T680 comes with Kenworth NaviPlus, a
Kenworth’s manufacturing plant in Mexicali, Baja California,
navigation system that presents cutting-edge telematics,
will supervise its manufacturing, with 300 units to be
diagnostics, communication, and entertainment in a high
produced in 2014 for the local market.
| VIEW FROM THE TOP
MEXICO BECOMING LEADER FOR NAFTA TRUCK PRODUCTION CARLOS PARDO Director General of Navistar México Q: What is your strategy to increase your market share in
important plant for Navistar worldwide, as it produces
the NAFTA region?
almost half of all of Navistar’s trucks, and is still growing.
A: The US and Canada are clearly our biggest markets. We
It produced around 45,000 trucks in 2012 and topped
lost some market share in the US last year, which affected
50,000 in 2013. It is located in Monterrey so as to be close
production, and we mitigated that with the closing of
to the US border, thus facilitating exports, but it is also
our plant in Garland, Texas, and shifting production to
close to the ports of Veracruz and Tampico, through which
Escobedo. In terms of improving our market share, we
almost all our exports pass to Latin America and Africa.
have specific strategies for each market segment and
When we closed our Garland plant in Texas, we brought
different goals per market as they are completely different.
the production of commercial vehicles to Escobedo while
For the heavy truck industry, we want to grow our market
our military business stayed at our plant in Ohio. We have
share from 22% to 35% in the next couple of years. Most of
not abandoned the US market as we still make buses and
our efforts will go towards that, as this is the market that
trucks there, and we also produce engines in Brazil and
is set to grow the most in the years to come. The medium
Argentina.
service vehicle segment is beginning to shrink worldwide, as customers refocus toward light trucks or heavy trucks.
Q: How have you structured your supplier strategy for
In Mexico, we still have good business with municipalities
Mexico?
for medium trucks, but heavy trucks will outpace them.
A: We try to secure the best suppliers worldwide through
We will invest and grow very aggressively in that market
negotiations carried out from our corporate offices. In
in the next five years. Our plan for 2014 is to sell around
Mexico, we would like to increase the number of local
11,000 units in Mexico. We will see 15% growth in our
suppliers in order to reduce our logistics costs, which is part
current business, and we can count on the new product,
of a worldwide strategy wherein we source local content to
the CityStar, that we launched in late 2013. The CityStar
have the best opportunities globally. Having to go back
can be either a Class 3 or a Class 5 truck, and we know it
to the US for our decision-making is not a challenge as
will prove to be a hit. .
the entire company is clear about the strategy we need to follow. It is in the best interest of our corporate purchasing
Q: Is the Mexican domestic market a priority for Navistar
office to increase local content in Mexico. Almost 50% of
or are you seeking to use the country more for its
our worldwide production is in Mexico so Navistar wants to
manufacturing potential?
make its operations here as profitable as possible.
A: As a partner in NAFTA, Mexico has seen aggressive growth
70
over
the
last
ten
years.
The
quality
of
Q: What potential do you see for Navistar in the internal
manufacturing in Mexico is good, and skilled labor is
Mexican market?
available at a cheap rate. It therefore makes sense to
A: It is important to alter the age of the Mexican truck
develop important manufacturing sources in Mexico to
population. When trucks reach 18 years, safety issues and
export to North America and the rest of the world. Over
cost of operation become too much for our customers to
the last few decades, Mexico has been developing free
deal with. We want to bring the average age of our trucks
trade agreements with a lot of countries to become an
to less than 12 years. To do that, we have to stop the illegal
important manufacturing and logistical hub. Mexico is now
importation of trucks from the US. It is impossible to
one of the world’s key logistical spots, ready to receive or
create a used truck market if there are around 2,000 units
send goods from Asia, the Americas, or Europe. Navistar
coming illegally across the border every month. If we could
saw the opportunity to establish a manufacturing facility
reduce the age of trucks to 12 years, the vehicle market in
with strong labor quality in Mexico, as well as the chance
Mexico would double. Right now, the country is a 40,000
to incorporate Mexico’s localization strengths into our
unit market, which is nothing for an economy the size of
global strategy. Right now, our Escobedo plant is the most
Mexico.
Q: What measures do you take to ensure the success of a
with ITESM where around 16 engineers are working for
new offering to the market?
Navistar on product development. We have found a lot
A: The first step is to have a great product. Today, the ProStar
of talent present in Mexico, which speaks to the country’s
has become the most efficient truck out there since being
advance toward high-skilled engineering and design.
launched four years ago. The next thing is to have a focused
Finally, we benefit from a common advantage to our entire
dealer network. We have been working to change the
industry. The labor force is cheaper here than in the US, so
mindset of our dealers to move from being a medium bus
we plan to continue developing that side of our business
brand to allow Navistar to become a real player in the heavy
in Mexico. We will keep making fresh investments here as
vehicle market. The third aspect is to truly become a unique
long as the country’s financial and political environments
supplier for our customers. We normally say that we do not
are right for us to do so, and support us.
sell trucks, we sell transportation solutions. Everybody can sell a truck but we provide parts, finance, insurance, and a
Q: Your sales figures for 2013 were slightly lower than for
training center for our customers. A lot of attention is also
2012. To what do you attribute this downturn?
being given to fuel consumption. The next thing is uptime,
A: Two key factors led to this. The first was the political
how many hours the truck can work in a given month or year.
environment: 2013 was a very complicated year for the
Following on from that is ergonomics, as the driver needs to
entire industry due to various reforms. Customers were
feel very comfortable while operating the vehicle so he can
afraid to spend money and government expenditure was
do it in a more efficient way. The driver actually plays a big
also very low. Part of our business in Mexico is based on
role in fuel efficiency. If the driver is comfortable, well-rested,
huge government orders, so that had an impact. The other
and has a truck that is easy to operate, then we can get the
factor had to do with the currency exchange. Heavy industry
best from the vehicle. Navistar’s designs help reduce fuel
in Mexico is very sensitive to changes on the dollar. The
consumption, for example, through aerodynamics. When
value of the dollar was fluctuating throughout 2013 so it was
you talk about fuel consumption at a certain range of speed,
normal that the market slowed down a bit. These two factors
aerodynamics can account for 50% of fuel consumption.
together limited the market’s growth. So even though 2013
Our ProStar has proven itself in the US and in Mexico. The
was a good year for Navistar, we did not grow as much as
other important part for fuel consumption is the weight of
predicted. We work with a finance company to develop plans
the truck. Our trucks are not as heavy, which helps a lot. The
and programs to try to mitigate the exchange rate. We also
next important aspect is how well the engine communicates
installed a fixed exchange rate for some of our programs or
with the truck. The Cummins engine in our trucks provides
work with some customers in pesos to help close the deal. A
excellent compatibility, and most brands in Mexico use
steady peso always helps the industry.
Cummins. These engines can make differences of between 5% and 10% for fuel consumption.
Q: A huge market segment is comprised of single owneroperators with limited access to financing. How do you
Q: How is your dealer network supporting your brand
see access to credit being addressed?
trajectory?
A: President Enrique Peña Nieto has announced that he
A: Our dealer network is very focused on service. They
wants to increase access to credit in Mexico, and has
understand the importance of aftersales and we work
ordered different banks to be more aggressive in providing
with them to have the same service around Mexico and
credit. With the right help from the government and
the world. Our customers want to receive the exact
lenders, truck manufacturers will be willing to provide more
same service in Baja California and in Yucatan. We have
credit which will be beneficial for the country. It may well
a lot of different programs that we develop along with
convince small companies, those with between one and
our dealers to help accomplish this. We own a renting
five trucks, to comply with their tax payments. Navistar
and full-service lease company named Idealist, which is
is working with NAFINSA to develop a program for the
focused on aftersales and the renting of equipment. This
bus segment. NAFINSA is willing to take on the financial
is a unique offering in Mexico and has become one of our
risk if we operate the credits. We will start this program
key advantages in the market. Betting on aftersales and
with buses as they are the most complex segment. If this
on service is the right way to achieve sustainable growth.
program is successful, it will be easier to translate that success to other segments of the market. Reducing the
Q: Do you foresee moving development activities to
age of vehicles by providing credit is the only way to
Mexico?
create a bigger market in Mexico. This is one of Navistar’s
Navistar has already implemented a part of its engineering
top goals, but our competitors are also thinking about this,
development in Mexico. We have a collaborative program
so we are working together to reach that goal.
71
72
HEAVY TRUCKS BORN WITH PRE-PLANNED SECOND LIFE As heavy vehicle players up the ante to win more market
the right mindset to drive a truck and bus distribution
share,
massive
point. “Being a unique business, investors have to be really
restructuring. Volvo Group Trucks is playing its hand
committed. If investors are not found, then the company
with a new business model to obtain 15% or more of the
will invest directly. The company will then have one of
market share in Mexico. “For many years, we held around
the largest distribution networks in the country, which is
3%, but that business volume did not permit us to make
necessary for us to claim a 15% market share,” says Walsh.
business
strategies
are
undergoing
needed investments. 15% or more will allow Volvo Trucks the reinvestment capability it needs, so the strategy is
Customizing products to customers’ needs and industrial
designed to get it there and even further,” states Matthew
applications ensures the consolidation of the brand within
Walsh, Director General of Volvo Group Trucks México. The
the domestic market. “The Mack product is such a highly
company is anchoring its expansion on its wide variety
customized product that if a client walks into a dealership
of operations in the country, ranging from the Volvo
to look for a simple Mack Truck, they will find it does not
and Mack truck brands, buses, construction equipment,
exist,” explains Walsh. The trucks are customized to meet
financial services, and its industrial and marine engine
the varying needs of clients in terms of robustness and
division, Penta.
longevity, as they will undergo heavy usage. “The company has a dedicated engineering group that just looks at
The company’s first bet in the market share game began with
customization opportunities for the vehicles. It is a very
the establishment of a diverse product portfolio tailored to
unique solution and it is one of the best in the market for
domestic market trends. Mack Trucks focused on vocational
offering a truck that is durable and reliable,” adds Walsh.
trucks used in residential and commercial construction, “but
Mack Trucks are not only customized to withstand extreme
we quickly realized it was not performing so well,” comments
conditions but also to undertake different industrial
Walsh. As a result, the product portfolio underwent a
applications, including being used as dump trucks, mixers,
massive evolution and now also incorporates highway trucks.
concrete pumps, and industrial drills. The main sector that
According to Walsh, the change “did not have as much of
serves as the platform for the group’s vocational trucks is
an impact for Volvo Trucks as it did for Mack Trucks, since
the mining industry. This sector has already seen a Mack
the first brand already had strength in that area.” In order
Truck adapted with a large 8x4 configuration on a heavy
to tackle this market segment with two products instead
dump body, which can efficiently operate underground
of one, the group introduced the Mack Tractor. “Having
with a 45-tonne load capacity. “Other companies’ vehicles
diversity in one market segment is an effective strategy,
need to undergo many post-factory modifications to
since competing with different brands in the same segment
present something similar, but by incorporating these
allows us to claim a larger market share.” Walsh admits that
industrial adaptations into the design of the product Volvo
the company previously made a mistake in other countries
Group is able to offer a truck to the mining industry for
by trying to make a decision for the market by only bringing
US$150,000 less.”
in one brand. “This limits customers’ choices and takes away their power to decide for themselves,” he adds.
An important quality that customers look for in trucks is the possibility of a second life. This means having a flexible
Having a strong product portfolio alone is not enough to
vehicle that can be resold later on, but according to Walsh,
instill confidence in the client as a strong dealership network
a lot of manufacturers build vehicles for a single purpose
is also a requisite. “Although Volvo Group Trucks had the
with no plan for a second life. “Extending the longevity of a
best products, clients were not confident in our ability to
vehicle in this way makes sense as the real profit margin is
support the products,” Walsh points out. To improve their
not in the sale of the vehicle but in the parts and servicing,”
confidence level, the group’s strategy centered on investing
says Walsh. Longevity thus does not diminish opportunity,
in the improvement of the dealer network and pushing
according to Volvo Group. It follows the logic that if it
private investors to expand it. This strategy helped to build
puts a durable product in the market that lasts up to 25
up the market size that private investors need for their retail
years, it can sell parts for that vehicle for that entire period,
operations, such as spare parts and service operations. The
which means more profit in the long run. Walsh believes
company has 38 sales points spread across Mexico but
that other manufacturers produce throwaway trucks that
its aim is to reach 65 by the end of 2015. Of these, Volvo
serve for three-year-long industrial projects before being
currently owns six but will seek to add at least 12 over the
scrapped. “Volvo Group Trucks represents an investment
next two years. Walsh stresses that during this expansion
that gives customers a number of years of revenue without
phase, it is important to look for local investors that have
having to pay off the cost of the product.”
73
| VIEW FROM THE TOP
COMBINATION OF GERMAN LEADERSHIP WITH MEXICAN TOUCH STEFAN KÜRSCHNER President and CEO of Daimler Trucks Mexico Q: How has Daimler Trucks’ investment and growth
pillars. The first concerns our product portfolio as the
strategy in Mexico evolved during the current automotive
requirements of our clients are constantly changing.
boom?
We have focused on providing the most fuel-efficient
A: All our brands are present in Mexico, including our cars,
products on the market, which helps to bring the cost of
buses, and vans, but our truck division is the biggest business
transportation down for our customers. We are the proven
unit here. This covers our Mercedes-Benz, Freightliner,
efficiency leaders in the US and Canadian markets, and we
Smart, and Sprinter brands. We also have Daimler Financial
have the most advanced products in the Mexican market
Services, which finances all our business arms. Daimler has
as well. This is one of the pillars we are going to build our
made a continuous commitment to this market for over 40
market leadership on although the customer will decide
years and we continue to grow and invest here. The truck
that. The second part of the strategy is our dealer network
division is the biggest because you need trucks too move
of 90 distributors that covers the whole country. We have
things in Mexico. The railroads are limited. To build up rail
a very active dealer network but there is always room
infrastructure would take a long time, meaning that trucks
for improvement. Daimler has German DNA in its veins
will remain the main solution. As for truck production, Mexico
so ease of doing business is our third pillar. Germans are
is a logical spot for production as part of NAFTA. Daimler
pretty good at defining processes, rules, and regulations
has invested a lot in its two plants for truck production in
but we want to make sure we are the easiest company to
Saltillo and Santiago Tianguistenco. The Saltillo plant in 2009
do business with. That is why it is a nice combination to
represented an investment of over US$300 million, while
be a German company with a lot of American influence,
the Santiago plant was updated in 2013 at a cost of US$45
given the US pragmatism in how to do business. We will
million. Our plants are responsible for 52% of the production
really put everything the company does under the X-ray to
of commercial vehicles in Mexico and we are responsible for
define only what is good for the customer. This will be done
58% of Mexico’s exportation of commercial vehicles. From a
across our supply chain, both upstream and downstream,
pure sales perspective, the trucks business unit is the biggest
leaving no stone unturned. You need people to do all this,
given the volume of trucks we move here. We are the second
which is the fourth pillar of our strategy. To become the
biggest player in the market for Class 4 to Class 8 trucks. In
undisputed market leader in Mexico, we need to be the
other NAFTA markets, we are number one and we aspire
most attractive company to work for. We have a strategy
to undisputed market leadership here as well. The Class 8
defined to specifically address this.
tractor is the fastest growing market segment in Mexico right now and our Cascadia truck is the most advanced such
Q: How are you facing up the competitive challenge posed
model in North America. This truck is perfect for the Mexican
by used trucks being imported from the US?
usage profile and for the country’s landscape. Based on the
A: One of the biggest problems Mexico is facing is
Detroit DD15 engine, we are offering a variation for this
uncontrolled importation of used vehicles from the US. The
market that was launched last November at ExpoTransporte
federal and state governments have to step in to curb this.
in Guadalajara. Mexico has now the newest product line-up,
Almost half a million used trucks are being driven around
with the newest engines and the most advanced technology
Mexico, 149,300 trucks are between one and ten years old
available for fuel efficiency.
and 120,000 trucks are between 11 and 20 years old. The last figure is unique to Mexico as 155,000 trucks are over 21
74
Q: What is your strategy to attain this position in Mexico,
years old. A vehicle population older than 21 years, especially
when the likes of Volvo or Kenworth are increasing their
in commercial transport, is not good for the environment,
investments here?
road safety, or fuel efficiency, while it is also hindering
A: The market will decide who is the leader. We have
economic growth. There are only two countries which have
redefined our strategy to become absolutely client-
no limits on importing vehicles: Mexico and Nigeria. The
focused and we have built up this strategy around four
OEMs need to come together to deal with this but more
| SECOND ROUND ISC FIELDS importantly, the country needs enforced standards. If it is
components we need to provide ourselves, such as our own
so easy to buy old trucks, why are companies still buying
transmissions, axles, and engines. Ultimately, the customer
new trucks at a substantially higher cost? This is because
will decide what the best choice of product will be. We can
Mexico has very professional transportation companies.
only show that the most fuel-efficient truck right now is
The fleets of companies like FEMSA or Grupo Bimbo are
the Cascadia combined with the DD15 engine. To build the
impressive, as compared to what we can find in the US,
best truck, the best suppliers are needed so it is a constant
Argentina, or Brazil. These companies look at total cost of
process of seeing what is out there and integrating it. As for
ownership and 15 year old trucks are no longer efficient.
hiring new talent, we offer internships through links to all
The technological advantages that new trucks bring can
the big universities in Mexico. I personally visit universities
raise their operating efficiency.
to talk about Daimler with students, and we have talent programs across the country that open the Daimler door
Q: How does Daimler Financial Services encourage the
to them. We also have programs within our Santiago and
purchasing of new vehicles through financing?
Saltillo plants, were senior engineers mentor younger team
A: This is one of our key advantages, we have a very
members. The engineers we hire are very capable, we have
competitive financing arm. This is part of our ease of doing
no problem sending Mexican engineers to work in the US or
business pillar, we are a one-stop shop as we can provide
Germany. The quality produced by universities is up to par
a full line of vehicles from Class 4 to Class 8 and offer
internationally.
financing. This is a key point for us. Q: What potential do you see for inter-modal transportation Q: How does the fact that your trucks are being
as opposed to just transportation by trucks?
manufactured in Mexico rather than Germany or the US
A: Inter-modal is the way to go but it is limited here in
influence the perception of your brands in Mexico?
Mexico. Truck and rail are a perfect combination, Daimler
A: When I took up this position in September 2013, we
uses rail to send equipment to some of its plants, but
were the biggest producer and exporter of commercial
Mexico has limited rail capacity. The US still has an inferior
vehicles but we were in second place in the market. The
rail network when compared to Europe but over the last
first question I asked was why this was the case. We want
decade, it has built up several advantages on the rail side.
to be clear about the fact that we are a Mexican company.
All this will come to Mexico, but tunnels and bridges are
Our plant in Santiago Tianguistenco has been there as long
needed for this to happen. Mexico has the potential to see
as Daimler Mexico has existed. It provides a lot of work for
economic growth above and beyond what it has seen in
the local population and has won the Daimler President’s
the last couple of years. However, rail does not have the
Award for Quality six out of seven times on a global level.
capacity to be the backbone of this growth in the next five
All our plants are tied into the global Truck Operating
years but trucks can. This is why there will be substantial
System (TOS), we produce in Mexico according to our
growth in the truck segment in the future.
global quality standard while meeting Mexico’s regulatory standards. For example, we have a DD15 engine that meets the Euro IV standard, as well as the EPA 2013 version. We are more than ready to sell more advanced engines here once the necessary fuel quality is available. Rather than bringing old products and giving them a couple more years of life in this market, we take the most advanced engine and adapt it to the local environment. The government has promised that by 2017, it will be ready to roll out the latest environmental standards. Q: What criteria does Daimler use when selecting its suppliers and filling its talent pool? A: Saltillo is a perfect example of how we work with suppliers. When we built that plant in 2009, we invited key suppliers to join us in the surrounding industrial park, which was filled from the start. We rely on the technological advantages offered by our suppliers, while we are also developing in-house technology. We feel there are certain
75
| VIEW FROM THE TOP
JAPANESE TRUCK LEADER OFFERS PERSONAL TOUCH JUN NARAHASHI Chairman and CEO of Isuzu Motors de México
Q: 2013 was a difficult year for many truck companies but
trucks provide. This gives us a clear advantage as the more
Isuzu’s sales figures improved towards the end of the year.
fleets use our trucks, the more our trucks are advertised
What can this be attributed to?
to potential customers. In our experience across all of our
A: Many fleet customers were hesitant to make purchases
dealers, it has become evident that once clients understand
at the beginning of 2013 as they were waiting to see
the benefits of our products, they want to buy them. After
the economic fallout of changes happening in Mexico.
initial sales, we also put a large focus on maintenance and
This impacted our results in the early part of the year.
servicing to keep our clients coming back. Large fleets in
We stayed close to our customers, however, and kept in
Mexico are naturally very keen on fuel efficient products.
regular contact with them. This meant that they thought of
Our diesel engines provide just that, since Isuzu is number
us when they began feeling comfortable about purchasing
one in its segment for fuel efficiency in more than 35
again at the end of the year. Our dealer network has also
countries. That reputation precedes us and helps us a lot.
done a great job, leading to our non-fleet business seeing
We have two kinds of diesel engines for Class 3 and Class
the best results in 18 years in 2013. While having non-fleet
6 trucks, making us the only truck producer on this level
customers is very important, we are very keen to maintain
to offer that. For those clients who are not so up-to-date
good relations with our large fleet customers as they will
with fuel efficiency issues, we recently carried out a vehicle
continue to grow in the future.
driving seminar, aimed at improving fuel efficiency.
Q: What factors motivated Isuzu’s entry into the Mexican
Q: What allows you to stand out from the other Japanese
market?
companies that have come to Mexico?
A: Isuzu has been in operation for almost 100 years, and over
A: From the minute we entered Mexico, our aim was to
that time we established ourselves as one of the companies
provide the best service as rapidly as possible. One of our
with the longest history of vehicle exportation. Mexico may
major competitors came in two years after us, but that gap
be a new market for Isuzu but it is an important market
made a big difference in terms of how well entrenched we
nonetheless. Mexico was actually one of the last markets we
were here. Of course, new companies coming in later can
entered as part of our global growth strategy. There is a lot
build on the success achieved by others, so we have to keep
of room for growth here due to a rapidly growing population
pressing ahead. Another way in which we differ from the
and the increase in middle-class purchasing power. The
Japanese way of doing business is that our managers here
kind of service that we can offer is a service beyond what
really try to visit our customers in person. We can therefore
this market is accustomed to. Our trucks are sold in over
see how they are doing with our products and what we can
120 countries, and we are very familiar with what customers
do to improve our service. Isuzu is also one of the greenest
demand. In terms of installations, we have an assembly site
truck producers in the market, but the infrastructure is not yet
in Cuautitlan, and we are happy with the people, quality, and
in place in Mexico to support us in this segment. For example,
processes in place so far. We are assembling just two models
we cannot propose our natural gas products in this country
at this site for the moment, and the rest are being imported
as customers would not have access to refueling facilities.
from Japan. When you look at the investment needed in relation to the amount of trucks that would be produced
Q: Are you planning to expand your passenger vehicle
here, it is simply not economically viable for us to build an
business?
entirely new production facility in Mexico.
A: This is the next step for Isuzu in Mexico, but it will happen further down the line. Buses are very expensive,
76
Q: How are you translating your value proposition into
and many old buses in Mexico need replacing. It may take a
actual sales?
long time for this to happen though, and it might well have
A: The big fleet customers in Mexico are very sophisticated
to entail government support. We have begun selling some
and they understand the superior performance that Isuzu
buses but this is only moving ahead little by little.
CHANGING HEAVY DUTY PURCHASING PATTERNS The Mexican consumer market is dominated by American
operate the units correctly and maximize benefits ranging
trucks, a preference obtained over the many years
from fuel efficiency to extending the lives of the units,”
American vehicles have been present in Mexico. But in
adds Suzuki. So far, 500 companies and more than 2,000
recent years, competition has been heightened by the
drivers have received this training, leading to a reported 31%
entry of new players, leading to a reworking of consumer
fuel efficiency improvement. José Armenta, Commercial
preferences. Hino is a relative newcomer, having begun
Director of Hino, says that “clients appreciate these
sales in 2007, but its Director General, Harumasa Suzuki,
concepts as a 31% fuel reduction creates a competitive
quickly realized the importance of consolidating Hino’s
advantage given the rising fuel prices seen in the last few
brand image in order to penetrate the market. Currently
years that have made it difficult for certain companies to
holding a 5% market share, Suzuki hopes to double that to
survive. Hino’s programs like Total Support and Eco Drive
10% by 2018 through marketing strategies tailored to the
help companies to continue thriving.” Having received the
purchasing tendencies of Mexican customers.
training, fleet companies can place Hino’s Eco Drive logo
“At the moment, Hino’s headquarters in Japan is considering major changes to the way it produces. Mexico could become our manufacturing hub for the whole of Latin America and serve part of the US market” Harumasa Suzuki, Director General of Hino Motors Sales Mexico
Hino sees it as important to be closely associated to the
on their trucks, which serves to improve their brand image
positive attributes of Japanese OEMs, such as advanced
and strengthens Hino’s presence in the market.
technological capabilities, while portraying Hino as being adapted to the needs of the Mexican market. Being a
Maintaining close ties with big fleet companies is important
Japanese truck company has allowed Hino to offer a
to Hino, both as a source of future sales and to road-test
more competitive price in the Mexican market. “A vehicle
future services. Clients are happy to adopt Eco Drive but are
brand’s origin is no longer a key concern for clients as
more sluggish to adopt greener technologies like hybrid or
the most important considerations are total cost of
electric vehicles. Hino recently launched its new generations
ownership, performance, and maintenance. Hino trucks
of hybrid trucks and is targeting large fleets, as they are
are not cheap compared to certain other brands, so we
usually more environmentally conscious. “Hino has already
are trying to obtain a competitive positioning in Mexico
sold ten units to PepsiCo, supporting its efforts to improve
without reducing the price of the products,” explains
fuel efficiency and corporate image.” As this demand
Suzuki. Hino has created three main strategies to increase
evolves, Hino expects sales for fleets of that size to reach
its nationwide position. The first is a focus on improving
between 30 and 50 units. “Nevertheless, many consumers
customer service, achieved by increasing the number
still view hybrid technology as being very expensive and it
of service dealerships. “This does not necessarily mean
will take some time to alter this perception,” adds Suzuki.
increasing the number of dealers, but encouraging the
Hino’s aim to double its market share in Mexico is predicated
existing ones to invest in service. The company currently
on expanding its product portfolio and entering new market
has 18 dealership companies and 46 points of service
segments, even if its hybrid and electric options are not
networks, and expects to see an increase of 5-10% based
taking off as of yet. “Hino plans on introducing its new
on training people in local workshops and giving them a
urban and suburban bus offerings. We are trying to expand
Hino inventory to become authorized service spots for
our product portfolio to increase volume and we want to
us.” Hino presents the opportunity to later attract large
give our dealer network more tools to increase Hino’s sales
fleets that use Hino vehicles as a major incentive to such
and presence in the market,” adds Armenta. This process is
workshops. To aid in this process, Hino gives its clients a
part of a transition in which the role of emerging markets
list of authorized workshops that can provide maintenance
like Mexico is changing for Japanese manufacturers. “At
for their units. The third strategy is comprised of training
the moment, Hino’s headquarters in Japan are considering
courses for client’s employees. This concept is called Total
major changes to the way it produces. Mexico could become
Support and was created to offer after-sale support to
our manufacturing hub for the whole of Latin America and
the customer. “These training sessions prepare the user to
serve part of the US market,” concludes Suzuki.
77
| VIEW FROM THE TOP
FORGING A NICHE AMIDST STRONG COMPETITION ARNAUD DORDILLY President and Director General of Scania México
Q: What have been the hallmarks of Scania’s strategy to
ourselves and we are recognized as having a good product
succeed in Mexico?
and excellent aftersales service. Scania vehicles have
A: The consumer market in Mexico is unique in that a lot of
always been very good when it comes to fuel consumption,
customers want to buy directly from the OEM rather than
which is vital in Mexico given the distances the country’s
going to a dealer. This highlights one of the problems with
buses have to travel. An average bus in Mexico travels
the local industry, which is poor aftersales service. In Mexico,
approximately 25,000-30,000km per month, which is huge
going to the dealer for parts often poses a challenge since
when compared to developed economies. There are other
much of the attention is on the sale and not on the service. In
factors to consider such as altitude, climate, routes, road
response, we have developed a strategy for the service side
types, and PIT parameters. Our experience has taught us
that focuses on the needs of the customer. We started this
that our products need to conform to the environment they
slowly as, at the beginning, we did not have a presence in the
operate in. As such, we have been adapting to the technical
big fleets, only with smaller customers. That factor actually
necessities of the Mexican market since 1995.
helped us during the economic crisis of 2008 as we were not dependent on any one large customer. But now, by focusing
Q: How does the Mexican bus market stand out from other
our attention on tailor-made solutions for transportation
markets Scania is present in?
companies, we have managed to obtain a leading market
A: In many ways, the coach industry is actually more
share over the last two years. Nobody believed that Mexico
developed than in some European countries. Every time
had any major potential for Scania, but we have now
we receive industrial visits from Europe, people are
established an interesting market presence with very few
surprised at the sophistication. But this is not so surprising
resources. Brazil and Mexico are now competing to be the
when you realize that 98% of people travelling around the
number one market for Scania’s buses worldwide.
country use bus transportation. We will of course have to see what impact the Fiscal Reform will have throughout
Q: How much of a challenge was it to gain visibility in this
2014. A lot of clients think that in-sourcing their servicing is
market?
the best way, but it really is not the most efficient method
A: Our operations in Mexico began in 1995, where we
Technology is moving quickly and servicing is more
established an assembly plant in San Luis Potosi. The
difficult than it was ten years ago, you need the right tools
brand was originally not represented in the right way and
and the right training. It is not only changing oils, filters,
this created a poor perception among our target clients.
and maintainance, it is really about understanding the
Considering this factor, Mexico had begun to look like a
complete technology. Individual TV screens, for example,
market which posed more difficulties than opportunities
create a headache on the technical maintenance side.
for us. Heavy duty brand names like Kenworth, Freightliner,
78
and Navistar dominate 95% of the heavy vehicles sector in
We also do not have a specific production line for Mexico
Mexico. This is why we decided to focus on buses instead.
today, while we have a very standardized way of producing
This has been a new journey for the group but tailoring our
our products. However, some specific components were
strategy for a specific market has given us more visibility.
required for this particular market, which were born here and
Scania’s brand presentation today is completely different,
then incorporated into our global manufacturing processes.
which was achieved through our attention to aftersales
Working in Mexico therefore turned out to be a very good
service. It is very easy to lose a customer but it is quite
field test for Scania. Both Brazil and Mexico present tougher
hard to win a customer, especially a large fleet owner. There
conditions than Europe, and although Scania is a global
are groups in Mexico that have fleets of 9,000 vehicles
company with a 120-year history, we are still discovering and
or more. When a company of this size is used to using
innovating due to all the countries we work in. We cannot
only one or two brands, it needs to be convinced of the
copy and paste parameters and concepts that are working
value of trying something new. We have now established
in Paris or Finland in Venezuela or Mexico.
TRUSTED PARTNER TO MEXICAN COACH FLEETS “Mexico’s transportation vehicle market is unique and
changes faster than any competitor from the engineering
has almost nothing in common with other markets in the
and design to when the vehicle is produced. In Europe,
world,” states Igor Fernández, Director General of Irizar. As
Irizar is currently manufacturing an integral coach after
a Spanish-based builder of luxury coach vehicle bodies,
acquiring the complete know-how to do just that. In
Irizar has acquired vast experience in coach manufacturing
Mexico, however, production follows the traditional model,
and
conditions
building the coach with an operational chassis. Fernández
after its arrival in 1999. This prompted a restructuring
says that there has been no identified need to develop
in the company’s vision, ranging from the adjustment
the new manufacturing business process in Mexico. This is
of manufacturing practices to the creation of strategic
largely due to the strong, strategic partnerships that have
partnerships and tailored supply chain development. “As a
been developed in this market. One of Irizar’s strongest
result of the efforts made to understand the local market,
partnerships is with Scania, and the two companies
Irizar currently has 60% of the market share in the luxury
collaborate closely to develop and integrate their products.
vehicle segment,” states Fernández.
“Scania’s core business is the power train of the bus and
quickly
realized
Mexico’s
particular
Irizar’s core business and strength is the bodies, so we One of the most salient characteristics that Irizar has
complement each other very well,” explains Fernández.
identified in Mexico’s luxury vehicle market is its immunity to the problem of imported vehicles from US, which
To maintain a flexible business model and rapidly adapt to
poses considerable difficulties for other sectors. “This
market needs, a strong supplier network is essential. “60%
does not represent a problem for Irizar as the technical
of Irizar’s supply chain is located in Mexico,” comments
specifications of our products in the US are completely
Fernández, adding that “most of these suppliers have
different from the ones in Mexico,” explains Fernández.
started with Irizar and we have developed together. These
In fact, he believes the efficiency that Mexican companies
suppliers must share Irizar’s flexibility in order to keep up
expect to have in their units is higher than what US coach
with the continuous growth and technological advances.”
manufacturers are able to provide. Fernández attributes
40% of the supply chain is still located outside of Mexico
the sophistication of the luxury vehicle segment to the
for logistical reasons, with Fernández explaining that Irizar
fact that buses are still the preferred transportation mode
uses one single source for critical components to service
in Mexico. “You cannot get everywhere in the country by
all the plants worldwide due to the volume and investment
plane and even when you can, air travel remains expensive
involved. On a general level, Irizar’s supply chain in Mexico
while there are no other alternatives like trains,” Fernández
is strong, but Fernández believes there is still room for
explains. With a huge volume of people travelling by bus
improvement, conceding that “the need for local suppliers
per year, companies like Irizar see that Mexican passengers
should encourage existing suppliers to meet the needs
know how to identify differences between each bus brand
of the market in terms of quality, price, cost stability, and
on the Mexican market. Customer demand for high added
other factors that help make the customer safe.”
value bus services in terms of security, entertainment, and comfort has sparked fierce competition between
While fleet companies grapple with rising fuel prices,
bus companies. “In response, Irizar has attempted to
vehicle manufacturers like Irizar are tailoring their vehicles
differentiate itself from its competitors by adapting its
to
products to the Mexican market and being flexible enough
Manufacturing luxury vehicles that uphold fuel efficiency
to provide customized solutions to its customers,” says
qualities requires raw materials that are sometimes difficult
Fernández. Irizar’s main customers include Grupo ADO,
to source. Despite these procurement challenges, Irizar
Primera Plus, Flecha Amarilla, Estrella Blanca, IAMSA, and
has a strong program to reduce the weight of the units,
Grupo Toluca, among others.
since fuel efficiency is a proven way to increase market
provide
sustainable
and
fuel
efficient
solutions.
share. However, Fernández states that the trend for better Irizar does not use a distribution network but carries out
fuel consumption is still in its early stages in Mexico. “In
its sales personally in order to maintain close relationships
Mexico, Euro IV has been required for the last years but
with customers, with Fernández saying that “most of
since January 2014, Europe has moved on to Euro VI. This
Irizar’s customers have been with us many years, so there
shows there is still a lot of inconsistency. Companies are
is already a common understanding and trust.” Irizar
investing in units containing the lightest technologies to
also distinguishes its business model by its horizontal
improve their fuel consumption and reduce emissions, but
structure, allowing for quick decision-making. Fernández
they are also forced to abide by conflicting rules. This is
believes that this structure allows Irizar to implement
part of the Mexican reality,” he says.
79
Nuestro objetivo es dar vida a las ideas de nuestros clientes, que trasciendan y pongan en manifiesto el cambio
Trabajo que aplica una filosofía de Innovación y Desarrollo en el perfeccionamiento constante de nuestros procesos con los cuales conseguimos un resultado final con un costo reducido y la mejor garantía de calidad
Proporcionamos soluciones innovadoras basadas en desarrollos para tu negocio
80
TRANSFORMANDO EL MOVIMIENTO
BECCAR es la empresa especializa en el diseño y desarrollo de Carrocerías para el transporte público en todos sus segmentos de mercado: URBI, URBUS, URVIABUS y B330 son tan sólo algunas aplicaciones de carrocerías para transporte público
Los modelos con tendencias de diseño móvil, en usabilidad y aplicaciones que se extienden hasta desbordar las nuevas tendencias tecnologías que aún no conoces
Innovación, Diseño e Ingeniería contacto@beccar.com.mx www.beccar.com.mx
81
HOMEGROWN BODY BUILDER LOOKING TO FUTURE Beccar, a Mexican-based bus body builder, is a clear
imposed upon it. For instance, Becerra mentions that some
example of a local success story in the automotive industry.
companies have agreements with a single bodybuilder
Its founder and Director General, Julián Becerra, explains
that will dedicate 50% of its production to that brand.
that the company began as a spontaneous project that
The remaining 50% is open to the market, which is
then evolved into a full-blown business. Beccar traces
where the brands and models with the highest potential
its roots back to a workshop in Zapotlanejo, Jalisco,
must be identified, according to Becerra. In order to be
where it was founded in 1992 to conduct renovations on
competitive in this market and especially when competing
old bus units. Becerra quips that the company’s journey
with brands coming from overseas, Becerra stresses the
to becoming a coach vehicle body builder was done
importance of identifying clients’ needs and the terrain in
almost in reverse to the norm. “We began making buses
which they operate, and then offering a product adapted
without engineers. For us, this was a vivid and reversed
to these factors. For example, some vehicles have a higher
engineering experience, as we worked on rebuilding units
performance and simpler design, while other units are
until we knew how they were assembled. This saw us really
oriented to heavy work. “In flat terrain, a Mercedes-Benz
evolve into engineers,” explains Becerra. The company
vehicle might be the best option since they are lighter, less
has now grown to 18 engineers, focused either on design
complex, and consume less fuel. But in mountainous and
“As a vehicle body builder and assembler, Beccar is able to manufacture for any application, be it natural gas, electric, or hybrid” Julián Becerra, Director General of Beccar
or on manufacturing. In 2001, Beccar took the next step
difficult terrain, a Navistar International model could be
in its journey, beginning to develop joint ventures with
better, as these are heavier and have higher performance
companies such as Navistar, growing through strategic
parameters,” Becerra explains. It is this knowhow and its
partnerships. Having entered the urban bus segment back
relations with numerous brands that enables Beccar to
in 2002, Beccar developed a strong line of new models
offer truly tailored vehicles to the right market segments.
for this market. Vertical integration followed in 2005, with the company being able to match its manufacturing with
Beccar’s particular business trajectory has enabled it to
design, engineering, and technical processes. This allowed
amass a wealth of knowledge on the peculiarities of the
Beccar to find more clients, offering them fully assembled
domestic market. It puts that knowledge to good use as it
units. Predictably, this led to a boom in demand, which saw
currently covers the urban, suburban, and light inter-state
the company boost its installations to 50,000m and bring
sectors, with 18 different vehicle configurations. Despite
in the latest technology. New space and new technology
this breadth, Becerra believes there are still segments to
led to new models, giving it a total range of 60 different
be exploited. “Beccar has identified a gap in reference to
models used in the market for various brands. This
the cost difference between a light inter-state unit and a
expansion is accompanied by a US$3.5 million project that
luxury unit. Mexico has routes between municipalities and
will see warehouses for materials and accessories being
states that do not need a double-decker bus or a luxury
expanded, a further increase in production areas and a
bus,” tells Becerra. To take advantage of this gap, Beccar
designed space for R&D. “Through this internal investment
has decided to tackle medium to low segments and has
and development, Beccar is working alongside brands like
begun manufacturing buses that are better equipped and
Mercedes-Benz, Scania, MAN, Volkswagen, Navistar, and
can offer comparable services to their more expensive
Hino. This has seen us become the Mexican company that
counterparts. Beccar’s models have not just found regular
designs, manufactures, assembles, and does all the body
use on the open road, since its URBI is a regular feature in
work for those companies,” says Becerra.
Mexican cities. Becerra explains it was designed to provide
2
safety and maximum visibility in urban environments,
82
Strategic partnerships are crucial for vehicle body builders
with an ample body designed to be lightweight and
like Beccar, says Becerra, explaining that the automotive
durable. Next to it, the URBUS is more compact, allowing
market is versatile and that no single brand can be
Beccar to have product offerings for different passenger
requirements. Finally, the B330 is an inter-city option.
As a homegrown success and having been awarded the
Its aerodynamic design saves on fuel costs, important
Successful Company Award by the Ministry of Economy,
even for short trips, and Becerra maintains it has quickly
Beccar is also looking to give back. The first recipients of
become an industry staple.
its scholarship program are the children of its own staff. Those still in school will see their education costs covered
The ability to tap into automotive trends and incorporating
by the company, provided they maintain their grades at
them into its product portfolio has ensured Beccar a firm
a certain level. Furthermore, Becerra says he has steered
place in the industry. Through visiting markets such as
the company toward environmental programs. He explains
China, Spain, Belgium, and Argentina, Beccar’s executives
that the company has set up the creation and oversight of
have been able to detect trends there and consider possible
areas that are turned over to greenery, as well as a program
corresponding applications to the Mexican market. One such
to encourage the general public to start composting.
trend is alternative fuel use. “While visiting other countries, Beccar was exposed to several products that use natural gas
Having
or electricity. As a result, a new project is being developed
manufacturing and production portfolio, one of the
to quickly bring a unit to the market that runs on natural
company’s top priorities for the future is to further
gas,” Becerra comments. “Beccar has also participated in
formalize its corporate structure and move away from
test runs for a hybrid unit in Mexico, which is in line with the
being a family-run business. “This direction will provide
government’s increasing interest in such units.” He stresses
new bases and regulations which the next generation
that in Mexico, vehicles should be renewed more frequently
of Beccar’s management can adopt in order to make
as they are sometimes used for up to 20 years, causing a lot
the company grow even further,” Becerra explains. It is
of pollution. Becerra wants to use Beccar’s market expertise
expected that by 2015-2016, the Becerra family will no
and knowledge to offer alternative options for its clients.
longer fully direct the company, as external managers are
“As a vehicle body builder and assembler, Beccar is able to
currently being considered. For Becerra, setting this new
manufacture for any application, be it natural gas, electric,
general direction and business management approach
or hybrid.” Beccar sees maintaining close ties to clients is
will offer a different vision which will allow the company
also important way to add value. “Beccar operates in both
will be able to grow even more. “New and experienced
the production and service business segments, and we
people will enter Beccar and strengthen the roots and
have a workshop where we service up to five insurance
motivations that first forged it.” The company already has
companies. In terms of customer service, we offer clients
a strong presence in Mexico but Becerra is now looking to
solutions for any workshop issue they might have,” explains
expand its reach abroad. “We have made certain tests in
Becerra. “To address nationwide coverage, Beccar provides
countries like Venezuela to gauge how we would fare in
training to mechanics across Mexico and then sends spare
new markets, the space we could claim, and in which areas
parts to their workshops.”
we could grow,” says Becerra.
undergone
these
various
evolutions
in
its
83
UNIQUE CHARACTERISTICS IN LUXURY COMMERCIAL SEGMENT When Daimler reinforced its four-decade presence in
are work horses and they have to run day in and day out.
Mexico through the dedication of its Monterrey facility
That is where we differentiate the definition of luxury in
to production of Mercedes-Benz buses 20 years ago,
the two segments. In the commercial segment premium is
the market conditions at play differed considerably
synonymous with the erasure of unexpected down time,
to today. Jan Hegner, CEO of Daimler Buses México,
and consistently efficient operation.” Optimized uptime and
explains that while the Mexican transportation market
comparatively low TCO are the assets that have come to be
has immeasurably developed and evolved, what remains
the most important differentiators. Despite such strengths
unchanged is its priority for the company. “Right now there
the race to maintain and gain market share necessitates
is more competition in all segments, both from OEMs and
constant evolution. Daimler Buses continues to introduce new
wider product ranges, but all in all, we see the growth
technologies to the market, and is in the process of upgrading
in Mexico as an opportunity. On an international scale,
its product portfolio to meet Euro VI emission standards,
Mexico is increasing its competitive position and we want
currently under governmental discussion for implementation
to participate in this opportunity.” It is not only exports
by 2018. The company already has installed Euro V engines
drawing in Daimler Buses however. The bus-maker’s ability
in all of their raised floor vehicles. In terms of alternative fuel
to offer solutions for the challenges facing the local market
systems, Hegner explains that Mercedes-Benz Mexico can
including continuous growth, rising emission standards, and
tap into developments made by the wider Daimler group
increasing customer expectations regarding safety, quality,
in CNG, diesel, hybrids, full electrical vehicles, as well as fuel
and comfort, for both the urban and rural segments, give it
cell technology for different segments and regions. Mexico’s
strong leverage in the internal market. “With the ongoing
wealth of natural gas is invariably keeping the attentions of
reforms, the growing population and improving education,
many on CNG technology, which Daimler Buses is beginning
as well as the attractive production costs there are plenty
to offer to the urban bus segment. “We are focusing on
of opportunities to come. We hope to grow faster than the
the urban segment because that is where the market is
market and reclaim our 50% market share,” says Hegner.
developing and where the needed infrastructure can more easily be installed,” explains Hegner. However ultimately the
Daimler Buses identifies its main stake as being in the urban
aim of all new technologies for the sector is to reduce fuel
segment, which represents an important sales volume. The
consumption and exhaust emissions, and Hegner counters
country’s three largest cities, Mexico City, Guadalajara, and
that although CNG is considered to be a clean technology,
Monterrey, remain pivotal markets for the company. Their
it still involves combustion. “The long term target should be
respectively large populations have created heavy public
to replace combustions engines with non-thermic engines,
transportations needs, and Hegner explains that trends in
such as the fuel cell.” Hegner believes that for the next 20
these microcosms permeate other towns in the country,
years, diesel will remain the most significant fuel for ground
making them important commercial laboratories. “If we are
transportation. OEMs will need to continuously improve diesel
able to prove the quality of our products in those markets
engines in terms of reducing consumption and emissions.
then we can attract the attention of others,” asserts
In tandem the integration of electrical components for on
Hegner. However the company’s CEO is aware that as a
board aggregates and vehicle propulsion will offer further
full operator, Daimler Buses would be foolish to neglect
reduction potentials. “Diesel-hybrid technology is a bridge
wider segments. The premium bus maker has not had a
technology that needs to further be developed, as the fuel
presence in the coach segment for a number of years but
cell technology still is some 20 years away from widespread
believes that its ability to provide a combination of optimal
economic deployment. At the moment we have CNG and
TCO, quality, safety, and comfort give it a strong product
that is in what we will focus on,” says Hegner.
offering. Hegner explains, “We have a robust proposition with our new G7-product family with which we can cover
The entire market in Mexico must play a role in technology
all raised floor segments. We currently see that the market
adaptation including the maintenance network, dealer
place is appreciating the wide range of different models as
network, the large fleets, and the municipal depots. All
well as the high degree of customization.”
these elements will require education and preparation to successfully receive and embrace new, more efficient,
84
Discussing the impact of the positioning of Mercedes-Benz
but also more complicated technologies. Hegner warns
as a luxury brand, Hegner explains that there is a difference in
that if the proper circumstances in terms of knowledge,
perception of the very concept of ‘luxury’ in the commercial
maintenance and fueling infrastructure are not created,
and passenger segments. On the commercial vehicle side,
any new technology bears the risk of unexpected down
luxury means reliability. As Hegner asserts, “Heavy vehicles
time and subsequent economic losses for the operator.
| VIEW FROM THE TOP
BRAZILIAN BODYBUILDER COMES TO RELY ON MEXICAN ENGINEERING RODRIGO PIKUSSA Director General of Marcopolo de México Q: How has the role of Mexico in Marcopolo’s international
Q: How do you optimize the benefits of your partnership
portfolio evolved?
with Daimler?
A: Mexico was our second largest operation outside of Brazil
A: Our partnership with Daimler is global and it is our
for some time but our work suffered after the crisis. We
largest chassis provider. This partnership is very natural
were affected by a lack of definition regarding our product
to us and has proved its importance in Mexico and
mix, which kept us outside the coach market for two years.
worldwide. We have common interests and identities,
During that time, Colombia took over from Mexico as
and neither a body nor a chassis can be complete
Marcopolo’s second market. But when Daimler Mexico lost
without each other. As partners, we try to get us much
ground in the coach segment, a lot of other competitors
advantage as possible from our proximity. We work
entered the market. We are now coming back and we aim to
together whenever either of us is developing a product
recover our strong position by next year. We used to import
while sharing the same plant. This means we share one
almost completed bodies to fit over the chassis, but we have
facility, one cafeteria, and one security system as our aim
now changed our business model and we are assembling
is to maximize the benefits from the joint venture. As two
100% of the body in Mexico. This makes us more competitive
separate corporate entities, we naturally have our own
and improves quality. The idea behind this move is to change
unique cultures, but we have been working together for
from the importation of partially knocked down (PKD)
14 years. We have established an enduring joint culture of
units to completely knocked down (CKD) kits. We want to
understanding and cooperation.
localize as much as possible and be highly independent from imported parts. There is a lot of opportunity in Mexico but
Q: Where are you focusing your R&D efforts?
due to the level of competitiveness seen here, we need to
A: There is a huge demand for more efficient buses, and
be able to react very quickly. Importing from Brazil takes
costs are being pushed down at the same time. We are
time and causes delays that impact our ability to be fully
working together with Daimler to create safer and more
competitive. Therefore, Marcopolo’s strategy going forward
efficient vehicles, and in our coaches we have a very good
is to reinforce our production and engineering base in
combination of both. Marcopolo developed its generation
Mexico, connected with our engineering base in Brazil.
7 model, with incorporated advanced aerodynamics that gives a big improvement in terms of fuel consumption.
Q: How are you adjusting your product development
Daimler has developed Euro V engines that are much
strategy to pursue the goal of a more localized operational
more
structure?
combination of two developments offers a very good
A: Our corporate engineering base in Brazil is responsible
solution to the market. Some customers have been
for product development, but developing a model does
testing our double decker against European models and
not only mean developing the base concept, it must then
the fuel consumption differences are huge. The Euro V
be adapted to each particular market and customer. The
engine is not obligatory in Mexico but a lot of customers
role of our Mexican engineering presence is to be close to
are pushing for it nonetheless.
environmentally
friendly
and
efficient.
This
the market, understand its needs, and adapt our products whilst being respectful to our core strategy and design
Q: What are your main objectives for 2014?
concept. The Mexican market is the most demanding
A: We plan to capture 25% of the coach market and 20-
market in Latin America, regarding finishing, comfort,
25% of the city bus market, regarding complete buses.
electronics, and even safety. For example, European buses
That will take us to a volume of around 1,800 vehicles.
do not have the level of comfort needed for Mexican
However, it is more important for us to be recognized as
passengers. Bus operators are incredibly professional
the best body provider in the market than to sell a certain
and are pushing the market to provide an experience for
volume. We left the market for a while, but 2014 is the first
customers rather than just a transportation service.
big year of our comeback.
85
| VIEW FROM THE TOP
BUS MAKER PUSHES FOR INCREASED SUSTAINABILITY LEFT: Rafael Kisel Reinisch, President of Volvo Buses Mexico RIGHT: Ediltron Temporal Gomes, Director of Sales for Urban Buses and BRT of Volvo Buses Mexico
Q: What does Volvo Buses’ market penetration look like
government are also involved. Nonetheless, we really see
in Mexico today?
a big market potential in the city bus segment, with major
RKR: In the intercity and coach market, we are focusing on
opportunities coming up. Until the electric vehicle trend
the top-end segments rather than the medium and short-
grows, we will be able to offer eco-friendly diesel models.
distance segments. In terms of overall market penetration,
For the European market we only produce hybrids and no
we currently sit at just over 20%. In the city bus segments,
longer produce diesel, but the Mexican market is 20 to 30
we are specialized in Bus Rapid Transit (BRT) and in low-
years behind that.
entry models. We believe that city segments will soon begin a transformation toward more eco-friendly fleet
ETG: We believe that by combining the transport
systems, which will be more beneficial for passengers,
technology being developed within Volvo with the city
drivers, and the cities themselves. This will drive efficiency
bus segment, we can offer better transport solutions to
both in terms of energy and cost. In terms of BRT, the total
the market. The Mexican market has to recognize that the
market penetration is so low that our own participation
current way is not sustainable for the future. In Colombia,
does not say a great deal. Nonetheless, we are market
the market has changed and this country now uses back
leaders in terms of this technology. Eight BRT vehicles
engine models. Although such buses may be US$10,000
have been sold in Mexico so far this year and three of
more expensive, the cheaper models are three times more
those have been our 7300 BRT model. We will deliver an
expensive in the long-term. A lot of consumers think about
additional 17 BRT units in the next year. Volumes are also
life cycle in terms of time but they really need to start
still very low in the low entry segment, but all the deliveries
thinking about it in terms of kilometers.
that have been made have been from Volvo. Q: The government and industry associations are in talks
86
Q: Is Volvo Buses interested in entering the broader
regarding the renewal of Mexico’s bus fleets, which would
market in the city bus segment?
affect some 40,000 units. How involved is Volvo Buses in
RKR: The market is dominated by conventional vehicles,
this discussion?
which are generally higher sitting buses that feature the
RKR: We are certainly putting considerable efforts into
engine at the front. We do not participate in this segment
encouraging renewal, but also into advising on what we
as we do not believe that those models are the right
believe is the right way to renew. In our opinion, putting
solution for Mexico. Volvo is focused on providing the best
a bus body onto a truck chassis, which is the common
products for each market, not just on increasing sales. That
model in Mexico, is not the right approach to public
means providing vehicles that are safe, environmentally
transportation solutions. Our proposal centers on better
friendly, and featuring the right solutions for every user.
accessibility combined with electro-mobility. We see the
Our buses are also designed to be usable for all members
future of inner city transportation being in hybrids or fully
of the public, including those with mobility difficulties. We
electric vehicles, not gas. Volvo is a pioneer in this field, and
place our engines at the back of the buses rather than at
in Europe we have the largest fleets running with electro-
the front, which provides greater comfort for the driver. We
mobility. We would like to see the government in Mexico
also remove steps for the entrance, which allows for better
understand that this is the right way forward. We are not
passenger flow. The current solutions in city transport are
against natural gas, but we do not see combusting gas
not what people deserve. This results in a situation where
within the bus itself as being the most efficient solution.
people that have access to a car are far likelier to use their
The combustion can be carried out at an earlier stage in
car instead of public transport. Our proposal is to really
an electric factory facility and thereby utilized in a much
create a much more efficient and user-friendly transport
more efficient way. Mexico has big reserves of natural gas
system than what exists today. Of course, Volvo does
and the government is very concerned about making use
not have exclusive control over this, as operators and the
of these. The infrastructural costs to do so also represent
a big expenditure and the government is currently focused
launched two new products last year, namely the 9700
on making CNG gas available in the north of Mexico, as
Grand, which is a long-distance coach, and the 8300 S,
that is where the reserves are. However, the entire country
which is a short distance suburban type of coach. We sold
will require such infrastructural investment. This means
300 9700 Grand models last year and these were very well
the main infrastructural investments made toward hybrid
received by the market. ADO received more than 200 and
technology will come from Volvo, lessening the financial
centered all of its marketing efforts around our product.
burden being faced by the government. In industrialized
We sold almost 90 of the 8300 S in the first year and we
countries, the common optimal vision for a city is that the
expect the same this year. With the launch of these two
downtown area should be 100% electric, the peripheries
new products, we increased our market share to 33%.
would have access to hybrid options, and long-distance
We launched the 7300 BRT in 2014 and we will continue
areas would remain with diesel. In addition to all their other
renovating for that segment. However, we do not see the
benefits, electric vehicles are extremely quiet, providing
coach segment growing heavily in Mexico, where more
an extra bonus for inner cities. That is also more or less
than 95% of people already travel by bus. Low cost airline
Volvo’s vision for the future.
routes are increasing and the government is also discussing the possibility of establishing three railway routes around
ETG: The thermal efficiency in a combustion engine is
the country. That could impact the coach segment, but for
around 49%, but in an electrical plant that uses a compound
the most part we expect the market to stay the same. Our
cycle, this figure is almost 90%. By having the combustion
main way to capture a larger market share is to remain
in a power plant with the same amount of energy that
close to our customers and offer them excellent service
you would use to move one CNG bus, you can produce
and financial solutions. We have an ambitious target to
enough energy to move two hybrid buses. A lot of energy
grow our dealership network as we want to be number two
is needed to move a CNG bus because of the weight of the
in terms of dealerships by 2016 with more than 60 points
people onboard that need to be transported. With hybrids,
of contact between dealerships, spare parts outlets, and
however, the brake energy is used to move the vehicle so
service points. We are executing that plan and we have
there is a huge difference in the energy expenditure. The
already opened two new points this year. We will open 11
new hybrid plug-in technology allows for the reduction of
additional points in 2014, closing the year with 49 dealers.
fuel consumption by 70%.
Despite this expansion, we are more focused on helping our current dealers to grow in their regions rather than
Q: What factors led to the market share drop for Volvo
adding new dealers. The aim of this is to be very close to
Buses in the coach segment?
the customer and to be very perseverant in our philosophy,
RKR: The coach segment in Mexico is very stable and
which is to offer excellent quality and safety combined with
limited, sitting at around 1,500 vehicles per year. We were
offering high levels of productivity for our customers. We
the market leaders from 2000 to 2012, at which point we
want our customers to run successful businesses using our
experienced a small drop. Our market share was always
buses. We believe that we offer very good life cycle costs,
about 40%, but then dropped to 28%. One reason for this
and when customers see the overall costs associated with
was the effect of the constitutional reforms implemented
owning one of our buses they often opt for our buses over
by the government, of which the secondary laws came
our competitors.
out this year. The introduction of the new VAT regulations has resulted in extra cost burdens for our customers.
Q: Has brand perception been influenced by the market
Some have dealt with the extra costs by passing them on
share drop?
to their passengers, and others have absorbed the costs
RKR: On the coach side, there is no doubt about the brand
themselves. Neither solution has been optimal, because
perception of Volvo in Mexico. However, it is interesting
the ones that passed on the cost have lost passengers
that in the last brand survey we conducted, the company
and the ones that have absorbed them have reduced cash
scored high in the city bus segment, in which we have
flow. That has created a situation where our customers are
a very small niche orientated presence. That segment
delaying purchasing decisions. The second reason for the
represents less than 5% of our total volume and we have a
drop in our market share is the entry of newcomers into the
2-3% market share within it, yet the Volvo came up number
market. There is a limited amount of major fleet purchasers
two in the survey. That is because of Volvo’s perception
in Mexico, and in any situation in which newcomers enter
as a very advanced and state-of-the art transport systems
the market there is reduced opportunity. Any change in a
provider. Insurgentes in Mexico City is one of the most
purchasing decision can considerably affect market shares.
densely utilized roads in the world, so our buses gain very
We are in the process of renovating our portfolio and we
heavy exposure on that road.
87
| VIEW FROM THE TOP
EUROPEAN MODELS TAKE ON BIG-NOSE TRUCK DOMINANCE ERIK MERCKEL REYES Director of Institutional Affairs, MAN Truck & Bus Latin America Q: How have you taken on the challenge of getting Mexican
that put us in almost all market segments. Starting from the
customers to buy European vehicles over traditionally
Class 5 on up, MAN Truck & Bus now covers all trucks above
favored US models?
8 tonnes. This has led to different situations in different
A: Many Mexican drivers see the big-nose vehicle as offering
segments. We started in the big coach segment five years
more protection in case of an accident. However, the public
ago, and we are present there with almost all of the big
tends to see these larger trucks as being more dangerous.
players. We need to work to improve our brand awareness
Regulations in Mexico are also changing, with many states
and position our products for the middle range segment.
trying to reduce the prevalence of big double-trailer
This is particularly important as this segment covers buses
vehicles. Some companies are starting to only use bigger
between 12 and 17 tonnes as well as trucks between 13 and 26
trucks for long-distance jobs and choose different products
tonnes, covering Classes 7 and 8, and represents almost 60%
for the shorter journeys. This is where our products have the
of the market. We introduced the TGX truck to Mexico and
edge. They offer greater maneuverability, and huge trailers
it has proven to be a particularly popular vehicle for bread
are unnecessary for transporting smaller loads. Customers
transportation. This is an example of how our vehicles offer
like bread companies or plastic companies do need huge
something new. Many companies transport more volume
trucks. Removing weight from the nose allows for greater
than weight and our vehicles allow a 26% increase in volume
weight to be placed in the cargo hold. Our trucks also
capacity, which is coupled with a 5-10% improvement in fuel
have the same hauling capabilities as the big-nose models
consumption based on our Euro V engines.
because of their engine power. Q: How are you tailoring your products for the local Q: Mexico has a crowded heavy vehicle segment. What
market?
makes MAN Truck & Bus feel it can succeed here?
A: Our chassis are extremely robust, which is vital in a
A: It will certainly be critical for us to take on our competition
market where little attention is paid to vehicle use and
here. Almost all truck brands are present in Mexico, and even
care. Mexico has many passenger and goods vehicles that
Chinese brands are beginning to make inroads into the US
are routinely overloaded. We install all the technology
market. Quantity alone does not lead to success here as the
developed in Europe, such as the Intarder transmission
most important factor is the specialization of the products.
brake, which generates 25% more braking efficiency. Three
The truck segment in Mexico resembles the American
years ago, we changed our engine range so 80% of our
market with big-nosed trucks being the most popular
vehicles used MAN engines. All our engines are developed
vehicles. When we entered Mexico in 2004, the market
in Germany but some of them are produced in Brazil, using
thought we would struggle as our vehicles were totally
two main technologies: the American EGR (exhaust gas
different. Another major consideration in Mexico is price.
recirculation) engines, and the European SCR (selective
To be competitive on cost means developing a production
catalytic reduction) engines with AdBlue. We were the first
facility for parts to serve the North American market. Finally,
company in the MAN group to use Volkswagen engines
almost all truck companies here have the capacity to export
with a MAN chassis, and we were forced to develop in this
vehicles across South America. Our competitors have huge
way in the Mexican market as we did not have access to the
factories here exporting to North and Latin America. This
four-cylinder Cummins engine for the Euro IV regulation.
makes it extremely important for us to be here. Q: What are your main goals for 2014?
88
Q: MAN Truck & Bus has set itself the target of increasing
A: We will be focusing on the middle-range segment
sales by 60% in Mexico. What steps need to be taken for
and on improving distribution, while also improving our
this to happen?
positioning in the large fleet segment. We currently have
A: We used to be present in just two market segments, but
the capacity to reach 2,800 units a year, which gives us
between 2012 and 2014, we launched ten new products
plenty of room to grow.
| VIEW FROM THE TOP
GAS-POWERED VEHICLES FUTURE OF MEXICAN FLEETS LEFT: Daniel Gutiérrez, President of Hyundai Truck & Bus México RIGHT: Raúl Hernández Kim, Commercial Director of Hyundai Truck & Bus México
Q: How has Hyundai approached the challenge of being a
for us to establish more local partnerships like this. Beccar,
relatively new arrival in the Mexican heavy vehicle sector?
for example, is located near Guadalajara but most of its
DG: Being a new company in Mexico poses the challenge
customers are in Culiacan, Hermosillo, and Tijuana. For this
of how to best open the market and communicate the
strategic reason, we are looking to get closer to Beccar.
quality of our products to prospective customers. Hyundai Truck & Bus began operations with two models four
Q: What were the main results of the pilot program with
years ago: the Aero Town, which has a length of 9m from
RTP?
bumper to bumper, and the Super Aero City. We are now
DG: RTP launched a pilot program for a CNG fleet in
offering more than 20 models in Mexico and expect to sell
Mexico City. The local regulations changed as a result of
1,000 buses and trucks in 2014. On top of that, we are now
the program’s success. In the past, allowing a bus to run
assembling these vehicles in Mexico and given how the
on CNG was experimental but it is now commonplace
market is growing, we expect a 10-15% increase in sales
and anybody can switch from diesel to CNG. Since air
in 2015. We are the first company in Mexico working with
pollution is highly responsible for health problems, it
natural gas. The company is taking orders in Mexico City,
is in the government’s best interest to reduce harmful
Monterrey, and San Luis Potosi for trucks and buses. Clients
emissions and CNG vehicles can help achieve this. Hyundai
like FEMSA, Grupo Bimbo, and Jumex are already ordering
Truck & Bus and CANACINTRA have also been discussing
our trucks, although our work with these companies is the
plans to change the microbus fleet in Mexico City and its
first step in a trial process. We hope that by next year, we
metropolitan area. We succeeded in convincing public
can start working with other companies.
officials that natural gas was a viable fuel. We also asked for certain of the safety features present in our buses to
Q: How can your value proposition lead customers to
become standard in Mexico, such as ABS and floor height,
change their brand allegiances?
which are voluntary at the moment. We are receiving more
RH: The 80,000 buses that circulate in Seoul, South Korea,
orders as clients in the public sector can now attest to the
virtually all run on natural gas, and Hyundai makes 70%
quality of our products. RTP is the biggest bus company
of these buses. We are offering exactly the same product
in Mexico with almost 1,500 vehicles and it has a high
in Mexico, combining a steel body with a gas engine. This
replacement rate. We currently have orders for 40 natural
combination is as efficient as an aluminum bus with a
gas vehicles and 80 diesel vehicles from RTP. People
diesel engine, whilst being more durable and reliable. We
from Guadalajara, Monterrey, Chihuahua, and the State of
have beaten the competition when it comes to efficiency,
Mexico are asking for data on our company because of the
and we are improving the Mexican market by putting
innovation we are bringing to the Mexican market.
technology to the service of the users, yielding economic benefits for the owners of the vehicles and helping to
Q: How much potential do you see for this segment to
reduce pollution.
grow in the next five years? DG: Mexico is increasing its capacity to import cheap natural
Q: Is it difficult to establish partnerships as a recent arrival
gas from the US. We are seeing significant infrastructure
in the market?
developments that will increase the availability of natural
RH: Each company has a preference when it comes to
gas from the northeast region all the way down to central
partnerships. For instance, Marcopolo works with Mercedes-
Mexico as well as the Pacific coast. With these major
Benz and Navistar works with Ayco. Hyundai Truck &
pipeline developments, Mexico will have sufficient gas
Bus mainly works with a Korean bodybuilder but we also
supply to cater to demand in the next five years. We are
have a Mexican bodybuilder near Acapulco, Carrocerías
happy to be at the very beginning of a promising market,
Diamante. We chose this partnership because it provides a
and we expect enthusiasm for the gas vehicle market to
local option for this type of service. It would be beneficial
increase over the years.
89
MEXICAN BUS TECHNOLOGY FINDING FOOTHOLDS ABROAD Since it started making bodies for minibuses and chassis for
favoring such larger capacity buses but the market demand
GM and Ford, AYCO has maintained a steady line in bringing
is not very strong. “As we are now ready to market, we can
the latest technology on board. According to Javier Benítez
deliver 40 units if we need to but such an order would not
Núñez, Director General of AYCO, the company participated
be profitable. We need projects that are supported by the
with Ford in the engineering of the F350 cab chassis,
government that will target the renewal of public transport
transforming a heavy duty vehicle to one being designed
fleets,” he adds.
for passenger transport. Since this achievement, AYCO has worked with different manufacturers such DINA, Daimler,
AYCO’s success has seen it expand its markets further afield,
Volkswagen, and Navistar to create chassis for Class 7
especially in Colombia. “We managed to enter with 500
and 8 units. Benítez Núñez says the company also works
units for the three modes of transport used in Bogota. This
with Class 5 and 6 companies but he prefers working on
is one of the main export opportunities we have capitalized
heavy duty trucks due to the complementarities between
upon. We have participated in the development of units
the capabilities of AYCO’s plant and its partners “We have
that comply with the strictest norms at an international
always produced bodies and our policy is multi-brand so we
level,” explains Benítez Núñez. As the company has plans
do not have any problem working with different companies,”
to participate more actively in Peru, Ecuador, and the US,
states Benítez Núñez.
it has sought to familiarize itself the trends of each of these markets to offer the best technology and processes
Today,
90
AYCO
continues
to
develop
technologically
required. “The differences between cities such as Bogota
advanced units. Its latest project has been the development
and Mexico City are significant. The internal height of the
of a low entrance chassis, headed up by MAN alongside
body is higher than our norms, as are the width, types
the participation of IPN and UNAM and funding from
and numbers of windows, the security monitoring system,
CONACYT. The result was the development of a bus
GPS system, collection system, and the types of seats,
seating 120 passengers that has just been released onto
but we are used to dealing with such varieties in Mexico.
the market. AYCO is in charge of producing chassis and
In Monterrey, the seats have to be tall, reclining, and air-
manufacturing has already started apace. However, this
conditioning is a must. In Guadalajara, certain seats and
bus hardly provides an economical option since the current
accessories such as reversing sensors are set to the rear
average price per chassis, either semi-forward control or
bumper and inside the vehicle camera, as well as the GPS
flat front engine, is close to US$120,000. On top of that,
system,” details Benítez Núñez. For its most challenging
the bodies cost US$70,000 apiece, almost double the
market, the US, AYCO has carried out detailed market
current average market price. Since tariffs for passengers
research. The company has found out that while in big
have remained the same, Benítez Núñez admits this option
cities buses are high-tech, in small population centers the
is not profitable for now. Certain clients in Monterrey are
bus chassis is still a viable option.
| VIEW FROM THE TOP
UNIQUE KOREAN MODELS IN THE MEXICAN MARKET ADÁN JOSÉ LECONA GUIZAR Director General of Daewoo Bus México Q: What have been the highlights since Daewoo Bus
Peña Nieto has declared that his administration will
entered Mexico in 2010?
prioritize the use of natural gas so we are counting on that.
A: We saw a great opportunity in Mexico and are opening
Natural gas presents a great opportunity for everyone,
a plant in Hidalgo this year. We spoke with the chairman of
including drivers who see diesel prices increase every
Daewoo International about the strengths of the Mexican
month. Daewoo was looking for a profitable solution
market and the opportunities that existed here before
and settled on natural gas. We believe the government is
creating Daewoo Bus México as a 50-50 joint venture with
willing to make a commitment to helping the environment.
American Coach. Daewoo had the financial resources to
I am confident the infrastructure will improve, which is why
invest in Mexico but decided on the joint venture due to
we are bringing this model to the Mexican market.
the experience American Coach offered us. Daewoo could have come to Mexico alone but preferred to enter with a
Q: What is your strategy to develop your customer base
partner that knew the market well, which is why the joint
as a new entrant in Mexico?
venture was the perfect solution for both sides. The plant
A: Urban buses will be our major focus, with 70% of our
is being built on around 60,000m2 in Ciudad Sahagun,
production being targeted to this market. We will also focus
Hidalgo. In the first stage, we will import most of the units
on tourism and interstate journeys. For this, we originally
to be sold in Mexico for 2014 and the beginning of 2015.
planned to sell 100 units in our first year of activity but
Over that time, we will work on building our assembly line.
given the interest we are seeing, that could well increase.
Daewoo has eight different models of buses, but we are
We are hoping to make between 1,000 and 1,500 units for
bringing one or two models to be built in Mexico. The sales
this segment once our production line is installed.
for other models are not very high so we will continue to import them from China and South Korea. However,
Q: How easy has it been to match the corporate cultures
servicing and spare parts for these units will be done here.
of American Coach and Daewoo? A: Daewoo is very open and we respect American
Daewoo is known in Mexico for its line of electronics so
Coach’s production line. Our plant in Mexico is going to
we are almost entering the market as a new brand of cars,
manufacture the models that American Coach would like
buses, and trucks. We need to position the brand and
to produce there. Daewoo does not have any bus models
understand and feel what impression it makes on people.
longer larger than 12m but American Coach has three
We have selected the products from our portfolio that are
models longer than 12m, so we hope to introduce them
the most attractive for the Mexican market and will be
in Daewoo’s portfolio. Naturally, there needs to be a very
producing the eight-meter long GDW6840K line in Mexico.
clear process for this to happen so we are working to get
As South Korea is a technologically advanced country
this transition right.
and has an important automotive market, the quality of the products we are bringing is great. The most attractive
Q: How have you been expanding your sales and
characteristic is the number of people our buses can hold.
distribution in Mexico?
Normally, buses exist for 45 people or for between 15 and
A: According to the SCT, between 6% and 8% of journeys
20, and there are virtually no options between those two.
in Mexico are made by plane, between 11% and 14% are
The GDW6840K can hold around 30 passengers, which is
done in car, and the remaining journeys are made by bus.
very useful for urban and short trips.
There is a huge opportunity for Daewoo to carve out an interesting market in this country. When we started
Q: What potential do you see for natural gas buses in
analyzing the market, we realized that Korea has 46% of
Mexico?
Mexico’s population, but its territory is 19 times smaller.
A: The lack of natural gas infrastructure is an issue that
Even though many brands already exist in the Mexican
affects us and many other industries. President Enrique
market, having a new option will certainly prove beneficial.
91
Mexico has been home to automotive suppliers for more than half a century, but for the most part these made up the low cost, low skilled maquiladora industry based along the Northern border of the country. As OEM presence has risen in the country, however, so has the need for a specialized and skilled supply base. NAFTA local content requirements of over 60% have helped catalyze the establishment of international Tier 1 operations within Mexico, and the country now hosts 89 of the world’s 100 leading auto parts companies. The country’s supplier landscape has now firmly shifted, and each international OEM investment has brought with it suppliers from the producer’s respective home country. Direct suppliers located on the doorstep of their OEM clients enjoy logistical and economic advantages and the announcement of one new OEM plant can result in an entire industrial park being established around it.
In this chapter we will look at how OEM investments are driving growth for Mexico’s Tier 1 supplier pool, and discuss the major trends with the country’s leading suppliers. We also explore how the global shift towards higher technology and more modern manufacturing has increased auto part manufacturing complexity, as well as the ways in which this is impacting the sophistication of the Mexican market.
DIRECT SUPPLIERS
4
CHAPTER 4: DIRECT SUPPLIERS 96
VIEW FROM THE TOP: More Innovation Needed Among Mexican Suppliers
97
VIEW FROM THE TOP: Brake Pads Leader Eyes up Tougher Competition
98
VIEW FROM THE TOP: Innovation in Range of Industries Benefits Automotive Sector
100
How to Find Suppliers: Location, Location, Location
101
VIEW FROM THE TOP: Stringent Criteria for Suppliers Guarantee Quality
102
No Second Chance for Safety Products
103
Driving Home Automotive Safety in Mexican Market
104
Obstacles to Sourcing from Mexican Suppliers
105
VIEW FROM THE TOP: Suppliers Rewarded for Commitment and Innovation
107
VIEW FROM THE TOP: Local Suppliers Anchor Seat Maker’s Mexican Growth
108
VIEW FROM THE TOP: Unique Tire Offering Needed for Unique Vehicle Market
109
VIEW FROM THE TOP: Global Tire Leader Aims for NAFTA Region Supremacy
110
VIEW FROM THE TOP: Sustainable Rubber: Retreading Goals for Mexico’s Tire Future
112
VIEW FROM THE TOP: German Tire DNA in the Mexican Market
112
Advanced Belt Technology Running Across Vehicle Segments
114
VEHICLE SPOTLIGHT: Nissan Versa 2015
116
Uniform Demands Help Sideshaft Market to Grow
117
VIEW FROM THE TOP: Turbocharger Demand Will See Mexican Production Soar
120
VIEW FROM THE TOP: Bearings Company Finds Profit from Automotive Need
121
Lean Management Approach Helps Run Vast Portfolio
122
VIEW FROM THE TOP: Chemical Innovation Continues Despite Sourcing Troubles
123
Hybrid Technology First Launched in Premium Vehicles
124
Lighting Leader Seeing Mexico’s R&D Potential
125
Comfort is Crucial in the Auto Parts Market
126
Hot Stamping Becomes Press Hardening Process of Choice
127
VIEW FROM THE TOP: Advanced Suspension Systems Being Rolled Out Across Mexico
95
| VIEW FROM THE TOP
MORE INNOVATION NEEDED AMONG MEXICAN SUPPLIERS OSCAR ALBĂ?N Executive President of INA Q: Do you see a big difference between the capabilities
track, and the condition of the recliners. The companies
of international and domestic auto parts companies
that develop such seats, headlights, steering wheels, or
operating in Mexico?
radio and audio system, fall under the auto parts sector.
A: The domestic automotive industry was born 60 years
OEMs develop systems and processes, but the technology
ago when the government decreed that to sell a car in
that goes into the components is developed by the auto
Mexico, you had to build it here with Mexican components.
parts sector. Currently, the auto parts industry is growing
At the time, Mexican investors invested their money to
around the world, and engineering centers are sprouting
create factories based on technical agreements and joint
up. Now Mexico is becoming a destination for these
ventures with international firms. The NAFTA agreement
engineering centers while ten years ago we were not even
provided the opportunity for international firms to enter
on the map.
Mexico with 100% of ownership, which resulted in foreign companies buying the Mexican portions of the industry.
Q: What is the main reason behind the shift of the industry
This led to the local automotive industry disappearing,
from the traditional north to the center of Mexico?
leaving us with only five to ten professional and high-tech
A: The OEMs definitely act as the driver. Two decades ago, we
auto parts manufacturers. The same happened in Spain
were exporting 90% of our production to the US. Logistically,
and in South American countries. Today, we have around
it made sense to be no more than 200km south of the
200 companies that are dedicated to the aftermarket
border, which is why Hermosillo and Saltillo grew very fast
business. These companies manufacture parts such as
as vehicle producers. Today, around 65% of the vehicles are
brake pads, but they are not designing or investigating
being exported to the US, 15% to South America, and 15% to
new formulas for the braking system that will serve the
Europe. Those destinations are playing a role in the logistical
cars of tomorrow. They are building brake pads for the
components of the market. Today, many vehicles are being
cars that are on the road today. To conclude, we have a
exported through the seaports, which provide access to the
few leaders and many followers. Germany has about 40
Atlantic and Pacific Oceans, and those ports are closer to the
companies that compete internationally. But in general,
center of the country. The transit to Manzanillo or Veracruz is
the auto parts world has been shrinking in recent years
easier through the center than when coming from Coahuila.
as the largest companies are buying smaller players. Big
The OEMs, their logistics, and target markets have had an
names are disappearing or they are consolidating. Mexico
effect on the place of production.
has consolidated to about ten innovating companies, and that is a pretty good number.
Q: How has this move affected the supplier industry? A: It is having both negative and positive affects. Today,
96
Q: What role can auto parts suppliers play in the R&D
companies have two options in order to generate more
cycle in Mexico?
business: they can either expand their existing facility or
A: OEMs know how to build a car, but they do not know
create a new one. In order for a supplier plant to function,
how to build an air bag, how to design a brake system, how
it must be within 20-30km of the OEM it supplies. So this
to design an exhaust system, or how to cool an engine. The
shift has left manufacturers no option but to build new
real technology is in the auto parts industry. OEMs provide
facilities. Since then, the cost of the land in the Bajio region
auto parts suppliers with information about the shape
is growing as is the demand for people. The main problem
and design of the car and, for example, the seat. They
we are facing in that region is a scarcity of people to fill
provide specifics such as the seat’s required resistance
the required talent pool. Cities in the center of Mexico
during a crash test, presence of an electric track that is not
will not be able to provide the human resources needed
noisy, and cost parameters and durability. Based on this
to continue growing the automotive industry so they will
information, the seating will develop the foam, the stretch
need immigration, and immigration means a need for
of the foam, the stretch of the frame, the condition of the
better infrastructure.
| VIEW FROM THE TOP
BRAKE PADS LEADER EYES UP TOUGHER COMPETITION MIGUEL ÁNGEL GARCÍA Director General of Federal-Mogul Mexico Q: What are the main drivers of your business with OEMs
Q: How does the cooperation between Federal-Mogul
in Mexico?
and the OEMs work to create market trends rather than
A: The main drivers of our company are engine components
respond to them?
as well as chassis and friction sectors. Federal-Mogul is a
A: Federal-Mogul has an organizational system in place to
leader in friction so there is a very high possibility that any
work together with OEMs. Take the example of GM starting
new vehicles will contain our brake pads. Beyond this, our
an engine facility in Silao, Guanajuato. Federal-Mogul’s
aftermarket sector and original equipment (OE) sector are
office in Detroit defined all the details such as the cost,
operating in two completely different environments. The OE
design, and other aspects needed to obtain the project.
market involves the large volume shipping of a few products.
That work stemmed from the assumption that GM’s next
This can easily amount to a one-piece flow of 1,000 or
project would be installed near to one of Federal-Mogul’s
10,000 units per day. In the case of the aftermarket, we find
current locations. We have a communication team in our
the complete opposite: many orders from many separate
corporate offices, coupled with others at each of the
customers who all want a different product in relatively
manufacturing plants, who communicate on an internal
small volumes. This creates a very complex business.
business level. This allows us to take full advantage of the development of technologies, products, and materials that
Q: OEM investment is shifting from northern to central
are primarily developed for the OE market, but can also be
states. Are you feeling pushed to move to stay closer to
used in the aftermarket.
them? A: We are already relatively close to the clusters that have
Q: What is the best way in which Mexico can tap local
been created in Guanajuato, which are no more than a
expertise to become a global engineering hub?
three-hour drive from our facility in the State of Mexico.
A: Approaches from different corporations have been
We are already shipping products to GM’s plant in Silao
powering this change. For example, Chrysler has created
from one of our plants in Puebla, which is even further.
an engineering center in Mexico. Around 500 engineers do
We feel comfortable in our relative proximity to potential
a lot of design work locally, which has reduced Chrysler’s
projects in the central region and we are prepared for
overall cost of design due to lower labor costs here. We are
them. Nevertheless, Federal-Mogul is preparing itself in
seeing more companies following suit, and this trend will
different geographic areas that would more easily allow
only increase in the near future. We have started developing
us to become a supplier to OEMs developing new plants.
an engineering center for chassis. This evolution remains a sensitive area as companies might fear losing control of their
Q: What recent improvements in your manufacturing
design and technology processes but it marks an important
processes have allowed you to stay ahead of the
step for the growth of Mexico as an engineering location.
competition? A: Globalization has changed the footprint of every
Q: How are you dealing with the influx of competitors
company worldwide. Most corporations have become
arriving in Mexico?
very aggressive in defining the best locations to maximize
A: The automotive industry is the most dynamic and open
results, known as best cost countries. The idea is to begin
industry in Mexico. Every year brings more competition
bringing multiple projects to such countries. Mexico is one
among OEMs, but this competition exists on a much larger
of the best countries in which to make a variety of moves.
scale among suppliers. We are world leaders in the brake pads
In Mexico, Federal-Mogul has achieved a lot of projects,
sector, but there are now 85 different brands competing in
including groundbreaking technology. This success is due
the Mexican brake pads market. Not too long ago, there were
to a stable labor force and a solid economic environment,
just five. This demonstrates the ease of entering the Mexican
which have helped us to achieve consistent results at our
automotive market. That makes this industry challenging for
different facilities in Mexico.
any supplier as it is the new land of opportunity.
97
| VIEW FROM THE TOP
INNOVATION IN RANGE OF INDUSTRIES BENEFITS AUTOMOTIVE SECTOR RENE SCHLEGEL President of Bosch México Q: Given that Bosch operates in a wide range of areas,
has been invested in North America, and the region is part
how do you maintain direction and a leading position in
of the group’s strategy to strengthen its global presence.
each of these areas?
We all know that China is going to outgrow the US, but
A: Bosch does offer a huge variety of products and
North America will be bigger than China economically for
services, but the real key is to look at our common
many decades to come. Latin America as a whole has been
denominators,
safety,
incredibly stable for a long time; its market is calculable,
environmental protection, and economic value. All our
and predictable to a reasonable degree. Mexico itself is an
products are striving to provide the best offer in these
interesting emerging market with similarities to Thailand,
four areas. The start/stop system for cars being produced
Turkey, and Colombia, but it will have different economic
at our plant in Toluca saves 6-7% in vehicle gasoline
rules for many decades to come to markets such as Nigeria.
consumption. The next version of that system currently
Mexico is a very hybrid market, which demands goods on
being developed will actually allow ‘sailing’, meaning that
the entire spectrum from cheap to expensive.
which
are
energy
efficiency,
the engine will be turned off if it is not needed, which will provide another 6-7% in savings. Increasingly, we find that
Q: What is your current growth focus in the Mexican
our technology also has potential applications in initially
market?
unrelated fields. For example, we have begun using
A: Automotive is a huge focus for Bosch worldwide and the
hydraulics and pneumatics products, originally made by
same applies to Mexico. In terms of general manufacturing,
Bosch Rexroth for industrial use, to provide hydrostatic
we want to produce more and we want to increase the
regenerative braking or hydraulic hybrid solutions for
value that we can add in Mexico both on our own and
large commercial trucks and buses. In terms of battery
through Mexican suppliers. In terms of R&D, we have been
technology, we have an advanced understanding of ion
very closely involved on the application and process side
lithium batteries, as we were one of the first companies to
until now, but we want to become much more engaged in
use different kinds of battery technologies in power tools,
the development of products while using more Mexican
prior to their use in electrical cars. This cross-sectorial
human capital. We are opening service and engineering
knowledge and innovation is a result of spending an
hubs in Guadalajara, based on the model we currently
average 8% of our revenue on R&D each year. We take
have in Bangalore, India, while we are also cross-training
an idea and quickly bring it to an industrial format where
our engineers. Engineers from India will be leading the
it becomes available to a larger end-user base. This can
program as they are accustomed to selling their services
be seen with antilock braking system (ABS) or electronic
independently. They started with few engineers but they
stability program (ESP). ABS was invented in 1986 and
have now grown to 12,000, which shows that they did
is now obligatory in most markets, although not yet
something right. We are currently hiring for the engineering
in Mexico unfortunately. This technology very rapidly
hub and we are more than happy with the number of
filtered down from luxury vehicles to medium range cars.
engineers graduating in Mexico, which has reached 145,000 each year. This is over three times as many as in Brazil
98
Q: Bosch’s center of gravity is still very much in Europe.
and almost as many as in the US. Bosch also has a special
How has the role of emerging markets like Mexico changed
edge in the aftermarket area as we actually create many
in response to harsher times in traditional markets?
of the components ourselves. This gives us an edge in not
A: In the past, the Americas were certainly not a strong
only understanding the products but in training our Bosch
focus for some European companies, who had long
Service franchisees, of which there are 14,000 branches in
enjoyed stable and prosperous conditions. Perhaps the
the world. Since we experience our own products in the
economic climate in Europe will not quickly become as
field when we repair and replace pieces, we can feed that
great as it was, but it will always remain a key focus for us
knowledge back to our OEM customers. This ability to share
due to its consumer sophistication. For 107 years, Bosch
knowledge gives us an extra advantage.
Q: What are the main trends influencing the direction of Bosch’s entire portfolio? A: Our focus is on energy efficiency and environmental protection, as well as safety, security, and convenience. We are also increasingly focused on connectivity and the Internet of Things. Take safety, for example. In the 1970s, the safety of an individual product depended on its use by a clearly defined user group or a single user. This was known as passive safety. Bosch is now far more interested in how to improve safety by collecting information from the relevant environment, which is known as active safety. A person’s ability to react to the surrounding environment is limited, so we need to provide information from that environment more directly. Our ultimate goal is accident-free driving. As products and devices are increasingly networked over the Internet, this provides huge opportunities for Bosch
Q: Which of your recent innovations have had the biggest
to create new business models and many chances for
impact on the automotive industry, and what is the next
cross-organizational solutions. Improved safety also
big development in your pipeline?
very often leads to energy savings.
A: Many sophisticated innovations have been seen in recent years, but the start/stop system might have had
Q: How are you going to ensure that you maintain access
the most far-reaching impact. This is another solution
to the right human capital?
like ABS/EBS that does not require a lot of additional
A: Bosch’s strength is in its diversity and what that offers in
hardware, although it does require software. I foresee it
terms of career trajectory. An engineer working for Bosch
first being bought by customers interested in fuel savings
has the opportunity to become highly specialized and
and then becoming mandatory to help countries achieve
gain a wealth of experience in different areas. Engineers
emissions reductions. Another example is the use of radar
often get tired of working in one area for a long time, but
to improve safety. The challenge for us is to create the
Bosch offers the unique possibility of working across a
smallest radar that can be positioned on the furthest
variety of fields. The 8% of our revenue that we invest
edge of the car to achieve the greatest range. This does
in R&D each year is also highly attractive to engineers.
not sound very complicated, but the smaller the radar
Bosch’s number of patent registrations is equivalent to 20
becomes, the less sensors are needed and the more
per working day. We produce products that make a lot of
accessible it becomes in terms of price, which makes it a
sense to produce.
very important development.
Q: Holding so many patents means that Bosch has to drive
Q: What are your future manufacturing ambitions in
trends rather than react to them. How does this influence
Mexico?
your relationship with OEMs?
A: The last few years have seen us invest increasingly in
A: The interplay between OEMs and top suppliers
Mexico. In 2013, we invested US$100 million, followed by
is extremely positive. OEMs are extremely receptive
around US$150 million in 2014. In July, we also announced
along the whole value chain to new ideas that make
an investment of US$546 million to come over the next few
their products more attractive to their customers.
years, accompanied by the goal of creating 3,000 new jobs
Most innovations you see at car shows are driven by
in Mexico by 2017. This represents a massive investment
suppliers. 50 years ago, OEMs could perhaps dominate
for a Tier 1 company in one country. We are investing in
every technological development inside a car, but they
existing sites. Today we are producing some of the most
can no longer do that. Today, given a car’s complexity,
sophisticated products in our product portfolio, such as
they rely on and collaborate with suppliers heavily for
parts for our newest ESP which is an important element
advancements. The race for who comes up with the best
for some top range cars, and we are confident that this
innovation is a very positive one, because you cannot be
product will be produced to the highest quality standards
competitive with commodities alone. Both the OEMs and
in Mexico. The ESP is a high-end, precise product aimed at
suppliers are equally focused on value added innovative
a demanding clientele. This confidence says a lot about our
products.
trust in Mexico and our associates here.
99
HOW TO FIND SUPPLIERS: LOCATION, LOCATION, LOCATION
Antonio González, Director of International Purchasing Office of BMW
Location, location, location
buying more in the dollar region. We have a big extra
is the name of the game
program for vehicles being built in the dollar region, and are
in
commercial
really looking to increase the amount of dollar purchasing,
endeavors. Perhaps it is
many
which also means building a bigger supply base.” To this
never
important
end, the company is increasing sourcing levels. In 2013, it
than in the planning of an
more
conducted roughly 600 audits amongst the local supply
effective procurement and
base in the entire NAFTA region, with the aim of adding
logistics
With
another 50 suppliers in 2014. For a luxury automaker like
cost reduction pressures
BMW, selecting suppliers is not only a matter of having
in the automotive industry
access to a large enough supplier pool, but also of finding
showing
strategy.
of
those capable of meeting its exacting standards. “Each
waning, procurement officers worldwide are well aware of
no
signs
company has its own philosophy and culture. Over the last
the constant need to implement lean purchasing and supply
couple of years, we have been instilling an understanding of
chain management strategies. For those companies using
the BMW way in our suppliers, notwithstanding the synergies
Mexico as a strategic NAFTA base, localization measures
and cultural similarities that are helpful in companies that
must also be implemented to meet the applicable rule
have already worked for other German OEMs,” explains
of origin requirements to benefit from preferential tariff
González. Suppliers hoping to work with BMW must satisfy
treatment. The growing expediency of Mexico’s supply
the company’s four key standards of quality, cost, innovation,
base is evidenced from the sheer volume of products
and flexibility. González confirms that for the most part,
currently being purchased in country. In the last four years
Mexican suppliers are well versed in international standards
alone, BMW has gone from purchasing US$600 million
and technology trends. However, the reality remains that only
worth of components in Mexico to $1.6 billion, representing
a handful of companies within BMW’s local supply base are
6% of the group’s total purchasing volume. Despite not
actually Mexican. Including heavyweight players like Grupo
yet having its own production base in the country – BMW
Bocar, Nemak, and Grupo Kuo.
plans to start production of 150,000 units per year at its recently announced US$1 billion plant in San Luis Potosi
While the country’s supplier pool grows and evolves, BMW’s
by 2019 – its Mexico-based International Purchasing Office
IPO in Mexico is focusing on the industrialization of the
(IPO) works with 106 local suppliers, and as a result has
quality of its current supply base. “We are still importing
generated employment for 15,000 people, according to
a lot of tools and equipment from abroad, lengthening
IPO Director Antonio González.
the industrialization process. Therefore in 2014, we really need to focus on strong quality approvals and grades on
Contrary to the historic perception of Mexico as being
products,” González asserts. “We have a number of new
a low-tech manufacturing hub, according to González,
product launches coming up, and our suppliers play a big
Mexican suppliers are already proving their worth. “Just
part in ensuring we meet our required quality levels. BMW
because we are not yet building premium vehicles here
ramp-ups are very aggressive and we are launching products
does not mean that Mexico is not capable of producing
this year and next year.” According to González, 80% of
high-tech components. BMW is in fact being supplied
suppliers are reaching the target levels, with the other 20%
with a large amount of high-tech components produced
not far off the required level. “We also manage the PPM
locally,”
electronic
rates very closely, and we have decreased the number of
components, chassis and powertrain materials, and
says
González.
suppliers delivering non-conformance materials above our
interior components. He also confirms that Mexico
intervention limit from an average of 18 suppliers per month
continues to be a strong procurement base for lower
to six suppliers per month,” says González. When a supplier
tech products that require handcrafting, such as leather
is successful in establishing a long-term relationship with
grapping
longstanding
BMW, González insists that the rewards are high, in spite of
handcrafting abilities of Mexican workers, we can make
the occasional low volume contracts involved. “We are not a
items such as harnesses, which are components with high
high-volume manufacturer, we are a premium manufacturer,”
labor requirements,” explains González.
says González. The lower volumes demanded by BMW mean
components.
These
“Due
to
include
the
that, to a large extent, the company is not competing with
100
Profitability is the key driver in the fine-tuning of BMW’s
other OEMs for suppliers. Instead, it is focused on what
procurement strategy, and Gonzalez explains this further.
Gonzalez refers to as a “robust supply base that will enable
“We are looking to reduce our Euro dependency and start
BMW to do more business locally.”
| VIEW FROM THE TOP
STRINGENT CRITERIA FOR SUPPLIERS GUARANTEE QUALITY LEO TORRES Purchasing Manager of Ford Mexico Q: How do you view the role of Ford and other OEMs in
our supply base, but we are developing our Tier 2 and 3
helping Mexico transition from low-cost manufacturing to
suppliers in order to create a valuable local supply chain. It
an engineering and design hub?
makes no sense to have a global supplier in Mexico that has
A: Ford is betting hard on this process. Five years ago, we
to import all of its raw materials from China or Russia.
had 120 engineers in Mexico. Today, that number stands at 900 and we have plans to raise it to 1,200. Engineering
Q: How would you categorize the capabilities of Mexican
is one of the most important elements of the automotive
Tier 2 and 3 suppliers?
business. Someone can always produce a part but no
A: It depends who they are compared to. They are clearly
country designs a complete vehicle, outside the US, Japan,
superior to Chinese suppliers but need to refine their
South Korea, and Germany. Ford took the initiative to bring
technical skills, when compared to German counterparts.
engineering to Mexico, and our key suppliers are following
Mexico focused on the manufacturing element for so long
suit as they need engineers where the car is designed. From
that it became very good at labor intensive manufacturing
a purchasing perspective, we have jumped from US$500
processes, but forgot about the creative element of
million of purchases here to just under US$10 billion in
engineering. We are advising our suppliers to reinvest a
2013. Mexico supplies 36 of Ford’s manufacturing plants,
strong part of their revenue in R&D. Companies that do not
and there are very few Ford products without a Mexican
do this will not be successful in the long-term or will only
component. Mexico is Ford’s second-largest purchasing
be used as maquiladoras by other firms. Their strategy has
base, representing 13-14% of our global purchases.
to be clear. Many companies can be miserable as a Tier 1 supplier but become successful and profitable at the Tier 2
Q: American-made cars have a well-established reputation
level. Mexico has a cultural element of wanting to be good
among customers. Are there any risks associated with
at everything. A supplier could have injection molding in
cars being designed and assembled in Mexico?
one room, stamping in the next, and a painting room in
A: There is no downside. A key driver of the automotive
construction. Ford tries to coach them to think long-term.
industry is how fast a new product can be launched in the market, and the only way to do this is to have a
Q: To which extent is quality control your responsibility or
robust engineering force globally. Besides its engineering
that of the suppliers?
capability in Mexico, Ford has that same capability in the
A: Quality at the Tier 1 level is my responsibility. STA is
US, Europe, and Brazil, and will soon have it in China too. In
responsible for verifying the quality of the parts as well as
the past, launching a new product took four to five years.
the volume, rate, and mix. Beyond that, we have a segment
Now, we are looking to launch new products each year
which supervises Tier 2 suppliers. We do this by going with
and Ford has the newest portfolio of the entire industry.
the Tier 1 companies to visit their Tier 2 suppliers to perform
In 2013, we changed almost 60% of our products. In 2014,
quality control checks. Our suppliers must undergo constant
we will change about 40-45%. The only way to do this is to
training if they want to become a Q1 supplier, and they
have an engineering force with global rules.
understand the importance of becoming Q1 to be able to work on the initial stage of our next generation of products.
Q: What is Ford’s approach to developing its direct
Q1 suppliers must also meet all of our environmental
suppliers?
standards, such as our clear rules and targets for reusable
A: One might think Ford would teach its suppliers but
materials. We are producing cars with the best fuel economy
this process also takes place the other way around. Ford
and lowest emissions possible. Our supply base has to be in
has a global plan for supplier development, the Q1, which
line with that, the design has to be green from the beginning
reinforces manufacturing and design processes. Our supplier
and it is part of how we evaluate if a company is a good fit
technical assistant area (STA) works with the suppliers to
for us. At this moment, around 68% of our supply base is Q1
develop these necessary skills. We are not trying to expand
which means they meet all of our standards.
101
NO SECOND CHANCE FOR SAFETY PRODUCTS Air bags and other safety features are not mandatory for
Although Autoliv has no R&D centers in Mexico yet, Armenta
Mexican vehicles and are included only as add-ons with an
believes one will probably come in the next couple of years.
extra cost, resulting in a substantial percentage of Mexican buyers opting out of additional safety features. Markets
In terms of R&D, Autoliv globally invests approximately
such as Brazil have taken measures to make certain safety
US$500 million a year, part of which is specifically allocated
standards mandatory, such as air bags, but Mexico is yet
to testing, with specific software being used for simulation
to take this road. When Mexico does decide to increase
and data collection. “Our plant in Toluca has a SLED test
vehicle safety requirements, a number of leading global
facility where we can simulate an impact of up to 50km,” says
safety equipment suppliers already have a strong in-
Armenta. These data collection and software capabilities
country presence are ready to ramp up local market
are key for product development as they trace product
supply. With around 35% of the global market share in
characteristics. “With this, we are able to provide customers
passive vehicle safety equipment, and 20% for active
with details including when the testing was done, who was
safety, Autoliv is one such supplier. “We have developed
present, and what the results were,” says Armenta. Autoliv
a strategic technology-centered vision in order to drive
has 20 SLED and eight full-scale crash testing systems, and
growth in the local market and continue supplying the
its customers are able to test their first vehicles using the
OEMs now producing in Mexico for the export market,”
tracks, providing only 24% of the cost. The data gathered
says Raul Armenta, Plant Manager of Autoliv Mexico.
during these tests is essential to prevent future product
“Mexicans only have moderate awareness about the importance of safety features when purchasing a vehicle. The same is true for South America in general” Raul Armenta, Plant Manager of Autoliv Mexico
Autoliv has invested US$300 million in expanding its already
recalls. Having a solid and innovative product portfolio
significant footprint in Mexico. According to Armenta, its
and a good reputation in the recall area has led to new
operations are expected to grow by 15-16% yearly. “Mexicans
projects with OEMs. “Every Autoliv plant is equipped with
only have moderate awareness about the importance of
its own laboratories and spare equipment in order to ensure
safety features when purchasing a vehicle. The same is true
effectiveness of the products,” says Armenta. Bearing in
for South America in general,” says Armenta. “Nevertheless,
mind that a safety product does not get a second chance
a five-star safety rating puts a vehicle ahead of the
when placed in a vehicle, Armenta stresses that Autoliv
competition in terms of sales attraction. To achieve this, we
sees it as essential that everything down to the smallest
have developed new active safety products that incorporate
component functions properly, without exception. “It is more
radar and other technologies to provide warnings before
cost-effective for an OEM to produce state-of-the-art safety
a crash or by affecting the vehicle’s braking and steering.”
products and technology in cooperation with us. We are
Advanced safety features such as Autoliv’s night vision
completely dedicated to safety so we have higher levels of
equipment provide a clear picture on the dashboard of any
technology, R&D, and personnel. This efficiency is making
object in front of the car, giving the driver greater control.
technology more readily available and cost-effective for
Armenta explains that although this sort of technology
OEMs,” states Armenta.
might appear to be only accessible to the premium vehicle
102
segment, it is actually relatively inexpensive. Collaboration
Now that the Swedish firm’s reputation as a global leader
with OEMs has also paved the way for new developments.
is becoming more established in Mexico, supply requests
“For example, Autoliv installed a pedestrian airbag with
have been steadily been pouring in. “Our business with
Volvo, which will protect a pedestrian hit by a car by releasing
Toyota used to be practically non-existent, but now we are
an external airbag to cover the windshield and lessen the
quoting more and more to them. We are also continuously
impact.” When new technology becomes available, OEMs
receiving more requests for quotes from Nissan and Mazda,”
can reduce their own R&D costs. Autoliv holds 5% of patents
says Armenta. Autoliv’s Toluca plant now supplies American,
relating to safety components worldwide and has technical
European, and Japanese OEMs in Mexico, with Chrysler, Ford,
R&D facilities spread across Sweden, China, India, and US.
BMW, Volkswagen, and Nissan being its largest customers.
DRIVING HOME AUTOMOTIVE SAFETY IN MEXICAN MARKET As Mexico is fast becoming a hub for the production of
“the main cause of fatal accidents is when the vehicle leaves
automotive components for North America, companies like
the road, so in response, TRW developed a radar system
TRW Automotive (TRW), a leading supplier of automotive
that keeps the vehicle aligned on the road.” The added
systems, modules, and components to OEMs, are reaping
advantages of this system is that it is can alert the driver if an
the benefits. TRW’s main focus is on occupancy safety,
emergency situation is imminent and detects if the vehicle
which is reflected in its product range of airbags, seatbelts,
is getting too close to an obstacle and activates the breaks.
and steering wheels, as well as chassis, boosters, and master
However, improving safety standards is no longer enough
cylinders. The company’s Director General, Alberto de Icaza,
on its own as the latest innovations in the automotive
explains that the pace of growth witnessed in Mexico has
sector have moved on to trends like sustainability. “All these
been a positive surprise, especially when comparing auto
technologies are now being made more ecologically friendly.
parts for the Mexican and Brazilian automotive industries.
The steering wheel no longer uses engine power while the
“Sales for the auto parts industry in Mexico amount to over
braking system no longer needs a vacuum and no engine
US$80 billion yearly. In comparison, Brazil makes more cars
power is needed for that either,” adds de Icaza. “Lessening
than Mexico, but the Brazilian auto parts industry amounts
the use of the engine power lowers emission levels and
to less than US$40 billion a year,” he says. Mexico’s growth
helps promote a friendlier environmental brand image for
has clearly been fuelled by North American demand, but
our clients.” As these products enter the Mexican and global
even that market’s pace of growth has caught some off
market, TRW has seen growth in its electronics division. At
guard. “Growth in North America has been much faster
present, such technologies are demanded especially by
than we expected given the remaining fallout of the 2008
luxury segments, but they are slowly beginning to spread to
financial crisis,” states de Icaza. This growth has been the
other vehicle segments.
fuel through which TRW has increased sales and expanded its Mexican plants to 11, counting over 14,000 employees.
“Nissan first presented these advancements with the Leaf
Currently, 100% of TRW’s North American production takes
and Mercedes-Benz did the same thing with its S-Class,”
place in Mexico, but de Icaza explains that TRW now views
says de Icaza. “However, TRW is concerned that the fun that
the country as such a trusted base that it has made it a
comes with driving may be stripped away through these
global product site for products such as callipers.
innovations. The technology for automated vehicles is there, but we do not want to go too far that the enjoyment of
TRW understands that safety is one of the major factors
driving is lost.” Therefore TRW has set itself the challenge
affecting the consumer’s vehicle purchasing decision. As
of creating safer vehicles, while allowing the driver to retain
such, the company seeks to achieve the highest safety
full control of the driving experience. “For example, in case
rating possible by collaborating with OEMs to develop
of an emergency, the electric steering can take over and
the right products and successfully integrate them into
move the vehicle, but the force is not so strong that the
its designs. TRW divides safety into two main categories:
driver cannot also change the direction,” explains de Icaza.
active and passive. The prior refers to passenger protection such as seatbelts, steering wheels, and airbags,
As integrated safety systems expand to the whole vehicle,
while the latter tackles vehicle dynamics, including
they are also becoming a major consideration for the
chassis management, brakes, steering, and suspension. Its
consumer market worldwide. However, de Icaza believes
electronics division unite these two into one safety unit. De
this trend has not fully caught on in the Mexican consumer
Icaza explains how TRW has sought to keep up with the
market. “It is unfortunate that the Mexican authorities are a
increasing sophistication required in automotive safety
little behind on that,” he adds. Mexico’s vehicle production
systems. “TRW has a wide range of airbag systems that
is mainly for exportation so all vehicles meet the safety
are integrated into other safety systems like seat belts.
standards of any region, but de Icaza points out that OEMs
Sensors enable the airbags to calibrate their output, based
adapt vehicles for each market. “In Mexico, you have the
on several criteria like crash severity and occupant size.
option to have ABS and airbags, and including safety
The integration of passive and active safety components
products in a vehicle or not comes down to the decision of
into one single network has pushed the boundaries of
each buyer. Mexico’s safety protocols are similar to those
safety in the automotive industry.”
in Europe because the market conditions are alike and the focus is on protecting the pedestrians. In contrast, the
One of TRW’s most recent innovations is the electric
American market looks at protecting the vehicle and it has
steering wheel that incorporates electronics to help the
stricter rules regarding the protection of the occupants,”
driver maintain control of the vehicle. De Icaza says that
explains de Icaza.
103
OBSTACLES TO SOURCING FROM MEXICAN SUPPLIERS With the majority of automotive production in Mexico
Another challenge that any potential supplier must meet
targeting the US market, this country’s standards are most
is the ability to deliver products in low volumes. Moran
often used to assess whether a supplier is qualified or not.
explains that a lot of suppliers do not want to work with
This situation has placed Roberto Moran, Procurement
MAN Truck & Bus based on this limitation. “It is difficult
Manager for MAN Truck & Bus, in an odd position. The
to find suppliers who can provide the right volume levels.
Volkswagen subsidiary tends to use European standards,
Most of them work with light vehicle OEMs who require
but must deal with suppliers that are very US-centric
far larger volumes than we do. Suppliers have to see us
in their orientation and way of doing business. “US and
as additional volume rather than as their main customer.
European standards do not match perfectly, which means
They need to have a flexible production base in order to
spending time and money to clarify whether or not we can
supply us,” explains Moran. One important factor that
use certain products,” says Moran. “The main difference
can tip the odds the other way is that when a supplier is
is in the size and the measurements being used, which
chosen to work with MAN Truck & Bus, it has the chance
can result in some practical difficulties. Our drawings
to work with other companies in the Volkswagen group.
and specifications do not match theirs, so we need to
Moran acknowledges that these stringent standards and
align both sides.” Another difference is the variation in
requirements do make it hard for the company to source
emissions standards. Europe sets Euro standards while the
more local suppliers. The fact that the quality control for
US sets EPA standards. Furthermore, the Euro standards
Mexico is run out of Brazil only adds a further level of
become more stringent and complex each year, meaning
complexity. “It can take from six months to a year to bring
that MAN Truck & Bus has to address fresh challenges with
a new supplier on board. Not having the ability to establish
each improvement.
a new supplier here by ourselves means a lot of time is
“OEMs need to adapt their technology to the market they are in but suppliers must become better adapted to suit the variety of markets that might be supplied from Mexico as a production hub” Roberto Moran, Procurement Manager of MAN Truck & Bus Mexico
104
Moran explains that when analyzing which technology
being lost. We would like to have our own engineering and
to use in the Mexican market, MAN Truck & Bus must
quality processes in place in Mexico,” adds Moran. Despite
balance out the cost of its own investments versus those
these challenges, the company is looking for suppliers in
it wants to see from its suppliers. “The volumes we move
Mexico and the US for almost all areas, including axles,
in Mexico do not justify the investment needed to develop
chassis, engines, and lead springs. He points out that
a new engine for this market. OEMs need to adapt their
the government has launched initiatives to support the
technology to the market they are in but suppliers must
cooperation between OEMs and local suppliers by helping
become better adapted to suit the variety of markets that
the suppliers develop the right quality systems. MAN Truck
might be supplied from Mexico as a production hub,” he
& Bus has been working directly with the government of
says. He accepts that this adaptation is not easy to do for
Queretaro to host workshops that will train suppliers. The
suppliers and is beyond the financial capabilities of many.
amount of parts the company imports naturally varies on
This is why MAN Truck & Bus prefers to bring parts from
the product itself. “Around 25% of components for the
long-term suppliers in countries where the technology is
8-tonne trucks we produce are sourced in Mexico, with
already being produced. However, the company is now
the rest coming from Germany. For other lines, we source
actively looking to increase its Mexican supply base. A
most of the parts from Brazil. We are actively looking for
dedicated team visits potential suppliers to assess them
more suppliers in Mexico, and encouraging our Brazilian
on a variety of areas, including engineering, quality
procurement team to source here,” says Moran. Part of the
control, and purchasing. If any one section of the team
process in procuring more parts from Mexico is increasing
has a problem with a supplier, the selection process will
the Brazilian team’s confidence in the Mexican supply base.
halt. Any who pass this audit must then send prototypes
For this to succeed, Moran knows the next batch of parts
to MAN Truck & Bus’ offices to ensure their products meet
that MAN Truck & Bus sources from Mexican suppliers
the company’s own BBI quality system.
must avoid any quality problems whatsoever.
| VIEW FROM THE TOP
SUPPLIERS REWARDED FOR COMMITMENT AND INNOVATION DIRK GROSSE-LOHEIDE Vice President North America Purchasing of Volkswagen Q: How would you rate Mexico’s capacity to meet the
further proof of Mexico’s competitive position. We only turn
manufacturing and procurement needs of European
to suppliers and providers in the US to source technologies
OEMs?
that we cannot find here in Mexico. If neither of those options
A: Mexico has a very privileged position as it neighbors
is open to us, then we have to look to import from overseas.
the biggest market in the world, while its range of FTAs
We keep all our suppliers aware of our production plans,
allows for great exportation possibilities. Our competitors
and they all have the capacity to keep up with production. A
are aware of this and take full advantage of it as we do,
problem would only arise if we decided to abruptly change
which is why there is so much investment coming to Mexico.
our pace of growth. We also have an enormous network of 12
Most OEMs are present in Mexico, and the ones that are not
companies that could all be considered OEMs. Within those
present are publicly or privately contemplating it.
OEMs, we count with 40,000 engineers on a global level. Because of this, Volkswagen does not need to collaborate
Q: How are global automotive purchasing tendencies
with its competitors as we have enough resources to handle
affecting regions like Mexico?
all our projects through our own supply chain.
A: On the global level, the boom of three years ago is no longer present. China is growing but not at the same rate,
Q: What have been Volkswagen’s main contributions to
the US is also growing but faces competitiveness issues,
the development of the Mexican automotive supply chain?
and Europe is in a recession. The growth potential is mainly
A: Mexico is not a low-tech manufacturing country.
found in the North American region, specifically Mexico. As
Although there is a difference between Mexico and some
a company, we are consolidating our supplier base here in
parts of Europe, the difference is not that large. We have
Mexico and installing high technologies. Along with Audi,
brought the excellence and technology of Volkswagen to
we are pioneers in bringing luxury vehicles to the Mexican
Mexico, and our Audi technology has also become very well
market, including very complex technologies that are not
integrated. We are very concerned with reducing waste
present here but that must be made available immediately.
and energy consumption in our production plants. In the same manner, we encourage all of our providers to adopt
Q: What are the main criteria based on which you choose
the same philosophy. In fact, ten to 15 of the companies in
your suppliers?
our supply chain have formally committed to follow suit.
A: Suppliers must be prepared to deliver the quality and high
We also work on R&D with our suppliers at different levels.
technology that we require at a competitive price and in line
There is room for growth in local sourcing, especially in
with the Volkswagen mentality. Our principal suppliers work
finding suppliers of raw materials.
in conjunction with us to develop new technologies, and ultimately new cars, through a healthy competitive mindset.
Q: How have Volkswagen’s procurement priorities in
Volkswagen produces 25% of the material for its models
Mexico evolved?
and purchases 75% from providers. It is very important for
A: When I arrived in Mexico two years ago, our main task
us to have a good relationship with our suppliers to ensure
was to prepare our providers to ensure that they were
that everyone benefits. Many companies fulfill all of our
capable of meeting our future production levels. This
requirements, but these are not necessarily big multinationals.
was a necessary process after Volkswagen launched two
Last year, one of Volkswagen’s annual excellence awards was
production plants back-to-back. Our second challenge was
given to a Mexican company, A&P Solutions in Puebla. We
to get these same providers ready for the launch of the new
give out 25 of these awards worldwide and they are highly
Golf, the production of which was announced in January
competitive. This speaks highly as to the quality of local
2014 at the Puebla plant. Now, the growth in the market has
suppliers who can compete with the world’s best standards.
led us to reveal the Audi plant, which is our biggest project
90% of our suppliers for our Mexican plants are from the
at the moment. We are completely committed to Mexico,
North American region and 80% are from Mexico. This is
and we have put all our chips on the table to prove it.
105
INSPIRING THE WORLD The “exhilaration” of one’s first vehicle encounter... The “awe” of one’s first view of the interior... The “serenity” of one’s first cabin experience...
GLOBAL SEAT SYSTEM CREATOR
106
www.tachi-s.com
www.tachi-s.co.jp
| VIEW FROM THE TOP
LOCAL SUPPLIERS ANCHOR SEAT MAKER’S MEXICAN GROWTH GONZALO ESPARZA PEDROSA President of Tachi-S Mexico Q: What role has Mexico come to play in Tachi-S’ global
Mexico in the past, such as chemical companies, will now
operations as the company increasingly looks for growth
invest in the country as a result of the automotive boom.
opportunities outside the Asia-Pacific region? A: Traditional production sites have certainly shifted in recent
Q: Tachi-S entered Mexico through a JV with Nissan. How
years, and we now have a strong focus on markets like
challenging has it been to gain new clients outside the
Mexico and Brazil. For Tachi-S, Japan has long been our main
traditional Japanese OEM-supplier model?
market and our main manufacturing site. 2013 marked the
A: We did start off as a joint venture, but when internal
first year that Tachi-S produced more outside of Japan than
changes took place within Nissan, Tachi-S took over all
inside the country, which shows how much the situation has
operations to become Tachi-S Mexico. We then began
evolved. Mexico is playing a big role in this evolution and is on
searching for new clients, although our natural clients are
track to become Tachi-S’ biggest manufacturing site outside
the Japanese OEMs. We already had good connections to
of Japan. We are opening two new plants, which will see us
them, and companies like Mazda and Toyota brought us a
double in size, growing from our current 2,200 employees to
steady flow of opportunities. We are not limiting ourselves
almost 5,000. Tachi-S Mexico has traditionally been a maker
to the Japanese market as we are in touch with OEMs that
of automotive seat set assembly and a Tier 1 supplier of
may be coming into Mexico such as Mercedes-Benz. We
seating systems, but we are diversifying our business model.
are actually being approached by clients as they need
We are now aiming to increase our Tier 2 presence to provide
good local suppliers, and they have heard about us and
connected products like seat covers and headrests.
our experience.
Q: Tachi-S sources 80% of materials locally. How did you
Q: What opportunities do you see for growth in the
put such a successful local supplier base in place?
premium segment?
A: My first job at Tachi-S 22 years ago was as Purchasing
A: One of our major goals is to move from producing
Manager. At that time, we sourced absolutely everything
traditional systems to luxury brand quality systems. We are
from Japan but we gradually started looking for more and
shifting in this way right now. We foresee an influx of more
more localization opportunities. Today, we have reached a
luxury brands, like Mercedes-Benz and Infiniti, and we want
level of 80% locally sourced content at the Tier 2 level. This
to be ready for that. Tachi-S already has these processes
level decreases as you go down the supply chain, and by
in place in Japan and based on this experience, we have a
Tier 5, only around 55% of the supply is locally sourced. The
good chance to secure this kind of business in Mexico.
deeper you go, the more and more difficult it becomes to source locally, especially when it comes to raw materials
Q: To what extent are local and federal authorities
or chemicals. That means that we have to continue
effectively supporting the automotive industry?
working hard to develop local suppliers and to grow our
A: The government of Aguascalientes has provided support
current relationships. We have been able to convince
with the cost of training young local talent and have helped
some foreign companies to come to set up operations in
us find the right land to expand our operations. Every state
Aguascalientes. The more content you can source locally,
is offering different incentives. At the federal level, our
the more opportunities exist to maximize the benefits of the
biggest concern is the implementation of the new taxation
NAFTA free trade agreement. In consequence, OEMs see
regulations, which result in additional costs for companies
our high levels of locally sourced materials as a real benefit.
like us. These measures may force companies to look for
With more and more companies establishing themselves
ways to reduce costs, but there are only two ways to do this:
in Mexico in the coming years, we will find it increasingly
pass the cost on to the customers or reduce the employee
easy to find local suppliers. I foresee us being able to get
base. We cannot take the first option, but we also do not
upwards of 80% local content, even at the Tier 5 level. I
want to affect our labor force. Unions must be flexible so
am certain that companies that were hesitant to come to
that we can share the impact of the taxation changes.
107
| VIEW FROM THE TOP
UNIQUE TIRE OFFERING NEEDED FOR UNIQUE VEHICLE MARKET MARTIN ROSALES President and Director General of Goodyear Mexico Q: How does Mexico fit in Goodyear’s strategy for the
Premium sports cars are also becoming more popular,
Americas?
which is another segment we want to grow in. Trucks are
A: Latin America is a very important market for the tire
also very important in Mexico and many are imported
industry in general. Mexico is our second largest market in
from the US but nobody is producing radial-ply tires
Latin America after Brazil, and is considerably larger than
here for those vehicles. We are not pursuing volume for
the third largest market. Latin America was the first place
volume’s sake, as we only want to expand in segments that
Goodyear expanded to outside the US, entering the Mexican
offer the best growth projections for us and our dealers.
market in 1973. Since I took up this post in January 2013, my
Premium cars, premium radial light trucks, and premium
strategy has been to exploit the unique nature of the Mexican
SUVs present the best growth opportunities. Our run-
market to drive growth. Chile might be as open as Mexico
flat Dunlop and Goodyear tires are very successful with
for foreign trade but Mexico’s geographical location and
premium cars coming into Mexico from Europe, as the road
business climate make it unique. Vehicles come from all over
quality here means the right sort of tires are necessary.
the world into the Mexican market, creating a very varied
In the commercial vehicles segment, trucks tend to be
vehicle mix. Goodyear is seeing great results here, growing
overloaded here so our high-technology, heavy duty tires
38% year-on-year in a tire industry that is globally quite flat.
help give a better performance in those instances.
Q: How has Mexico allowed you to buck this stagnating
Q: What is the current brand perception of Goodyear in
industry trend?
Mexico?
A: A main reason for this strong growth is the time we
A: The end user that wants to buy a set of premium tires has
have spent conducting market research and analysis. This
different expectations to the one buying a set of economy
allowed us to identify the right products for the market,
tires. We want the end user to really understand our products,
in the right place and for the right price. Doing that is a
and we have launched a new brand awareness campaign in
must for the Mexican market, where the tire industry
Mexico to achieve that. All of our studies show that we have
is heavily dominated by major tire producers who are
the strongest brand awareness profile and purchasing intent
manufacturing tires locally. Nevertheless, around 60%
in Mexico. The last study we conducted showed that we have
of the tires used in Mexico are imported due to the vast
between 20-24% of purchasing intent in the market. We need
number of different segments that need to be catered to.
to keep increasing that level and keep investing in attracting
Some companies assume that the low-cost, second-hand
the younger customer. The US has a big influence in Mexico
vehicle market is the most active in Mexico, but it is not. A
when it comes to brand perception and desire to purchase.
lot of premium cars have been brought in from the US and Europe. Roughly 40% of the tire market is within the Tier 3
Q: What are your major sources for imports into Mexico?
segment, but that means around 60% is made up of mid-
A: We closed our production plant in Mexico in 2001, so
tier premium tires. The market is very interesting not only
we are now supporting the tire business by importing
because of the volumes of tires we can move but also due
products from all over the world. Most truck tires come
to the diverse range of vehicles we can service.
from the US, the economy truck segment is covered from Asia, we import car and SUV tires from the US and Europe,
108
Q: Where does Goodyear see the most appealing
and our high-tech plant in Luxembourg provides most of
opportunities for growth?
our high-tech products. The new cars that are imported
A: We have a major competitive advantage in the mid to
into Mexico are heavily dominated by Goodyear tires.
upper tier premium segment. Mexico has seen a major
We also sell to Nissan, Volkswagen, and Navistar locally
penetration of premium light trucks and SUVs, and
to support their production in Mexico. We mount 100% of
Goodyear can offer a superior product in these areas, for
Navistar’s tires for the Mexican, American, and Colombian
which our sales projections forecast continued growth.
markets, even when they are not Goodyear tires.
| VIEW FROM THE TOP
GLOBAL TIRE LEADER AIMS FOR NAFTA REGION SUPREMACY TOMÁS GRÁVALOS CEO of Pirelli México Q: How do your R&D capabilities in Mexico tie in to your
some point, so we get to know early on when this is going to
global R&D activities?
happen. We actively pursue vehicles that we believe we can
A: Technology has always been one of the drivers of Pirelli’s
add value to, and we had agreements to supply tires to OEMs
success, and our products have benefited the market through
before the ground was even broken for our plant in Silao.
innovation for decades. Our roots have always been in rubber products and working out how to optimize them, an area in
Q: How will Mexico rival Brazil in supplying the NAFTA
which we continue to invest heavily. For the startup of a new
region, and what position will Mexico have in Pirelli’s
facility like Silao, we have to bring in engineers from abroad to
global strategy?
get it swiftly up and running, while also hiring local engineers.
A: Pirelli’s global strategy has seen us focus on local
Many of the engineers we have hired in Mexico have been
production for local consumption. The NAFTA region
sent for training to Europe to get a real understanding of the
presents a critical growth opportunity for Pirelli. We
Pirelli way of working. When they return, their skill level makes
are the market leaders in Latin America where we have
them an integral part of the team. In the long-term, our goal is
been for over 100 years, but we are not the leaders in the
to continue growing the knowledge base of our Mexican R&D
NAFTA region. In order to reach our growth ambitions
group and fill it with local talent. Our global R&D center is in
for the premium segment, which is where we add the
Milan but our satellite R&D centers around the world play a
greatest value, we decided that we needed to have an
critical role in supporting it. As we move forward in supplying
additional manufacturing plant in the region. We chose
major OEMs in Mexico, we are also agreeing to supply locally,
Mexico as the base for this plant for many reasons
which requires local R&D. This has become a huge area of
including location, growth opportunities, education, and
importance to us. We are focusing our R&D in Mexico on
demographics. The technologies we are using in Silao are
“Green Performance”, which is our strategy to combine eco-
highly flexible, which is essential for the premium market,
friendly aspects with tire performance and safety.
and means we can produce many different types of tires in an efficient way. Some of the equipment is standard
Q: What is your approach to capturing consumer interest
within the tire industry and purchased from our suppliers,
in a market where your competition is already strong?
while other equipment is uniquely built and installed by
A: Capturing and holding on to our customer base among
Pirelli. Our technology is a combination of machine-based
OEMs is about creating long-term relationships, but
processes and human intervention that allows us to build
also about helping them to improve their cars. We have
high-performance but flexible equipment. Furthermore,
technology that makes the cars handle better, brake better,
our investment in Mexico gives us a three-day supply line
and achieve better fuel economy. In the premium segment
instead of a five to six week supply line, so we can be much
we are very good at fine-tuning the product to the car. These
more reactive to the local marketplace. We also have our
are very sophisticated vehicles that we can add value to.
own R&D center within the plant to create product lines
We also enjoy a very good brand perception amongst our
that specifically address the needs of the North American
consumer base. There really is a short list of tires that add
market, including all-season tires.
value and really give an extra edge. This is almost taken for granted now as speed-rated tires, H-rated and V-rated
We used to import 90% of what we sold in the NAFTA
tires, and low-profile tires were all invented by Pirelli. Some
region from outside, and many of the tires we sell today
of the early work we did with Ferrari involved creating tires
in Mexico are produced in Latin America and imported.
that were unheard of, such as the 17-inch tire. That type of
We have been doing that longer than most tire companies
evolution continues within Pirelli today and really helps us
have been in existence. But in a couple of years from now,
capture that consumer interest. Pirelli gets involved at a very
it will be a very different story. Our center will be full of
early stage of the design process. We know that every car
Mexican engineers and we will manufacture product lines
being made today will either be changed or discontinued at
developed specifically here for this market.
109
| VIEW FROM THE TOP
SUSTAINABLE RUBBER: RETREADING GOALS FOR MEXICO’S TIRE FUTURE DANIEL BENVENUTI President of Bridgestone México Q: The tire industry is predicted to grow to 2 billion tires a
various designs to help reduce rolling resistance, and the
year in the next three decades, which could place a huge
dispersion of the pigments in the spec of the compound.
strain on the supply of raw materials and rubber. How is
This works at the nano-technological level, where the
Bridgestone planning to address that in the long-term?
spec portion of the pigments is produced. The compound
A: The tire industry is very traditional as it continues
is uniform and measured in millimeters, hence why we
to use both synthetic and natural rubber. Our goal as a
need nanotechnology to disperse the pigments. We have
company is to supplant much of these raw materials with
other kinds of technology including run-flat, tires that can
environmentally friendly options. Bridgestone is conducting
run with no air, which improves safety. We are currently
an experimental study in Texas with guayule, a plant that
improving the third generation of run-flats for OEMs and
grows in desert areas and can replace natural rubber.
beyond. This technology was first produced in Japan and
Producing a rubber-free car tire requires at least seven
then extended to other facilities to sustain demand. With
years of research before production goes ahead, but with
our five technical centers around the world, Bridgestone is
guayule, it looks like production could start much sooner.
constantly coming up with fresh developments for its tires,
The new technology is in its testing stage and will be ready
such as new polymers.
for production in around two to three years. To replace raw materials, a reevaluation of the product is also needed, as
Q: What would you like to see happen in the next few
well as the establishment of new rules to determine if these
years to address the negative impact of used tires on the
products meet environmental requisites. I am convinced
Mexican market?
that in just five years, this industry will be drastically
A: Used tires and how to dispose them in accordance with
different from today. If such new materials are introduced,
environmental rules is the responsibility of companies, final
the way to produce cars will change dramatically.
users, the government and the community as a whole. Mexico does not prohibit the importation of used cars unlike
Q: What measures have you taken to reduce rolling
other Latin American countries. Every year, the government
resistance in your tires?
authorizes a quota of 1 million used tires a year for importation,
A: We have different kinds of technology applied to reduce
but the reality is that closer to 4 million used tires come from
rolling resistance. These efforts have two pillars: the design
the US annually. It is impossible to drive cars securely with
of different tires where one technology is applied to
such tires. But who will dispose of these old tires? Who is
Estamos listos para
CUMPLIRTE Descubre los 8
compromisos en www.peugeot.com.mx y si no cumplimos, llámanos al 01 800 52 PEUGEOT
110
ultimately responsible? This is part of the major problem we
Q: What is Mexico’s importance to Bridgestone in terms
face with used cars coming illegally from the USA.
of its global operations, and what has been your strategy to drive growth here?
Q: What role do you think innovation should play in the
A: Bridgestone has a significant participation in Latin
industry in using old tires to make rubber?
America with different plants in countries such as Venezuela,
A: Along with Andellac and the government, we developed
Costa Rica, Brazil, and Argentina. In Mexico, we have plants
a national plan for the final disposal of used tires that
in Cuernavaca and Monterrey. Mexico plays a very important
started in Nuevo Leon with different points for final
role in our Latin America division, being the number
disposal. We recover 91% of the scrap and reuse it in our
one exporter of cars in the region with a close economic
Cuernavaca plant. For this program to fully succeed, there
relationship with the US. Our operations in Mexico are
needs to be a change in the Mexican culture toward the
strategic as the majority of the OEMs are already located
disposal of tires. Used tires can be used to build sports
here, new ones are arriving like Audi and BMW, and Hyundai
fields or can prove profitable in other ways. This is a big
may soon announce an investment. This means that in the
issue, but the government knows that more awareness
next two or three years, Mexico will become the number
about this is needed in Mexico.
one car exporter to the US. This will bring a major challenge to the industry regarding OE for car, light truck, and bus
Q: 40% of the heavy duty sector is made up of owner-
manufacturing, which Bridgestone is primed to meet. The
operators. How are you planning to capture more business
Mexican heavy vehicle industry produces around 140,000
from them and to encourage them to use new tires?
trucks and buses per year, and this total capacity is expected
A: Retreading makes the truck and bus sector different.
to double in the next ten years. As such, our expectations
The most important issue for owner-operators is the cost
for the future are bright, since the considerable investments
per kilometer and the lifespan of tires that can be obtained
entering the Mexican automotive industry are backed up
with retreading. Major fleets usually use new tires and then
by a positive economic situation. Bridgestone benefits
retread the tire carcasses two or three times. This requires
from already having a strategic position in Mexico as our
a good quality carcass which Asian tires lack, but they
Cuernavaca plant is 50% dedicated to OE. The engine of
still make up 50% of the market. Retread levels in the US
economic growth worldwide for the next ten years will be
stand at 1.5, meaning that the lifespan of tires circulating
in developing economies, as they offer greater possibilities
on US roads can be extended by 1.5 times. Mexico’s level
and potential for the future. For Bridgestone, Mexico is
is 0.7, due to there being 30% of poor quality carcasses
clearly within this group. During 2014, Mexico will probably
out there that cannot be retreaded. The retread market
return to healthy growth. Bridgestone expects to see growth
sees a variation in quality depending on the producer. For
across all segments of 2-2.5% above GDP for the next four
example, Bridgestone has a plant in Leon, Guanajuato, that
years, translating to growth expectations of around 5.5-6%.
produces all the retread compounds we need, and our Bandag brand covers 45-48% of all retreading in Mexico
Q: What business strategies has Bridgestone put in place
for the truck and bus sector.
to support this projected growth? A: Achieving this kind of growth is a big challenge. We
Q: What are you yearly investing in R&D, and how much of
already have 25% of the OE market share, and to support
that goes to the tire business?
it we need more investment and expansion to cover the
A: The most important investments we make are in tires,
new capacity Mexico is seeing in terms of car plants. Of
technology, new plants, and expansion in general. 80%
course, the challenge does not only lie in reaching the
of this is concentrated toward tires. The level of total
production level needed by the manufacturers, but also
investment varies from year to year but, in 2014, we are
to ensure our products continue to meet their evolving
investing US$16 billion in new plants globally. In 2011, we
quality demands as well. OE is a permanent challenge that
finalized the expansion of our Cuernavaca plant, which
pushes us to develop more competitive technology. We are
went from 16,500 units a day to 20,000 at a cost of US$100
talking about new green tires and ultra-high performance
million. R&D also takes up a solid chunk of our budget,
passenger tires, among others. Around 80% of our total
which is natural since Bridgestone is number one in total
production in Mexico is dedicated to the US market. All the
revenue for its sector. We have to maintain our number
cars that are exported to the US need to meet the highest
one place worldwide. In the US market, our participation
international standards in order to compete in this market.
varies between first and second place, depending on the
For this reason, Mexico provides a good opportunity for
segment. Across Latin America, except for Brazil, we are
Bridgestone to showcase its new technology and offer the
number one.
best to the final user.
111
| VIEW FROM THE TOP
GERMAN TIRE DNA IN THE MEXICAN MARKET JAVIER MENDOZA ALTAMIRANO Director General of Continental Tire for Mexico, Central America & The Caribbean
Q: What are the main opportunities for growth in Mexico
where we aim to develop skilled graduates for the
for Continental?
automotive industry.
A: Continental is recognized as a technologically driven tire company. Mexico is one of the most important countries
Our main opportunities for growth are with big fleets as they
for Continental, as is reflected by us having more than 10%
are more organized and have systems in place to measure
of our total amount of employees here. Furthermore, all of
savings. Owner-operators can also distinguish the difference
the group’s product lines are present in Mexico, including
between tires because they drive the vehicles and know
OE and aftermarket. In 2012, Continental acquired Parker
how much gasoline they put in the tank. However, small or
Group in Nuevo Leon, before buying Veyance in 2013.
medium fleets are difficult to convince because they usually
Nowadays Mexico is producing 3 million cars per year but
do not have control over such matters. It is difficult to show
in the next five years, this is expected to rise to 5 million
the cost per kilometer to a company that is unorganized. We
cars, indicating more business opportunities for us. The
have been working with Grupo ADO for ten years now and
strategy for Continental Mexico is to focus on the brand,
have about 45% of the total share of that fleet. Today, Grupo
expand our dealership network, and grow in the states
ADO is measuring not only the cost per kilometer or price
where we are not so strong. We currently have 15% of the
but also the service level, which is a new element where
OE market in Mexico, which means that 15% of the cars
we remain competitive. With OEMs, the real negotiation
produced in Mexico have Continental tires. We are leaders
takes place in the country of origin, such as Germany or
in rolling resistance for passenger vehicles, light trucks,
Japan. Nevertheless, we have direct contracts with Nissan,
and truck tires. Our current focus is to double down on our
Volkswagen, and Ford. We are also pushing door-to-door
environmental responsibility but also on the expansion of
sales by guaranteeing 36-hour delivery. We are open to all
knowledge through programs like Continental University,
the OEMs in the world, and we have good relationships with
ADVANCED BELT TECHNOLOGY RUNNING ACROSS VEHICLE SEGMENTS Gates began manufacturing goods and services for different
focuses on the development of high technology innovations
industrial sectors in the early 1900s. In the century since then,
in its laboratories in Europe, the US and Asia. But across all
it has solidified itself as a major automotive supplier based on
its operations, Gates seeks to instill one common belief. The
two main divisions: original equipment and replacement. In
firm believes that it is not just selling products, but providing
Gates’ OE division, the company works shoulder to shoulder
services while trying to stay one step ahead with innovative,
with its OEM clients to develop new equipment, new devices,
high-tech products that exceed the performance levels that
and new systems. Gates provides several high-performance
customers are expecting. Gates exports from its Mexican
products, formulas and designs that have provided an added
automotive facilities to China, Canada, and Europe. This
value in different areas within the automotive industry’s
broadening of export horizons leads Mendoza to believe that
value chain. Since the industry is constantly demanding
exciting times are here to stay, both for Gates and for Mexico,.
lower costs and higher performance, which implies the use
112
of a lot of technology both in the design of products and
Gates serves many industries, so it is no surprise that certain
in manufacturing processes. Gates’ clients motivate the
beneficial synergies exist as the company can transfer its
company to pursue such innovations, according to Victor
solutions from one industry to another. One clear example
Mendoza, Gates de México’s Director General. The company
is the high-tech light weight belt developed by Gates that
them all, despite our focus on German technology. Naturally,
certified by this program. All of the large international
we still work more frequently alongside German companies
companies could potentially do this, but we are the only
but we are aiming to increase our brand recognition so
ones that have made the effort to accomplish this. We are
customers are aware of our price, quality, performance,
providing 100% of the tires used by Penske, as it knows our
security, and technology. Pirelli, for example, has a good
quality and the money it can save through our technology,
image but we have more points of sale, which gives us more
and we are working with Kenworth, Navistar and other big
opportunities to educate potential customers. It is difficult
players, as well as with fleet operators, which are usually
to change OE tires when replacement shops are getting that
family-owned. We are also approaching big companies that
work. It is even more difficult if customers are only looking to
own large fleets like FEMSA and Grupo Bimbo, for which we
change one tire. However, when customers want to replace all
are now testing tires. Grupo Bimbo already has contracts
their tires, this presents a good opportunity for our dealers.
with Bridgestone and Michelin but they have a very strong
That is why we are opening up more dealerships, with the
focus on the environment and have seen good results with
most recent ones opening in Nuevo Leon, Tamaulipas, Baja
our tires. Our tires are 10% cheaper when compared to
California, and Sonora.
Michelin. And depending on the segment, Bridgestone can be 20% higher or lower than us.
Q: What role is Mexico playing in terms of R&D for Continental?
Q: What is the outlook for Continental Mexico for the
A: We are currently not developing technology in Mexico,
coming years?
although Continental Group just opened a R&D center
A: We had a very good second semester of 2013, in which
in Guadalajara with 2,500 employees. This center will
we completed our first ContiTech plant. However, the Fiscal,
develop technology for the automotive group, not for tires.
Labor, and other reforms caused a deceleration of the
Three years ago, we launched our ContiTech line of rubber
economy. Mexico does not have a good railway system so
products with its plant in Morelia, as this niche market is
90% of products move by truck. If we do not see growth in
particular for Mexico.
this sector, it means that the economy is not growing. For 2014, we plan to grow 10% in passenger and light trucks, and
Q: How does Continental technology match up against
14% in heavy trucks. For the former we are on track, but we
the technology of its key competitors?
are still lagging behind in heavy trucks. We are knocking on
A: The US Environmental Protection Agency has a program
doors, but companies are still organizing internally to absorb
called SmartWay Technology that tests and reviews the
the extra costs of the reforms. We are making a huge effort
performance of vehicles. Continental has the most products
to keep our prices competitive and to maintain quality.
is replacing heavy metal roller chains in power transmission
company has also developed an antistatic system in the
devices across various industries. For example, Harley-
belt for the automotive and industrials sectors, as well as a
Davidson has replaced all its metal chains for Gates belts, in
rubber that conducts electricity. In this way, the company
spite of the traditional image of motorcycles bearing roller
assures that better performance will not be accompanied
chains. Gates identified demand from the automotive industry
by sparks or static electricity that could ultimately damage
for a high performance, heavy duty leather transmission belt
the car. Staying close to customers means not only working
that would withstand the tough demands of a car engine.
with the OEMs themselves, but also with mechanics,
The decision was taken to swap leather for rubber and the
schools, and associations such as CEDVA. Gates provides
V-belt was born. The Gates philosophy of achieving change
methodologies, technical material, and training to enable
through innovation has remained a key driver ever since.
users to better understand the benefits of the high quality
Many of the products that Gates has launched, including the
products it manufactures and help owners improve vehicle
carbon belt now used by Harley-Davidson, have become a
efficiency. Gates also has an agreement in place with the CNT
benchmark for different industries.
(National Confederation of Workshops) to support them with training, courses, and conferences. According to a survey of
Recent innovation efforts have focused on different kinds
42,000 mechanics active in Mexico, Gates achieved an 85%
of power transmission belts with new, high, performance
preference rate. The company has nationwide contracts with
materials that can last 180,000km instead of the standard
several large companies, including Grupo Toluca, Quintanilla,
60,000km expected from regular belts. Gates proudly claims
FEMSA, and Grupo Bimbo, representing more than 14,000
that some of its products last longer than the car itself. The
vehicles using Gates products.
113
| VEHICLE SPOTLIGHT: NISSAN VERSA 2015 The
Nissan
Versa,
which
combines
reliability
and
The new Versa is pushing the envelope in the subcompact
performance, is now the second-most sold vehicle in
segment and is solidifying its market position by integrating
Mexico. Having been manufactured in the country since
more technology and features in its Sense, Advance, and
2011, the Versa has fast become a lynchpin of Nissan’s
Exclusive versions. Its fuel economy stands at an EPA-
brand strategy as it has helped the OEM maintain its sales
estimated of 31mpg for city use and 40mpg on highways.
leadership for five consecutive years. From the launch
The Versa offers predictable handling and a quiet,
of the 2012 model to March 2014, over 300,000 Versa
comfortable ride. Nissan claims that the Versa has the
units have been built of which 30% supplied the domestic
most ample space in its class, which becomes evident in
market and the rest being exported to the US, Canada,
the rear set legroom. The Exclusive model offers additional
Argentina, and Brazil.
options include a multi-view camera, Bluetooth hands-free
phone integration, navigation system, push-button start,
not overlooked, as the Versa comes equipped with ABS,
and keyless entry. The Versa is powered by a 1.6-litre four-
stability control, and front, side, and side curtain airbags.
cylinder engine that produces 109hp. The engine features a
High efficiency remains key to Versa’s popularity, offering a
range of fuel efficiency enhancing technologies, including
practicality with a high degree of comfort and technological
a dual injector system that allows a wider injection of fuel
amenities make it the perfect combination for the life of
than other traditional systems. Likewise, smaller nozzles will
an average Mexican. The 2015 Versa will command a price
deliver a finer spray to help achieve a stable combustion.
upwards of US$14,039 in the domestic market and is the new
A five-speed manual transmission and front-wheel drive
generation of the model to incorporate Nissan’s innovative
are standard and a four-speed automatic transmission is
Pure Drive platform that focuses on sustainability, efficient
optional on the base sedan model. Safety features were
mobility, and reduction of C02 emissions.
UNIFORM DEMANDS HELP SIDESHAFT MARKET TO GROW With
Fidel Otake, Director General of GKN Driveline Mexico
Driveline
Mexico are brought in by companies after being proven in
(GKN) holding 45% of the
GKN
other markets, the demands of the Mexican market directly
global sideshafts market
influence GKN’s strategy. Otake explains that Mexico is
and 75% of the Mexican
seeking premium cars moving to full transmission all-wheel
market, Fidel Otake could
drive, which requires more parts from GKN. A smaller
be forgiven for resting
front-wheel drive vehicle requires just two sideshafts, but
on his laurels. But as the
full transmission all-wheel drive cars can need up to eight
Director General for GKN
shafts, depending on the configuration of the transmission.
Driveline Mexico, the local subsidiary of the global
In order to cater to the evolving needs of the Mexican
leader
automotive
market and the OEMs that move it, GKN has been investing
driveline components, he is aware that more growth in
in
in expanding its facilities in Mexico. By the end of 2013,
Mexico is there for the taking. “We are seeing significant
GKN had invested over US$233 million since 2005, with
growth in the NAFTA region, and one of our main strategies
US$40 million going to its facility in Villagran, Guanajuato,
is to grow the Mexican market, even beyond our current
in 2013 alone. “We want to increase our capacity in
75% market share,” he says. GKN’s presence in Mexico was
Villagran, mainly in machining which represents the largest
first established in 1979 through a joint venture, but GKN
part of our operations and is running at full capacity. We
took over 100% control in 2005, just as market growth
will be moving additional machining lines to that facility,
began to accelerate. At first, GKN’s strategy was for its
while the assembly line segment will also be growing,” says
US and Mexican operations to each service each country’s
Otake. While Mexico grows as a GKN manufacturing base,
domestic market. However, the small size of the US market
the company has also had to find the right suppliers to
soon led to realignment with Mexican facilities beginning
support that growth. Otake states that GKN’s purchases
to support the US market. Otake points out that since
are more or less equally divided between local Mexican
this decision, GKN has gone from producing 1.8 million
suppliers, the rest of the NAFTA region, and Asia. While
sideshafts in Mexico in 2005 to around 7.5 million in 2013,
the company has a conscious strategy to source more
and is seeking to reach 9.5 million by 2015. Establishing a
products locally, it has faced troubles in doing so. GKN
top-notch facility in Celaya, Guanajuato, has proved wise
now hopes to meet its targets for locally sourced products
twofold for GKN. It allowed the company to service the US
within the next five years. “The right suppliers are not easy
market from Mexico and put it in prime position to supply
to find, since the automotive industry has such specific
OEMs in the central region of Mexico.
requirements. Sometimes the volume of work is not large enough to justify a new supplier facility, which forces us
Today, this double priority sees GKN investing heavily in
to source from other parts of the world. The other issue is
its Mexican machine and forging operations to cater to
the quality our suppliers can provide since it can take up
the US and Mexican markets. “We mainly sell our products
to a year to develop and implement our full quality control
to OEMs based in Mexico but we do send some to OEMs
system with a new supplier,” says Otake.
based in the US. Our major clients include Chrysler, GM,
116
Volkswagen, and Ford, for whom we produce shafts for
GKN’s long history in Mexico has made it a desirable place
most segments,” says Otake. He explains that when it
to work, according to Otake, adding that this allows the
comes to shafts, all sections of the automotive industry
firm to pick the right people and make a difference to the
have very similar requirements, ranging from premium to
quality of the products it makes. “New plants are opening
low-cost vehicles. While cost remains the big differentiator,
in the center of Mexico, which is obviously increasing
the pressure to create low emission vehicles has seen
demand for employees, but that has not been a major
efficiency being scrutinized in all aspects of the car. This
issue so far. We added around 200 people in 2013 to take
has seen GKN working on revising all the joints it produces
our Mexican staff numbers to 1,800,” he adds. Engineers
to help reduce emissions. “Every two or three years, we
are often hired out of university and put through a
develop a new generation of joints. We have reduced the
one-year training program to reach a desired level of
overall weight of the shafts to make them more efficient
knowledge. Further career development takes between
while maintaining our quality and durability,” he adds.
five and seven years for the engineers to develop the right
Mexico is at the core of updating GKN’s joints as the
mix of competences GKN looks for. After that, specific
company’s local tech center tests and reviews all designs
specializations are open to them, such as becoming
for new joints. Where many technological advances in
product engineers.
| VIEW FROM THE TOP
TURBOCHARGER DEMAND WILL SEE MEXICAN PRODUCTION SOAR STEFAN DEMMERLE Vice President of BorgWarner Inc. Q: How does BorgWarner view the Mexican market, since
A: BorgWarner actively develops relationships with its
North America is one of the fastest growing turbocharger
suppliers through its robust global commodity management
markets in the world?
system. From strategy development to choosing the right
A: BorgWarner products are manufactured at four facilities
suppliers and ensuring sustainability in the supply chain, our
in Mexico, representing nearly all of our technologies. In
commodity strategy is based on delivering results. In fact,
addition to turbochargers, BorgWarner produces engine
our businesses have won awards for their risk assessment
timing systems, HY-VO® chains, ignition technologies,
models and commodity database tools. Both of these
transmission components, all-wheel drive technologies and
have proved highly effective in increasing efficiency for
exhaust gas recirculation (EGR) coolers, valves, and modules
BorgWarner and its selected supply partners.
in Mexico. This is the perfect site for our production base, as BorgWarner forecasts that turbocharger production
Q: Which products in your portfolio are most effective in
will more than double in the next five years, with global
improving engine efficiency?
volumes for light-vehicle turbochargers growing from 29
A: For engine timing systems, the key to improving engine
million in 2014 to 43 million in 2019. Since it was established
efficiency is reducing the power wasted through parasitic
in 2008, BorgWarner’s turbocharger plant in Ramos Arizpe,
losses. For example, friction wastes power, so reducing
Coahuila, has steadily increased capacity to meet growing
friction means there is more power available to move the
demand in North America. This plant supplies turbochargers
vehicle. Less friction also leads to improved fuel economy,
for passenger cars and trucks, including those powered
higher durability, and less noise. BorgWarner engineers
by Ford’s 3.5-liter Ecoboost engines. Besides, Mexico also
use state-of-the-art testing and simulation techniques to
offers excellent opportunities for BorgWarner’s Emissions
understand where and how friction occurs throughout the
Systems products, including EGR coolers, valves, ignition
engine timing system: engaging sprockets, around arms
coils, and modules, since volumes for these products are
or guides, and between links and pins. Our engineers have
expected to grow significantly.
developed advanced designs and manufacturing processes to reduce friction up to 25% or more. Precisely curved link
Q: Outside of Ramos Arizpe, how is the manufacturing of
backs reduce the contact area and friction while increasing
advanced engine timing systems in Jalisco for Volkswagen
contact pressure and promoting lubrication. Fine link
driving growth for the company?
punching technology reduces variation for less friction
A: BorgWarner’s engine timing chains and tensioners
between links and pins, while hard-coated pin technology
reduce friction and weight to help improve fuel economy
also improves durability.
for Volkswagen’s 2.0-liter and 1.8-liter DOHC I4 engines. Volkswagen is initially expecting to build over 300,000
Q: What have been the most successful innovations you
engines per year at its new engine plant in Mexico, with the
have made to improve overall operational performance of
potential for higher volumes in the future. We are pleased
vehicles?
to provide localized production to support its expansion
A: Our powertrain solutions have long aimed to improve
into the North American market. At the same time, the
fuel
government is increasing fuel economy standards, and
innovations have garnered numerous awards, including
consumers are demanding more miles to the gallon.
eight Automotive News PACE Awards. The most recent
BorgWarner’s industry-leading silent chains and hydraulic
award was presented for the Eco-Launch™ solenoid valve,
tensioners feature low-noise, low-weight, and low-friction
which helps stop/start systems improve fuel economy
technologies to meet just these types of market needs.
with smoother launches during restarts. Other innovations
economy,
emissions,
and
performance.
Our
include the first regulated three-stage (R3S) turbocharging Q: What criteria does BorgWarner use to choose its long-
system for diesel engines and the first mass-production
term suppliers?
turbocharger with low pressure EGR technology.
117
When it comes to
good is nev
118
product quality,
ver good enough.
TM
| VIEW FROM THE TOP
BEARINGS COMPANY FINDS PROFIT FROM AUTOMOTIVE NEED CARLOS FERNANDO GARCÍA MARTÍNEZ Managing Director of Timken de México Q: How does Timken organize its operations in the
A: There is a market for everything here as Mexico is seeing
Mexican market?
huge demand for high-spec and high-quality products.
A: Timken has been operating globally for 114 years and
Investment in high-tech products has been growing since
has been established in Mexico for 61 years. During that
industries like aerospace and automotive require these for
time, Mexico has become a source of global growth for us.
their machines. Historically, Timken has been a leader in
Historically, Timken was focused on industries such as oil
the quality and performance of tapered bearings with a
and mining, but the automotive sector has now become
market share of 46%. However, this brings up a challenge
a strategic business area. The revenue that comes from
as introducing new products does not necessarily see them
our automotive division represents a significant part of
being used at a high level of sophistication. To counter
our total business operations. The automotive division
this, Timken goes to potential customers and helps them
is divided into three big segments: original equipment,
identify problems or areas with higher maintenance costs.
steel, and aftermarket. The latter is further divided into
We then develop an integral solution and proposal, as well
two subdivisions: automotive and industrial, which have
as conducting one-month trials with our product. If the
comparable levels of business. The industrial side is
product outlasts the competition by a month and solves
typically more profitable because of the high specification
the problem then we charge for it, if it is unsuccessful
of those products.
then it remains free. We do not approach business with a price list solution as we tackle problems and offer unique
Q: What specific growth opportunities has Timken
solutions. We do not use this business approach openly,
identified in the automotive sector?
just with larger companies. This process goes ahead every
A: There are great growth opportunities across all business
time we launch a new product. As the global authority on
segments. Timken is one of the most profitable bearings
bearings, Timken has the ability to go back and improve its
companies in the world, and in line with this, we have
bearings so they always outlast our competition.
considerably grown our portfolio and product availability in Mexico. We have doubled our part-number availability in
Q: How are your R&D and innovation efforts impacting the
important and basic line-ups like bolt bearings. Timken has
Mexican automotive industry?
also been acquiring new external companies to complement
A: Innovation is a source of growth for Timken and we make
its portfolio. One recent purchase was Interlube, a British
large investments in technology development. The focus of
company providing technological lubrication solutions for
our recent innovation investments has been to continuously
vehicles and industrial machinery. New products help us
offer new products for mid-range and heavy duty trucks.
better penetrate the Mexican market and take advantage
Offering new products that provide integral solutions is
of the new investments coming from OEMs and Tier 1 and
how Timken has seen its revenue grow in Mexico. These
2 suppliers. Our focus is to help these companies improve
innovations for trucks have led to a reduction in maintenance
their profitability. To achieve this, we created the biggest
time, an increase in performance, an improvement in load
authorized distribution network in Mexico. Our strategy is also
capacity, as well as a decrease in CO2 emissions and fuel
to focus on premium solutions since we are not interested
consumption. OEMs appreciate these advantages and they
in the volume business. We create tailored solutions that
have delivered positive results in the aftermarket business
address challenges that had previously not been solved by
as well. Technicians and end-users appreciate the lack of
other products. Timken strives to provide integral solutions
unnecessary adjustments to our products as they save
with high quality and performance, which means price will
money and improve the lifecycle of their vehicles. Other
always be the last of our considerations.
important innovations to Timken’s product portfolio have been a 10% capacity increase for tapered bearings and an
120
Q: Is the Mexican market more oriented toward quality
automated lubrication system that improves maintenance
and profitability or volume and cost?
by automatically lubricating gears and bearings.
LEAN MANAGEMENT APPROACH HELPS RUN VAST PORTFOLIO Counting down to the smallest screw and bolt, the
A lean management approach has been adopted across
average car compiles over 30,000 parts, so it comes as
the whole of Parker Hannifin’s global operations. The
no surprise that some automotive suppliers have a varied
need to produce in the leanest way possible means
product portfolio. Parker Hannifin is one such diversified
grouping production sites together, which has opened up
component supplier with eight different business groups.
the possibility of bringing new products to the Mexican
In Mexico, six of the group’s specializations are represented:
market. “When a product is released, we see if there is
fluid connectors, automation, hydraulics, filtration systems,
demand for its application in Mexico. If so, we offer it. Of
instrumentation, and refrigeration. “Across every sector,
course, there are cases where the volume does not justify
Parker Hannifin has more than 1 million products and
the investment in new machinery to manufacture these
we participate worldwide in the automotive sector with
products in Mexico. As Mexico’s potential increases, some
over 900 products,” explains General Manager Francisco
parts that Parker Hannifin had sent to be manufactured in
Dávila. This diversified product base has made it essential
China eight years ago are now returning here. Mexico has
for Parker Hannifin to follow a lean business model and
become more competitive and its proximity to the US is an
develop a consolidated brand image in the mind of
added advantage,” says Dávila.
customers. The company is now looking to build a plant in Mexico that Creating a unified front began with the merging of all
will incorporate two facilities into one while allowing space
sales points in Mexico, which was important for the
for new processes to grow. Bringing new products into the
efficiency of operations since Mexico holds an important
market may be the first step towards bringing full-blown
position within the company’s growth strategy and is a
R&D capacity here, and it is expected that the new plant
point of contact to a number of OEM customers spread
will contain a dedicated laboratory for specific products
across the US, South American, European, and even
and research. “Right now our Mexican operations lack an
Asian markets. Merging sales points creates an added
R&D focus, so we need to develop more research in this
advantage for the company’s distribution network.
market in order to reach our goals and move along the
“Distributors represent approximately 60% of sales
certification process.” In searching for a site for the new
in Mexico, while 30% of products go directly to OEMs,
plant, the company considered a number of locations.
and the remaining 10% is exported,” says Dávila. “Today,
Incentives were offered by some states, such as Queretaro,
Parker Hannifin has over 200 distributors spread across
which offered to pay for the training of the company’s
Mexico, who are all linked to an in-house system that
workers, but the final decision was made to settle on a
enables them to see orders and inventories in real-time
second site in Parker Hannifin’s current base of Toluca.
and place orders electronically,” explains Dávila. The
Dávila rationalizes the decision by explaining that most of
philosophy behind this service is presenting one face
the company’s skilled workers are already based there, and
to the customer by creating only one point of entry for
a survey of the staff revealed that 95% of them would be
orders, shipment locations, and invoices, for products
unwilling to relocate.
originating from all groups within the company. Its distributors serve most automotive facilities throughout the country, often located far from Parker Hannifin’s own sites. “This meant it was important to make sure that the distributors represent the brand properly in terms of customer service and quality,” states Dávila. All of the company’s divisions worldwide have to be certified by the Parker WIN certificate, which lies at the core of the company’s operations. “By the end of 2014, all divisions have to be certified and their quality and customer service achievements will be ranked as bronze, silver, or gold,” says Dávila. All divisions must first acquire the bronze level and then move upwards. Dávila expects that the Mexican operations will soon earn the bronze award, and strategies are already in place to move up to silver and then to gold within two years.
“When a product is released, we see if there is demand for its application in Mexico. If so, we offer it. Also, some parts that had been sent to be manufactured in
China
are
now
returning
here. Mexico has become more competitive and its proximity to the US is an added advantage” Francisco Dávila, General Manager of Parker Hannifin de México
121
| VIEW FROM THE TOP
CHEMICAL INNOVATION CONTINUES DESPITE SOURCING TROUBLES LEFT: Michael Stumpp, President of BASF Group Mexico, CA, and Caribbean RIGHT: Frank Hezel, Vice-President Coatings Division of BASF Mexicana
Q: What are the main areas of interest in the Mexican
materials can take years to be approved. Plastic rims are
chemical industry for BASF today?
an example of this.
MS: Mexico is an important export country as part of the North American region, and at the same time a strong
Q: How much of a concern is the lack of access to raw
market in its own right for BASF products. When I was here
materials, and what other challenges exist?
20 years ago, money was leaving Mexico but now money
FH: The lack of raw materials has become a concern
is being invested, with generated profit being reinvested
because we are heavily dependent on importation of basic
once again. I see a newfound confidence in the country
raw materials for most of the primary materials that are
that was not here 20 years ago. Moreover, capital markets
converted into final products like paint or plastic parts.
have confidence in Mexico, a situation which differs from
Feedstock availability is a problem, as the general chemical
many other emerging markets that are seeing an exodus
industry in Mexico has to import 70% and BASF imports
of capital. Additionally, the debt rate of the country, when
90%. This tripartite relationship of feedstock availability,
compared to countries in Europe, is quite low. One of the
energy costs, and logistics flow has to be fully addressed
challenges still facing the chemical industry in Mexico is
in Mexico. Also, currency fluctuation and inflation issues
a general lack of raw material access. Nevertheless, it is
can negate the benefits of the very attractive labor costs
an exciting market that has occupied a prominent spot in
in Mexico and that is a problem that needs to be balanced.
the last couple of years and as such we must foster even more growth.
Q: BASF has six major Verbund sites worldwide, although not in Mexico. How developed are your Mexican sites
Q: How has the role of the chemical content in cars
today, and which areas are seeing particular investment?
changed, and what are BASF’s contributions to this?
MS: BASF has five major sites in Mexico, we are heavily
FH: Together with our partners, we are driving research and
invested in North America and have a strong presence on
innovation to develop leading automotive solutions. These
both sides of the border. Coatzacoalcos has become the
innovations will help automakers address the challenges
heart of basic chemistry in Mexico and it will play a big
of today and tomorrow, such as emissions reduction, heat
role in the future, but our customer base is not in that area.
management, passenger experience, e-mobility, weight
When selecting a site, it is important for us to have both
reduction, sustainability, and fuel efficiency. We work
sideward and backward integration. Sideward integration
closely with designers, engineers, and manufacturers to
means that one plant can use the waste stream of another
apply innovative ideas to develop an exceptional, sensory
plant as feedstock and create a balance of energy and
experience. Even the subtlest of vehicle encounters from
chemical processes on site since some processes generate
grasping a door handle to the sheen of the exterior’s
heat, whilst others absorb heat. Sideward integration
design shapes the passenger experience.
is something that is achievable and is currently being implemented at our site in Altamira, but backward
Trends are created by consumer demand, and in the end
integration is impossible there because we do not have
a trend is what people will pay for. One of the biggest
either production or access to raw materials.
trends right now is lightweight component development
122
to reduce fuel consumption. The creation of innovations
Many years ago, BASF had a plan to develop a chemical
in this respect is often borne out of joint brainstorming
production site in Tamaulipas with backward integration
sessions between automotive companies and suppliers.
and access to raw materials. However this did not
The chemical industry together with other suppliers
materialize as planned. It was an important plan for us but
has created many solutions and innovations. In terms
the site lacked backward integration and as a consequence
of innovation, the automotive industry is conservative
our Altamira site was also affected, now having to import
compared to other industries, and sometimes new
90% of materials.
HYBRID TECHNOLOGY FIRST LAUNCHED IN PREMIUM VEHICLES Flemming
Flemming Bjöernslev, President and CEO of LANXESS North America
Bjöernslev,
how they behave in crash situations in order to analyze
President and CEO of
and adapt their products.” Combining the strong quality
LANXESS North America,
and safety standards backing the hybrid technology with
sees
collaboration
the pressures to meet new energy efficiency standards
between the automotive
make manufacturers eager to consider new material
and chemical industries
alternatives. The results are evident for Bjöernslev. “At
as a synergy of R&D.
the 2014 Detroit Auto Show, Ford introduced the new
As a leading specialty
2015 Ford F-150 which is 226kg lighter due to having
chemical
company,
incorporated plastics and aluminum.” The rapid expansion
business
rate LANXESS has experienced around the world “shows
is
that its products can successfully compete with metal,”
the
the
LANXESS
segment noticeably
oriented
to
the
that
automotive
most
industry
is
he adds.
performance polymers. He describes the participation process wherein an OEM will come to LANXESS with a
The adoption of hybrid technology has been smoother with
metal piece from a previous generation car and asks to
European car manufacturers, which have readily adopted
build the piece out of a lighter plastic. “The innovation
the practice so that once solely metallic components,
comes from making that part in plastic and still meeting
such as oil pans below the engines, are now made of high
the same design, shape, and functionality requirements,”
composite plastics. A prominent example that Bjöernslev
says Bjöernslev. “With innovations, we have had to show
offers is the latest generation of the Audi A8. “The entire
we are capable of meeting and surpassing the current
front end is made out of plastic composite that has the
standards of the automotive industry.”
same strength and is much lighter than the previous aluminum component,” he says. Striving to surpass
In response to the lightweight materials trend that is
the standards of hybrid technology has even made it
sweeping through the industry, LANXESS embarked
seemingly possible to let go of metal entirely. “Porsche has
several years ago on a quest to produce hybrid
introduced a brake pedal made out of LANXESS materials
technology, namely a mix of plastic compounds and
in all its cars, which is no longer made out of metal,” says
metal. “With hybrid technology, the total weight of a car
Bjöernslev. “The reason Porsche turned to this solution is
can be reduced by up to 30%,” says Bjöernslev. “Metal
not only because it is fuel efficient and lighter, but because
continues to be the number one material in vehicles. Many
it is also aesthetically pleasing.”
American OEMs still gravitate towards metal because they believe it to be more solid. But from a competitive
It is a common belief in LANXESS that to successfully
standpoint and depending on the application, plastics
drive a trend forward in the automotive industry, it is
can compete against different metals. The first challenge
better to start at the top of the luxury car segment and
for the industry is to make sure that the hybrid product
then move down to others. “This is obvious for certain
in the body of the car can be painted and placed in
reasons,” says Bjöernslev. “A car manufacturer wants to
the oven afterwards.” If the hybrid contains too many
sell innovative products in their luxury lines at the highest
different materials that expand and contract at different
price possible.” LANXESS is interested in this business
temperatures,
becomes
model as it allows it to gain more market penetration. As
difficult for the OEM. To overcome this barrier, Bjöernslev
for the presence of hybrid technology in the automotive
stresses the importance of LANXESS being involved at
industry, Bjöernslev says it depends on the variety of
the early stages of the development of the parts. This
brands. “If Audi decides to build a certain series and
allows it to show customers how the materials work
LANXESS’ products are in that series, then the composite
under heat and cold stress. Another important factor is
products are introduced to the Mexican market,” he
security, as Bjöernslev states that the assumption among
explains. But as pointed out, it is not habitual for car
OEMs is that a car is safer when it is more solid and
manufacturers to first roll out innovative products in their
metallic is a remnant of the 1950s. “This was erroneous,
mass produced vehicles. “Volkswagen begins with the
as in a crash incident, people would be squeezed and the
Phaeton, which is hand-made in Germany, before moving
car would remain intact. Today, cars operate differently in
down to the Golf.” Should premium cars become more
their crash behavior, they are often totally demolished in
prevalent in the Mexican automotive manufacturing, then
heavy crashes, but the cell of the vehicle remains intact.
LANXESS will be able to accelerate the roll-out of its
LANXESS and its partners test out hybrid materials to see
introduction process within the country.
the
manufacturing
process
123
LIGHTING LEADER SEEING MEXICO’S R&D POTENTIAL
Ignacio Moreno Betanzo, President & CEO of Hella Lighting North & South America
Ignacio Moreno, President
next few years, we will create more than 1,500 jobs, with our
and CEO of HELLA Lighting
company forming an attractive career path for talents in the
North and South America,
region of Guanajuato,” comments Moreno. For the company’s
is confident that his firm’s
vertical integration approach to be successful, it was also
automotive
and
important to localize its supplier base. According to Moreno,
electronics solutions have
lighting
besides bringing new technologies to the market, localizing
earned the reputation of
the supply base brings a significant cost reduction which is
being crucial to a vehicle’s
ultimately passed on as a benefit to customers. “Therefore,
safety and CO2 reduction.
in its ongoing search for Mexican suppliers, HELLA brings in
This reputation has been
the same extensive audits it uses in other parts of the world
added to over 40 years
to guarantee its standard levels of quality.
as HELLA has been present in Mexico since 1964 through its core business in high quality lighting and electronics
The second strategic decision entailed taking in-house
solutions. As OEMs continuously increase their presence in
responsibility for the full scope of the projects. This covers
the country, HELLA has already expanded its production
all processes from acquisition design and development to
footprint to four lighting plants and one electronics plant
production and aftermarket. “Prior to the aforementioned
in Mexico, now totaling more than 3,000 employees across
approach, HELLA in Mexico was not focused on R&D, but
the country. By 2020, HELLA aims to see its sales figures
only on production”, says Moreno.
steadily increase across all business divisions and foresees the employee base rising up to 6000.
This holistic approach was consolidated with the launch of one R&D Center for electronics located in the ITESO
Moreno explains that the company’s wide-ranging product
Technology Center and another center for lighting located
portfolio has been key on several levels: it has sealed HELLA’s
in El Salto, Jalisco right next to the lighting production
reputation across the megatrends of the automotive industry,
plants. “More than 100 employees are currently working
safety, comfort, styling and the reduction of carbon dioxide
in the area of R&D and are participating in special training,
emissions while expanding the company’s client base. “70%
lasting more than six months at our Germany headquarters,”
of our local production is sold to our clients in Mexico and
explains Moreno. These training programs allow Mexican
they export 80% of it. The remaining 30% is exported directly
engineers to boost their knowledge of HELLA’s lighting
to the rest of our customers to North and South America.”
and electronics solutions, from technology, processes and
says Moreno. However, HELLA’s growth is not solely reliant
particular solutions rolled out worldwide. He adds that
on the continued entry of potential customers, but on
that “all of these are recent Mexican graduates who were
implementing a strong, vertically integrated business model
recruited in their final year of university so they could be
that will be able to deal with the rising wave of demand.
properly trained by HELLA prior to working in our facilities. This was done as it is challenging to find existing engineers
In order to set itself on the right path in Mexico, HELLA has
specifically trained in these fields.” To tackle this, HELLA
implemented two strategic decisions in order to assure the
has been in discussions with representatives of technical
growth of the company. The first is related to production
schools and universities to develop holistic academic
operations: “We decided to concentrate, irrespective
programs to fit the required engineering skills it needs.
of the destination of the final product, all of HELLA’s manufacturing efforts for North and South American
In Guanajuato, HELLA has donated technical equipment to the
Markets in Mexico,” Moreno comments.
Irapuato Superior Technological Institute (ITESI), which will enable students to gain better hands-on, understanding the
124
To archive this target, an investment of over US$90 million
processes and the operating structures involved in HELLA’s
was made in a new lighting facility in Irapuato, Guanajuato.
facilities. This provides the double benefit of helping the
This plant already started production in 2013, producing
students expand their practical horizons and provides a source
headlamps and rear combination lamps for HELLA’s OEM
of skilled labor for HELLA. Moreno believes strongly in this
customers. “The production facility is strategically located
approach as on a broader scale, it helps to create awareness
and is setting a technological benchmark within the HELLA
among local engineering students about new technologies
Group. It is equipped with HELLA LED lighting products and
and global trends. “This investment will take time but it is a
contributes to the reduction of carbon dioxide emissions,
fundamental step in providing clients with locally made high
helping to create creating a cleaner environment. Over the
technology products in the near future,” he adds.
COMFORT IS CRUCIAL IN THE AUTO PARTS MARKET Clever engineers are taking care of advances in every
of the engineering and design centers of our customers
aspect of a car, from lightweight materials to fuel
in the Detroit area. “BOS used the crisis to consolidate.
efficiency to green tires. BOS Automotive is part of these
This entailed putting all our production in one place so
advances, but with a particular bent on one element with
the products would become more economical, and all
an immediate impact on passengers: customer safety and
aspects of our business that no longer offered possibilities
comfort. According to Hauke Jungnitz, General Manager
for financial growth were grouped together,” says Carlos
of BOS Automotive Products Irapuato, cost-optimized
Casado, BOS Automotive’s CFO for North American
development and production processes have placed the
Operations.
company ahead of the pack as a key supplier of comfortfocused automotive products. Jungnitz is particularly
Another aspect that has constrained automotive players
keen on the importance of variation within the company’s
is human capital, which BOS is trying to take care of
product portfolio to ensure a smooth ride. “We have
through internal recruitment. “We try to retain our people
three main production areas: cargo covers and safety
as much as possible, naturally, but we also try to promote
nets, sunshades, and armrests. All systems produced are
internally to give professional growth opportunities in
functionally the same but range in variety from single-step
Irapuato, but also within the group to those with potential.
operation, to multi-step, and electrical.” This full range
Student trainees dot our ranks, but if they thrive with us,
allows for the accommodation of customer specifications
we offer them a place. This helps us get a highly motivated
from basic to the absolute high-end of quality.
workforce,” says Jungnitz. However, this HR strategy is in danger from the entry of more auto parts players into
“There is a natural difference in cost. For example, a
Mexico, which will likely send salaries rising. To control
Maybach car is fancy when compared to a basic high
this spiral, Jungnitz suggests the initiative of a human
volume model. The same variation is seen within our
resources network that will provide information on the
range of components,” explains Jungnitz. Although there
structure of salaries and ranges in the market. This could
are significant differences between BOS Automotive’s
also help BOS Automotive address its talent gap. “Skilled
low-end and high-end products, Jungnitz explains that
labor is easy to find for simple assembly operations, but
market demand has seen the low-end spectrum of the
it becomes much more difficult to recruit at the specialist
portfolio becoming loaded with many more features,
level and above, where operating machinery becomes
which has helped the company to see demand grow. BOS
more demanding.” says Jungnitz, adding that the sourcing
Automotive decided upon a diverse product portfolio due
of injection molding parts poses a fresh challenge for the
to the advantages it brought in terms of clientele. “Diversity
company. “Plastics are an issue in Mexico so we often have
is an intrinsic strategy for our product development. It
to import the high-quality plastic used for interior parts.
brings a strong and diverse customer base. The company
However, this leaves vast potential open for the local
does not depend on a single customer so if one goes
sourcing of plastic products. Mexican plastic suppliers
down, another client comes up,” says Jungnitz. This is not
need to develop specific knowhow, especially for interior
the case for all suppliers, he adds, illustrating this claim
parts.” According to Casado, recent tax changes, some of
with the example of seat suppliers that work in a capital-
them significant for the industry, were rapidly processed to
intensive industry. “They are required to produce within
become effective in 2014. However, he feels these should
a 40km radius from the OEM due to the large volumes
have seen further discussion before becoming effective to
needing to be shipped. They often work order to order so
allow companies to be better prepared in areas such as
they may even be forced to close a plant if they somehow
finances and operations. “We think that if BOS has to pay
fail to obtain the next order.”
taxes, we should just do it. But to facilitate or to increase capital investments in the industry, consistency, easiness
The economic downturn spelled out a transformation
and transparency in laws and rules related to taxes, cash
period of the company, starting with its previous production
repatriations, and international trade laws should prevail,
model. BOS Automotive used the crisis to consolidate its
avoiding risks from sudden changes influenced by political
North American manufacturing operations in Mexico and
agendas.” adds Casado. Despite this slight setback,
create a strong base in Irapuato with approximately 800
Jungnitz denies that growth is off the table. “There is always
staff. This consolidation has put it in a favorable position to
room for growth in Mexico. BOS Automotive is considering
participate in the Mexican automotive boom. Strategically,
immediate growth through the current expansion of its
BOS North American sales and development departments
facility to expand its logistics and production area. BOS
are located in Rochester Hills, Michigan in close proximity
Automotive is here to stay.”
125
HOT STAMPING BECOMES PRESS HARDENING PROCESS OF CHOICE The demand for resilient
costs more than low-carbon materials and González
components that are able
admits that “with highly complex processes, we require
to comply with stricter
high strength steel but it is complicated to source this
safety
while
kind of steel in Mexico.” Gestamp uses Gonvarry Steel
all
Corporate
Services, a company that imports steel from Europe, US,
Fuel
Economy
and South Korea. “The support of its service centers is
regulations
upholding Average (CAFE)
for
beneficial because it reduces lead times for obtaining
have
materials from overseas and increases cost savings in
pushed the boundaries of
logistics and customs,” says González. The rising demand
manufacturing processes.
for high strength steel is however spurring the creation of
lower Luis Jaime González, Commercial Director of Gestamp North America
standards emissions
One of the most innovative
local steel mills, and through a joint venture with Tenigal,
processes in the industry, hot stamping, creates ultra-high
Gestamp hopes to source locally in the future. González
quality steel components that have the needed structural
admits that despite the fact that Tenigal has already
performance and lightweight qualities. The process involves
begun developing steel in Mexico, a lot of potential
heating steel to temperatures of 900°C, at which point
customers are still reserved about using the mill. González
it becomes malleable, can be formed, and then rapidly
predicts that “in a couple of years, Tenigal will be able
cooled in specially designed dies, converting the material
to manufacture high strength steel that will be approved
into high strength steel. Forming complex shapes far more
for use by the OEMs.” Furthermore, he anticipates that
efficiently than any other traditional stamping methods, it
local steel mills will make Mexico more productive and
is suitable for automotive components such as body pillars,
competitive, since this high quality in-demand steel will
rockers, roof rails, bumpers, and door intrusion beams. This
be produced in the country.
technology creates relatively complex parts in a single step and, as a result, multi-component assembly lines can be
To ensure success in a highly competitive industry,
redesigned, eliminating downstream processes like welding.
automotive suppliers dedicated to metal components
In order to increase safety performance, companies used to
must increase their technological competencies and have
weld together heavier and thicker parts in more than one
a varied technological portfolio. “Gestamp basically offers
process using methods like cold stamping. In many cases,
the same products as competitors but we apply different
hot stamping eliminates the need for these additional parts.
technologies that are adapted to the needs of customers,”
Hot stamping’s other significant advantage is that it resolves
says González. “Despite its benefits, not all OEMs are
problems with springback and warping, a common problem
convinced by hot stamping. There is a misguided belief
when forming high strength steel through other processes.
that the heavier and more solid the component, the safer it will be.” With four manufacturing plants, Gestamp has
Being one of the most advanced lightweight solutions
opted for a diversification of technology rather than of
for the car body structure, hot stamping has been swiftly
products. “The business model is to continue expanding
adopted by metal component suppliers. Gestamp, as the
but at the same time keeping the technology and the
largest global supplier of press hardening parts, traces
steel product specialization intact,” says González. Having
its roots to cold stamping of small parts, but through an
flexible manufacturing techniques means that if an OEM
ongoing commitment to incorporate new technologies
requires a certain type of technology it can be swiftly
into its manufacturing processes, it has now become a
incorporated into the operational processes.
company that uses multiple technologies, one of which is
126
hot stamping. Commercial Director Luis Jaime González
Despite the reservations some OEMs may have with regard
explains that as worldwide pioneers of this process,
to hot stamping, González predicts it will be adopted
Gestamp has now begun developing this technology in
by all of them. “It has been fully adopted by European
Mexico. As more highly complex manufacturing systems
manufacturers like Volkswagen, BMW, and Mercedes-
are put in place in the automotive industry, one challenge
Benz, and US manufacturers such as GM and Ford are
that arises is the sourcing of the right raw materials. One
also starting to use it. This process will dominate other
of the limitations of hot stamping is that it cannot be
technologies but one of the challenges of transferring this
applied to galvanized or pre-painted steel, only boron
to Mexico is that it requires highly qualified technicians.” To
materials can be hot stamped. This is due to the element’s
remove this barrier, Gestamp has begun sending workers
properties that give the material the capacity to change
for training at its US research center for them to bring the
from regular to martensitic when cooled. Boron steel
knowhow back to Mexico.
| VIEW FROM THE TOP
ADVANCED SUSPENSION SYSTEMS BEING ROLLED OUT ACROSS MEXICO OMAR FERNÁNDEZ Director General of Hendrickson Mexicana Q: What have been the highlights of Hendrickson’s
name. Along with weight savings, our team also strives to
contribution
deliver improved ride, handling, and stability on each of
to
the
development
of
the
Mexican
automotive sector over more than 50 years?
our new axle and suspension systems. Through ongoing
A: Over that half a century, Hendrickson has been a
consultation with drivers and fleets, Hendrickson will
key contributor to the Mexican automotive market. We
continue to anticipate our customer’s needs, and design
introduced state-of-the-art suspension systems such as
and build suspension systems that deliver results that
the equalizing beam, as well as mechanical suspensions
exceed our customers’ expectations.
which are still widely used in Mexico today. Hendrickson Mexicana played a major role in working with the weights
Q: How have you transferred the demands of military
and dimensions law and helped to obtain approval for
applications to the medium and heavy duty sectors?
additional load requirements per axle on units using air
A: Hendrickson really took a different approach when
suspension systems. The usage of this type of suspension
it came to transferring technologies between military
resulted in the further protection of roads and increased
and commercial applications. In the late 1990s and early
safety. Hendrickson developed INTRAAX, the first fully
2000s,
integrated air suspension and axle brake system in the
suspension that was introduced into military applications
Mexican market for trailer applications. Today, INTRAAX
and is still used today. This suspension was then rolled out
has become the standard trailer suspension system
in the commercial industry for large firefighting vehicles
in Mexico. In addition, Hendrickson was a pioneer in
used at airports all over North America. This was the
launching the Large Diameter Axle (LDA) on INTRAAX
one technology driven by military that transferred into
suspensions which delivered a stronger and lighter axle
the commercial industry. Since then, Hendrickson has
than the industry standard.
actually taken its commercial industry technologies and
Hendrickson
developed
a
hydro-pneumatic
transferred them to military applications. Hendrickson Hendrickson also launched STEERTEK, the first fabricated
used the independent front suspension technology for
front axle in the industry, delivering a lighter and stronger
recreational vehicles as a platform for development and
front axle compared to a traditional forged axle. Our latest
designed an integrated independent drive axle system for
contribution is the development of the TIREMAAX PRO,
both front and rear suspensions used on MRAP vehicles.
which constantly monitors and equalizes tire pressure
Hendrickson has also made other advancements with
by using the trailer’s air supply. It is the first tire inflation
components for military vehicles which will soon make it
and deflation system which extends tire life by continually
into the commercial industry.
maintaining a constant tire pressure on the trailer axles. Q: What is the added value of the new ULTIMAAX heavy Q: To what extent do consumer preferences influence
duty suspension system, and what differentiates it from
Hendrickson’s innovations?
the competition?
A: By anticipating the needs of our customers and the
A: Vocational fleets are demanding systems that need
industry, Hendrickson designs and develops products
components that stand up to punishing environments,
targeted at improving the efficiency and the bottom
provide a low total cost of ownership, are light in weight
lines of OEMs, fleets, and owner-operators. Many of our
to allow greater payloads and fuel economy, and deliver a
latest products, such as OPTIMAAX, SOFTEK NXT, and
comfortable ride when the vehicle is loaded or unloaded.
ULTRAA-K, deliver significant weight savings allowing the
The added value of ULTIMAAX is that it delivers a lighter
end user to haul more loads and improve fuel economy.
weight, higher roll stability, and a better ride. The ULTIMAAX
Although these products are much lighter, they must
shear springs and progressive springs were designed as a
also meet the unwavering standards for durability and
system within the suspension, which provides a smooth
reduced maintenance associated with the Hendrickson
spring rate.
127
Indirect suppliers, despite being considerably more diminutive in both scale and number than their Tier 1 partners, perform a crucial role in the automotive supply chain. On the path towards recuperation following the 2008 financial crisis, Tier 2, 3, and 4 suppliers are playing an essential part in rebuilding the automotive industry. There have never been more prospects in the Mexican market for domestic suppliers to formalize and capture opportunities to work with larger international companies. These opportunities are by no means going unnoticed and this segment of the market is receiving increasing attention from both the public and private sectors. With some 90% of Tier 1 supply needs still being met by imported goods, the need to develop the indirect supply chain cannot be overstated. The government is on the verge of announcing the formal creation of a body whose sole aim will be the strengthening of Mexico’s supply chain. Pro Auto will unite a number of key associations, the combined expertise of which will provide the right tools to support Tier 2 and 3 companies to strengthen their position in the supply chain.
This chapter will highlight the intricacies of supply-chain relationships and explore the importance of indirect suppliers in the final product. It will explore the technology trends, which are expediting their capacity and quality, and the top indirect suppliers will provide their experiences and perspectives on Mexico’s changing panorama.
INDIRECT SUPPLIERS
5
CHAPTER 5: INDIRECT SUPPLIERS 132
National Focus on Local Supply Chain Development
133
VIEW FROM THE TOP: Complete Product Portfolio Reflects Automotive Evolution
134
VIEW FROM THE TOP: Major Seating Supplier is Expanding Tier 2 Business
135
VIEW FROM THE TOP: LED Allows for Brand-Specific Vehicle Lighting
136
VIEW FROM THE TOP: LED Lighting to Become Mainstay in Mexican-Made Cars
136
Preventative Mentality Needed in Automotive Health and Safety
138
Bright Future for Fine-Blanking Processes
139
Bearings Supplier Seeks Better Recognition
140
VEHICLE SPOTLIGHT: Volvo BRT 7300
142
VIEW FROM THE TOP: Top-Notch Safety for Plant Relocation Services
143
Special Purpose Buildings Offer More Flexibility
144
Plastic Molding Firm Chooses Slow and Steady Approach
145
VIEW FROM THE TOP: Improved Local Supply Options for Aluminum Die Casting
146
Electric Heaters for Injection Molding Machines
147
Tooling and Texturing Needs the Right Technicians
148
Sustainable Coating Tech Meets OEM Specifications
149
Leading Automation Supplier Looks Beyond Mothership
150
VIEW FROM THE TOP: Honda Supplier Hurt by Mexican Fiscal Reform
151
Rubber Compounds Soon to Compete with TPE Alternative
152
VIEW FROM THE TOP: Demand in Mexico for Industrial Protective Footwear Grows
153
Metal Machinery Toolmaker Wants More Local Content
131
NATIONAL FOCUS ON LOCAL SUPPLY CHAIN DEVELOPMENT The indirect supplier base to the automotive industry, made
Solís. The governmental program will unite different entities
up of those at Tier 2 level and below, is receiving mounting
in supporting the segment including CONACYT, NAFINSA,
attention from both the public and private sectors as
Bancomext, and ProMéxico, who will join forces to offer a
an area ripe for development. Major OEM investment
single window for the needs of the Tier 2 and 3 segments.
into Mexico has brought with it hoards of investment from Tier 1 suppliers, with OEMs required to meet strict
A
local content levels of 62.5% to benefit from tariff free
successfully established footholds in Mexico and can
exportations under the NAFTA agreement. This has made
provide insight into what it takes to both thrive and survive
it necessary and virtually obligatory for many traditional
at this level. MPE Mexico, a subsidiary of a 40-year-old
direct suppliers to set up base with their OEM clients in
Italian company, provides injection molding, blow molding,
Mexico. The sheer levels of investment required to supply
and conventional molding to major Tier 1s, including ZF
a major Tier 1 automotive company, however, have made it
Sachs and GKN Driveline. The company’s General Manager,
impossible for most small suppliers lower down the chain
Olga Jiménez, explains that MPE has taken the decision to
to similarly establish new plants in Mexico. According to
remain specialized and resist the temptation to expand too
AMIA data, Tier 1 suppliers currently import 90% of their
quickly, which means knowing when to turn away some
required inputs into Mexico, presenting both a challenge
of the many opportunities being presented by growing
for companies trying to increase localization efforts and a
industry demand. “We have chosen to pursue slow and
significant opportunity for investments at this level.
steady controlled growth, thereby assuring the best
number
of
international
indirect
suppliers
have
quality and performance to a small quantity of customers,” AMIA’s Executive President Eduardo Solís explains that
says Jiménez. This echoes the advice of Ford’s Purchasing
there are six key areas where Tier 2 and 3 suppliers are
Manager Leo Torres, who urges suppliers to specialize and
particularly in demand: machining, forging, stamping, plastic
not try too hard to “be good at everything.”
injection, casting, and molding. These six areas make up 80% of the demand from the Tier 1 segment. However to
There are many niche areas presenting opportunities for
enable companies to capture opportunities within these
those with specialist skills, such as the tooling and texturing
areas, ensuring increased access to financing is crucial.
market, with 95% of tools currently being imported into
“We know that there are at least three or four major issues
Mexico. Mold-Tech, a company specializing in the texturing
impacting the development of the lower-level supply
of new molds, carries out texturization and repairs for Tier
chain. The predominant is lack of financing,” asserts Solís.
1 suppliers, including TRW Automotive and Kasai. “Mold-
Supplying a large Tier 1 company involves major financial
Tech is currently the only option of its kind in the Mexican
commitment, with required machinery and infrastructure
market. Customers that do not work with us have to look
being prohibitively expensive for those that lack adequate
for options in the US,” explains Mold-Tech General Manager
levels of working capital. The second most pressing issue
Mario Partida. Partida expects to see increased demands
involves standardization of processes and technological
for molding repair in Mexico, as in-country toolmakers
capacity development, with certifications such as ISO 9000
start building new tooling systems, and is positioning itself
and QS 9000 being mandatory. Thirdly, the right human
to be able to supply the predicted demand.
capital development is necessary to ensure adequate provision of the many specialisms required, and finally, the
While the industry scrambles to increase the numbers
right corporate mindset is essential to allow companies to
of locally based indirect providers, some shrewd direct
interact effectively with sophisticated global conglomerates.
suppliers are taking advantage of supply gaps to branch out their own business lines. Japanese OEM seat supplier
132
One of the main tasks facing the government in order to
Tachi-S, which for the first time in 2013 produced more
address the challenge of developing these suppliers is
materials outside of Japan than inside, has identified
the implementation of the right public policy to support
opportunities to supply other Tier 1 providers itself. It
SME development. AMIA states that the government is on
has two new plants in Mexico that make trim covers
the verge of announcing a program called Pro Auto that
and manufacture pour-in-place headrests, allowing it
will address the creation of public policies designed to
to integrate many of the commodities that are typically
strengthen Mexico’s supply chain. “Pro Auto will be key in
outsourced by Tier 1s. If indirect suppliers can successfully
supporting Tier 2 and 3 suppliers in pinpointing the exact
establish themselves in the automotive supply chain, the
issues that are impacting the industry and preventing smaller
rewards to be reaped are plentiful, both for the suppliers
companies from passing muster as Tier 1 providers,” explains
themselves and the wider industry.
| VIEW FROM THE TOP
COMPLETE PRODUCT PORTFOLIO REFLECTS AUTOMOTIVE EVOLUTION FABIO NEGRÃO General Manager of Industrial Techniques of Atlas Copco Mexicana Q: How do you view Atlas Copco’s evolution in the Mexican
specialists work directly with a number of Tier 1 suppliers,
automotive market?
and we have a varying degree of presence with almost all
A: As a Brazilian, I have clearly seen the differences between
automotive players in the Mexican market. We are currently
the markets in Brazil and Mexico. The big difference between
solution providers, but our real ambition is to be a partner
Mexico and other South American markets is that Mexico
for all our clients. This would mean devising solutions in
is much more export-oriented. Atlas Copco’s production
collaboration with them. Product segmentation, team
goals are similar, but from an economic outlook perspective
segmentation, and top servicing to support all aspects of
we see far more opportunities to increase production
production are central to this aim.
in Mexico than we do in the rest of South America. Atlas Copco has been providing general solutions for the industry
Q: Given this breadth of services, how are you anticipating
in Mexico for 60 years. We have segmented into four key
and addressing all potential client needs?
areas: compressors, mining, construction, and tools. The
A: Every OEM wants to produce cars more quickly and
tools area is divided into three divisions: the motor vehicle
with fewer defects in order to increase profitability. Of
industry, general industry, and services. This has allowed us
course, every automaker has different goals and we need
to become more focused on the future needs of our clients
to adapt to those goals. Previously, design mistakes
in various sectors.
would be identified when cars were on the road, but today these mistakes are identified during the production
Our vision is to be the preferred production partner in
phase. For example, Nissan holds regular discussions
assembly, therefore it is very important to understand
about production increases, so Atlas Copco needs to
the trends surrounding new vehicles. For example, auto
be very dynamic to attend to such demands at the right
makers are increasingly using glue instead of screws. To
time. Whether production increases or decreases, we
cover this need, we recently acquired a German company
are able to adapt to our client’s needs. The most critical
called SCA Schucker that specializes in adhesives. Cars
aspect of logistics is service to avoid time delay for the
are also constantly getting lighter, which requires the
customer. We make sure that we have our people on site
use of innovative technology during assembly. When
with backup tools so that any problems can very quickly
cars get smaller, there is less room inside the vehicle for
be fixed. The process has become more complicated
technicians building the interior, so we need to devise
with the changeover from pneumatic tooling to electric
solutions for that. The focus of our tooling services is to
tooling as more elements now need to be looked after,
supply tightening solutions in assembly technology and
including software.
automation technology. We have different divisions to serve different types of assembly. Our Final Assembly
Q: To what extent do you need to diversify in order to
Western people serve Ford, GM, and Volkswagen, while
reduce your dependence on client production levels?
our Final Assembly Asian team looks after Nissan, Toyota,
A: It is true that a drop in production impacts our sales, but
and Honda. There is a lot more automation in the Western
production drops do not impact service. We are therefore
segment and a lot more manual work on the Asian side.
investing more in service to minimize risk in harder times.
It should be noted that the processes used do not alter
We are also very project-orientated and moving away
the quality of the final product, but it is important for us
from being only product-orientated. We make decisions
to have specialized engineers in both areas. We also need
based on production forecasts and new plants being
specialists to work with power trains and heavy vehicles.
established. Our forecasts point to a very bright future for
Furthermore, body shop work requires different expertise
Mexico for many reasons, and we see Mexico surpassing
such as tightening, mechanical jointing, dispensing, and
Brazil in terms of production. We are the number one tool
quality control. Producing engines, painting, and so on
supplier to the automotive industry and maintaining such a
also requires different approaches and solutions. Our
leadership position means constant innovation.
133
| VIEW FROM THE TOP
MAJOR SEATING SUPPLIER IS EXPANDING TIER 2 BUSINESS GONZALO ESPARZA PEDROZA President of Tachi-S MĂŠxico Q: What opportunities do you see for Tachi-S to find
Tier 1 companies that might need a supplier who truly
clients among top automotive suppliers?
understands their needs. Our Tier 1 business revenue
A: Our automotive business is growing rapidly in Mexico
will always be higher than that coming from the Tier 2
and across Latin America. OEMs and Tier 1 companies
segment, but the latter will continue to grow and become
located in the US are both looking for suppliers south of
a very important portion of our total business.
the border. Tachi-S has positioned itself as a company with 23 years of experience in Mexico, producing seating parts
Q: How did Tachi-S modify its operations to compete both
such as headrests and trim covers.
as a direct and an indirect supplier? A: As a Tier 2 supplier, Tachi-S is selling the same commodities
Q: Which products does Tachi-S provide as a Tier 2 supplier?
we use in our Tier 1 products. For the future, we will make
A: Our business growth in Mexico has been anchored
sure both sides of our business are equally well attended to.
around directly supplying Nissan and Honda. However,
As we are now producing for our own Tier 1 operations and
as our Tier 2 business capacity increases, we will look
for other direct suppliers, we must make sure the same level
to build up our market share with other customers.
of quality and competitiveness is present at both levels. We
Currently, we have two new plants that make trim covers
consider this dual focus to be an advantage for Tachi-S,
in Calvillo, Aguascalientes, and Ojocaliente, Zacatecas.
since we are able to offer a more integrated final product
The Ojocaliente plant also takes care of manufacturing
to the OEMs as a Tier 1 supplier, by relying on our own
pour-in-place headrests. We are ready to support other
production of components we offer at the Tier 2 level.
Global Seat System Creator
OUR PRODUCTS ARE SOLD AS COMPONENTS
134
www.tachi-s.mx www.tachi-s.co.jp
| VIEW FROM THE TOP
LED ALLOWS FOR BRAND-SPECIFIC VEHICLE LIGHTING LEFT: Sergio Villalón Antuñano, Director General of Philips México RIGHT: David Martínez, Sales Manager of Philips México
Q: How do you see Philips Lighting’s future in Mexico?
were used by OEMs as a success marker. LEDs allow OEMs
DM: Mexico is part of our emerging market strategy and is a
to ensure that their brands can be recognized at night
particularly important growth area within that strategy. We
and highlight the automotive industry’s commitment to
have more than 4,000 employees and five manufacturing
making use of the latest technology. Each customer has
sites focused on lighting in the country. 2014 will mark
its own personality and our design team has to align our
our 75th anniversary here, and we have a lot of ambitious
offering with each customer’s vision, and this is where we
growth targets in place. The government is investing
can prove to be very creative.
heavily in new energy efficiency regulations and initiatives, so this is also very good timing for us. We also see a lot of
DM: One out of every three lighting solutions in cars made
opportunities with major OEMs that are producing locally
today comes from Philips. We have lighting solutions for
in Mexico for their global supply, as these have the largest
every part of the car, but our core business is headlamp
operations. Ultimately, we are an indirect supplier and
lighting and LED lighting. We have seen the need to create
therefore dependent on our primary customers, but we are
unique technologies that can provide major benefits to the
seeing a lot of new headlight and taillight manufacturers
end user whilst also turning a profit for our business. The
coming to Mexico due to the boom in OEM investment.
premium carmakers now see lighting not only as a safety
They are being pushed to both come to Mexico and keep
feature but also as a way to create brand differentiation. The
their costs low, which helps Asia to maintain itself as an
advantage of LEDs is that you can shape and define the car
attractive production hub. Transferring goods from Asia to
by using lighting. With a light bulb we supply a commodity,
NAFTA is expensive, which strengthens Mexico’s hand. We
but LEDs are much more complicated and the lead-time is
are expecting growth in the traditional technology areas
therefore much longer, between 16 and 20 weeks.
of halogen and xenon bulbs, but LEDs will also see a lot of growth within the next five years.
Q: How are you adjusting your R&D strategy to factor in the growth seen in the local market?
Q: Bearing in mind that your primary customers are the
SVA: Our R&D takes place in Germany, but we are linking
Tier 1s, how do you stay close to the OEMs?
our product development process there with our technical
DM: Our global account managers deal with the OEMs and
experts in the US. We do not see the need for R&D in Mexico
the set makers. We have our unique products and we need
at the moment, but certainly technical support is important,
to communicate our technologies and their performance
as is more intra-team involvement. We also need to create
to them. Every individual country has a different approach
technology near to where our clients are doing the same. If
based on the unique factors at play in that market, which
a major client opened an R&D center in Mexico, we would
we also have to understand. Our R&D teams are focused
certainly have to implement capabilities nearby.
on working out the particular needs and competition levels in each market and tailoring our products accordingly. We
Q: What is your outlook for Philips Lighting’s future in the
can then communicate our value proposition to the OEMs.
automotive sector in Mexico? SVA: Philips Lighting in Mexico has been growing for the last
Q: What is the current focus of your automotive lighting
four years, both in terms of market share and manufacturing
solutions portfolio?
capacity. We are focusing on bringing more technology
SVA: Different technologies will continue to be used to
to our plants and factories, and assembling high-end
differentiate models and ranges, but we expect LED to
technology here. We plan to continue growing in Mexico with
replace halogen on a broader scale. The cost is still very
good support from our global office. We will have the benefit
different and this will of course be a factor, but it will
of having many products available in Mexico that have been
eventually come down once the uptake of the technology
locally produced. In the automotive industry, we expect
is more widespread. When LEDs entered the industry, they
many new plants to bring new sub-assembly opportunities.
135
| VIEW FROM THE TOP
LED LIGHTING TO BECOME MAINSTAY IN MEXICAN-MADE CARS PAOLO BORTOLAN President and CEO of Osram Mexico Q: What does the Osram lighting solution range for the
cannot say whether a model like the Tsuru will ever feature
automotive industry look like today?
LED lighting. The real crux is that once a company like Osram
A: Our portfolio includes halogen solutions, HID solutions,
offers an efficient solution combining design flexibility,
electronic solutions, and LED. In addition, we are able to
efficiency, and security, then that solution quickly becomes in
create a solid partnership for future development with our
high demand. LED lighting offers all such aspects, as well as
clients. This allows our LED range, for example, to include
having an optimal design to create previously unseen internal
finished products, modules, and discrete LEDs. This
space illumination. Just as ABS became widespread in the
represents a family of products that stands completely apart
market after first only being seen in cars like Mercedes-Benz,
from general lighting. Automotive lighting was made up of
LEDs are becoming more widespread.
standardized products to be installed in the cars by the set Q: Do you foresee LED lighting becoming the most
makers, but now LED solutions are preferred.
widespread lighting solution? Q: Osram says that half out of all cars produced today
A: In the next ten years, LED will undoubtedly become more
contain Osram LED lighting. How does this level compare
commonplace, but Osram still has very interesting solutions
in Mexico to the rest of the world?
with other types of lighting. Halogen lamps are very common
A: The market is naturally different from more developed
and highly efficient. We should not make the mistake of
markets. The most common car in Mexico is the Nissan Tsuru,
thinking that LED lighting is the solution to every single
and no Osram LED light is present in that model. However,
lighting problem in existence. Traditional lighting is of the
Mexican manufacturers are increasingly turning to LED
highest standard today. LEDs main strength is that it grants
solutions. We will see a boom in the near future, although I
design flexibility but it still remains a premium technology.
PREVENTATIVE MENTALITY NEEDED IN AUTOMOTIVE HEALTH AND SAFETY “Sustainability is comprehensive and must be approached
first served’ and has unique production concepts where
through
environmental
speed is crucial.” To increase productivity, automotive
performance, community relations, clients, safety, business
companies respond by adopting different production and
conduct and ethics, and leadership,” states Jaime Martínez,
waste management strategies that stand out from those
Business
leading
seen in other sectors. Martínez believes this uniqueness “has
sustainability consultant. However, such a wide array of
had an important influence on all quality standards. The auto
indicators makes it challenging for automotive companies to
industry is a pioneer in implementing quality systems because
develop their sustainability strategy without being subsumed
of the needs it has and the speed at which it develops.”
specific
indicators:
Development
Director
people,
of
ERM,
a
under too many goals. “To circumvent this, ERM asks its
136
clients to prioritize and focus on certain critical factors. They
Despite the industry’s leadership on many fronts, health and
must then show the results to their headquarters to prove
safety is not typically seen as a sustainability indicator but
that investing in these key areas is beneficial,” he adds. For
just another element of the management systems that the
Martínez, this strategy creates a virtuous cycle that enables
automotive industry has developed and implemented very
companies to regularly move onto other sustainability
well. Martínez identifies health and safety as one of the most
challenges. The automotive industry has a unique mind-set,
relevant elements of the sustainability concept. “Generally,
setting it apart from others in its approach to sustainability,
companies only solve this issue when accidents or fatalities
according to Martínez. “It runs on the motto of ‘first come,
occur. It takes such events for people to change their
We offer the product to the set makers who then have to
by both the growing market and the quality of the local
understand how they can implement our products into
industry. Looking ahead, Osram is already working on the
theirs. It is then up to the OEMs to understand how they can
development for models that will be implemented in the
adopt the proposal of the set maker.
next two to three years. Lighting is one of the most visible and impactful innovations in the vehicle park today, but the
Q: How is the local relationship between Osram and its
technology boom it is currently undergoing also makes for a
suppliers evolving as more R&D is done in Mexico?
very exciting sector.
The partnership between Osram and set makers is definitely changing in Mexico due to R&D being brought to the
Q: Do you foresee production for Osram automotive
country. Before this, we would just deliver products from our
lighting taking place in Mexico?
factory based on an international supply contract, but we
A: We are currently supplied by our factories in the US
can now get involved locally at the first stage of a project.
and Europe, and we do not have any production in Mexico.
How R&D develops in this country will depend on Mexico’s
Mexico is becoming increasingly important for Osram,
long-term engineering capacity. I am convinced that Mexico
but local production would require the investment of a
is able to provide a high level of engineering capable of
completely new plant. We currently have three plants
competing with the US. We understand lighting technology
to supply our global automotive lighting operations,
development and we are supporting the local development
and despite the importance of Mexico as an automotive
of products with our lighting solutions. Changing an integral
production hub, Osram’s automotive lighting does not
element to a car such as lighting requires advance planning
have the economies of scale necessary to open a factory
as it necessitates a gradual phasing in and phasing out.
purely for automotive lighting production. The technology required for producing automotive lighting is much higher
Q: What sort of growth has Mexico brought your
than for general lighting, requiring specific processes. The
automotive lighting division?
implications of a faulty light in an installed set are very high
A: Lighting for the automotive industry is one of our
due to the expenses incurred to fix that problem. There
highest growth areas in Mexico. Many automakers are now
is also the risk of stopping the production line to correct
bringing R&D to their Mexican installations, which changes
a problem. This means that the quality for automotive
the approach we take in our relationship with OEM clients.
lighting must be perfect and have zero defects. This
OEMs are trying to develop new lighting approaches right
requires fully automatized production at the absolute
here in Mexico, which means development is being driven
highest standards, making a new plant very expensive.
mentality.” According to Martínez, the importance given to
safety is approached in a preventative way rather than in
this indicator relates to the culture of the industry. “Big auto
a reactive manner.” Successful safety systems not only
companies spend millions in dealing with safety issues, but
benefit the workers but improve manufacturing processes,
the results remain unchanged, so they become complacent
decrease downtime, injuries, and fees.
and believe nothing more can be done.” Martínez believes this is unacceptable, and that automotive companies wishing
Despite his views, Martínez admits that “compared to
to change must adopt a behaviour-based approach.
other industries, automotive is more sophisticated in safety aspects because of its more automated processes.” Martínez
This approach requires a completely different culture and
acknowledges that automotive equipment and tools are seen
mentality towards health and safety matters. Martínez
as inherently being safe because safety has been ingrained
describes the evolution of incidents like a pyramid.
during the design process. This does not mean they are
Minor incidents are at the bottom, which progress to
exempt from assessment. “We helped an automotive client
major incidents until ultimately reaching the pinnacle:
in San Luis Potosi with a study to assess the hazards related
fatalities. The new approach driven by ERM turns this
to every piece of equipment,” adds Martínez. Checking
pyramid upside down, with the focus now on the minor
machinery might appear simple, but Martínez points out
incidents. “Taking care of the overlooked minor incidents
that a lot of equipment is imported and warning signs are
is important, because if these accumulate and nothing is
often only in foreign languages. Basic requirements under
done, a fatality will eventually occur,” explains Martínez.
Mexican law ask that all hazards to which the operators are
Focusing on the root causes of small incidents reduces the
exposed should be clearly communicated. It seems that
likelihood of fatalities, but most companies still follow a
a basic element of this system would be to mandate the
reactive approach. “Better results are certain if health and
translation of all warning signs into Spanish.
137
BRIGHT FUTURE FOR FINEBLANKING PROCESSES Xabier Errasti, Managing
may be lacking and certain materials cannot be found.
Director
has
“Some materials are sourced in Mexico but Celay still has
of
witnessed
Celay,
growth
to turn to Europe or the US for some of its needs. However,
in the demand for fine-
rapid
as demand for qualified suppliers rises in Mexico, existing
blanking
suppliers will expand and improve their quality standards
technology
in
the Mexican automotive industry. other Xabier Errasti, Managing Director of Celay
Similarly
metal
processes, distinguishes
while new ones while be established.”
to
stamping
One of the characteristics of fine blanking is that multiple
fine-blanking
features can be simultaneously incorporated in one single
itself
by
operation, but as a unique and complex process it requires
allowing the production
highly skilled workers. One of the biggest challenges for
of high quality precision pieces in one press stroke while
Celay, according to Errasti, is to transfer and translate
largely eliminating the need for post-processing. One of
knowhow and ensure factory processes are conducted
its biggest advantages is that its repeatability throughout
at the level envisaged by the company’s headquarters.
a production run makes the process economical for
“Fortunately, Celay has been able to find very good and
large production operations, characteristics automotive
capable engineers in Mexico,” says Errasti. The struggle to
companies are keen to seek out. However, this particular
find the right professionals is not limited to Mexico but to
technology entails higher equipment costs compared to
Europe as well. Celay has developed a training program in
other choices and higher tonnage requirements for the
Spain where engineers looking to learn fine-blanking can
presses. To date, the presence of fine-blanking technology
be sent from Mexico and elsewhere.
has been limited in the Mexican automotive market, but the automotive industry boom is leading to increased
The boom in fine-blanking demand coupled with the
demand. Celay, a company with 13 years of experience in
exponential growth Celay has experienced in the last
manufacturing metallic parts using this technology, can lay
couple of years has triggered an aggressive expansion
testament to this increasing demand as it acquired 60% of
strategy, with Errasti expecting gains of 24% in the coming
the market share in Mexico over the past two years.
years. To achieve this goal, Celay has adopted three clearly defined steps: optimization, increased production capacity
The difficulties entering the market can to a large extent
supported by a continuous training program for workers,
be attributed to the problems associated with implanting
and further automation of processes. This is followed
the fine-blanking process. “It demands a lot of experience,
by designs to increase the client base and exportation
knowledge, and technology, which in turn creates barriers
levels to other markets. For Errasti, raising production
for companies wishing to enter in Mexico,” explains Errasti.
levels will automatically increase the volume available for
The high machinery costs required from the outset represent
exportation. The desire to expand into other markets has
a huge investment. Upon its arrival to Mexico, Celay was
been spurred by Celay’s dependency on the US market.
fortunate to be supported in this respect by its corporate
“In the past, Celay’s growth depended on whether the US
headquarters, Elay Group. With over 40 years of experience
market grew or not,” comments Errasti. To circumvent this
in the process, Elay Group helped lay the foundations of
reliance, Celay has begun to export to other markets in
technology and knowledge required for the selective fine-
Europe, China, and Brazil, which has also helped broaden
blanking technique. According to Errasti, after 13 years, Celay
its fine-blanking client base. The continuing entry of new
now dominates this technology and acts independently from
OEMs and Tier 1 companies to the Mexican industry seem
its parent company. “Due to the highly complex technology
to paint a fine future for fine-blanking. “New companies
involved, many assume that fine-blanking quality levels in
are arriving and are trying to localize all their products,”
Mexico are not on par with other more developed countries,
says Errasti. Although many Japanese Tier 1 companies
but this assumption is absolutely wrong.”
are arriving to Mexico with their own suppliers in place, Errasti explains that this typically does not include fine-
138
In order to ensure the high quality required of fine-blanking
blanking specialists. This has created a snowball effect,
processes, a good supplier base is a key consideration.
as new entrants offer a good opportunity for established
OEM and Tier 1 companies are mostly uniform in their
fine-blanking companies to increase work contracts,
operations worldwide and are more willing to share
while the presence of fine-blanking experts offers even
technology. Errasti has seen that further down the supply
more incentives for the entry of players in need of such
chain at the Tier 2, 3, and 4 levels, essential certifications
specialists.
BEARINGS SUPPLIER SEEKS BETTER RECOGNITION Over 100,000 patents have been poured into the creation of the modern car, across countless instances that have revolutionized the automotive industry and the very concept of manufacturing. While innovations like Henry Ford’s assembly line have been celebrated down the decades, one component has not received the acclaim it deserves: the bearing. In vehicles of all types, bearings are necessary so that connected wheel hubs may rotate unimpeded on the end of a stationary axle. Swedish bearing company SKF has
“We want to become known as reliable auto part suppliers. We already have a 20-25% market share in OE and aftermarket, we feel we can quickly rise to 40%” Jorge Fernández Avalos, Automotive Sales Director of SKF de México
held onto its roots by supplying the industry with bearings, seals, lubrication systems, and maintenance products for
improving the integration of machinery during production
over a century. Jorge Fernández Avalos, Automotive Sales
and repair. SKF’s close involvement in the drafting of new
Director of SKF de México notes that this commitment has
standards with organizations like ISO has had benefits on
brought unique product offerings to the Mexican market.
a number of fronts. These standards help OEMs to more
“SKF was the first to develop the unitized hub, a product
rapidly incorporate new products and processes during the
for which we remain market leaders.” In the past, bearings
assembly stage while also improving vehicle performance
and wheel hubs had to be assembled piece by piece.
and efficiency for end users. Fernández Avalos emphasizes
However, such processes required highly skilled workers
that the company has been making changes to deal with
and specialized equipment to achieve proper operation.
the increasing complexity of the automotive sector, such
Even the repair or replacement of these parts needed
as overhauling its teams of specialists to cater to specific
precise positioning and adjustment since the slight mistake
market needs. One persistent trend that SKF is dealing with
could damage them. SKF’s unitized bearing removes these
is the urge among OEMs to constantly reduce CO2 emissions
hindrances and lessens maintenance difficulties.
and to develop more efficient vehicles. To help this, SKF has thrown its weight behind the stop/start function, where an
The historic presence of bearings in the industry has seen
engine stops in traffic jams or at traffic lights and restarts
an increasing number of functions being incorporated into
instantly. SKF contributed to this technology with its Rotor
their production by companies like SKF. Most recently, the
Positioning Bearing, a magnetic field from the bearing
company has developed wheel hub units with fitted sensors
which provides the engine control system with the exact
that feed data to braking and traction control systems to
position of the rotor, allowing the engine to restart faster
monitor vehicle speed. “SKF has developed intelligent
and more efficiently. As a result, Fernández Avalos says that
products containing chips that can supply information
CO2 emissions are reduced by 30% in heavy city traffic while
about the state of a component. We have also developed
fuel consumption is drastically cut. SKF has also launched a
monitors that allow customers to control the precise state
new lubrication solution for hub bearing units that reduces
of certain auto parts,” adds Fernández Avalos. This means
friction by 9.5%.
that customers can find out when a component needs to be replaced, which avoids vehicles having to make
Scotseals have become the company’s most popular
unnecessary stops. While SKF is known as a leading Tier
product in the local market, given that most trucks are
1 supplier to OEMs, Fernández Avalos says this does not
constantly in operation this particular innovation is useful
stop the company from applying its knowledge to specific
since it wears down without damaging the truck’s shaft, this
products sold in the Mexican aftermarket. “We want to
means it can be replaced without having to substitute the
greatly expand our product range and increase brand
part or repair the shafts. This success has largely anchored
awareness for the OE and aftermarket sectors, as well as
SKF’s expansion plans in Mexico. “We are confident that
retailers, repair shops, and new assembly lines coming to
we can double our sales in Mexico by 2015, mostly thanks
Mexico,” Fernández Avalos explains.
to our bearing hubs and scotseals for heavy trucks,” states Fernández Avalos. “We have also increased the service life
The road towards achieving leadership in the OE and
of our products, and our sets of bearings and seals can now
aftermarket sectors starts with SKF’s components being
last 500,000km,” he adds. “We are seen in Mexico only as
transformed as new standards are put in place, such as ISO
a producer of bearings and seals, but we want to become
492 standards. This new standard incorporates Geometrical
known as reliable part suppliers for the automotive sector.
Product Specifications (GPS), which enables rolling bearings
We already have a 20-25% market share for our products
and the ISO GPS system to be installed on the same platform,
in OE and aftermarket, we feel we can quickly rise to 40%.”
139
| VEHICLE SPOTLIGHT: VOLVO BRT 7300 The Volvo BRT 7300 is an icon of the Bus Rapid Transit
of new components that offer high efficiency. The new
(BRT) system in Mexico. Now in its third generation, it
generation of Volvo DH12E engines offers the highest
has been redesigned to suit the needs of the domestic
performance in the BRT segment. This horizontal 12-litre
market based on an accumulated experience over
in-line six-cylinder diesel engine provides high torque
11 years in the country. 410 models of the 7300 are
even at low revs, which promotes fast response and
already operating in several Mexican corridors, jointly
smooth driving properties.
travelling an average of 30 million km per year. As a surface subway model, the 7300 has been designed
Its ASR and ABS brakes come equipped with sensors that
to combine the speed of light rail with the flexibility
detect wear and tear, helping to guarantee its passengers a
of a bus system, which is achieved through a series
safe journey while reducing the risk of accidents. Durability
is ingrained in the 7300 thanks to its high resistance steel
and also ensures a single channel of communication in
chassis. This strength will be put to the test since 65 new
after-sales services. As telematics are on the rise, the
models will cover route six in Mexico City, going from
7300 is equipped with a Multiplex system that monitors
San Juan de Aragon to Rosario, a 28km journey that will
components in the powertrain to diagnose their status,
transport 130,000 passengers daily.
resulting in the bus needing far less time in workshops, significantly reduced maintenance costs, and leading
The new 7300 is to be assembled in the State of Mexico,
to increased vehicle availability. The 7300 also offers
which distinguishes it from previous generations by being
an ITS4 mobility service, an intelligent transportation
entirely manufactured by Volvo. This guarantees quality
system for traffic control, passenger information, and
and synchronicity between the powertrain and chassis,
fleet management.
| VIEW FROM THE TOP
TOP-NOTCH SAFETY FOR PLANT RELOCATION SERVICES CARLOS TORRES CEO and President of Riggers Group Q: How did Riggers establish itself as a Mexican success
A: We do not have our own trucking company as it is
story in just a few years?
extremely expensive to own your own fleet, instead we
A: We started in Monterrey in 2006, but we moved our
partner with five top trucking companies. For moves
operations to Queretaro which gives us excellent logistical
from Asia and Europe, we use three reliable shipping
advantages. We recently opened a new sales office in
companies. In terms of rigging equipment, we utilize the
Irapuato, Guanajuato, to complement our Puebla sales
SC&RA network to connect with partners who can provide
office. This expansion saw us reach the fourth position
the right equipment at the right location. We use our own
in the industry within our first year of operations, and our
project managers to supervise the process so that US or
next goal is to expand to Ciudad Juarez and Hermosillo. The
Canadian companies do not have to send their people to
Specialized Carriers and Riggers Association (SC&RA) listed
Mexico, which adds costs. We have our own equipment
us in its top 50 of worldwide rigging companies, signifying
in Mexico, and while 50% of our work is conducted with
we are no longer merely competing with Mexican companies,
that equipment, we also maintain close ties with four
but with US and global companies as well. We are very proud
trustworthy rigging companies in Mexico. We tend to only
of our record as the safest rigging company in Mexico.
use our own accessories for heavy lifting, such as chains and cords, because we can guarantee their integrity.
Q: How important has the automotive industry been to your ascent?
Q: How do you ensure you maintain your safety standards?
A: 80% of our business is within the automotive industry while
A: We have been ranked number one in Mexico for safety
the aerospace industry represents the other 20%. Within the
and we have a zero accident safety record that we are
automotive industry, 90% of our business involves moving
incredibly proud of. All our employees are certified at least
existing plants and 10% involves establishing new facilities.
once a year for the various certifications related to driving,
The amount of automotive investment, in particular in the
aerial, electrical, industrial safety, and confined spaces,
Bajio region, has given Riggers increasing opportunities.
among others. Secondly, we believe communication is
We do not deal directly with the OEMs because of issues
extremely important. Our project managers meet with
like penalties and unions. Tier 1 companies are our major
their teams every morning to talk about safety, flagging
clients, and they subcontract to companies that integrate
potential areas of danger, and generally instilling them with
services for setting up new plants, which is where we come
a focus on the subject. We also invest a lot in preventative
in. The large OEMs and Tier 1s are establishing new plants
safety measures and checking equipment. The SC&RA
in Mexico, and the Tier 2 and 3 suppliers are following,
could not give us its safety award as we are not an American
leading to many relocations taking place from Asia and
company, but it received all of our insurance information
Europe. The amount of work involved in moving an entire
and was amazed to see our zero accident history.
factory is enormous, and companies are under extreme pressure because of the time penalties involved if a delivery
Q: What are the pillars of your growth strategy?
is delayed. If we were to drop or damage a pivotal piece of
A: We do not want to grow too fast as this could result in a
equipment, that could potentially delay product delivery for
loss of control, and control is central to maintaining our safety
months while a new machine is ordered. Safety is therefore
record. We currently have 70 employees and we do not aim
of the utmost importance in our line of work. We are not the
to go beyond 150. It is better for us to really identify the best
cheapest company, but we make large investments in new
customers. We seek to work with clients that need a very
equipment and intense training for our personnel to ensure
specialized service and to whom safety is very important,
that we maintain our safety record.
as they tend to understand the added value that we offer. Building long-standing relationships is also key. When we
142
Q: How do you logistically and materially manage the
move an entire factory for a client, the job is done and the
relocation processes?
client may not need relocation again for a long time.
SPECIAL PURPOSE BUILDINGS OFFER MORE FLEXIBILITY O’Donnell has been a leading developer of logistics and
partner has been Prudential Real Estate Investors (PREI),
manufacturing buildings in Mexico. Since 1996, it has
ever since a co-investment agreement was signed
developed, acquired, and now manages over 1.16 million
between the two in 2004. As PREI’s first such venture in
square meters of industrial properties strategically located
Latin America, this collaboration proved fruitful as from
in 15 markets across Mexico. O’Donnell’s investment
2004 to 2008, the leasable area of O’Donnell’s industrial
strategy is to add incremental value by building speculative
portfolio grew at 50% annually. This allowed it to run the
industrial buildings in the country’s primary distribution and
fifth largest industrial portfolio in Mexico. Over the next
manufacturing centers. The automotive sector represents
two years, O’Donnell took on 39 more buildings. In 2013,
approximately 30% of the company’s portfolio throughout
it allowed its assets to be included in PREI’s industrial
the country, a percentage which has been increasing
real estate investment trust (REIT) in Mexico, known as
as more automotive companies invest in Mexico. The
Terrafina.
company’s CEO, David O’Donnell, says this expansion is due primarily to the flow of Japanese, Korean, and German OEMs coming to Mexico, bringing Tier 2 and 3 suppliers with them. This led the company to now manage over 100 hectares of land throughout the country that is earmarked for future developments, providing O’Donnell with a rolling inventory to adapt to clients’ needs in automotive and
“We do not chase markets. We focus on major markets and if we spot an opportunity, we capitalize on it”
beyond. O’Donnell builds flexible speculative properties to
David O’Donnell, CEO of O’Donnell
accommodate anticipated demand, while it builds custom buildings to suit company’s particular needs. To ensure long-
In terms of location trends, O’Donnell says that the Bajio
term value, special purpose buildings are always designed
region will continue to be a preferred location for the
to incorporate long-term flexibility to ensure minimal cost
automotive sector to establish new plants and to expand
and expense when retrofitting a property once it is vacated.
existing ones, given the number of existing and new automotive assembly plants that are, and are soon to be
O’Donnell’s service portfolio for the automotive industry
established, in the area. Demand has been fueled over the
mainly consists of built-to-suit facilities. Such properties
last five years by Mazda’s and Toyota’s new assembly plants
are specially designed for companies that have special
that are now producing cars, and is expected to continue to
requirements for their operations that existing buildings
support growth at the new Daimler plant in Aguascalientes
would struggle to fulfill. As such, more investment is needed
and BMW’s planned plant in San Luis Potosi. As investments
in terms of time and resources, but the client ends up with a
continue to flow into Mexico, other automotive firms will
customized plant that can be used long-term with little need
plan their entry, which will create the new wave of demand,
for modification. O’Donnell was recently awarded the right to
he predicts. “When these define where they will establish
build and manage the Audi supplier park in San José Chiapa,
themselves, then another wave of suppliers will come along.”
Puebla, a 232,000 square meter complex to serve just-in-
The company’s CEO also predicts heavy investments going
time, just-in-sequence the new Audi Q-5 assembly plant.
to Monterrey due to Kia’s proposed new plant there, and
Other successful build to suits in the auto sector include
also to Puebla to serve the new Audi plant.
Magna in Toluca, and Autoliv and Rockwell International in Queretaro, to name but a few. O’Donnell explains that the
It is this ability to quickly respond to major trends of important
company’s success is rooted in its relentless focus on realizing
growing industries which anchored O’Donnell’s growth. The
its mission, which is to increase its client’s competitiveness by
company built its first industrial park in Queretaro in 1996,
providing impeccable customer service, strategic locations,
and built and leased facilities for such notable automotive
intelligent engineering and quality construction, proven and
companies as Autoliv, Rockwell International, and Johnson
reliable leadership, and offering space at a competitive price.
Controls. Recently, it has expanded its industrial park to
In terms of spec buildings, O’Donnell lists Grupo Modelo,
accommodate Mitsubishi Automotive, demonstrating its
Bombardier, Unilever, Hellmann, and UPS among its clients.
ability to respond quickly to satisfy demand. As such, its goal has been to invest in major markets where there is high
The company’s foray into Mexican real estate began in
demand, avoiding acquiring land that will become obsolete
1996 when it first developed a 34 hectare industrial zone
and speculative. “We do not chase markets. We focus on
in Queretaro. But although GE Capital and JP Morgan
major markets and if we spot an opportunity, we capitalize
provided its first loans, O’Donnell’s most trusted financial
on it,” tells O’Donnell.
143
PLASTIC MOLDING FIRM CHOOSES SLOW AND STEADY APPROACH MPE has been producing plastic parts in Italy for 40 years
and GKN Driveline. These relationships led to greater
but increasing globalization has seen the company pushed
things, and MPE Mexico now exports to GKN Driveline’s
to follow its main customers further afield. The company’s
plants in China, US, Spain, France, and Brazil. By the end
first plant outside Italy was established in 2006 in Charlotte,
of 2011, the company had duplicated its sales, and by
North Carolina, but in 2008, with the world economic crisis
the end of 2012, sales had increased a further 30%. “We
just beginning, MPE made its first move into Mexico. Being
prefer to pursue continuous growth, so that we can control
a small company means MPE is able to keep in close touch
our processes and increase the quality of the products,”
with its customers, allowing the company to understand
explains Jiménez. Both the technology and the materials
their needs and co-develop required parts. MPE specializes
for MPE’s injection processes are imported from Europe,
in three different processes for the production of plastic
and the client largely drives the selection of plastics. With
parts: injection molding, injection blow molding, and
so many of the parts being designed in Europe, Jiménez
conventional blow molding. MPE Mexico’s General Manager,
explains that the materials also need to be brought over,
Olga Jiménez explains that the difference between the US
which means MPE Mexico relies largely on its headquarters
and Mexico operations is that MPE US only uses injected
in Italy to source and supply materials. PEMEX does supply
blow molding while MPE Mexico uses injection blow
some resin locally, but only in small quantities.
molding and injection molding. For this reason, MPE Mexico exports parts to the US. “We have molding processes that
Applying a cautious approach to growth means that MPE
use both blow and injection processes, which means that we
Mexico must avoid the temptation to try and capture
can control the characteristics of the part we are making,”
all opportunities being presented by Mexico’s growing
explains Jiménez.
automotive industry. “We have chosen to control our growth and thereby assure the best quality and performance to a
Jiménez says that the company’s Mexican operations were
small quantity of customers. We received 15 new tools in 2013
able to survive the difficult years of 2009 and 2010 with
to support as many projects in 2014 as possible, focusing
the support of its Italian headquarters by taking a slow
on bigger volume production for existing clients,” explains
and steady approach to growth. By 2010, MPE Mexico was
Jiménez. The company is expecting to grow 20% in 2014,
able to supply clients such as Magneti Mirelli, ZF Sachs,
fueled by new upcoming projects with Volkswagen and Ford.
Contact: C.P. Julio César Doctoriarena Torres Gerente General de Administración julio.doctoriarena@ahresty.com.mx (492) 491 40 10 www.ahresty.com
| VIEW FROM THE TOP
IMPROVED LOCAL SUPPLY OPTIONS FOR ALUMINUM DIE CASTING TOSHIHIKO OKUMURA President and Director General of Ahresty Mexicana Q: What role has Mexico played in Ahresty’s global and
near the Honda and Mazda plant in the state of Guanajuato
regional operations since you set up shop in Zacatecas?
but the following factors have to be met: proximity to the
A: Ahresty has over 60 years of experience in the production
OEM, price of land, labor cost and availability, and finding
of aluminum die casting but in recent years, its global
managers who are skilled and capable.
strategy has undergone some change. Our production volume in Japan has been reduced and has moved to North
Q: What strategies has Ahresty developed to align the
America, China, and India. It is in these three regions that
increasing demand from clients with the sourcing of
Ahresty is expecting significant growth. There are also
skilled labor?
two plants in the NAFTA region: one in the state of Ohio
A: Having both low and high skilled workers is important
and another in Zacatecas. There are several reasons why
for Ahresty, especially as capacity is increasing. In this
Ahresty decided to establish a base in Zacatecas, such as its
region, one of the challenges we have encountered is hiring
geographical position near main customers like Nissan and
experienced people as technicians or supervisors for the
JATCO in Aguascalientes.
plants. These roles are important in order to efficiently operate and maintain a high level of quality and security. As
Q:
to
a result, we have begun to provide education and training
accommodate growing demand from its client base and
How
much
has
Ahresty
invested
in
order
for operators, while the next step will be to offer training
how has this investment been allocated?
for other levels, such as technicians. In order to improve
A: In order to accommodate this growing demand, Ahresty
the performance of our workers, we are cooperating with
invested US$200 million in six main stages, spanning
local universities such as the Technological University of
from 2006 until today. When operations began, the initial
Zacatecas. We decided to send some Mexican workers to
investment was US$50 million. In the early stages of the
Japan to receive training, which was not as beneficial as
Mexican die casting plant, its production capacity was focused
expected due to communication difficulties. The Zacatecas
on supplying Nissan with a wide range of components.
plant has 1,600 employees and 20 Japanese workers. Salaries
Operations began with three assembly lines but another two
in China are increasing, making Mexico’s low labor costs one
lines were added when JATCO joined our client list. In terms
of its strongest features. There are a number of Japanese
of machinery, Ahresty experienced a fast expansion in the
companies planning to establish themselves in the region so
space of three to four years. At the beginning, we had seven
we have to be careful in order not to create a salary spiral.
small die casting machines with a capacity of 362kg, and ten big machines with a capacity of 1,020kg. There are now 22
Q: How has Ahresty tried to develop and create a supplier
die casting machines but this expansion means additional
base in Mexico?
training and human capital is needed.
A: We used to source 80% of our aluminum material locally, while 20% was imported from the US, but this year we are
Q: What factors were taken into consideration before
importing 50% from the US despite high logistics costs, and
Ahresty invested in the new plant?
we are sourcing 50% locally. The reason behind the drop of
A: Many factors were considered including geographical
locally sourced material is because it is difficult to obtain
location, availability of human capital, and client demand,
scrap materials in Mexico due to the very long lifespan of
but when we began our expansion in Zacatecas, these
vehicles. As the volume of production rapidly increases in
factors took a backseat as the demand from our clients
the automotive industry, the need for this resource increases
was very strong and we needed to increase our production
too. Ahresty has had to import more scrap from the US
regardless. The decision to open a new Ahresty plant is yet
in order to compensate for the lack of availability in the
to be finalized and the decision-making process might take
Mexican market. In the past, we had two local suppliers, but
two to three years. Japanese companies tend to be located
as the demand increased, they did not have the capacity or
in close proximity to OEM clients. We would like to be located
the financial backup to keep up.
145
ELECTRIC HEATERS FOR INJECTION MOLDING MACHINES The call of the automotive industry in Mexico is becoming so
was a challenge. The company’s first sales were made
strong that it is attracting veteran entrepreneurs from other
through small quotes, while capital expenditure was also
sectors. This was the case for Ernesto Limón Escalante,
low. “When we got our first big project, our relationship with
Director of Lemon Analyzers. After finding success by
Watlow was very good. They allowed us 30 days grace for
providing gas measuring equipment for industrial players
payments, which allowed us to collect the sales funds first.
to track their emissions, Limón Escalante was drawn to the
In this way, we never required a huge amount of capital to
automotive industry. Partnering up with Watlow Electric,
start,” says Limón Escalante. This sober financial approach
Lemon Analyzers brought electric heaters for injection
allowed Lemon Analyzers to later reap the rewards. “Lemon
molding equipment to the Mexican market. “We sell electric
Analyzers only has ten staff members but we have managed
heaters that help liquefy the plastic for injection molding
to turn the same profit as companies with five times our
machines,” explains Limón Escalante. “We also sell the
payroll,” he adds. That turnover was also down to high sales
temperature sensors and controls, thereby covering the
of the heaters. Given that Watlow’s heaters were already
entire loop. I wanted to enter this specific field to get
widely utilized in the market, it is not surprising that those
involved in the automotive and aerospace industries.”
companies approached by Lemon Analyzers soon saw the
“With automotive companies, you really need to be on call 24 hours a day. We had a stroke of luck by being in the right place at the right time, and we managed to turn a profit more quickly than usual for start-up companies in this sector” Ernesto Limón Escalante, Director of Lemon Analyzers
The benefits of the heaters themselves are what really
benefits as well. Limón Escalante talks of how “companies
convinced Lemon Analyzers to enter this new business.
were amazed that we could halve their costs while providing
Limón Escalante narrates the process through which these
a good service.” In its early days, Lemon Analyzers’ sales
are sold. “Our heaters can really help clients to reduce their
were modest, but reached US$500,000 in its second year,
energy costs. We visit the premises of our clients, work out
from sales to its first client alone. Such results mean that
what they are spending, and then advise them on how much
Limón Escalante has expansion in mind. “I was lucky with
they could save by using our heaters.” Lemon Analyzers
the automotive industry as we are based in Hermosillo,
was not seeking to bring a wholly unknown technology to
which is also the home of INC, a company manufacturing
the market. Watlow Electric’s heaters are already known
many plastic products for the automotive sector.” INC was
throughout the industry, and many injection molding
an early client but Lemon Analyzers now covers three other
machines come with such heaters already installed. As this
states: Chihuahua, Sinaloa, and Sonora. “We are continuing
is not a universal practice, Lemon Analyzers has found a
to grow and we expect to open an office in Tijuana in 2014.
niche to break into the market through companies that
This office will target the more than 1,000 maquiladoras in
do not already use the heaters. “In order to establish the
that region.” Setting up bases in Guadalajara, Sinaloa, and
brand, we focused on building customer relationships to
Durango is also on the horizon, although security conditions
make sure to establish trust in the product,” says Limón
in the latter two have delayed this move.
Escalante, who found working in the automotive industry very different to the mining industry. “With automotive
Lemon Analyzers is also considering the potential of
companies, you really need to be on call 24 hours a day.
mixing and matching its two businesses by bringing its
We had a stroke of luck by being in the right place at the
gas measurement technologies to the automotive sector.
right time, and we managed to turn a profit more quickly
Heating and soldering plastic produces emissions and
than usual for start-up companies in this sector. We were
Limón Escalante sees his experience in the mining industry
lucky that we acquired a big project so fast.”
as being highly transferrable. “These emissions need to be measured like any others in order to ensure the health of
146
Although Watlow Electric has a manufacturing plant in
the workers, which means monitoring systems are needed.
Queretaro, Lemon Analyzers was its first distributor in Latin
A lot of emissions are also produced when OEMs paint
America. At first, despite experience in the mining and
and heat their vehicles, opening up a space for continuous
chemical industries, adapting to the automotive industry
emission monitoring centers,” he says.
TOOLING AND TEXTURING NEEDS THE RIGHT TECHNICIANS “The home-made Mexican
already have the right people to take charge of these new
tooling
texturing
processes,” explains Partida. To make good on its pledge
market is underdeveloped,
to continue training Mexican workers, Mold-Tech brings in
as 95% of the tools in
experienced technicians from abroad that know the right
the Mexican automotive
patterns and tools. This has been its strategy since 2004,
industry
from
when it first brought in an American technician to train its
countries,”
initial crop of Mexican staff. “The complexity of the tooling
and
come
foreign explains Mario Partida, General Manager of Mold-Tech Latinoamérica
Mario
Partida,
and texturing industry means that the training period is not
General Manager of Mold-
to be underestimated,” says Partida. “Potential technicians
Tech Latinoamérica. “For
may need to study for between three and five years before
texturing, there are local
they can carry out jobs for Mold-Tech without supervision.”
competitors that can do basic things with acid but they work for non-automotive industries. They do not have
By training its people to master new technologies, Mold-
the knowledge or infrastructure to gain OEM approval
Tech has another solid advantage in the priorities it sets
or to properly carry out orders in accordance with OEM
for its own R&D investment. The first is laser technology,
procedures,” he says. However, Partida does not feel
for which the company is developing new equipment to
Mold-Tech is in the same position. The company has been
texturize products for operations which are still done by
developing mold and texturizing technology for over 60
hand. For Partida, laser technology represents the future
years and Partida believes that the Mexican market does
of automotive tooling, but he explains that it must first
not provide any direct competition at the moment. For
evolve to be able to handle any tool, regardless of size or
Mold-Tech, the automotive industry represents 60% of
geometry. “We also need to see if OEMs are going to be
its sales in Mexico while the other 40% is divided across
happy with the finishes that lasers can provide, since these
industries such as electronics and furniture. Despite this
differ from the ones they are used to,” explains Partida.
automotive dominance, Partida acknowledges that its
The second line is the development of original designs
automotive services and product portfolio in Mexico is
and textures for newly released vehicle models. “We
small as compared to its global operations. “We are here
work directly with our clients to help our designs match
to support and give service to the tooling that is textured
their original ideas and industry trends. For example,
in Canada or the US,” explains Partida. “We provide
one Japanese designer wanted the pattern of a leaf on
repairs and general changes so customers do not need
its car. To make this vision a reality, we scanned the leaf
to send tools outside the country,” he adds. In 2013, the
pattern, and developed the prints to begin acid testing and
company expanded into a new facility in Queretaro that
get as close as we could to the original idea. This close
specializes in texture repairs. Since the facility’s opening, it
duplication of natural patterns is currently very popular
has netted Tier 1 and 2 clients, including TRW Automotive,
among automotive designers.”
Mann+Hummel, Nihon Plast, and Kasai. Beyond working with established companies, Mold-Tech also has the
Given the level of automotive growth seen in Mexico,
capacity of texturing new molds for automotive suppliers
Mold-Tech firmly intends to claim its own portion of the
that enter Mexico without texturing capacity.
market. Partida points to domestic toolmakers beginning to build an increasing amount of molds, which will help the
“Mold-Tech is the only option in the Mexican market.
texturing business to grow. Furthermore, with the likes of
Customers that do not want to work with us have to look for
Honda and Mazda now being mainstays in the country’s
options in the US. We are able to work with suppliers and
automotive market, the company has set itself the target of
OEMs by bringing specialized technicians to repair tools
growing 25% year-on-year in Mexico. “At first, we expect to
in the most important automotive centers,” says Partida.
see more demand for repairs while we wait for toolmakers
This has seen Mold-Tech’s Mexican technicians become
to start building new tools in Mexico. We are also busy
very familiar with the needs of OEMs and tool providers
securing the approval to use the proprietary patterns of
in the country. Although training this team specialized in
Mazda and Honda. When these OEMs are ready to secure
local tooling and texturing needs is an evident advantage,
such patterns within Mexico, Mold-Tech will already have
Mold-Tech has one more aim in mind. “Given that most of
the procedure and the grain approval tech data. This does
the technologies used for these purposes are new to the
take time, however, as we must match the textures for
Mexican market, Mold-Tech needs to improve the skills of
each pattern of each OEM. It is complex, but we can do it,”
the relevant labor force to exploit these opportunities. We
claims Partida.
147
SUSTAINABLE COATING TECH MEETS OEM SPECIFICATIONS “Our
Luis Gerardo Barrales, Head of Sales of Eisenmann
relationship
first eyes the local potential for each product in different
with Volkswagen is one
strong
markets. “It is likely that a product that is not suited for
of the reasons Eisenmann
the European market might find a place in Asia, Brazil, or
decided
its
India. It does not make sense to build a product in Mexico
Mexican base in Puebla,”
and ship it to Germany because of costs and logistics, but
says
Gerardo
perhaps the design could find a use in Germany,” explains
Barrales, Head of Sales
Barrales. For instance, last year Eisenmann developed a
of Eisenmann. A leader
skid conveyor system specifically tailored for the Mexican
in plastics painting and
market. Barrales says Volkswagen requested this product
coating applications, the
and that it was designed, built, and installed by Eisenmann’s
to
set
Luis
up
company has also worked
Mexican engineering department. “I see a lot of potential
with Honda in Celaya on painting plastic parts for interiors.
opportunities for this skid conveyor system. The idea is that,
The company’s client list bears little relation to geography
once we increase its installed base, we will share it with
as Eisenmann is as comfortable working with Nissan, Toyota,
the rest of our subsidiaries. Our local developments can
Daimler, and BMW among others. Nevertheless, Eisenmann’s
be used globally by the rest of the company and for other
success stories and capacities have increased as it forayed
clients.” To ensure the company’s standards are complied
outside Germany, given the technological specifications and
with in its Mexican subsidiary, local engineers who work for
requirements put forward by Asian OEMs alone.
Eisenmann have received training in Germany.
At the moment, Barrales says his company is working to
Eisenmann’s commitment to the environment goes beyond
cover a growing demand for plastic components and
its coating technology, according to Barrales. The company
wheels, areas in which Eisenmann has plenty of expertise. In
recently entered the markets of eco-applications and
fact, Eisenmann has a specific department in Germany that
environmental technologies. “Sustainability has become
concentrates on the development of painting applications
really important, particularly for larger companies. We see
for aluminum wheels. The company is also working in
a lot of opportunities not just on the automotive side, but
powder coating applications. Barrales comments that in
also in the food and beverage, pharmaceutical, and chemical
this segment, products can be distributed through Tier 1
industries.” In addition to increasing its presence in the paint
companies or directly through body shops. For instance,
and body shop lines, Eisenmann is also aiming at expanding
the E-Scrub is a sustainable coating system, focused on
its portfolio in environmental technology, such as water
automotive applications, that uses an electrostatic paint
treatment and air purification systems that can be integrated
separation system implemented to reduce the amount
as part of its paint lines. In cases where a customer is looking
of waste material. This results in savings by using less
for certain environmental advantages, Eisenmann can fit its
paint and producing less waste material to be stored and
technology to the customer’s requirements. Furthermore,
handled, by ensuring a very low percentage of remaining
Barrales claims most of his company’s applications fit well in
particles in the exhaust air. Similarly, the E-Cube technology
the automotive industry. “In the case of Volkswagen’s Think
can be used in any wet paint application, and is based on
Blue strategy which seeks to reduce CO2 emissions, we work
a filtration method that removes overspray from the air
with the OEM to make sure that our systems provide efficient
without the need for chemicals, water, or other additives.
solutions for reducing polluting emissions. Eisenmann is
Barrales explains that instead of using expensive water
willing to develop new things with our customers if needed,
treatment processes, Eisenmann developed a separator
although most of our technology fits their needs well already.”
method of modules (cartridges) that remove paint particles
148
for the overspray (air). Motorized shutters ensure that
Eisenmann’s strategy for Mexico is to develop a supplier base
E-Cube modules can be individually removed and replaced
consisting of third-party organizations. The purpose is to
during periods when the plant is not in use. Waste material
reduce costs while maintaining the company’s international
goes into the cartridge, providing storage in little space.
quality levels, helping it to increase its installed base in
“This technology allows end customers to use painting
Mexico, as well as increase its presence in Central America.
materials in an efficient way, while reducing the amount of
For example, Eisenmann has two suppliers in Puebla that
scrap with the cartridges. These have to be changed once
develop products with quality standards similar to those of
per month, depending on usage,” says Barrales, adding that
German-based suppliers at very attractive prices. “We avoid
this technology reduces waste material from 20% to 10%.
paying additional costs in taxes, fees, and transportation by
Every time Eisenmann develops a product, the company
having good suppliers in Mexico,” tells Barrales.
LEADING AUTOMATION SUPPLIER LOOKS BEYOND MOTHERSHIP Being part of Fiat Chrysler Automobiles has not been a
base was created in the town of Tepotzotlan in the State of
hindrance for Comau in comforting its leadership position
Mexico. This breaks with the trend of most Tier 1 suppliers
in process automation. However, Alberto Tolomelli, General
seeking to work out of the Bajio region or the northern
Manager of Comau Mexico, is keen to explain that Comau’s
states in order to be close to the OEMs. Tolomelli explains
reputation has been forged through superior product
why Comau went in a different direction. “We realized that
offering and engineering. “Fiat Chrysler Automobiles
the area of Tepotzotlan is not highly industrial, but we
only provides about one-fourth of our business. Like any
selected this location due to the logistics advantages it
other customer, they are welcome to choose the best
offers; from this site it is easy to reach our clients all around
option in the market and Comau has to prove that it is
Mexico,” says Tolomelli. The company has a long affiliation
competitive,” he explains. The best way for Comau to
with the town and its employees have gained knowledge
prove its competitiveness is by relying on the technological
and skills that would be hard to replace. “It is a challenge
developments it has created through the years. “Suppliers
for us to stay in the State of Mexico but moving to another
are taking a more aggressive approach and companies are
location in the country would mean losing our workers. We
increasingly having to become technology developers.
have trained them and raised them to the needed level, so
Comau shares this view and is now involved in all its projects
moving would represent a big problem for us,” he adds.
from the outset. This has given us better understanding of our projects across the supply chain, and it allows us to
Comau has a total turnover of €1.4 billion per year, to which
suggest ideas or to arrange for the incorporation of new
Mexico contributes with around €33 million. While this may
technologies that we have developed,” adds Tolomelli.
not seem to make Mexico a major component of Comau’s
“Suppliers are taking a more aggressive approach and companies are increasingly having to become technology developers. Comau shares this view” Alberto Tolomelli, Director General of Comau Mexico
Comau provides advanced manufacturing systems and
strategy, the country forms part of the company’s focus on
solutions of machining, assembly modules, body welding
emerging markets, alongside Brazil and India. Mexico’s links
systems, and integrated robotics, across five main business
to the automotive industry in the US also make it a valuable
units. “The core of the company is body welding, which
cog in the Comau wheel. In terms of staff, Comau has 500
is engaged in production systems for the bodies of cars.
people on the ground in Mexico, as compared to 2,000
We also focus on powertrain systems for engines and
in China and over 7,000 in Brazil, but Tolomelli is certain
transmissions. Our third unit concerns robotics, where we
his charge will continue to grow while Brazil will stabilize.
offer industrial robots as well as robotized and integrated
“Comau is well-known in other countries as we started the
solutions. The fourth unit is dedicated to Adaptive Solutions,
process of positioning the brand there long ago, but this still
the business unit that has extended the automotive
needs to be done in Mexico. The company knows it has to
competences of Comau in other industries such as heavy
raise awareness of its presence in Mexico, and to do so, we
commercial vehicles, agriculture & machining, aerospace,
will double our staff here by 2017, reaching 1,000 people.”
and our final unit is focused on maintenance and service.
Tolomelli says the company is not likely to develop wholly
This naturally sees us providing services to automotive
new solutions for the Mexican market but will follow the
customers, but also to those in chemicals, mining, and steel
path it has already set in the US. Given that the production
production,” says Tolomelli. All five of these units draw on
of cars in Mexico will keep increasing, he sees Comau’s
a wellspring of new technologies and production solutions
body welding unit as showing the most potential here.
that flow from Comau’s development centers, with Mexico
Looking further ahead, continued sector growth will make
benefiting from the center in the US.
maintenance and service another area of growth although Tolomelli predicts this will take more time. “We must
With a presence in 13 countries regrouping over 14,000
first look to produce more products rather than maintain
employees worldwide, Comau pays close attention to where
our current production level,” he states. “We have all the
its bases of operations should be set up. In Mexico, that
opportunities to grow and develop here in Mexico.”
149
| VIEW FROM THE TOP
HONDA SUPPLIER HURT BY MEXICAN FISCAL REFORM HISASHI NISHIMURA President of YUSA Autopartes Mexico Q: How has your understanding of the Mexican market
to Mexico because of the low cost of labor. However, we
evolved since Yusa’s market entry?
cannot produce all of the products here as some of the
A: We originally chose Mexico because our parent company
raw materials we need are not available in the country.
in the region is based in Ohio. By settling in Mexico, we
Moreover, quality is very important to our customers,
expanded our North American operations. Yusa studied
which forces us to import certain products, particularly
potential investment locations across the Bajio region
specialized parts that are used in ensuring a vehicle’s
including Queretaro, Aguascalientes, and San Luis Potosi,
safety. Nonetheless, the cost competitiveness issue is
as well as Nuevo Leon. The reason we chose Zacatecas
very important in the automotive industry. You can bring
was because all players, including the government and
down cost in the purchase area in several ways, including
the Mexican embassy in Japan, were very cooperative and
R&D targeted to reduce production costs.
helpful. We completed our first plant here in 2011, and in 2012 we began analyzing the possibility of opening a second
Q: How is Yusa participating in the global automotive
plant. Yusa’s commitment to Zacatecas was welcomed by
trend to make lighter weight vehicles?
the state government. Our executives met with the Secretary
A: The majority of our products in the past were made
of Economic Development of Zacatecas, who showed
of steel. We have now switched to aluminum or resin
us exactly what the state was doing to make life easy for
brackets, which aid in making cars lighter while ensuring
automotive suppliers arriving there. The main purpose of
that our products continue to be reliable and safe. Safety
Yusa Mexico is to manufacture specific rubber parts such as
is paramount. An engine mount is made so that when hit
suspension bushings for the Honda Civic and Honda CR-V
by a certain impact, the engine will not move or fall off. If
that are manufactured at the plant in Celaya, Guanajuato. We
the aluminum version of the engine mount did not meet
began cautiously as we were not sure about the capabilities
this requirement, then we would not be producing it.
of the local labor force, and these parts are relatively easy to make. We are right on schedule in the execution of our
Q: What impact is the Fiscal Reform having on Yusa’s
five-year plan. We have invested the planned amount and are
financial growth in Mexico?
currently using ten of the 20 acres of land that we purchased.
A: The Fiscal Reform is hurting us. It is very political in
We told the government of Zacatecas we would need 1,000
nature and we have been badly affected. For example, we
people, and we currently have 900 employees, but we need
have not received the VAT refund that had been agreed
to hire more people since we are close to hitting all our
upon, and we have not received an answer as to why. It is
targets. Plans to build a third plant, which will make slightly
a significant amount, and we need to get it back. We are
more complex products like hoses, are in the works.
very disappointed because the government is answering our queries with a lot of bureaucratic questions. The same
Q: What is the balance between the proportion of your
goes for a lot of other companies. The problem seems to lie
production that is exported and sold in the domestic
within the federal government and this is clearly affecting
market?
our investment plans.
A: We export 95% to the US and the other 5% is sent to
150
Tier 1 companies with a presence in Mexico. In the near
Nevertheless, we are aiming to increase sales by 1.5% in
future, we will be sending about 10-15% to Brazil and to
2014, which means producing more in Mexico. We will be
the Honda plant in Celaya. Our Mexican plants will then
completing our second plant this year and construction
be supporting our operations in both the North and
will start on our third plant in the near future. We have
South American markets. We used to import a lot of
expanded very quickly, and while that is good, we need
parts from our plant in the US for our customers here,
to fix some operational problems before beginning the
but every year we produce more and more parts locally
third plant. Our customers must be prioritized so we need
in Mexico. We have tried to shift most of our production
to assure the right quality levels before moving forward.
RUBBER COMPOUNDS SOON TO COMPETE WITH TPE ALTERNATIVE The potential of Mexico to act as a trade bridge, for all
largest base of operations, jointly with China and behind
types of companies, is nicely typified by the reflection
the US. The location of its two plants in Aguascalientes and
of HEXPOL Compounding, a leading global supplier of
Queretaro is no coincidence. Their proximity to Mexico’s
rubber and its derivatives. “HEXPOL Compounding has
main automotive hubs makes it much easier to bring new
placed a big bet on Mexico. We are here to support the
technologies and products to the market. This geographical
Mexican industry, but we are also looking ahead. The need
advantage combines with HEXPOL Compounding’s focus
for rubber will grow across Latin American markets, and
on internal R&D. “We know that in the automotive industry,
Mexico is the perfect platform to support domestic growth
R&D is essential for a company to survive. We are constantly
as well as to supply the US,” explains Saúl Reyes, Managing
investing in R&D and are working on new products to meet
Director of HEXPOL Compounding.
market expectations. Synergies with key companies in the sector guide our R&D, and based on interaction with OEMs,
“The product line in Mexico is focused on rubber pieces
we can make products that adapt to specific applications
for almost the entire car,” explains Reyes, but he already
the customers need,” states Reyes. Importantly, HEXPOL
envisions a future where the Mexican automotive sector
Compounding has actively begun R&D in Mexico itself,
begins to look at alternatives for rubber. Other materials like
a process that is being supported from its labs in the US.
TPE compounds, for which HEXPOL Compounding already
A shared database exchanges key information between
has a division in Europe, will soon be able to compete on
different
an even keel with rubber. “Our TPEs are beginning to have
Compounding to maintain its global technological vision
a presence in the NAFTA region and we already have some
while ensuring local tailoring for its products in each market.
sectors
while
symposiums
allow
HEXPOL
distribution in Mexico. Eventually, as we grow and increase our market share, it might well make sense to start TPE manufacturing in the region,” explains Reyes. However, he adds that the development of new technologies like TPEs does not mean that rubber will begin to disappear. The company’s plant in Queretaro came about when HEXPOL Compounding bought a local rubber leader that had been in operation since 2000. Given this company’s market presence for rubber products, HEXPOL Compounding kept its brand name alive in some of its products. “Whenever a company becomes part of our family by bringing a brand that enjoys good reputation and value, we honor that and
The future for HEXPOL Compounding in Mexico is clear.
we do not try to replace the name,” states Reyes. “We only
Rather than focusing solely on expanding its client base, it also
change the brand to our own when doing so can bring
wants to develop stronger relationships with certain valued
more added value.” That brand name recognition is the
customers. “We do not just want to focus on big OEMs. Some
reason HEXPOL Compounding chooses not to carry out
of our customers started off buying a few kilograms per
major marketing campaigns to attract customers among
month and they are now big players in the market. They have
the OEMs, although it already works with several of them.
become key links in the Mexican automotive supply chain
It supplies them and other suppliers with a wide range of
and are strategic vendors for OEMs,” says Reyes. In this line, it
rubber applications, including engine and chassis vibration
has triggered a strong campaign to approach new investors
mounts, treading and retreading solutions for tires, fuel
and help them come to Mexico. Reyes has been in the US and
emission components, and hydraulic and radiator hoses.
Europe giving presentations about Mexico, not only to sell the
“We build a reputation upon the performance and quality of
HEXPOL Compounding brand but also to attract investors.
our products, which has given us important exposure to the
“A lot of foreign companies are willing to invest in Mexico
automotive community in Mexico. Our systems are aligned
and this number will only grow. The business opportunities
to what the automotive industry is expecting from Tier 2
in Mexico over the next decade are going to justify the direct
or even Tier 3 vendors. We choose to focus on the quality
investment made here by companies like us,” states Reyes.
and consistency of our products, as that is what builds our
Given this potential, HEXPOL Compounding is betting on
reputation,” explains Reyes.
three mainstays of the Mexican economy: automotive, oil and gas, and mining, as well as keeping its eyes set on Central and
HEXPOL Compounding’s two production facilities in
South America. For the moment, however, Reyes says the
Aguascalientes and Queretaro make Mexico its second-
priority is preparing for new launches in the Mexican market.
151
| VIEW FROM THE TOP
DEMAND IN MEXICO FOR INDUSTRIAL PROTECTIVE FOOTWEAR GROWS HÉCTOR MARTÍNEZ GARCÍA Brand Manager of Bata Industrials México Q: What is the history of Bata and how does the
of two different densities for different floor types. The
automotive industry fit in your portfolio?
shoes are specially designed so the foot is perfectly placed
A: Bata was established in the Czech Republic in the 1970s
and is not rubbing against the steel toecaps. Our footwear
in response to the growing need in several industries for
incorporates top-grade leather and composite caps made
industrial footwear. We now have over 5,000 retail stores
out of fiberglass, which makes them light and durable. As
in over 80 countries. We were the first company in the
part of the automotive manufacturing process, painting is
world to develop PVC boots and antimycotic technologies,
done at a temperature lower than -30°C, creating a snow
which allowed us to become a leader in quality and sales
boot that is ideal for these conditions. Another important
volumes for industrial PVC safety shoes. Bata has been
innovation we have incorporated into the shoes is Aula
in Mexico for 35 years representing the Sandak and
technology used in space suits. This technology regulates
Bubblegummers brands as well as our own industrial
the temperature of the shoes. For example, in a mining zone,
footwear line, introduced 20 years ago. In 2013, we decided
temperatures during the day can reach 30-40°C and can
that we should expand here through our leather footwear
drop to -20°C at night. This technology allows for an ideal
range for the oil, mining, and automotive industries.
body temperature to be maintained during the day, while during the night, the stored energy is slowly released. We
Q: What challenges did you face breaking into the Mexican
introduced this technology in Chile in the biggest mine in
automotive sector?
Latin America, where Codelco (National Copper Corporation
A: Bata Industrials supplies footwear to Volkswagen in
of Chile) now uses our products. We have also introduced
Germany, and we hope to apply this experience to Mexico.
Kevlar technology, making the shoes even lighter.
The Mexican government is actively promoting the sector’s growth, which is what first led us to begin introducing
We are slowly attracting interest from the automotive
our products to this market. The biggest challenge in
industry, although demand currently comes mainly from
launching the brand in Mexico is that companies here do
international companies. In Chihuahua, we are beginning
not necessarily opt for quality but rather kowtow to union
to receive orders from companies that have undergone
demands. If a union demands shoes, the company will
initial trial tests. Consolidating our market position has
often look for the cheapest shoes possible. We are fighting
been difficult but we are confident that we will succeed
against this mindset and we are offering the best footwear
once companies see the results of the field tests. The price
with the highest quality, although it is not the cheapest.
range of Bata footwear goes from US$25-135, covering our
Bata Industrials has led the charge against inappropriate
economical, medium, and premium lines.
footwear by visiting companies and performing field tests with workers and supervisors. After conducting field tests
Q: What are you expecting from the Mexican automotive
with Volkswagen, the company became interested in our
market?
products and we are beginning to work with them.
A: One of the biggest advantages in the automotive industry is the adherence to strict quality control norms. At
152
Q: What are the real differences between Bata’s higher
the moment, companies are importing footwear, as Mexico
quality footwear lines and more economic alternatives?
has no adequate footwear technology. Mexican quality
A: We are concerned for the wellbeing and comfort of the
norms are not as strict as American and European norms,
workers. It is important for us to offer a durable product that
and often they are established by the manufacturers based
avoids sprains and is very light. Our footwear distinguishes
on what they can produce locally. Our footwear adheres
itself in several ways. It lasts twice as long as many alternatives,
to European certifications which are the most stringent
and incorporates technologies such as phylon, which is also
worldwide. For example, Mexico requires 120 joules of
used in sports shoes. We combine phylon with rubber to
toecap protection while our footwear offers 200. Our
make more resistant shoes, and we combine polyurethane
products exceed Mexican norms.
METAL MACHINERY TOOLMAKER WANTS MORE LOCAL CONTENT Although the automotive
Although Disma is keen on expanding its portfolio to a
sector
is
wider array of products, it acknowledges that Mexican
in
has
companies lack the high-tech awareness to compete with
than
the international companies coming to the country. For
expected for distributors of
Soto Barrionuevo, the Mexican government could help to
machinery such as Disma
level the playing field by providing assistance and incentives
Metalmecánica (Disma). As
to support the homegrown members of the automotive
more OEMs are establishing
industry. “When the government talks about the Mexican
in the country, the talk has
automotive industry, it really is just talking about international
been all about how the
automotive companies established in the country,” she says.
secondary
booming, come
Rosario Soto Barrionuevo, President of Disma Metalmecánica
Mexico growth
slower
will
“The Mexican government seems unaware of the importance
become stronger. But Disma is aware of how hard it is to try
of the domestic industry. The government loves that Audi
and sell to OEMs, as these companies are not always fully
is here and that Nissan and Volkswagen are growing, but
confident about local distributors. Often enough, Disma has
it ignores the Mexican industry that is supplying those big
found that OEMs bring their machinery with them from their
OEMs. There have been no effective policies to boost the
home country. “We have participated in different seminars,
local industry.” The current administration of President
where we have seen that the main investment decisions are
Enrique Peña Nieto has begun to roll out products in order
being taken outside of Mexico. This means that it is difficult
to bring new equipment through a friendlier financing
for us, as a local distributor, to participate in the industry.
scheme for SMEs. For example, a laser-cutting machine can
There is a lack of trust from executives in other countries
receive up to 60% financing with a very competitive interest
about the quality of local suppliers,” explains Rosario Soto
rate, while the SME will have to pay the remaining 40%. “A
Barrionuevo, President of Disma Metalmecánica. “They often
few Disma customers that are developing automotive parts
see Mexico as a low-cost manufacturing hub without trusting
have participated in this program. We are beginning to see
in our local experience to develop a product. Companies still
certain efforts, so we really hope these programs work out,”
look for international brands to assist them.”
says Soto Barrionuevo.
Disma is a distributor of machine tools for cutting and
Disma is one of the first companies of its size in Mexico to
forming sheet, plate, profiles, tubing, aluminum, and PVC
have hit upon the use of technological apps for its clients.
components, many of which are used in the automotive
One of its apps is a calculator providing equations for
industry. The company has seen more success in the heavy
folding, rolling, and puncturing, which was downloaded
duty segment than with light vehicle OEMs. This has made
over 6,000 times in its first year. “This app service is well-
the bus sector important for Disma, given its heavy use of
established worldwide but it has barely taken off in Mexico.
metals which requires machinery for steel laminating and
It is a benefit that we provide to our customers, but it also
other processes that it has provided to the likes of Volvo.
represents a marketing strategy that positions our brand
Beyond this, the machinery that Disma has sold to major
among the end users of the machines we sell,” explains
clients like Nissan and Volkswagen has been approved for
Flores. The company has five different apps, including one
prototypes or testing. This means that while it is used in
that provides instructional videos about machines after
the labs or the maintenance procedures of OEMs, Disma’s
their picture is scanned from a magazine.
industry
equipment has not found its way to the production line as of now. “Mexico only has three or four companies that
If the Mexican market remains as stable as it has been in
sell this type of machinery and have the metal working
the last few years, Disma is looking for exponential annual
experience necessary to fully assist and support clients in
growth of up to 20%. “However, we do not have a lot of
their operations. Disma is one of those few companies, and
influence in the automotive industry, so the continued
distributes primarily to Tier 1 to Tier 3 suppliers,” states
boom of the sector in Mexico would not necessarily have
Soto Barrionuevo. Disma’s General Manager, Roberto
a major reflection on our results. We are expecting to see
Flores, explains why these segments are the right targets.
15% to 20% growth for 2014 and 2015, but this will not all be
“Those companies pose fewer problems as they are already
fueled by the automotive industry,” says Soto Barrionuevo.
used to sourcing locally. Normally, satellite companies that
Nevertheless, Disma will continue to approach Tier 1, 2,
revolve around OEMs look for local assistance.” Playing
and 3 suppliers for OEMs, while prioritizing the bus and
both ends, Disma is now seeing more business on the
heavy duty sectors which offer the company its best
service side than for machinery sales.
opportunities for growth.
153
Mexico’s Border Industrialization Program (BIP), also know as the maquiladora program, was launched in the mid-60s in response to the end of the Bracero Program which left hundreds of Mexico-US border dwelling workers jobless. The program became a resounding success and continues to serve as inspiration for emerging economy governments worldwide. Nonetheless, whilst Mexico’s automotive maquiladoras were busy producing low cost parts en masse to feed the US market, the global industry engineered and innovated its way to technical heights, leaving Mexico with few revolutionary experts of its own. Today Mexico has at most two small niche OEMs and only a handful of real homegrown competitors in the global automotive playing field. Some of these successful domestic companies have reached lofty international heights, serving as both an example of what can be achieved from within Mexico, and as inspiration for those with ambitions to enter the arena.
This chapter places a spotlight on the most competitive and successful Mexican companies and explains how they have carved a foothold in a market rife with stiff competition from global players. The leaders of these companies discuss how the tropicalized local knowledge of Mexican entities can benefit the sector, and what local entrepreneurs can do to tap into opportunities that are arising. We also look at efforts from both the government and leading private companies to support the growth of local suppliers, and the success that has been enjoyed to date.
NATIONAL CHAMPIONS
6
CHAPTER 6: NATIONAL CHAMPIONS 158
Homegrown Talent on the Horizon
158
Mexican Auto Parts Industry Must Command Better Respect
160
VIEW FROM THE TOP: The Brakes Are Off for Automotive Innovation
162
VIEW FROM THE TOP: Biggest Aluminum Component Supplier Expands Worldwide
163
VIEW FROM THE TOP: Localized Automated Tooling Solutions for Bajio Growth
164
TECHNOLOGY SPOTLIGHT: Energy Efficiency Quest Influences Transmission Technology
165
OEMs in Need of Expert Transmission Providers
166
Camshaft Maker Seeks to Broaden Reach among OEMs
167
VIEW FROM THE TOP: Quality Protective Clothing Priority in Assembly Plants
168
Personalized Bodywork Solutions for Bespoke Design
169
Track-Ready Road-Legal Super Car Made in Mexico
170
VEHICLE SPOTLIGHT: VUHL 05
172
Future of Mexico’s First OEM Hangs in the Balance
172
Tropicalizing Established Sales Strategies Pays Off
174
Listening to Customers Key to Escaping Financial Crisis
174
Hoy No Circula Makes a Comeback
176
VIEW FROM THE TOP: Exhaust Industry Crucial to Emissions Reductions
177
Composite Fibers Offer Frontend Weight Reduction
178
Patience and Capital Key to Success for Truck Suppliers
179
South American Demand for Mexican Bus Bodies Rises
180
VIEW FROM THE TOP: Lubricant Technology Origin Segments Brand Perception
181
Filter and Lubricant Maker Proves Export Worth
157
HOMEGROWN TALENT ON THE HORIZON To outsiders, perhaps one of the more perplexing elements
The
of Mexico’s successful rise as a global automotive hub is its
companies have so far been identified at the Tier 2 and
own dearth of both manufacturing and supplier companies.
3 segments of the supply chain. The country’s auto parts
The country became successful as a low-cost, labor-intensive
sector is seen as a key area for its potential contributions
manufacturer on the back of its maquiladora industry, but
to the North American value added production chain.
fell behind as creative engineering hubs drove industrial
According to the US International Trade Commission, the
development, stifling local companies’ competitiveness
domestic content of Mexico’s transportation equipment
in the global arena. The country’s sports car automaker,
exports to the US currently stands at 26.9%, and Mexico’s
Mastretta, recently announced an abrupt halt in production
Ministry of Economy wants to see this increase. To this
of its only commercial vehicle and the company’s future
end, the Ministry and organizations like INADEM are
remains uncertain. This leaves just one niche automotive
working with leading private sector companies to grow
manufacturer in the form of VUHL, which will produce
local capacity and capabilities, with the development of
just 50 of its lightweight VUHL 05 sports cars in 2014.
technological sophistication topping the list of priorities.
most
widespread
opportunities
for
Mexican
Nevertheless, the fact that Mexico has managed to build a thriving automotive sector without a strong domestic light
Ford is one OEM that is working to develop local
vehicle OEM is a clear testament to the country’s ingenuity
suppliers, and Purchasing Manager Leo Torres explains
in attracting the global cream of the automotive crop. Some
that “Mexican Tier 2 and 3 suppliers are clearly superior to
believe this ingenuity should now be directed towards
Chinese suppliers but they need to refine their technical
fostering Mexican corporate talent. The Executive President
skills when compared to German counterparts. We are
of the Mexican Automotive Industry Association (AMIA),
advising our suppliers to reinvest a strong part of their
Eduardo Solís, however believes that the fact that Mexico
revenue in R&D. Companies that do not do this will not
does not have its own OEM has become a moot point,
be successful in the long-term, or will only be used as
bearing in mind how globalized the industry has become.
maquiladoras by other firms.” Mexican companies also
He feels that Mexico will eventually have its own OEM, but
need to define a clear strategy. Companies that are
he does not see this as key to the country’s success. As true
underperforming at the Tier 1 level might find success and
as that sentiment may be, the strengthening of Mexico’s
profit working as Tier 2 suppliers, according to Torres.
domestic automotive base would undeniably bolster the industry’s long-term economic stability, and both the
Despite the diminutive nature of Mexico’s own bank of
private and public sectors have recognized the need to
automotive industry companies, there are a number of
foster homegrown success stories.
solid homegrown success stories that local companies
MEXICAN AUTO PARTS INDUSTRY MUST COMMAND BETTER RESPECT
Oscar Albín, President of National Auto Parts Industry (INA)
158
By Oscar Albín - The
entered the national automotive arena, including Johnson
Mexican
parts
Controls, Lear, Bosch, Federal-Mogul, and Dana, among
industry was largely born
auto
others. As the economy of the NAFTA region grew, many
of the need for OEMs
OEMs changed their manufacturing strategies in Mexico
establishing in Mexico to
to produce one or two high-volume models instead of
fulfill
for
several low-volume models. Production was intended to
set levels of domestically
requirements
be exported while suppliers could now settle in Mexico and
made components in order
own 100% of their companies. This was the big change
to sell cars in the country.
that the Mexican auto parts industry needed in order to
Furthermore,
large
grow sustainably. When the local content regulation for
multinational corporations
the automotive and auto parts sectors was removed,
looking to settle in Mexico had to comply with the condition
many Mexican Tier 1 and 2 companies vanished, leaving
of having a Mexican majority shareholder. During this
the market in the hands of transnational competitors. Few
period, a number of leading international manufacturers
Mexican companies overcame the challenge of growing
“The fact that Mexico does not have its own OEM has become a moot point, bearing in mind how globalized the industry has become. Mexico will eventually have its own OEM, but it is not key to the country’s success” Eduardo Solís, Executive President of AMIA
can seek to emulate. Founded in 1929, SANLUIS Rassini is
with the customer based on mutual respect and needs.
the world’s largest producer of suspension components
Testament to this is the fact that our first contract in
for light commercial vehicles as well as the largest
India was with one of our global customers,” explains
fully integrated brake rotor producer in the Americas.
TREMEC’s CEO Robert Neal. Nemak is a further Mexican
Supporting industry experts’ sentiments about the
company to provide inspiration, producing high-tech
importance of technological development is the fact
aluminum components for the global automotive industry.
that SANLUIS Rassini’s R&D focus has played a major
Established in Mexico 30 years ago, Nemak now has more
role in the company’s success, with the company now
than 20,000 employees working in 35 manufacturing
boasting four technical centers located in the US, Mexico,
plants located across 15 countries.
and Brazil. “Our consistent focus on engineering and technology development has enabled us to secure 40
Looking to the future, Solís believes Mexico’s best shot at
new contracts since 2012. For one major automaker, we
developing its own major OEM will come from investment
will be in six out of ten vehicles by 2016,” explains the
by the country’s major tycoons. Mexico actually came
company’s CEO Eugenio Madero. During 2013, SANLUIS
within a whisper of having its own OEM back in 2007
Rassini was awarded new contracts that the company
when Chinese automaker First Automobile Works and
predicts will secure additional sales of more than US$500
Mexico’s Grupo Salinas agreed to establish a joint venture
million over the next five years.
for the production of small low-priced vehicles for the Mexican market. However, the plan, which included the
Another
patent
transmissions
success
producer
story
is
TREMEC,
that part
of of
manual
establishment of a production plant with a yearly capacity
Mexican
of 100,000 vehicles in Michoacan, foundered due to the
corporate giant Grupo KUO. TREMEC supplies major
global economic crisis in 2008. Until a similarly ambitious
OEMs including GM, Chrysler, Ford, Case New Holland,
plan materializes, Mexico’s hopes center around two
and Volvo. Such is the trust that TREMEC has built up
areas. It must go ahead with the development of its
with its global customers that it has now made initial
supplier network and capitalize on the opportunities
first forays into the Indian market. “TREMEC’s long-term
that exist for it to follow in the footsteps of international
partnerships are a result of the wish to have a relationship
success stories and forge more of its own.
their own businesses while global competitors were taking
quality standards. Without these characteristics, it will
over the market. Today, those that have thrived include
be impossible to promote the Tier 2 and 3 components
major companies like Nemak, TREMEC, Metalsa, Bocar,
of the Mexican automotive industry’s procurement chain.
Arbomex, Macimex, and SANLUIS Rassini. As a result, the
The federal government has to play a crucial role in this
Mexican auto parts industry now faces the challenge of
development through the promotion of direct foreign
recovering its Tier 2 and 3 production volumes. As for Tier
investment by supporting and attracting suppliers that
1, many parts are still produced here, but the rest of the
can complement the production chain, such as those
supply chain has not followed suit. Over the past 20 years
manufacturing steel, fabrics, electric cabling, forging, and
OEMs have encouraged their trusted Tier 1 suppliers to set
machining. Finally, it is important to remember that Mexico
up nearby. Tier 1 companies have been only too happy to
is not the only destination where transnational auto parts
take up this opportunity, but have largely remained focused
companies are being invited to follow OEMs. Countries like
on assembling components in Mexico while importing raw
Russia, Brazil, China, India, Czech Republic, and Poland
materials from longstanding suppliers in their countries of
are also seeking to attract employment sources and
origin.
technology. Therefore, in such a crowded environment, Mexico must not rest on its laurels but adopt a highly
Considering low need from OEMs and the absence of
aggressive stance towards promoting itself.
national content regulations, Mexican suppliers need to become competitive in terms of cost, logistics, and
Oscar Albín, President of National Auto Parts Industry
159
| VIEW FROM THE TOP
THE BRAKES ARE OFF FOR AUTOMOTIVE INNOVATION EUGENIO MADERO CEO of SANLUIS Rassini North America Q: What impact has SANLUIS Rassini had on the
continued strong financial results as more automakers invest
development of the automotive industry, and what role
in Mexico and more business pours into the country. Many
does Mexico play in your regional and global operations?
automakers are establishing or growing their operations in
A: Rassini is a leading designer and manufacturer of
Mexico this year. GM, Ford, Chrysler, Honda, Mazda, Nissan,
suspension and brake components for the automotive
Audi, and Volkswagen have all announced expansion plans
industry, mainly focused on OEMs. It is the world’s largest
in Mexico and are expected to invest close to a combined
producer of suspension components for light commercial
US$10 billion over the coming years. We are poised to
vehicles as well as the largest fully integrated brake
leverage this growth, as our headquarters, production plants,
rotor producer in the Americas, including foundry of
and operations facilities are strategically located throughout
gray and ductile iron, machining, coating, anti-corrosive
Mexico. In addition, we continue to invest in state-of-the-art
treatment, and assembly. We have eight manufacturing
equipment in order to promote superior quality and service,
sites strategically located in the US, Mexico, and Brazil,
along with tailored technology and integrated services that
in addition to four technological centers in the same
include design, engineering, and technical support. During
countries. As an engineering driven company, Rassini
2013, SANLUIS Rassini was awarded new contracts that will
has greatly contributed to the ongoing strength of the
secure additional sales of more than US$500 million over
automotive industry in North America. We are at the
the next five years, maintaining growth rates well above the
forefront of technological innovation in manufacturing and
industry average.
are ranked within the top 100 North American suppliers by Automotive News. Our consistent focus on technology
Q: In what ways does the manufacturing and design
and engineering development has enabled us to secure
process for the company’s suspensions differ between the
40 new contracts since 2012. For one major automaker,
light and heavy vehicle sectors?
we will be in six out of ten vehicles by 2016. Of course,
A: The structural features are vastly different for light
Mexico plays an instrumental role in our regional and
vehicles versus the heavy duty sector. Leaf springs are
global operations as we are headquartered in Mexico
used for the heavy duty industry and larger full size pick-
City. We also have production plants and operations
up trucks to support a heavier weight load. We focus on
facilities
Mexico,
using the highest grade materials and design parts that are
with locations in Mexico City, Puebla, Piedras Negras,
very specific to each vehicle platform. In both instances,
Xalostoc, and Queretaro. In addition, we are expanding
we are able to use our advanced engineering processes
our brake rotor facility in Mexico. Our site is the only fully
to help eliminate several iterations at the design phase
vertically integrated brake rotor facility in North America,
and provide the end product to the customer much more
comprising foundry, machining, coating, stress relief, and
quickly. Additionally, with these improvements in design
ferritic nitrocarburizing anti-corrosive processes. Including
and higher quality steel grades, we are able to reduce
the new foundry, which will be ready by the end of 2014,
the weight in pour parts while simultaneously resisting
our plant will be equipped to handle a capacity of 180,000
harder loads and protecting against unfavorable weather
tonnes annually, equivalent to 15 million rotors.
conditions. All of this helps to improve the life of our
strategically
located
throughout
products, the vehicle’s overall performance, and reduce Q: 2013 saw you reach record sales levels worldwide. What
gas consumption.
role did Mexico’s automotive sector play in this success?
160
A: The strong surge in Mexico’s automotive industry has
Q: What opportunities has the company identified to
greatly contributed to our growth over the past several years.
diversify into other vehicle segments?
This led to the achievement of our strongest financial results
A: Taking advantage of our current installed capacity, we
to date, with the highest level of sales, EBITDA, and cash flow
have made an initial investment of US$6 million to expand
generation in the company’s history in 2013. Rassini expects
our suspension offerings in North America to now include
leaf springs for the commercial truck market. According to
consumers – free of noise and vibration issues on the brakes
a recent Frost & Sullivan market insight study of commercial
side, and offering smooth performance on the suspension
truck markets, sales in 2014 are expected to reach their
side. We have also added a production process known as
highest levels since 2008. The rapid growth forecasted for
FNC (Ferritic Nitro Carburizing with Stress Relief Process)
the regional market has already given us the opportunity to
that helps double the life of Rassini rotors and protects
secure a 5% market share since launching the business in Q1
against corrosion. Rassini’s four technical centers located
2014. We expect to see that share grow to 20% by 2018. We
in the US, Mexico, and Brazil, are equipped with state-of-
also have extensive experience in the Brazilian heavy truck
the-art testing equipment, advanced analytical software,
market. We hold a 63% market share in South America,
materials development labs, and a highly trained team of
and are capitalizing on this success in the North American
talented engineers focused on the constant development of
market. By leveraging our current success in both the light
novel products that exceed customer needs. We are the only
and heavy truck markets throughout North and South
Mexican-based supplier to receive the 2012 and 2013 GM
America, we are using our position as a leader in engineering
Supplier of the Year Award, winning it for our brakes division.
development to provide our quality products and awardwinning technology to a new group of customers.
Our rotors, which improve stopping distance and allow for increased air ventilation, are now being used on several
Q: What have been the main innovation strategies that
high performance platforms such as the Maserati Ghibli,
have led to the company to become a preferred supplier
Quattroporte, and Lincoln MKC. For brakes, we currently
in springs for light trucks in the NAFTA region?
have a 15% market share in North America, which is
A: We have steadfastly focused on ensuring that our
expected to grow to 28% by 2016 given our current sales
customer needs are met and that we are providing superior
backlog. Our team on the ground in Plymouth, Michigan,
technology solutions. We provide our OEM customers with
allows us to stay closely connected with many of our larger
integrated services that include design, engineering, and
customers. We also continue to invest in technology and
technical support. Our engineers work closely with our
research. For example, we have the capabilities needed to
customers from the moment a platform is first designed
produce all the machining and tooling needed for all of our
to develop specific products for use in each particular
plants. Rassini has also invested heavily in technology like
platform. We also help develop custom steel alloys to
3D printing and prototyping programs that enable us to
meet our customers’ requirements. OEMs increasingly
cut production time immensely.
value the quality of these customer-tailored services, while continuing to emphasize cost competitiveness and consistent high quality. In our suspensions division, our advanced product and process engineering groups successfully developed lighter suspension components using strengthened materials, which have already been approved by our main customers. An alternative heat treatment process is also being developed in order to increase material strength that will result in even lighter products. Our proprietary RDDP (Rassini Digital Design Process) has been implemented in our suspension business, which reflects a seamless integration of several digital analytical tools that reduce product development cycle time by 60%. During 2013, high-tech equipment was installed to produce lighter coil springs with strengths of 1,350MPa and lighted leaf springs above 1,400MPa. We also tightened dimensional tolerances, which significantly improved product performance. Q: What have been the biggest contributions the company has made to the automotive industry? A: Both the brakes and suspension system play a critical role in a vehicle’s ride and handling. Our goal is to develop technology that helps ensure an enjoyable ride for
161
| VIEW FROM THE TOP
BIGGEST ALUMINUM COMPONENT SUPPLIER EXPANDS WORLDWIDE ALBERTO SADA Vice President of Business Development of Nemak Q: What has anchored Nemak’s journey to becoming a
Furthermore, given the expected automotive boom in
leading supplier of aluminum engine heads and blocks to
Russia before 2020, Nemak is dedicating US$60 million
a diversity of OEMs?
to building a plant that will manufacture aluminum engine
A: Having started in 1979 as a subsidiary of Grupo Alfa
components for the Volkswagen brand.
accompanied by an investment from Ford, Nemak is today
162
the world’s largest independent maker of high complexity
Q: Where is Nemak focusing its R&D efforts, particularly to
aluminum components with revenue of US$4.4 billion in
enable further weight reduction in aluminum components
2013. This success is largely due to Nemak having been
and blocks?
able to capture a great part of the aluminum penetration
A: Nemak invests close to 2% of its revenues on product
in engine heads and blocks since the 1990s. The company
development and R&D, and has a dedicated team of
has since built a strong relationship with the most
over 400 people working on product development and
important OEMs worldwide, including Ford, GM, Fiat
R&D. These investments are focused on producing the
Chrysler, Volkswagen, Renault Nissan, Daimler and BMW.
best products that support our customer’s initiatives to
This dominance in our areas of expertise and our tightly
improve engine efficiencies and reduce fuel consumption.
knit relations with major clients has allowed Nemak to
Nemak works hand-in-hand with its customers to improve
grow above 20% per year on a compounded basis for the
its product design and specifications. Our more than
past 20 years due to both organic growth and acquisitions.
70 patents provide us with technology to deliver new
Nemak has made selective acquisitions in the last years
lightweight solutions to our customers, such as aluminum
that have helped the company capture new customers
diesel blocks and high complexity structural components.
and enter new business segments. The company has also
We will continue to offer products and solutions to the
leveraged its success on its technological leadership and
OEMs to help them improve fuel efficiency as automakers
on its 35 state-of-the-art facilities across 15 countries.
look to reduce vehicle weight to comply with regulations.
Moreover, Nemak can rely on its Product Development
On top of that, we also collaborate with our clients on using
Centers, all of which are strategically located to best serve
state-of-the-art technology to mitigate our environmental
its customers. Through this network, we have the capability
impact. 90% of all the aluminum now used by Nemak is
to launch over 150 products per year.
obtained from recycling sources.
Q: Although Nemak is a Mexican success story, how
Q: What measures have you been implementing to
important is the country’s automotive industry for you
develop your human resources to fuel growth in Mexico
now, given your 35 manufacturing plants in 15 countries?
and what common challenges do you encounter?
A: Nemak supplies components to the North American
A: Throughout Nemak’s history, our focus on talent
market from all its plants in the region, including our
development has been key to its success. We support the
facilities in Mexico. Our established history with our
development of our people through robust training and
original
from
specialization programs so our employees can not only
automotive industry expansions, both in Mexico and
reach their full potential but also put it in practice in the
the rest of the region. In 2014, we are making a US$370
workplace. Another example is the partnership we have
million investment to anchor our expansion in markets like
established with technological universities to co-design
China, Germany, Russia and India. US$80 million will go
programs that generate highly prepared technicians in
toward an expansion of our factory in Chongqing, China
areas like industrial maintenance and metallurgy. This had
to produce heads, blocks and transmission parts for Ford,
the advantage of significantly shortening the learning
Volkswagen and Audi. US$61 million will also be invested
curve these technicians must undergo when they enter
in Germany for the installation of a new production line,
the workforce, but also makes them more familiar with
which will make blocks and heads for Audi and Porsche.
Nemak’s programs.
country
sees
Nemak
directly
benefit
| VIEW FROM THE TOP
LOCALIZED AUTOMATED TOOLING SOLUTIONS FOR BAJIO GROWTH HUMBERTO SĂ NCHEZ Director General of Metalistik Q: How did you make the transition from the IT industry
curve technologically, by getting the right certification, and
into the automotive industry?
by creating an experienced team.
A: I was one of the founders of the IT industry in Mexico, but after 30 years, I decided to change industries because
Q: What are your sales targets for the years ahead?
I saw great potential in the auto parts market in the
A: The amount of machines that Metalistik will buy depends
Aguascalientes area. In 2013, the local government asked
entirely on the purchase orders it receives. The machines we
me to form a cluster of small companies to kickstart the
have now came with the company but we are beginning to
indirect supplier industry in Aguascalientes by acquiring
update the roster. In January 2014, we ordered a 200-tonne
state and federal grants and combining them with a
machining press. In terms of sales targets, we currently have
long-term vision. This led to the foundation of the GIRAA
letters of intent from Gestamp and Nissan. We expect to
(Industrial Group Related to Automation in Aguascalientes)
make a net profit in three years, as we will see returns in a
cluster, of which I am the president. I brought together a
short time through the aftermarket. Refaccionaria Rogelio
group of 40 small investors to be part of Metalistik after I
sells almost US$2 million a day nationwide, but it does not
acquired the company, which was founded as a tooling and
have many providers of parts in Mexico itself. It is bringing in
manufacturing firm, providing machining, stamping, and
a lot of parts from China and the US, but Metalistik intends
automated tooling solutions for OEMs and their suppliers.
to push it to look locally and trust us. We also want to enter
Our location in Aguascalientes puts us close to the plants
the aftermarket business by the end of 2015.
of Nissan, Honda, Mazda, Volkswagen, and GM. Our grand opening in February 2014 was attended by the governor
Q: Do Mexican companies entering the automotive market
and big firms like Nissan and Flextronics. Although we are
today receive enough support?
currently a Tier 1 supplier, it might be more profitable being
A: The support exists, but a graduate entrepreneur might
a Tier 2 supplier since they do not exist in Aguascalientes.
not know that. A bright student graduating with the right idea but without the right contacts may find it very difficult
Q: How are you assuring your competitiveness in the
to enter the industry. However, Mexico has a lot of money
automotive industry?
available for the right types of automotive projects. One
A: We are trying to put best practices in place. We have
aspect that cripples companies is the lack of consistency
been developing for two years, and we are already ISO
in their management teams, especially on a project basis.
certified and are implementing APQP (Advanced Product
Automotive projects in development frequently change
Quality Planning). We started from scratch but we have
directors, sometimes a couple of times a year.
not faced much local competition. When Nissan came to Aguascalientes, it decided to work with Japanese suppliers.
Q: What priorities would you set for the automotive
Therefore, my competition is found among the international
industry in Mexico?
companies that accompanied OEMs here. American OEMs
A: There are three types of providers in Aguascalientes. These
establish their supply chain differently and develop suppliers
are consolidated international Tier 1s, traditional, second-
locally, which has seen important Mexican suppliers rise in
generation family-owned businesses, and newer, often
the northern states. That is not the case here as Japanese
small, companies that have difficulty accessing credit. The
companies settled in the Bajio region. They have had to
market of today has created a need for all these providers.
revise their original plans though. Given how Japanese OEMs
For example, Nissan tells me it is in dire need of pipeline
are booming, they are struggling to find enough supply
maintenance, for which it would be willing to pay millions of
to meet their growing demand, which gave Metalistik the
dollars, but it cannot find anyone to provide this service in
chance to get its foot in the door. We needed to demonstrate
Mexico. There are many needs to attend in different areas
the quality of our machining and tooling solutions, which
of the automotive sector. However, if we do not act quickly,
we have done by ensuring that our plant stays ahead of the
foreign companies will come to take these jobs.
163
| TECHNOLOGY SPOTLIGHT ENERGY EFFICIENCY QUEST INFLUENCES
consumers,” Neal explains, while adding that both can be
TRANSMISSION TECHNOLOGY
compared to automatic transmissions. AMT transmissions
Efficiency in CO2 emissions and fuel economy have become
shift on a prescribed schedule which makes the engine
important topics for OEMs. In order to reach their self-set or
operate
mandatory CO2 emission reduction targets, companies are
transmissions is that the user will feel the shifts, while AMT
considering different approaches. This is where TREMEC
also sees certain losses in the torque converter. DCT takes
steps in. The American manufacturer of transmissions tackles
care of the shifting without the user feeling it, making DCT
CO2 emissions and fuel economy together by investing in
closer to automatic transmission. Neal states that this ease
new technology for its products, covering both matters.
of shifting gives DCT the efficiency of a gear set without
TREMEC has R&D underway at its Mexican and Belgian
suffering the hydraulic losses that occur in automatic
plants. Mexico oversees the development of mechanical
transmissions. “We would like the DCT being developed
subsystems and parts while mechatronics and software are
by TREMEC to get the market excited. It brings good fuel
researched in Belgium. The company has already innovated
efficiency and value to the OEM, meaning that it will make a
in typical manual transmissions to reduce CO2 emissions by
real difference in their transmissions.”
efficiently.
The
difference
with
automatic
reducing the overall weight of the transmissions, helping to improve fuel efficiency. “The transmissions we make today
Whatever Neal’s aspirations are, the use of each type of
are much lighter than the transmissions made ten years ago.
technology will be determined by the market. In Europe,
The ones we will make tomorrow will likely be even lighter
transmissions have gone from manual to DCT, but in North
still,” says Robert Neal, CEO of TREMEC.
America these have gone from manual to automatic. These decisions are based on the preference of the drivers, which the
means TREMEC has to educate the market on what to expect
development of new types of transmissions. The acquisition
each time it comes up with a new transmission technology.
of a mechatronics group in Loppen, Belgium, at the
Regardless, technological transmission advances are hitting
end of 2011, led TREMEC to start producing automated
the market. Neal states that passenger cars in North America
manual transmissions (AMT) and dual clutch transmissions
will soon have access to DCT while light commercial vehicles
(DCT). “AMT and DCT offer great benefits over traditional
or commercial vehicles will start with AMT and eventually
transmissions and are focused on different markets and
move to DCT.
Another
164
angle
for
the
CO2
emission
issue
is
OEMS IN NEED OF EXPERT TRANSMISSION PROVIDERS TREMEC has 50 years of experience in designing and
important player in the market. “We have been building
producing torque transfer solutions. Starting off as a
one transmission for an international company for at least
company focused on manufacturing robust manual
12 years while we probably supply around 70,000 units
transmissions for rear-wheel drive passenger cars, light
a year to OEMs,” says Neal. “25,000 to 35,000 of these
trucks, and commercial vehicles, today TREMEC serves
units are sold just in the Mexican market.”
demanding markets and has operations in Mexico, Belgium, and India. Its operations in Mexico remain its absolute
Neal has confidence in the engineering ability of
priority with its Queretaro base accounting for 95% of the
TREMEC’s workforce in Mexico. However, he admits it can
company’s total sales and employing around 1,600 staff.
be a challenge to ensure that the workers’ capabilities
With a focus on R&D and technological development,
and knowledge stay up to date. “A lot of training and
TREMEC has put out a steady pipeline of products. Its
coordination takes place between Mexico and Belgium to
T-56 transmission, bought in 1997 from BorgWarner, has
bring the latest techniques and skills from the European
received various updates until its current incarnation as
car market to North America,” explains Neal. The transfer
the six-speed TR-6066. This transmission is now used by
of knowledge between its European and North American
GM, Ford, and Chrysler. TREMEC’s seven-speed TR6070
operations is part of a process Neal refers to as cross-
is being implemented in the new C7 Corvette. Finally, the
fertilization, which means trading compatible skills
company released the TR-3160 in response to a need for a
between two organizations. Complementing the Mexican
smaller transmission for lighter horse power applications,
operation, TREMEC’s setup in Belgium takes care of
which was utilized in the small luxury sedan Cadillac ATS.
engineering development and mechatronic assembly for
As for the medium and heavy duty sectors, TREMEC
elite niche customers. TREMEC has also recently set up
remains a small player but it is actively seeking ways to
shop in Pune, India, which it has identified as presenting
modernize its products to appeal to these segments.
the best growth opportunities. Neal recognizes that
“There are a lot of opportunities for growth here with the opening-up of export laws between Mexico and South America. These laws will allow TREMEC to export to the likes of Brazil and Argentina” Robert Neal, CEO of TREMEC
The arrival of new OEMs to Mexico has triggered new
entering India entails a totally different challenge. One
opportunities in the market. Robert Neal, TREMEC’s
major obstacle is choosing the right items to feature
CEO, explains that the company is looking to work with
in a market that needs new products to strike the right
those incoming companies whose strategic needs match
tone with Indian customers. “Indian customers are
up with TREMEC’s plans. “When a new OEM decides to
totally different customers,” Neal comments, “They are
come to Mexico or North America, we have to create a
purely concerned with value, which means they look
progressive link with them. We achieve this by looking
for functionality at a competitive cost. They appreciate
at what the OEM does and how it lines up with our
refinement but are not focused on it, and it does not play
transmission or transmission component businesses,”
a part in the purchase equation.” Despite this expansion
explains Neal. TREMEC feels this specialized attention
and plans to soon open up in China, TREMEC realizes
and focus on customer needs has led to long-term
more opportunities remain in the Mexican automotive
partnerships with key players such as GM, Chrysler,
sector. “There are a lot of opportunities for growth here
and Ford. The company is also a significant component
with the opening-up of export laws between Mexico and
supplier in the medium and heavy duty vehicle markets
South America,” comments Neal. “These laws will allow
where it works with Volvo, Case New Holland, and Eaton.
TREMEC to export to the likes of Brazil and Argentina.”
“Many OEMs are not coming to Mexico with full engine
The company already has business in South America so
or transmission plants, so they are looking for product
these developments are well-tailored for its growth plans.
designs that meet their needs or to build their product
As for North America, TREMEC is looking to become
in existing facilities,” Neal explains. TREMEC’s ability to
well-known for its application of dual clutch transmission
cover both these contingencies has positioned it as an
technology for medium and heavy duty trucks.
165
CAMSHAFT MAKER SEEKS TO BROADEN REACH AMONG OEMS Recovering from the depths of the 2008 financial crisis by
However, finding the right customers at first was not as
quadrupling your production capacity at the behest of a
simple as knocking on doors and demonstrating products.
major OEM is no mean feat. This is exactly what Arbomex
Rodríguez says he has to be very careful when deciding
did when Chrysler, having clawed itself back from the brink,
which potential customers and partners to approach.
asked the Mexican company to provide camshafts for a
“They must fit a profile which will ensure a win-win deal
batch of 880,000 engines. This represented a US$35 million
for both parties. Joint ventures will play an important
investment and involved a production capacity four times
part in the growth of Arbomex for the near future, but we
larger than Arbomex had at the time. With other contracts
have to be cautious,” he says. Early on, Arbomex showed
pouring in, the company went from producing 500,000 to
a penchant for an elite clientele as it approached only the
4 million camshafts in just two years. Despite this expansion,
leaders in the OEM market to convince them of the quality
Arbomex could barely keep up and Chrysler initially had to
of its products and its processes. For Rodríguez, the
reduce its requested volume of camshafts. But according to
strategy was simple: his company benefited from what he
its CEO Mario Rodríguez, Arbomex was able to survive due
refers to as a Japanese work scheme, far different to most
to the support it received from its direct and tool machine
Mexican firms of Arbomex’s size. “This allowed us to focus
suppliers, especially the ones from Germany and the US. “In
on the twin aims of constantly seeking to innovate while
reality, we owe the survival of our company to our suppliers
reducing costs and making the business more efficient,”
and the faith our board had in Arbomex.”
says Rodríguez.
“Working with Chrysler meant high exposure, which put extra pressure on the company. We were representing both our business and our country” Mario Rodríguez, CEO of Arbomex
Working with a well-known international OEM such as
This attitude seems to have struck a chord with the market,
Chrysler had its benefits and challenges. “We learned
given Arbomex’s solid market share with OEMs and in
a lot from working for Chrysler. We have developed
the aftermarket. “When Arbomex needed to diversify its
into an international standard supplier thanks to them,”
business line and increase its inclusion in the aftermarket,
explains Rodríguez. “But working with Chrysler meant
Chrysler seemed to be the perfect match. The collaboration
high exposure, which put extra pressure on the company.”
between the two companies began with a two-year project
Arbomex unarguably reaped the benefits of its success,
to provide V8 camshafts for Chrysler engines. This proved
but Rodríguez says a failure would have been highly
to be a huge challenge but we already had experience in the
visible. “We were representing both our business and our
production of camshafts and were able to deliver. Arbomex
country,” says Rodríguez, adding that due to its positive
was even able to reduce maintenance costs on these engines
results, Arbomex is now the Mexican leader in producing
by 30% without affecting the quality of the final product,”
and supplying camshafts for the automotive industry,
explains Rodríguez. “The demand for ductile iron camshafts
supplying the likes of Daimler Trucks, Detroit Diesel, and
is increasing. The process that we have developed for these
Linamar.
has resulted in added value for the Arbomex brand, since assembled camshafts are 30% more expensive than iron
Arbomex has over 30 years of experience in manufacturing
camshafts. The company is investing in a small camshaft
precision cast products and tooling, such as crankshafts,
assembly line, allowing Arbomex to cover all three types of
wheel hubs, and its most successful product, camshafts.
camshafts: ductile irons, chill iron, and assembled.”
Arbomex’s plant in Tlalnepantla produces components for
166
tooling production, supplied by Grupo Carborundum and
Rodríguez is aware of the company’s dependence on
Engine Power Components, while its Celaya facility makes
Chrysler, and would be happy to see this reduce to around
precision cast products. Although it has been working
50% if such a move increased overall sales. “Arbomex is
since the 1970s, it was not until 2001 that it entered the
targeting new clients. We recently travelled to Germany to
automotive industry. This proved a wise move, as today,
visit BMW and have been working hard to get in with them,”
80% of Arbomex’s total sales come from this industry.
he comments.
| VIEW FROM THE TOP
QUALITY PROTECTIVE CLOTHING PRIORITY IN ASSEMBLY PLANTS JUAN VARGAS President and CEO of Guantes Vargas Q: What role will the automotive industry play in the
these products. These employees receive training in how to
future growth of Guantes Vargas?
apply the latest innovations, solutions, and technology, as
A: The automotive industry represents 33% of our business.
well as specific training in order to reach our objective of
Another 33% is composed of the oil and gas industry, and
zero accidents. We are now taking this one step further. In
the last 33% is made up by the mining sector and the beer
the automotive industry, we have expanded to maintenance
industry. In the automotive industry, we have had long-
and tool production. This flexibility also sees many of our
term contracts with companies such as Ford, Volkswagen,
products being made exclusively for a certain company or
and Magna, and we have been continually growing along
even for a certain plant.
with them. Every time they open a new plant, we get more work. Now as Mexico sees plants being opened up by many
Q: What innovations and certifications guarantee the
different companies, Guantes Vargas is ready to grow in
efficacy of your products?
size, adding more plants and more employees. This will be
A: Our biggest innovation concerns the machines we use
a great opportunity for us as we are already well-known
to build various products in a fully automatized manner.
for our automotive experience. Beyond Mexico, our short-
We have been in the market for 62 years, during which we
term priority is to expand to Argentina and Brazil. In the
have remained a strong company under the same name,
immediate future, we want our first international plant to be
managed by the same family. Volkswagen has been hailing
set up in Brazil, and then Argentina. In the medium-term, we
our performance for a long time. Back in 1998, we received
will open a facility in Detroit to give us a presence in the US
the Corporate Supplier Award for flexibility, quality, and
and to be closer to some of our clients, such as Ford. Right
service from the Volkswagen Group in Germany. We remain
now, we are also looking to start working with Nissan. Today,
the only Latin American company to have received this
our business is purely with major companies, as we do not
award in our sector. In 2012, Volkswagen’s operations in
deal with small or medium-sized companies. Obtaining these
Puebla gave us a similar award for North America. In Mexico,
large contracts is facilitated by our history and certifications.
the Treasury awarded us the National Personnel Protection
We are growing at about 7% annually across every industry
Award in 2011 for the products we provide to the public
we operate in and have survived several challenges, such as
sector. We sell our products based on a desire to eliminate
the entry of Chinese companies into the market in the 1990s.
all accidents, reducing downtime and insurance costs for the
Guantes Vargas came out stronger thanks to our quality.
automotive sector, while our focus on ergonomics results in productivity increases. This has to be provided to our clients
Q: How has your company’s integration helped it maintain
at a price that is internationally competitive. Competitors
its competitiveness and expand its business?
that could not achieve this are long gone.
A: Having integrated processes has helped us not only to grow but to survive globalization as well. Each branch of our
Q: How confident are you that you will reach your targeted
business acts as a separate company. We are very proud of
growth rates?
our ‘6 in 1’ business model as it extends throughout our entire
A: We are very cautious about our growth rate, as seeing very
value chain, helping to ensure quality and reduce costs. Our
accelerated growth is not healthy. It also does not just depend
products cover all manner of protection, from head, eyes,
on us. The government must work on reducing taxes for
body, hands, legs, feet, and respiratory apparatus. This
Mexico to be able to compete internationally. We have very
integrated approach allows us to protect a worker from head
high taxes compared to the Asian market. We compensate
to toe. We now have more than 250 moldings of gloves,
somewhat with our lower cost of labor, but we continue to
and also produce a great quantity of clothes and shoes. We
lobby the government so that, at the very least, taxes do not
have over 4,000 employees across all of our plants, making
go up. The government has been able to reduce inflation, and
gloves, clothes, and shoes for a total of 7,000 products.
Mexico now has a stable economy which allows our company
This makes us the biggest manufacturer in the Americas for
to grow in this country and across South America.
167
PERSONALIZED BODYWORK SOLUTIONS FOR BESPOKE DESIGN As personalization has become an important characteristic
Air Design was chosen by Nissan Japan as the company was
in the automotive industry, niche-oriented companies
prepared to work with smaller orders than major automotive
have grown more powerful. In the North American market
lighting suppliers. With technological advances within
alone, the aftermarket for specialty equipment is a US$45
vehicles coming faster, Ávalos Sartorio understands the need
billion industry. Miguel Ávalos Sartorio, Director General of
to be at the forefront of trends, materials, and production
Air Design, sees this as offering major potential. But as he
technology. “Our reaction timeframe has become extremely
points out, the opportunities in the market might be great
fast and we can turn our products into a reality for our
but as norms and validation procedures become more
customers extremely quickly.” For example, the company
demanding, it is mandatory to fully understand the market
has developed fast prototyping technology and soft tools for
before entering it. “Air Design has had to understand
injection, combining speed with technological adaptability.
the market very well when offering its services. This enables us to increase the premium feel of cars through
Ávalos Sartorio foresees that OEMs may start producing
unique technological and design elements for bodywork,
special edition series in Mexico within a couple of years, which
accessories, and interiors. Air Design’s operations cover all
is where Air Design comes in. “We offer innovative and cost-
aspects of specialty equipment development, from concept
effective solutions that enable auto manufacturers to make
design to rapid prototyping. We do our own production in-
an impact in the market. When a particular model reaches
house and are focused on developing and designing special
the peak of its lifespan, the car needs a new fresh image. For
edition series to avoid competing against huge global
an OEM, the process will take a long time but Air Design can
companies,” says Ávalos Sartorio.
come up with a new design quickly,” says Ávalos Sartorio. “Air Design sends systematic drawings and bespoke design
Air Design started as a small family business but has since
suggestions to OEMs for their approval, making proposals
grown to provide personalized bodywork solutions for over
that suppliers focused on higher volume orders are often not
30,000 cars from different OEMs. Although the company
willing to take on.”
does not provide its services in large quantities, Ávalos Sartorio says it is recognized as a Tier 1 supplier for OEMs. Air
According to Ávalos Sartorio, Air Design’s multicultural
Design is currently focusing on accessing markets in Central
approach to business has proven to be an asset in terms
and South America. It is already working with one of the
of bringing in state-of-the-art technology from around the
largest car manufacturers in Brazil but is looking to explore
world, while staying ahead of the latest automotive design,
opportunities in other markets like Colombia, Peru, Chile, and
technology, and material trends. Air Design accentuates this
Argentina. Ávalos Sartorio even adds that smaller Central
point by hiring industrial designers and engineers from other
American countries like Guatemala, El Salvador, and Panama
countries such as Singapore, Hong Kong, Germany, Australia,
are beginning to see demand for vehicle personalization.
England, the US, and Canada. This is not because it sees
In Mexico, one of Air Design’s flagship successes has been
Mexican professionals as incapable of doing the job. “Some of
its collaboration with Mexican sports carmaker VUHL. The
the best designers we have had have been Mexican. Mexicans
second version of the VUHL 05 is planned for release in 2015,
have a fantastic work ethic, they are reliable skilled workers
with Air Design having contributed to its design by working
with the will to learn,” explains Ávalos Sartorio. The reason
on the development of its front windshield and body painting.
Air Design hires an international team is to ensure it develops a global vision to its business. As niche markets grow in
Air Design has also worked with recognized brands beyond
importance around the globe, that vision may well come to
Mexico’s borders. It has teamed up with Volkswagen on
fruition. For Ávalos Sartorio, a desire for personalization is no
new features for the Beetle, including a new spoiler and
longer limited and consumers in Brazil are just as aware of
aerodynamic elements. The company also supplies the styling
the latest advances in products ranging from spoilers to on-
kits for the Jetta A6, Golf, and Polo. Apart from Volkswagen,
board entertainment as German consumers.
Air Design has designed and produced styling kits, spoilers, and other lightweight plastic parts for some models of GM, Ford, Mitsubishi, Peugeot, Renault, Seat, Mazda, and Nissan. One interesting project is the involvement of Air Design in the development of the roof lamp for the updated version of the Nissan NV200 that will serve as the New York taxi, now being produced in Morelos. “It is a really great project for us as it gives us good exposure,” comments Ávalos. He explains
168
TRACK-READY ROAD-LEGAL SUPER CAR MADE IN MEXICO characteristics on the track and on normal roads,” explains Guillermo. To ensure this, the VUHL 05 has been tested on tracks in Europe and Mexico as well as on Mexican highways. Iker himself has driven the car from Mexico City to Acapulco and Valle de Bravo along winding roads, and assures that the car can be used on Mexican roads. The development of its suspension took place between the UK and Mexico so as to be tuned for all manner of surfaces. Iker Echeverría, Project Director of VUHL 05
Guillermo Echeverría Director General of VUHL
A critical success factor is gaining the trust of respected
The “Made in Mexico” label in the automotive industry is not
names in the industry. “The networking cost us a lot of time,
naturally associated with high technology, high quality, or
both because we were looking internationally and because
innovative design. This meant Iker and Guillermo Echeverría
we were selling a plan, not a dream,” explains Guillermo.
faced a number of obstacles when they first started working
The Echeverría brothers chose their partners based on the
on their dream to make a race car. With a motor-sport
quality, skills, and expertise, but also the size of the company.
heritage coming from their father’s 40 years of experience,
They found an early supporter in TechBA, a program started
Iker and Guillermo also brought a strong background in
by FUMEC to help Mexican enterprises rapidly expand their
engineering and industrial design to the table. VUHL’s first
international horizons. This business accelerator led Iker and
steps were made in 2008, just as the global financial crisis
Guillermo to Detroit where they were able to run through
dealt a body blow to the automotive sector. These adverse
their project with industry experts. With the VUHL 05
circumstances might have sunk many fledgling projects, but
now being for sale, the Mexican government is interested
the brothers saw this as the right time to start their project as
in further promoting the project. “They recognize that this
the industry was open to considering new proposals based
is relatively new for Mexico. The project has the possibility
on different business plans.
of changing the country’s automotive image as well as attracting more investment in this industry and beyond,”
Iker explains that early on in the project, he and Guillermo
declares Iker. The car was unveiled by President Enrique
sought to define the niche they were seeking to enter.
Peña Nieto at the Ministry of Economy’s Entrepreneur Week
“We were targeting die-hards that recognize the little
in 2013. Throughout the first three years of the project,
race details in a car and in its aggressive look.” For Iker,
heavyweights such as Michelin, Ford, and Hella all came
the starting point of the design came from Guillermo’s
forward to express an interest in working with VUHL, and
experiences in Mastretta. “An early design decision was to
these companies remain part of VUHL’s partnership network
strip down the weight and equate the driving experience
today. The design of this Mexican race car has caught
to that of a motorcycle.” This left the VUHL 05 model with
the attention of the world media, leading the Echeverría
no windscreen and no roof, which also helped the brothers
brothers to focus on the marketing of their brand. They have
save time, money, and effort. “VUHL offers a unique, pure
appeared on the BBC’s Top Gear and the History Channel’s
experience where man and machine really come together
Ultimate Wheels, while hoping for famous figures such as
thanks to the high wind-to-weight ratio,” adds Guillermo.
Carlos Slim, Sergio Pérez, and perhaps even Jay Leno to
During the design stage, VUHL reached out to several
own the VUHL 05. Sony has also contacted the company
companies for help, but did not find the support it was
to include the car in an upcoming Playstation 4 videogame.
looking for until it contacted Esiste. Highly respected as a provider of automotive concept modelling, Esiste’s client list
VUHL is producing its first batch of cars for sale in 2014
is a veritable ‘who’s who’ of auto manufacturing, including
which will command a price of US$89,000. “By the end of
Lamborghini, Ducati, Volkswagen, Audi, Alfa Romero, Fiat,
the year, we will have produced from 20 to 30 cars, and
and Maserati. The collaboration with Esiste provided the
these will be delivered during the last quarter,” explains
exterior design for the VUHL 05, which was essential to
Guillermo. The parts and components for the car are being
reach their target niche, but the brothers state that 80%
manufactured by 95 suppliers outside Mexico and will be
of the investment going into the project went toward the
brought to the country to be assembled here. “Towards the
engineering. For the engineering, VUHL turned to well-
end of 2014, our plant will have a showroom where people
known consultants such as Multimatic and Magna Cosma.
can see the cars and the production process. This will be
“These companies helped design a car that would be
interesting to see, especially for those who have made the
attractive, not only because of its looks, but because of its
initial deposit to purchase the car,” comments Iker.
169
| VEHICLE SPOTLIGHT: VUHL 05 Designed for both mortals and track racers, the new
engine that delivers a total of 285hp. This output is
VUHL 05 is a prime example of the new sparks of life
combined with the car’s 695kg dry weight to reach a
indicating an indigenous automotive industry trying to
power-to-weight ratio of 400 horsepower per tonne.
get started. The car’s provenance is truly international;
This means that performance is not a problem for the
its carbon fibre body was made in Canada, its handling
VUHL 05 as it can sprint from 0 to 100km/h in just 3.7
optimized in the UK, while the chassis and final
seconds and has a top speed of 245km/h. Opting for the
assembly is conducted in Mexico City. In its creation,
award-winning Ford engine means that VUHL is paying
several renowned brands took part, such as Magna
homage to the glory of the 1970s Cosworths and places
Steyr, Multimatic, and Ford. Under the hood, VUHL 05
it in competition with the likes of the KTM X Bow and
packs a Ford 2.0-litre DOHC turbocharged EcoBoost
Ariel Atom.
Its contemporary silhouette hides the best ergonomics
from RTM reinforced plastic, carbon fibre is also an option.
available in the industry, its founders believe. The VUHL
VUHL’s minimalist design pays precise attention to detail,
05’s unique X-Vario platform is constructed from 6061-T6
like the HD camera mounted into the bulkhead between the
aluminum extrusions and aluminum honeycomb. Its extreme
seats which offers a perfect video of a driver’s spin on the
torsional stiffness allows the suspension to be finely tuned
track or on the road. Its bare bones design still manages to
for both road and track. Bolted directly to the passenger cell
incorporate a racing style kill switch, carbon bucket seats,
is a chrome steel sub-frame that houses the engine and rear
a water-resistant, suede-covered steering wheel, and an
suspension. It also provides exceptional protection for the
electronic data acquisition dashboard. Ultimately, VUHL 05
occupants with its three-stage forward crash structure and
is designed as a highly intuitive machine that is fun to drive
double layers sidewalls. While the standard body is made
for sports car aficionados.
FUTURE OF MEXICO’S FIRST OEM HANGS IN THE BALANCE In May 2014, Mexico’s Mastretta announced it was halting
Mastretta name, Mexico, and the car’s transverse engine
production of the country’s much-anticipated first sports
configuration. Designed entirely in Mexico and powered
car, the MXT. Shortly after, the OEM’s founding owners
by a Ford 2.0-liter Turbo Four engine, the car has received
Daniel and Carlos Mastretta declared that they were
considerable global attention for being the first car almost
parting ways with the company. Certain critics will herald
entirely developed in Mexico without any foreign input.
this development as evidence that Mexico is not yet ready
Following sizable international exposure the brothers
to host its own automaker, but a look at Mastretta’s journey
partnered up with a distributor in England and after some
shows how close it came to success.
promotion in Europe, in 2011 the Mastretta’s were contacted by the BBC’s eponymous Top Gear. What should have
Calling on years of experience in the transportation
been a glorious moment for the company turned into a PR
sector, Daniel and Carlos Mastretta began a bus body
shambles, with the show pouring scorn on the idea of Mexico
manufacturer in 1987 bearing the Mastretta name. After
producing a serious sports car. The incident caused a minor
Mexico was sent reeling from several financial crises,
diplomatic spat between Mexico and the UK but ultimately
the company was restructured in 1996 with the brothers
proved the old adage that no publicity is bad publicity. “This
realizing they needed to expand their business model.
exposure landed us 20 orders for the MXT,” explained Daniel
The new vision saw the Mastrettas carry out car designs
Mastretta. “That order was too large for us to handle, so we
in-house and build actual prototypes from their base in
had to adjust our investment and business strategy. We
Mexico City. In 1997, Mastretta began making replica cars
were close to building one car per week, and our idea was
of the 1959 Corvette and the Porsche 356 for the Japanese
to build up to producing two a week by the end of 2014,
and American markets, but after a brief success, the
and four a week by late 2015 in order to reach our long-
country was rocked by another crisis, forcing the company
term sales targets.” Those targets saw Mastretta come up
back to the bus sector. In partnership with CONACYT,
against serious competition. The niche market for two-seat,
Mastretta was able to produce an alternative version of
rear engine vehicles includes experienced manufacturers
the Metrobus, which is still running today. That same year,
that produce anywhere from 50 to 1,000 cars per year. The
Mastretta partnered with a company from Guadalajara to
pressure to increase output was therefore no small weight
work on a joint system for the city’s Auto Tren unmanned
for the Mexican company with big dreams to bear.
train. Despite this brief foray into rail, the Mastretta brothers have predominantly devoted their attention to
Funding for the development of the car proved to be
their true passion: the sports car.
an ongoing challenge, and backing originally provided by CONACYT eventually ran out, leaving the brothers to
The focus of this attention has been on the brother’s
continue development with their own funds. In 2013, in need
MXT creation, the initials of which are a nod towards the
of a secure source of funding, the family-owned business sold
TROPICALIZING ESTABLISHED SALES STRATEGIES PAYS OFF
172
Sergio Díaz Torres, President of the Board of Bardahl, traces
sales in Mexico.” Having a tropicalized sales strategy gave
back his own origins in the company to a fateful encounter.
Díaz Torres the opportunity to become its Director of
“While working at a service station, a man arrived asking
Sales, Credit, and Collection in Mexico City in 1964, a nice
for an oil change and I offered him a Bardahl additive,
step up from being a simple distributor. According to Díaz
explaining to him the benefits of the product,” Díaz Torres
Torres, starting out in the distribution side of the automotive
recounts. “He was so impressed by my explanation that
industry offers a unique glimpse into the knowhow and
he reached for his wallet and pulled out his business card.
workings of the industry. “Throughout my career, I have
He turned out to be the President of Bardahl.” This proved
discovered that the most successful way to sell a product
to be a turning point for Díaz Torres, as he would later
and ensure future sales is by carrying out demonstrations,”
on become an official Bardahl distributor that shared the
Díaz Torres states. This demonstration-focused approach
same cultural affinity with the company. “Because of my
was also endorsed by the founder Ole Bardahl, who used to
in-depth knowledge of Mexico, its culture, and consumer
fill his oil pan with one of Bardahl’s famous formulas, drain
market, I was able to effect on my own 40% of all Bardahl
it, and then drive it for 100 miles. This demonstration came
a majority shareholding to private investors, with the hope of
advance both the MXT and the racecar MXT-R version to
being able to use the funds to gain European Community
become well-defined and viable concepts. The sports car
Small Series Type Approval. The agreement saw the brothers
envisioned by Mastretta was designed not to copy those
hand over control of the company to Latin Idea Ventures,
developed by traditional producers, but to stand out in
which saw the parachuting in of the investors’ own executive
its own right. The vision and achievements of the brand
into the role of CEO. “We knew from the beginning that it
have also inspired the Mexican automotive industry itself.
would be difficult to remain independent forever. We never
The launch of the Mexican developed VUHL in 2013 can be
had the economic power to do it ourselves. We never had
directly attributed to Mastretta. One of VUHL’s founders,
the resources for any project really, but this one in particular
Guillermo Echeverría, studied under Daniel Mastretta.
is very costly. Therefore, we had to get money from outsiders,
“Echeverría, after having worked at Mastretta, told me
as the family-owned company route was not the way to go
that he wanted to do the same thing, and I told him to go
anymore,” reasoned Daniel Mastretta.
for it. He saw Mastretta cars as a motivation and we must continue to do just that, to motivate each other. There
Sadly, despite hard work to perfect the Mastretta MXT
are many areas where Mexico must improve, and there
sports vehicle under the Mastretta Cars brand, the company
are many possibilities here to do just that. The number of
has finally reached what seems to be an insurmountable
people thinking outside the box is increasing.” While the
stumbling block. The decision to hand over majority
future of the Mastretta brand remains uncertain for now,
control to a third party appears to be one the brothers
hope remains that Mexico’s journey to cementing its own
have lived to regret. Explaining the Mastrettas’ decision to
successful OEM will continue, and eventually succeed.
part ways with their own company, their representatives released the following statement: “It is the contention of the Mastrettas that the new management team made poor strategic decisions, failed to achieve any of the agreed goals, and wasted valuable funds that should have been earmarked for development. It is also alleged that despite a contractual agreement being in place, investors have withheld the second installment of funding. The Mastrettas maintain that they have repeatedly warned their board of the potential consequences of management policies, including delays to the approvals program, but with no action being taken on either this, or the implementation of the subscription agreement, they felt that they had no other choice than to remove themselves from the business until their concerns are addressed.” Despite the many challenges encountered by Mastretta in the development of the MXT, the company managed to
to be known as the No-Oil Run and is carried out worldwide.
the company has continued to be entrenched in the Mexican
According to Díaz Torres, taking control of the distribution
consumer culture. “We carry out intense market studies
network was no easy job. “Due to past mismanagement and
and we travel twice a year around Mexico to visit our
dubious practices, there was not much growth and it was
distributors to discuss areas of improvement,” Díaz Torres
up to me to reorganize the company.” Straightening out
explains. Moving away from a period of instability, Bardahl
operations began with a visit of all the distributors in order to
has increased its product portfolio which accommodates
understand the logistics of the network. When finishing the
a range of industries aside automotive. In addition, the
evaluation, the company decided to divide Mexico City into
company is the only one in Mexico that has in-line blending.
eight zones. “I restructured the sales team and dynamics.
“Other manufacturing sites combine light and heavy oils
Some would sell, others delivered, and the rest would collect
with additives in a tank and leave the mixture to settle for six
the money,” Díaz Torres adds. “I commissioned ten more
hours,” Díaz Torres details. “Conversely, Bardahl’s tanks have
demonstration machines to be made, and in that year sales
open valves that are controlled by computers and the liquids
went up dramatically.” Dividing the sales operations and
are added simultaneously according to the formulas, making
basing the sales strategy on demonstrations offered Díaz
the mixture perfectly homogenized as the tanks are filled.”
Torres more transparency. This success and ambition led him
He proclaims his pride that, after 62 years in the market, the
to acquire 25% of the company and then take full control,
company has never shied away from evolving, making it a
making it entirely Mexican-based. Despite its transformation,
leader in motor additives and fuel additives.
173
LISTENING TO CUSTOMERS KEY TO ESCAPING FINANCIAL CRISIS Back in the 1980s, the automotive distribution network in
under. It was a disaster.” To provide a perspective, JAZ
Mexico was concentrated around five OEMs that wanted
says that Zapata lost all of the capital it had built over 40
their distributors to work exclusively for their brands:
years in a period of 12 months, with annual sales dropping
Ford, Chrysler, GM, Nissan, and Volkswagen. Each group
more than 75% year-on-year. Although aftersales income
of dealers focused on one brand and grew along with it. J.
dropped substantially less, very few vehicles were being
Arturo Zapata (JAZ), Executive President of Corporación
sold. JAZ gives the example of one of Zapata’s dealerships,
Zapata (Zapata), recalls that as new OEMs started coming
which sold 400 cars in May of 1994, and then sold just
into the market, a lot of emerging dynamics began playing
seven cars in May of 1995. Zapata clearly could not keep
out. Newcomers did not want to find investors in other
its staff and make sense of it financially. However, laying
fields and teach them everything they needed to know
people off was never an option. The company survived
about the business. Instead, they approached established
the crisis without firing a single person. Those dealerships
dealers who knew the business and worked with the five
that survived the crisis eventually started buying others,
original brands. The five OEMs, which had been the only
and what ensued almost naturally were dealer groups
players in Mexico for more than 40 years, clearly did not
with multiple brands. This business strategy had two basic
welcome this move. “What started happening was that
strengths: the more stores and brands a dealer group
there was an opportunity for dealers to grow, resulting
owned, the more efficient it could become. This multiple
in a back-and-forth loyalty struggle,” recounts JAZ. At
brand strategy also allowed dealer groups to diversify
the same time, there was an unfortunate turn of events:
risk and minimize exposure to the cycles that every OEM
Mexico’s 1995 macroeconomic crisis caught all dealers by
faces. “There has been consolidation in the industry. Before
surprise, just as they were starting to expand. The outcome
everyone made a little bit of money but after the crisis,
was enormous damage to the dealer network.
things became much tighter and much more competitive, just as in many other markets. Efficiency and diversification
Additionally, most of the dealers found themselves
became the name of the game,” recalls JAZ.
overextended as banks had been happy to provide them with almost unlimited funding so that they could finance
However, Zapata opted for a different route. “We
their customers. Yet, neither the banks nor the dealers
defined our global competitive strategy as one where
paid much attention to matching the financial terms of one
we would grow organically, hand-in-hand with our
another. As a result, when the crisis unfolded, it revealed
customers, providing ever more integrated solutions
amongst other imbalances that while funding was provided
and an extraordinary customer experience.” In order
by the banks at variable rates, financing to customers by
to achieve this, Zapata established limited yet very
the dealers was offered at fixed rates. “Inflation skyrocketed
strong partnerships with a few OEMs and other industry
along with interest rates, and hundreds of dealers went
leaders. “People see Zapata growing and expanding
HOY NO CIRCULA MAKES A COMEBACK In the fading twilight of the 1980s, air pollution in Mexico
as “vehicular verification”. The capital also has agreements
City became a concern that policy-makers could no longer
with states with similar programs to enforce Hoy no Circula on
ignore. To address this issue, the government implemented
visiting cars from Guanajuato, Hidalgo, Michoacan, Morelos,
the Hoy no Circula (No-Drive Days) program, restricting
Puebla, Queretaro, and Tlaxcala. Although the program was
certain cars from traveling on a determined day from
intended to decrease the number of vehicles running in
Monday to Friday. The day in which a car cannot run depends
Mexico City, richer drivers simply bought additional cars in
on the last number on its license plate. The program was
order to be able to drive any day of the week.
initially intended to operate during the winter months as an
174
environmental measure as temperature inversions increased
In order to promote the use of newer, less polluting cars,
the concentration of air pollutants in the Valley of Mexico,
it was decided in 1997 that cars manufactured after 1993
but the program became permanent after the winter of 1990.
could be eligible to run daily as long as they had efficient
The Hoy no Circula program has been accompanied by the
fuel consumption levels, catalytic converters, and up-to-date
constant monitoring of emissions from vehicles registered in
verification documents. As a result of this, by 2003, only 7.6%
Mexico City, which have to be examined every six months to
of Mexico City’s cars were affected by these restricted transit
determine if they are eligible to run daily, a procedure known
rules. The program was extended to include Saturdays for
into new markets, assuming that we represent multiple
car that best suited their needs. Hence, Zapata looked
brands when in fact we do not. Over time, we tend to
for the right partners and then launched autocosmos.
become an important partner for those OEMs that we
com. Today, autocosmos.com is the leading automotive
represent, not only in terms of volume, but also and
portal in Latin America and the US Hispanic market.
most importantly, in terms of customer satisfaction. One
More recently, Zapata created an automotive auction
of our key strengths is our ability to stay close to and
company called V4B, with the objective of supporting
listen to our customers,” comments JAZ. For example,
its customers to dispose of old vehicles in a transparent,
Zapata noticed that customers such as leading beverage
effective, and efficient way, and one that could fulfill all
manufacturers and large pharmaceutical companies were
of their compliance requirements.
“We tend to become an important partner for those OEMs that we represent, not only in terms of volume, but also and most importantly, in terms of customer satisfaction” Arturo Zapata (JAZ), Executive President of Corporación Zapata (Zapata)
having a hard time managing their fleets. This led Zapata
JAZ says that while most of its subsidiaries are wholly
to search for the ideal business partner which it found
owned, Zapata prefers to find the right partner rather
in the Holman family, owners of Automotive Resources
than starting a new enterprise from scratch. “Selecting
International (ARI), who were already considering
a partner and then managing the partnership so that it
entering the Mexican market. Eventually, through a 50-
can be successful and rewarding over the long-term is
50 joint venture, Ariza de México was founded. Today,
clearly more complicated than running a wholly owned
Ariza is among the market leaders in fleet management
subsidiary. However, when you do it right, one plus one
and leasing in Mexico. Another example was when Zapata
can add up to much more than two,” says JAZ. Regarding
realized that most of its heavy truck customers required
partnerships and joint ventures, JAZ claims three
much stronger support in some of the key geographical
elements have proven essential: choosing a partner who
regions in Mexico. While geographical expansion was not
shares the same values, running the company adhering
initially contemplated in the company’s strategy, Zapata
to the best business practices in terms of transparency
decided to provide the required support to its customers.
and compliance, and keeping your partner’s interests in
Today it has even expanded to several markets in South
mind, at least as much as your own. “Twenty years ago
America with the sole objective of supporting key
when we first implemented this innovative strategy,
customers. A similar process took place while listening
it seemed rather risky. However, it has turned out to
to individual car customers. As the number of brands
be a very rewarding experience in every possible way
expanded exponentially in the late 1990s, car owners
for our customers, business partners, employees, and
felt that it was becoming impossible to search for the
stockholders.” JAZ asserts.
cars over 15 years old as of 2008, since pollution levels during
lead fuels have helped reduce greenhouse emissions more
weekends were similar to those on any given weekday.
than Hoy no Circula. He believes the program now mostly
Later still, Hoy no Circula was modified to prevent the
benefits owners of verification centers, as car owners have
more polluting vehicles from running twice a week. Under
to pay MX$290 (US$22) twice per year, resulting in a MX$31
the latest rules, hybrid and electric cars can run every day,
million (US$2.4 million) business last year. Other critics
vehicles under eight years old can run daily but have to
claim there are better ways to reduce both pollution and the
undergo verification according to their acquisition date, cars
amount of cars circulating in the city, such as an intelligent
between nine and 15 years old must rest one day a week and
scheduling of public works so that these do not heavily
two Saturdays each month, and vehicles older than 15 years
affect traffic, the addressing of corruption in construction
cannot run one day a week and every Saturday.
permits so that high traffic projects are not built in sensitive areas, and the implementation of carbon credit schemes
Academics from UNAM have stated that this measure
in industrial areas surrounding the city. The government
discriminates against private car owners, yet leaves old
of Mexico City, nonetheless, is very optimistic about the
and polluting microbuses, unregulated taxi cabs, and diesel
program and it estimates that 560,000 vehicles will be off
fueled heavy duty vehicles free to run without proper checks.
the streets every day, a 288,000 increase from the number
Carlos Madrazo Limón, a former Congressman from the
in June 2014. According to the Mexico City government, this
State of Mexico, believes improvements in low sulfur and low
will reduce air pollution levels by 11% annually.
175
| VIEW FROM THE TOP
EXHAUST INDUSTRY CRUCIAL TO EMISSIONS REDUCTIONS FERNANDO TURNER Director of Katcon Q: What role do Katcon’s catalytic converters play in
are working on tuning development, which is the sound
helping companies meet emission reduction standards?
of the exhaust system. Tuning is going to be essential in
A: Levels of carbon dioxide, nitrous oxide, and hydrocarbons
hybrid cars that run more silently. For safety purposes, a
are regulated in most countries in Europe as well as in the US
car needs to sound as it would with a combustion engine.
and Japan. The laws and programs governing the emissions regulations are launched years before they will actually be
Q: When you acquired Delphi’s catalytic converter
enforced. For example, by 2020, international standards say
business, how did you integrate its technology and
that carbon dioxide emissions have to be reduced to 90g/
innovation?
kg. Many of the international emissions standards currently
A: We were ready to take on that role. We knew that
in force mandate levels around 180g/kg, so we do not know
managing its technology would be challenging but not
how we will accomplish the 2020 goal but we have six
impossible. It was challenging as we wanted to take that
years to figure that out. This project obviously involves a
innovation forward in an opposite way to how Delphi
wide range of efforts for the automotive industry, ranging
was doing it. We thought Katcon should be more nimble,
from reducing weight and improving energy efficiency to
flexible, and frugal but you cannot take risks in the
trying out different alternative fuels and modifying engines.
automotive industry. It is not enough to believe that an
Katcon is currently applying two different technologies: one
idea is good; it has to be thoroughly tested. The process
is a catalytic converter for gasoline engines and the second
for testing technology is very conservative and has not
is diesel technology. We are designing our own solutions
changed much in years because people do not want to
but we also rely on guidance from our clients, such as GM
take risks. We would like product development, particularly
that has a number of experts on these topics.
testing and validation, to be simpler, quicker, and cheaper but it is not easy to achieve this. We can be certain that a
Q: How does your R&D center in Monterrey contribute to
new product is going to work on a computer by running
Katcon’s global operations?
software that tests temperature, vibrations, and flow but
A: Katcon’s research and development is done in
the customer wants us to build prototypes in order to see
collaboration between all its centers, but most of our big
the real materials, for the product to be put inside in a real
conceptual engineering ideas come from Europe, the US,
car, and have the car undergo testing in various conditions.
and Australia. Monterrey has a big portfolio of five projects
176
that are all in different stages of development; some of
Q: Do your development strategies revolve around
them are just getting started while others are getting
acquisitions or organic growth?
funds through bodies like CONACYT. One project that will
A: The exhaust industry has been consolidating, and big
become a technological spin-off of Katcon is focused on
companies are merging in the largest and most traditional
carbon fibers and other advanced materials. This project
automotive markets like the US, Japan, and Germany. Our
is getting support from the government as carbon fibers
position in 2009 placed us on the map outside Mexico
will be needed for aerospace, sports equipment, boats,
and Venezuela. Katcon may be small compared to global
and other industries. Our second project is an active valve
players but it is present on all the continents, with 12 to 15
which will be smaller, cheaper, and much lighter than
solid global clients and an additional 15 in China. We are
a muffler, which is being supported out of our Michigan
perpetuating our business with existing clients, products,
plant. The Monterrey center has made the prototype and
and plants. On the other hand, we also seek to acquire
placed it in engines for testing. Our third project is to
businesses in the whole spectrum of the exhaust emission
make the exhaust system lighter through different welding
industry. We have been pursuing this strategy for over a
processes and materials. This is important to meet carbon
year now and we are looking at a wide range of companies
dioxide emission reduction targets. Our fourth project is to
from sales and engineering to manufacturing in both gas
design products for heavy duty diesel vehicles. Finally, we
and diesel.
COMPOSITE FIBERS OFFER FRONTEND WEIGHT REDUCTION Valente the
Espinoza,
President
Solutions,
while the rest of the piece can be filled with lightweight
of
A&P
foam to keep its weight down. He mentions that Audi is
believes
that
looking to adopt this kind of technology in its car parts and
innovation and technology
A&P Solutions is looking to offer its services.
are the most important
Valente Espinoza, President of A&P Solutions
attributes for a company
For Espinoza, one of A&P Solutions’ most attractive elements
in the automotive industry.
for OEMs is its new business development unit. It develops
“These are the two areas
technology while providing solutions for client requests and
where one company can
helping products mature. “When products are mature, they
stand out from the pack and
are integrated into the plant’s portfolio,” explains Espinoza.
attract more customers,”
“The transition from the new business development unit to
he says. Espinoza states his position very clearly when
the plants is done efficiently as the managers of each team
explaining his vision for A&P Solutions, a leader in providing
work together to provide their different visions on each
foamed structural and interior plastic components for
product. This means key information about each product is
vehicles, as well as for aviation and wind turbines. Its quest
reviewed several times before it goes to the market.” A&P
for innovation led to a series of mergers and acquisitions.
Solutions sees this separation between day-to-day operations
Two existing firms, AKsys and PADSA, merged in 2010,
and the new business development team as allowing for far
expanding the company’s offerings in plastics technology
faster reaction times to customer needs. To keep up with the
and in SMC (sheet molding compounds). A&P Solutions
tailored solutions A&P Solutions offers to its customers, it is
then purchased TTM in Puebla, now known as AMP
essential for the company to have suppliers that can help it
Exteriors, which has helped the company offer solutions for
to provide solutions, some of which are outside Mexico. “One
lightweight materials and decorative plastics. This process
of our best suppliers is a German company that provides
has enabled A&P Solutions to now offer components
tools for the making of frontends. We have combined their
for the interior, exterior, and underbody of vehicles that
processing to our mold manufacturing process, which has
provide advantages ranging from making them lighter, to
given us a competitive edge,” explains Espinoza. He adds that
reducing noise and manufacturing heat isolation. All these
A&P Solutions uses its strong links with OEMs to empower its
characteristics are attractive for OEMs, which has allowed
suppliers by bringing them in for the whole manufacturing
A&P to net a big customer in Volkswagen. John Deere is
process, not just one part of it. An example of this is the
another major customer for whom the company produces
production of the new frontend for Tesla which A&P Solutions
roofs, fenders, and injection components.
has been awarded. “We are involved in the mold production process for that contract, and we are bringing a dedicated
The biggest technological innovation that the company has
team together to work on this project, including a team of
made is in the frontend. SMC technology can replace the use
engineers that can manufacture the Tesla design, meet all its
of metal with strong resin made from paintable fiberglass or
requirements, and eliminate the chance of quality problems
fiber carbon, and the company has hired a Class A surface
after the launch. This keeps our suppliers happy as they are
component expert to take these developments further. This
involved throughout the process. We already did this five
has allowed it to produce 5 million frontends for different
years ago with the Volkswagen frontends, and they had no
vehicles that it describes as “lightweight, strong, cheaper,
problems during launch,” states Espinoza.
and with flexibility that metal cannot match.” At its facility in Hidalgo, the company produces SMC, GMT (glass mat
Now that it secures contracts at this level, A&P Solutions
thermoplastics), GLF (glass light fiber), and paints SMS
is competing against a different class of rival: international
Class A components. The company is hoping that SMC will
Tier 1s looking for major projects in emerging countries.
provide a 30% weight reduction for current parts through
One way of standing out is by becoming a link between
the introduction of carbon fibers. “We have the knowhow,
OEMs and Tier 1 suppliers that do not know Mexico or do
we have demonstrated this technology to the OEMs, and
not have installations in the country. “We can help them
we expect it to be launched for the 2016 models,” states
overcome challenges and become part of the general
Espinoza. He adds that the company’s focus on innovation
sourcing of products,” explains Espinoza. The arrival of
and technology is particularly apt when tackling a specific
new Honda, Mazda, Toyota, and Audi production facilities
challenge, such as making lightweight products that are
is bringing major new opportunities to the Mexican market.
strong in certain specific areas. For the frontend, the areas
For Espinoza, the challenge Mexico has to face is in ensuring
where screws are bolted in must be significantly stronger,
it has the right technology and manufacturing capacity.
177
PATIENCE AND CAPITAL KEY TO SUCCESS FOR TRUCK SUPPLIERS Being a supplier for major truck OEMs is no easy task. It
in Queretaro,” says Mirandez Jr. 20% of the company’s
requires a number of capabilities that companies need to
production is directly exported from Mexico, but this figure
maintain over time in order to prove that they can live up
rises to 80% of production by adding indirect exports
to the highest standards expected of them. Sisamex is one
based on products being integrated into trucks that end
such Mexican company that has been successfully working
up in another country. The company exports to Brazil,
with some of the biggest truck OEMs and has even been
China, Australia, and the US but Mexico remains Sisamex’s
awarded for doing so. Sisamex’s product portfolio includes
main market.
axles, brakes, and gears for commercial vehicles, but it also operates in heavy vehicles and medium-sized trucks and pick-
Sisamex’s main focus is to use its expertise and its ability to
up trucks. Restructured in 2003, Sisamex is a joint venture
acquire new business. For example, Sisamex supplies Daimler
between Grupo Quimmco and Meritor Inc, with each side
with shafts for its new transmission line that will be launched
bringing its own advantages to the mix. Grupo Quimmco has
in 2015. In order to supply Daimler, Sisamex had to invest in
other companies that can supply Sisamex, providing good
new machinery and capacity building. “This is the first time
integration. Meritor is responsible for products, engineering,
Daimler has produced this part outside its plant in Germany,
and the commercial side of the business.
and Sisamex is the one company that can do this within the
“Supplier development is a medium to long-term activity. It involves a difficult process in which firms have to make investments that might take as much as six or seven years to pay off” Armando Augusto Mirandez Jr., former President of Sisamex
For the last ten years, the company has been steadily
Mexican industry,” explains Mirandez Jr. Daimler is Sisamex’s
increasing its market share to around 60% for rear axles, 20%
biggest customer and has helped the company grow by
to 30% for front axles, between 50% and 70% for brakes,
allowing it to manufacture the designs provided by Daimler’s
and 20% for drive shafts, according to Armando Augusto
lauded engineering teams. One interesting fact that Sisamex
Mirandez Jr., former President of Sisamex and current Project
has to deal with is that most heavy vehicles in Mexico are
Director of Grupo Quimmco. He sees this result as stemming
outdated and purchases of new and more advanced trucks
from Sisamex’s great capacity for execution. In 2011, the
are low. However, Mirandez Jr. points out that the real
company invested heavily in process technology in order
problem does not lie in Mexicans renewing their trucks, but in
to place itself ahead of the curve. According to Mirandez
Americans having to learn to keep their trucks for more time.
Jr., such investments mean Sisamex can ensure state-of-
By doing this, the flow of second-hand trucks would tarry
the-art procedures and keep up with the highest quality
and customers would look at opportunities to buy more new
standards. “Gear cutting sparked a major evolution in our
trucks. “Designers have made better products and extended
processes. This helped us develop better flexibility as a focus
warranties, so it makes sense to keep the trucks for longer,”
for our plants, so we are comfortable in handling medium
explains the former President of Sisamex.
and small volumes of products,” explains Mirandez Jr. “These endeavors have become more important since commercial
“Supplier development is a medium to long-term activity.
vehicles and their unique specifications require extremely
This is not well understood by many companies in Mexico.
precise processes. These processes are sophisticated and
It involves a difficult process in which firms have to make
keep the customers pleased, as the company maintains its
investments that might take as much as six or seven years
competitiveness based on the quality of its products.”
to pay off. We identify the suppliers, we make sure the industry is familiar with them, and work to make sure they
178
Sisamex has three plants in Monterrey and is focused on
can stay competitive in the long-term.” Looking to the
keeping its manufacturing processes located in Mexico.
future, Sisamex does not forecast any significant growth
“As new OEMs come in, there will be more business
in the truck business for 2014. Mirandez Jr. believes this is
for commercial trucks. Almost all the big players of
because the automotive industry, especially the truck sector,
this sector are present in Mexico. Even Volkswagen’s
is still recovering from the 2008-2011 crisis and because the
Brazilian subsidiary now has trucks being made by MAN
Mexican economy did not see expected growth in 2013.
SOUTH AMERICAN DEMAND FOR MEXICAN BUS BODIES RISES
Paulo Dellanoce, Director General of Novacapre
As a Mexican bodywork
to reduce travel times and fuel consumption with buses
company, Novacapre has
that respond to demanding conditions in every way,”
found success designing
explains Dellanoce. Beyond its technological capacity,
and
the
Novacapre also places a strong focus on R&D. It has kitted
bodies for urban buses.
out its development processes with the latest systems,
After
the
incorporating high-tech components, and redesigned its
field, its client list stands
models to meet market expectations and new government
testament to its expertise.
regulations concerning the bodies of heavy vehicles. “Our
The company works mainly
facilities are complemented by top-of-the-line equipment
with Volkswagen Bus but
for most manufacturing processes to produce windows,
also
manufacturing 60
years
collaborates
in
with
plastic injection molding machines for the making of
Navistar, Mercedes-Benz, Isuzu, Hyundai, and Hino, as well
various seats, accessories for buses and equipment,
as on some microbuses for GM and Ford. Paulo Dellanoce,
vacuum form for plastic sheets, and fiberglass parts. That
Novacapre’s Director General, explains that the company has
gives us strong product integration, new technologies, and
become highly flexible in order to produce bodies for various
global competitiveness,” says Dellanoce.
types of buses. This has led to the company becoming almost wholly vertically integrated, with Dellanoce explaining: “We
A strong focus for Novacapre’s engineering and design
can produce fibers, plastics, seats, and windows in-house.
teams is the green trend running through the automotive
We source 92% of our materials locally, and we could reach
industry. Whilst bus body manufacturers do not need
close to 100%. This allows for a fast lead time, and reliable
to consider what fuel a bus will use, they can help to
materials for our production.”
significantly reduce energy consumption by reducing a vehicle’s weight. Novacapre has been working on this
Novacapre has set a target of selling 3,000 buses by 2016
for some years and Dellanoce now confidently states
on a global level, which would see the company’s ratio of
the company’s bodies are one tonne lighter than the
exports to domestic sales reach around 50-50. Novacapre
competition’s. “Thanks to exteriors made of aluminum
already has contracts in place to sell its products in
lamination and some high strength materials, we are helping
Colombia, Venezuela, Costa Rica, Salvador, and Peru,
to achieve lower fuel consumption and operating costs for
which are all seeing bullish growth in the industry. “Mexico
our customers and reduced maintenance requirements
remains a strong production hub for chassis manufacturers
for parts such as brakes, tires, and suspensions,” explains
for both North and South America,” says Dellanoce.
Dellanoce. Novacapre also makes floors of a lighter,
“It currently costs US$5,000 to transport a new bus to
more resistant material. While the cost of such changes
Colombia, which makes Mexico a cost effective hub, given
is higher for the OEMs at first, Dellanoce says that in the
the cost advantages in Mexico and easy logistics for that
long run, lighter vehicles are more cost-efficient and the
travel route. Although regulations for passenger transport
customer ends up paying less. “The mentality of making
are specific to each country, the basic rules all handle
every product lighter has been integrated from the design
similar issues. We also carefully study the rules that apply
stage,” explains Dellanoce. “All of our engineers look to
in each of the countries to which we export.” Novacapre’s
make our pieces lighter when considering what materials
current production facility in Mexico is enough to fuel
to use. We do not have a specific R&D center, but our
the company’s growth ambitions. The site currently
product engineers come together to brainstorm ways to
produces 800 to 900 buses a year but has the capacity
lighten our bodies and products.”
to push production up to 2,500 units. Dellanoce states that the decision to significantly scale up production
Novacapre plans to open more regional sales offices and
for the domestic market will depend largely on whether
is working with its national distributors to increase market
moves are taken to upgrade a lot of the current units in
share and coverage. Whilst aiming to be the Mexican leader
operation. “The renovation of the vehicular fleet in large
in bus body manufacturers by 2019, the company believes
cities will play an important role. There is still much to
it will have to remain on top of any shifts in the balance
be done and there are many types of buses that can be
of trade in the region. “If you look at US-Mexico logistics
renewed to allow for higher passenger capacity. Changes
today,” Dellanoce explains, “it has reached a point where it
have already begun; almost all large cities have programs
does not matter anymore which side of the border you are
in progress or at least modern transportation projects to
producing on. A similar trend will soon happen between
improve ecological sustainability. The common purpose is
Mexico and South America.”
179
| VIEW FROM THE TOP
LUBRICANT TECHNOLOGY ORIGIN SEGMENTS BRAND PERCEPTION JORGE LOYA RAMĂ?REZ CEO and President of Raloy Lubricantes & Kronen Q: What business strategies have enabled Raloy to gain a
incorporate Mexican technology, due to the differences in
bigger market presence in Mexico?
infrastructure, quality of diesel, and even the driving culture
A: Our client base is focused on OEMs and big transportation
of the two countries. We must tropicalize the products to
companies and fleet owners such as Grupo ADO, rather
enable customers to take full advantage of them. We are
than the aftermarket. We supply OEMs not only with
investing all the time in R&D and we look for new technologies
original equipment but also with products for assembly
to bring to Mexico. Our R&D always looks at what OEMs are
lines. Our logistics systems allow us to provide on-time
developing and from there we begin to identify the trends
deliveries, enabling OEMs to be permanently supplied with
that will shape our product portfolio. It is important that
our products, and as a result we contribute to the reduction
our additives and base oil suppliers also carry out R&D and
of standstill delays. We recently identified a new trend in
maintain high standards.
the industry for synthetic, high performance products, and in response we decided to introduce a new brand with a
Q: Due to higher quality oil and the resulting extended
particular focus on German technology, leading to the
replacement intervals, what measures do lubricant
establishment of a new company called Kronen.
companies take to compensate for lower volumes? A: It is true that high quality oil extends the replacement
Q: Why did you establish an entirely separate entity for
time, which can impact our operations. Since longer
Kronen, rather than incorporating it into the Raloy brand?
lifespans have led to a reduction in volume demand from
A: Focusing on German expertise opened the doors to
our present client base, we are looking for new clients to
German OEMs like VW and BMW, as well as to other European
compensate. This is not easy since our competitors are
manufacturers. European technology and especially German
doing the same. However, we will always promote products
technology, is very advanced and high quality. We decided
of the highest quality, no matter if the replacement time is
not to merge Raloy and Kronen in order to create a separate
longer. We naturally look for profit but we must also give
brand perception. Raloy products are of high quality, and
our clients the best option available. To further compensate
we supply many OEMs like Volvo, Mercedes Benz, GM, and
we work on improving the efficiency of our manufacturing
Honda, but in order to supply the consumer market, we have
processes to reduce costs, to improve the formula of our
to adopt another strategy as consumer perceptions differ.
products, and to optimize our supply chain.
Consumers prefer to see a German name because they associate it with high quality. We invited representatives of
Q: What areas of opportunity have you identified in
Kronen to Mexico and established a joint venture. We are
sourcing raw materials for your products?
currently in the start-up phase of creating the brand. We
A: Our supply base is international and we source from
have established a new network of sales points and dealers
Finland, France, Germany, US, and even Singapore. The
for Kronen since it is an entirely new product and brand.
majority of our raw materials comes from abroad. In Mexico,
Our target client base for this brand is European OEMs. Our
PEMEX is a supplier of base oil but its quality is not great.
intention is for Kronen to supply small volumes at a good
In order for our products to receive OEM approval, we must
price, which will give us a solid turnover.
use materials of the highest quality. All of our products go through an infrared tool that allows us to see the quality
180
Q: How much energy and time are you investing in R&D
clearly before it is passed on to the OEM. In Mexico, most
for lubricants, and how closely do you interact with OEMs
SMEs focus on Group 1 base oils and it is important that the
and suppliers in this respect?
government incentivizes them so they can begin producing
A: Raloy’s traditional operations center around oils for diesel
Group 2 oils. For Raloy, we receive Group 2 and 4 oils from
and gasoline engines. These two operate in different markets
the US and Group 3 oils from Europe. It would be good if
and they have different technology requirements. While
PEMEX could begin supplying more complex and refined
we endorse the use of German technology, we must also
oils, but at the moment this is too difficult.
FILTER AND LUBRICANT MAKER PROVES EXPORT WORTH R&D allows companies to stay ahead of new technology
quality of its products. “The company understands the
and processes, yet the Mexican automotive industry still has
dynamics of the automotive industry, which is why we have
few companies with laboratories or departments focused
one of the most complete laboratories in Latin America to
on this area. Grupo Gonher provides an example of how a
develop cutting-edge technology for filters, oil, and heavy
strong R&D department, as well as a clear business vision,
duty equipment, among others.” This laboratory is certified
can position a company as a leader in its sector. Conceived
by the Mexican Organization of Accreditation (EMA), the
in Monterrey as a small family business dedicated to filter
General Directorate for Standards (DGN), and by the
manufacturing, the enterprise is now a group that holds six
Ministry of Economy. According to González Calderón,
different companies and has diversified its market into the
Grupo Gonher’s laboratory also contains some of Mexico’s
production and sale of lubricants and batteries.
most qualified and specialized technical staff. “This ensures
“We have one of the most complete laboratories in Latin America to develop cutting-edge technology for filters, oil, and heavy duty equipment” Rodrigo González Calderón, CEO of Grupo Gonher
Grupo
Gonher
manufactures
filters,
lubricants,
and
that the latest needs and trends in the automotive industry
batteries for both light and heavy duty vehicles while
are reflected by our research in materials, new processes,
being one of the few companies that produce all the parts
new equipment, and new products.” Grupo Gonher has
for its products. The company supplies filters to OEMs
even introduced nanotechnology into its laboratory
such as Ford, Nissan, GM, and Chrysler, while its plants
and has participated in research projects conducted by
produce Grupo Gonher’s own brands, as well as products
CONACYT and CIMAV in this domain. These studies led
for clients’ brands. “Being able to offer this kind of service
Grupo Gonher to launch Gonher Nanotek®, a line of high-
is the result of our quality constantly topping that of
quality lubricants for gas, diesel, and industrial engines.
original equipment,” says Rodrigo González Calderón,
Grupo Gonher’s battery company, Enerya, has a technology
CEO of Grupo Gonher. Nonetheless, Grupo Gonher has
partnership with East Penn Manufacturing to manufacture
to face the competition’s low-priced products in some
lubricants and batteries, and develop new technologies to
areas. The company finds it difficult to compete on a
cover client needs in the US and Mexico. Collaborations
purely price basis with cheap, low-quality merchandise
with OEMs are also common for Grupo Gonher, particularly
and even illegally imported products. González Calderón
when developing new solutions for filters. Apart from
underlines that unlike with Grupo Gonher, quality is not the
industrial R&D, the company collaborates with ITESM and
main concern of all providers out there. “We are able to
with the University of Monterrey to promote research
compete in the market by focusing on productivity and
activities at the academic level.
efficiency, which maintain the quality of our products, and keeping costs at a fair rate.” A further area of strength that
In
Grupo Gonher can count on is its distribution network,
struggling and many went bankrupt, Grupo Gonher was
according to González Calderón. The company has more
able to do something that few could: it grew. The company
than 36 direct distribution centers throughout Mexico, 120
acquired Mighty Auto Parts which helped it expand in
in the US, and three in Costa Rica. In Mexico, the network
the US market. “The Mighty Auto Parts business was a
can also count on almost 20,000 shops located across the
good match for us in terms of expertise,” says González
country that sell Grupo Gonher’s products. Its products
Calderón about the first acquisition his company made
can be found in over 22 countries, and the company is
outside Mexico. Grupo Gonher is now searching for new
focusing on increasing its exports with plans to sell 50% of
partners that could help it further expand its presence in
its product catalogue abroad.
the US and South America. Although González Calderón
2009,
when
most
automotive
companies
were
asserts that Mexico will remain the company’s most González Calderón emphasizes the efforts the company
important market, he views entering the US and the Latin
puts in R&D, as it conducts meticulous research projects
American markets as an important step to secure the
and documents all internal processes to increase the
group’s future.
181
As Mexico transitions from being a low cost and low skilled production base to highly competitive host for the automotive industry’s premier players, much debate is taking place surrounding the country’s capacity to leap into real high-technology development. Today, many of the major European, North American, and Asian OEMs rely on their home based headquarters for the vast majority of R&D activities, but little by little technology centers are springing up around Mexico. Least open to doubt is the potential of Mexico’s work force to fuel high-technological growth, with the country graduating some 100,000 engineers a year and boasting an average employable engineer age of 27 compared to the US’s 55. A quarter of all US based engineers will retire as Mexico’s talent pool bursts at the seams. The Mexican Government has been working on a triplehelix drive with the education and private sectors to share resources and foster both human capital and technology development, and this three-pronged approach is making headway.
This chapter will analyze Mexico’s ongoing transition from low technology to high technology manufacturing and explore evidence and opinion surrounding the country’s long-term prospects to develop groundbreaking technology. The leading universities, technical schools, and private organizations now producing R&D in Mexico will shed light on the key strengths and weakness impacting the country’s technical evolution, as well as highlight where the most interesting activity is already taking place.
RESEARCH & INNOVATION
7
CHAPTER 7: RESEARCH & INNOVATION 186
VIEW FROM THE TOP: Adoption of Higher Technological Sophistication
187
Mexico Must Prove its Technological Capabilities
188
Defining the Boundaries of Vehicle Telematics
189
VIEW FROM THE TOP: Supporting Increased Electrical Content in New Vehicles
190
Software Bridging the Technological Gap of SMEs
191
VIEW FROM THE TOP: New Plants Need SAP Systems Ahead of Time
192
LED: The Future of Automotive Lighting
193
VIEW FROM THE TOP: R&D Center Provides Numerous Advances for OEMs
194
Lightweight Trends Weigh Heavy on Aluminum Debate
194
Simulators Train Well-Rounded Bus Operators
196
Innovation Spreading Across All Automotive Segments
197
Green Tire Demand Boosts Fuel Economy Standards
198
Rise of Avant-Garde Manufacturing Technology
199
Process Control Improves Manufacturing Practices
200
Rise in Popularity of Ultra-Low Sulfur Diesel
200
Market Segments that can Most Benefit from ULSD
202
DME Heralded as Alternative Fuel of Choice
203
Joint International Efforts Benefit Growth of SMEs
204
Boundless Opportunities in Energy Availability
205
PROJECT SPOTLIGHT: Environmental Sustainability Integrated into New Pirelli Plant
206
Transition from Supply Chain to Supply Network
207
VIEW FROM THE TOP: ITESM Spin-Off Helps to Inspire OEMs
208
Innovation Park Seeks to be Developer and Incubator
209
Laying Foundations for a Knowledge-Based Economy
210
VIEW FROM THE TOP: Industry-Academia Recipe for Success
210
VIEW FROM THE TOP: Carving a Niche in Automotive R&D
185
| VIEW FROM THE TOP
ADOPTION OF HIGHER TECHNOLOGICAL SOPHISTICATION MARÍA VERÓNICA ORENDAIN DE LOS SANTOS Director General of the Directorate of Heavy Industries and High Technology at the Ministry of Economy Q: In what ways does the automotive industry promote
Q: How will Mexico shift from promoting a low labor cost
the adoption of high technology in Mexico?
workforce to added value jobs in its investment attraction
A: The automotive industry is crucial in the pursuit of more
strategy?
high technology in Mexico. What distinguishes this industry
A: Our labor force enables the adoption of higher
from the rest is that it has a multiplier effect that promotes
technological sophistication. Because of this, Mexico is
technology across the entire supply chain. To foster
changing its strategy and shifting away from promoting
technology, the industry needs skilled human capital. 19.7%
itself as a source of low cost labor. We understand the
of manufacturing employment, which amounts to 644,000
new rules of the investment game and we have to improve
jobs, currently comes from the automotive industry. On
our position within the global value chain. The automotive
average, salaries offered by OEMs established in Mexico
industry’s labor force is a model that generates skills and
are 2.1 times higher than other manufacturing industries.
abilities which impact other sectors like aerospace. The
Given its ties to global value chains, the technology and
areas particularly reported to have high technology and
manufacturing processes of the industry also have to be
better salaries are in R&D and aftermarket services while
up to par with international standards. This is the main
salaries are lower for common manufacturing processes.
driver for the incorporation of high technology in Mexico.
However, there are specific processes that are considered high value due to their complexity. Since the automotive
Q: What role does the Directorate of Heavy Industries and
industry is closely linked to global value chains and
High Technology play in this process?
markets, international influence results in higher salaries.
A: This directorate plays a part in attracting FDI alongside other entities like ProMéxico. We elaborate the best strategies
Q: What strategies are put in place to promote this human
for the promotion of investment for the automotive sector.
capital transformation?
The automotive industry serves as a reference for the design
A: From the 644,000 jobs in the automotive industry in
and implementation of Mexico’s industrial policies and as
Mexico, 5,000 are in the added value areas of R&D and
a benchmark to evaluate our performance in attracting,
aftermarket services. To increase this number, the federal
retaining, and increasing investments in Mexico.
government is focused on developing human capital. Via the Innovative Development Program (PRODEINN), the
186
Q: How does the Economic Complementation Agreement
government is implementing a sectorial policy to create
55 (ACE) with Brazil impact industries like automotive?
what we call an “ecosystem for technical innovation” in
A: ACE is an agreement that grants companies preferential
which, for example CONACYT supports industrial innovation
access to the Brazilian market with a reduction in tariff
through the Sectorial Fund for Innovation (FINNOVA) and
payments. An internal amendment passed in 2012 between
the Innovation of Technology in Education and Training
the two governments established a limit on annual
(INOVATEC). It is important to note that we help companies
importations of lightweight automotive vehicles. There is an
be more proactive when investing in HR, but at the end
import quota mechanism which has been agreed to by OEMs
of the day, the investment comes from the private sector.
present in Mexico. There is a process surrounding the quota
The public sector simply accompanies this investment for
mechanism, impacting the decision of which companies will
two reasons: reducing risks and costs, and incentivizing the
gain preferential access to Brazil’s market. It is important to
improvement of the technological profile of workers within
note that this amendment to ACE is temporary and we are
the sector. Given the synergies the automotive industry
waiting for it to be renewed. No OEM receives preferential
has with other sectors like metallurgy, electronics, and IT,
treatment when we allocate the quota. Their participation
we have a concrete megaproject for the development of
depends on how well the OEM used its given space in the
competences in advanced manufacturing, like molding, die
past. New OEMs can enter but it depends on investment
casting, and tooling. This project is already underway and it
conditions they have to meet.
will impact the automotive and engineering industries alike.
MEXICO MUST PROVE ITS TECHNOLOGICAL CAPABILITIES There is no ghost in the machine that drives the automotive
two systems standing out, those focused on materials had a
industry forward, but rather a highly specialized labor
share of 21% and those working on powertrains represented
force, working in cutting-edge laboratories and centers,
14%. The Mexican-run laboratories in the industry were
that brings true innovation to the table. As Mexico
more oriented towards material characterization and
advances to higher added value activities and stages
metallurgic analyses. The two automotive systems with the
of technological development, it is crucial to identify
highest technological infrastructure were electronics and
the technological capacities of the industry. For María
powertrains. According to the study, a broader Mexican
Verónica Orendain de los Santos, Director General of the
focus on all systems improves the possibilities of capturing
Directorate of Heavy Industries and High Technology at
added value jobs, especially in specialized systems such
the Ministry of Economy, facilitating the mutual exchange
as exterior design. As Orendain de los Santos points out:
of knowledge between the industry and the federal
“Adopting an integral approach allows the development of
government will make this possible.
all players within the industry, no matter how advanced the systems may be.”
A.T. Kearney carried out a study in April 2014 to identify Mexico’s technological potential by bringing together both
Having identified the technological capabilities in each
the public and private sectors. According to Orendain
system, the study then proceeds to define how these
de los Santos, such a study carried out by the federal
are spread across the country. The states with the
government alone may have run the risk of lacking in-
highest concentration of installations are Queretaro,
depth details, while such research being done within the
Aguascalientes, and Guanajuato, with close to half of the
industry might not have seen its findings shared with the
installations in these states being laboratories. The number
public. “This collaboration proved to be successful since it
of design centers across Mexico exceeds 100, far outpacing
makes it possible to distribute the information to all parties
the number of testing centers. An important finding was
involved,” adds Orendain de los Santos. What distinguishes
the willingness of industry players to collaborate with each
the Inventory of National Capacities for the Development
other, a crucial element for rapid and integrated growth.
of Automotive Technology is that associations like AMIA,
“95% of the surveyed entities were willing to lend their
ANPACT, AMDA, and INA all collaborated on it. 11 OEMs,
equipment to third parties,” says Orendain de los Santos.
16 Tier 1 suppliers, 14 academic institutions, and nine R&D
“This is important, as when new investment projects come
centers also took part in drafting the design of the study.
to Mexico, we can look across the industry to see if we have
The study identified the strengths, existing infrastructure,
the necessary infrastructure available and position the
and the investment carried out by universities, public
project accordingly.” According to Orendain de los Santos,
bodies, and private companies. Additionally, it traced
one of the valuable findings of this study is that Mexico’s
the automotive R&D network spread across Mexico, the
network of R&D centers can be used as a technological
HR profile needed to achieve the added value projects
platform by various players to carry out specific innovative
and finally the areas of opportunity. “This study will give
processes. “The federal government places infrastructure
the industry the certainty of knowing exactly where the
at the service of the industry that is valuable and costly
technological capabilities of Mexico are found, as well as
to implement on a private investment level,” she explains.
in which segments and product types,” says Orendain de
The link between universities and the industry has been
los Santos.
demonstrably tightening as a consequence of Mexico’s R&D growth, with 39% of projects carried out by R&D
During the development of the study, A.T. Kearney sought
centers made possible through alliances with universities.
to show Mexico’s technological capacity across all vehicle
The study predicts that these alliances will see their
systems. These systems were divided in the following way:
number of projects increase, leading to a more efficient
bodywork, electronics, powertrain, chassis, vehicle testing,
transfer of knowledge and technology.
materials, exteriors, and interiors. Countries with high technological development focus on all vehicle systems, while Mexico is within the top three main suppliers to the US for a wide range of such automotive systems. The inventory identified 106 design centers spread across all systems, with 16% directed to bodywork and 14% to electronics, while the least capacity was found in vehicle testing with only 5%. 247 laboratories were reported with
“We understand the new rules of the investment game and we have to improve our position within the global value chain” María Verónica Orendain de los Santos
187
DEFINING THE BOUNDARIES OF VEHICLE TELEMATICS The electronic technology and computing integrated into
the data acquired by the technology: auto makers, vehicle
a vehicle are known as telematics. As the demand for
owners or third parties? Tjahny Bercx, CEO of LeasePlan,
built-in car electronics has risen, the telematics industry
the largest fleet and mobility service provider in the world
has had to rapidly develop in response. Worldwide, the
with a fleet of 1.4 million cars worldwide and which is rapidly
telematics market is poised to grow exponentially, with
increasing in Mexico, is pondering the same question. “This
approximately 104 million new cars expected to have some
is an ongoing debate in the automotive industry. Telematics
form of connectivity by 2025. The penetration of integrated
generates a lot of information and the debate revolves
telematics is expected to reach 88% of new cars by 2025,
around who will ultimately have ownership of all this data,”
according to Ernst & Young, with smartphones and driver
he adds. For Bercx, not one segment yet has the upper
safety regulations being of particular importance in this
hand, but he believes that as a mobility integrator and motor
advance. This technology ranges from satellite navigation
insurer, LeasePlan deserves a slice of the cake. “With such a
GPS to wireless options like Bluetooth.
large vehicle park, we have the right to see the information as
“This is an ongoing debate in the automotive industry. Telematics generates a lot of information and the debate revolves around who will ultimately have ownership of all this data” Tjahny Bercx, CEO of LeasePlan México
As the fourth exporter of vehicles worldwide, and having
the vehicles belong to us, and we want to manage the units
surpassed Japan as the main exporter to the US, it would
and their costs.” According to Bercx, that is where the crux of
be natural to see the seeds of telematics being sown in
the matter lies. “OEMs also want to have the information to
Mexico. This is especially true when considering that the US
better set their pricing. But as a result, a conflict might arise
market is expected to welcome over 16 million new cars with
in terms of what the pricing of the vehicle should be because
telematics by 2025. Track and trace currently dominates the
of the various types of information provided by telematics.”
Mexican telematics scene with sales of GPS devices rising 20% annually. The most common application of telematics
LeasePlan’s services are centered on reducing Total
in Mexico so far is vehicle and trailer tracking, which enables
Cost of Ownership (TCO), covering all the variables that
companies to track workers and plan important and
go into procuring and managing a fleet, ranging from
complicated routes. This has already proven the usefulness
license plates, vehicle damage, component replacement,
of telematics to Mexican fleet owners, as such equipment has
maintenance, mileage, fuel costs, and insurance. “When
resulted in increased efficiency by cutting down on human
offering TCO management services, it is imperative to
errors. The launching of GM’s OnStar and BMW’s introduction
have knowledge of the car brands, maintenance, usage,
of its ConnectedDrive premium service hail the entry of new
and all the dealership networks that are trying to sell
telematics solutions into Mexico, with applications including
the units to us to get a better price,” Bercx explains.
roadside assistance, navigation functionality, and safety
“Being a company that provides detailed TCO and fleet
integrated systems.
management services, LeasePlan is now considering telematics as a must. It will provide us with all the
188
The intended users of telematics can be divided into three
information about the cars, which will help us to improve
layers: end users, the companies that deliver those services,
the fleet policy of the company.” Telematics will offer
and the stakeholders who manage the information. In the
LeasePlan an opportunity to enhance the efficiency of its
automotive industry, telematics will offer OEMs an improved
business model, while it can also spark innovation. The
manner to interact with their customer base and expand
company has already picked up on the consumer market’s
brand experience, while auto suppliers will develop human-
fascination with telematics gadgets. “At the moment, we
machine interface (HMI) technology to present telematic
are working on a project that makes it possible to inform
offerings to auto makers. Even dealers will better be able
drivers via mobile phone when they have to bring in
to understand customers by interacting with them on an
the car for servicing,” Bercx adds. While the telematics
ongoing basis. Given the fast-paced growth of vehicle
debate rages on in other countries, it is yet to fully arrive
telematics, a key question needs to be answered. Who owns
at Mexico’s doorstep, according to LeasePlan.
| VIEW FROM THE TOP
SUPPORTING INCREASED ELECTRICAL CONTENT IN NEW VEHICLES HÉCTOR GUTIÉRREZ Director General of Delphi México Q: How has Mexico developed as an investment and
center of technology innovation. In Mexico, Delphi has over
production destination for Delphi Automotive since 1978?
2,000 engineers and three technical centers in Ciudad
A: Delphi has been in Mexico for 36 years. We began with a
Juarez, Saltillo, and Queretaro. The Mexico Technical
plant and 500 employees in Ciudad Juarez in 1978 and we
Center (MTC) located in Juarez is the biggest that Delphi
now have 45 manufacturing plants and more than 60,000
has worldwide, and it serves hundreds of customers from
employees. Today, four of Delphi’s divisions are based in
25 different countries. Since its creation in 1995, the MTC
Mexico. Our Electronics & Safety division includes body and
has generated 316 patents, 1,069 records of inventions, 75
security, powertrain control modules, and safety and power
meritorious awards, and 17 trade secrets.
electronics. Our Electrical Architecture division includes bussed electrical centers, harnesses, battery cables, and
Q: What have been some recent key technological
electrical connectors. Powertrain Systems covers smart
advances, and what role is Delphi playing in helping OEMs
remote actuators, fuel delivery modules, diesel fuel systems
produce lighter, less energy-intensive vehicles?
and valve train and ignition components. Finally, our Thermal
A: We would like to highlight a game-changing technology
Systems division incorporates HVAC modules, compressors,
that recently won a PACE Award, namely the Delphi’s
powertrain cooling condensers, and radiator fan modules.
ErgoMate™
Mechanical
Assist
System.
As
electrical
content in vehicles has increased, so have the size of the Q: What role do continuous R&D initiatives play in
connection systems, making them too large to be made
allowing Delphi to provide innovative products, and how
by hand. Delphi’s ErgoMate™ Mechanical Assist System
do you cooperate with OEM clients to produce tailored
enables vehicle line operators to be more successful by
automotive solutions?
mating the connectors with a single-handed action that
A: Delphi has a global footprint that is aligned with the
requires no pre-positioning or awkward grip changes. This
growth plans of the leading vehicle makers that are our
single, ergonomic mating action reduces assembly time,
customers. Our service model is to work on a global scale
improves success with ‘blind mating’ of connectors, reduces
with regional capabilities. Our 45 plants, three technical
mating force, and has a strong tactical feel to provide
centers, and customer service offices in 22 cities support
positive feedback to the operator. Additionally, the system
our business for North America. Mexico is also now our
helps to improve quality and performance by solving
manufacturing center for the North American market.
warranty issues of mismatched connections. Concerning Delphi’s role in helping OEMs produce more eco-friendly
Delphi supplies the top 25 OEMs in the world. Our top ten
vehicles, we must highlight that this is one of the global
global customers are Daimler AG, Fiat Group Automobiles,
trends that shape our entire portfolio. We are focused
S.P.A., Ford Motor Company, Geely Automobile Holdings
on developing innovative, safe, green, and connected
Limited, General Motors, Hyundai Motor Company, PSA
products that consumers care about and demand. Some
Peugeot Citroën, Shanghai General Motors Company
examples of safe products include active safety systems,
Ltd, Toyota Motor Corporation, and Volkswagen Group.
driver state alerts, safety electronics, battery disconnects,
Our relationship with these customers is focused on
human machine interface, and occupant classification
providing solutions for their problems. This means that
systems. Our green product line includes gasoline direct
we work very closely with them on a global scale with
injection, diesel fuel injection systems, fuel economy
regional capabilities, so we can be a world-class supplier
and performance technologies, next generation energy
that is perfectly positioned in the local markets. Delphi
efficient AC, and hybrid and electric vehicle technologies.
invested approximately US$1.7 billion in engineering and
Finally, what we call our Connected Product line includes
research worldwide in 2013. We have 19,000 scientists and
vehicle infrastructure interface (VII) and vehicle-to-vehicle
engineers and 15 major technology centers around the
interface systems, telematics, digital receivers, connected
globe. We really can say that Delphi’s global team is at the
vehicle, and satellite, audio, video, and data systems.
189
SOFTWARE BRIDGING THE TECHNOLOGICAL GAP OF SMES “The
automotive
producing and its running time. “In terms of supply chain
manufacturers with high-end technologies and local
Mexican
market
has
two
faces:
management, the system notifies the company’s supplier
companies that are yet to incorporate sophisticated
when raw materials are needed. This in turn creates just-
technological advancements in their processes,” explains
in-time operations,” says Barajas. “This can then ease the
Gunther Barajas, Commercial Director of Epicor. His
transition toward lean manufacturing. Even if the company
company has undertaken the task of levelling this digital
already has modern equipment, this can be easily
playing field between hyper connected companies and
connected to the PLC systems and then controlled. The
emerging ones. As an enterprise resource planning (ERP)
information is online regardless of the equipment running
software provider, Epicor strikes a balance in its solutions.
in the sites, so our contribution brings easily applicable,
“We have different versions of our product. The enterprise
high-tech solutions.”
solution is aimed at multinational companies while the Express solution is for smaller, national players.” Epicor
The biggest hurdle Epicor and SMEs both have to overcome
has identified that transnational companies established
during the sales process is cost. Barajas believes mid-sized
in Mexico often come equipped with their own software.
companies willing to invest in technological tools often
Barajas says it is important for international companies to
look to big corporations. “They see the millions invested
adopt local software solutions since they are then able to
in software and, as a result, believe it is out of their reach.
control local production and assembly lines far more easily.
To overcome this entry barrier, Epicor offers financing
“We are a bridge that connects the company in Mexico
options to customers so they do not have to provide all
to its headquarters’ ERP system,” he explains. According
the money upfront,” Barajas explains. Epicor notes that
to Barajas, another practice of OEMs is requesting all
customers sometimes do not necessarily focus on the cost
its suppliers to adopt a particular software solution to
of buying the software but on the ongoing cost of running
ease the interaction. “With the new technologies we
the software. “To keep costs further down, we manage all
use, the company can be connected to any old software
professional services within our sphere, covering software
platforms. This is why foreign companies entering Mexico
support, maintenance, and development.” To encourage
are open to working with us and adopting a local solution
maintenance, the company has an annual support and
while maintaining ties to their general ERP,” he says.
upgrade subscription. First year customers are asked to
However, Epicor sees the SME segment as offering the
subscribe as most questions arise during this period, but
most potential. “Our prospective clients are SMEs that
a subscription becomes optional for the second year on.
wish to increase efficiency and incorporate automated
“90% of our customers renew their subscription in order to
processes to enhance their competitiveness and gain
maintain their software,” Barajas states.
the ability to evolve based on industry needs,” Barajas notes. In order for them to be able to weather the fickle
Finally, Epicor feels that the biggest hurdle that is yet to
winds of change in the industry, Barajas believes SMEs
be fully overcome is Mexico’s low broadband penetration.
have to see flexibility as a must have quality. A peculiarity
While the company’s express and cloud solutions put
Epicor has perceived is that many such companies are
SMEs on the right track, the varying Internet connection
family owned, and there are instances where the original
speed across Mexico is the biggest deterrent for Epicor to
founders are set in their ways and prefer to follow an
seal deals with small companies. But Barajas sees a silver
outdated methodology. “Local companies sticking to
lining. “The telecommunications reform will encourage
their traditional roots can actually be an advantage for
competition in Mexico that should lead to better
Epicor,” says Barajas. “Most of these companies want
communication services over time.” For the company, it
their information to be presented in a clear, visual, and
is without doubt that the Mexican government is making
concise way. This is possible since the core technology
an effort in helping the automation and productivity of
and software of the company remains unchanged, the
SMEs. “The government is now stepping in and helping
only variable is how information flows.”
companies obtain certification, financing, machinery, and equipment through different funds and programs”
190
The software provides a classic electronic data interchange
says Barajas. As the Mexican government puts forth
(EDI) connectivity, which can control a wide spectrum of
financing solutions that encourage the investment in new
factors ranging from demand to supply chain management.
technologies, Epicor is also benefiting from the financing
This solution applies to both market segments, as it allows
scheme from the Ministry of Economy that will in turn
companies to track how many items they have shipped
further support the technological rise of Mexico-based
and control each machine in terms of what it will be
companies.
| VIEW FROM THE TOP
NEW PLANTS NEED SAP SYSTEMS AHEAD OF TIME RAMÓN ALVAREZ Director General of SAP México
Q: If an OEM uses SAP, are their suppliers obliged to run
and we have actually stopped selling on-premise solutions
SAP in order to be integrated in the supply chain?
for customer relationship management, human capital
A: They can use whatever they want, but all the information
management, and marketing.
that an OEM like Volkswagen sends will be through SAP, so it is easier for its suppliers to be connected through SAP as
Q: How do you convince people of the safety of cloud-
well. It is not an obligation but no supplier wants to argue
based solutions?
with its main customer. We also offer a solution where, for
A: 90% of data leaks within companies come from
example, Volkswagen would host SAP for its suppliers.
employees. We show our clients that BMW, Coca-Cola, and
This creates a collaborative community which uses SAP
even the Mexican government have turned to cloud-based
together. Walmart, Nestle, Procter & Gamble, and Coca-
solutions for security purposes. Another opportunity is
Cola all run these communities with their suppliers.
created by the fact that few companies want to put their data on servers in the US due to the Patriot Act. This represents
Q: How do SAP’s solutions improve the functioning of the
a huge opportunity for SAP in Mexico. In response to this,
automotive supply chain?
we will be creating a massive SAP data server in Mexico and
A: We split our solutions based on the different tiers of the
we will be partnering up with companies like Telmex that
supply chain. We have solutions designed for the OEMs
already have data centers.
as almost all of them run SAP, but the issue is with Tier 2 and 3 suppliers for whom we offer two kinds of solutions.
Q: What are the most successful customized solutions you
One of our solutions is cloud-based, integrating various
have for the automotive industry?
aspects like the back office and manufacturing, which is
A: We implemented one solution for Volkswagen. It was
particularly attractive to Tier 2 suppliers. We also created
having problems with suppliers running SAP so it asked us
a pre-configured solution that can be implemented in six
for a very specialized connector to share information, such
months and integrates the entire supply chain. Automotive
as schedules or requirements for the just-in-time program.
companies are very interested in talent management
That is our most successful case in the automotive industry
solutions, given the talent war raging over there not being
because Volkswagen is so open with its suppliers. We
enough engineers to supply the industry. Such solutions
were notified about the new Audi plant two years ago and
can later be reinforced with product lifecycle management
Volkswagen asked us to start preparing projects based on
(PLM), but that is not an immediate concern.
the specifications of the new plant.
Q: What is your R&D focused on right now in order to
Q: What is the vision in SAP’s global headquarters for the
offer added value to your existing customers?
Mexican market?
A: Almost all our R&D is geared toward moving our
A: We are victims of our own success. We tripled our
solutions to the cloud. This will help us provide simpler
business in three years so the view is that the Mexican
solutions with an implementation time of no more than
subsidiary can do anything. Our headquarters strongly
three months. Many of our clients do not use the full
believes we can grow by 20% or 30% again, year after year,
functions of our solutions, on average they use 45% of
as we have already done so. We may be able to do that for
what our solutions have to offer. With the cloud, we want
one or two years but doing so beyond that would be very
to be able to start a solution with 45% of its functionality
tough. SAP’s targets for emerging markets are much higher
to help speed up implementation for a particular client.
than for developed countries. The goal might be to grow
The customer might want a solution with all the bells and
in North America by 10%, but for Mexico, Colombia, and
whistles but we first advise them to start with the functions
Brazil that target could reach 30%. Automotive companies
they are sure to use, and potentially expand functionality
are placing the vast majority of their growth expectations
at a later date. All our clients want cloud-based solutions,
on emerging markets like Mexico as well.
191
LED: THE FUTURE OF AUTOMOTIVE LIGHTING Vehicular lighting has come a long way since its advent in
advantage of LED is that its design offers a combination of
the 1900s when candles illuminated the way for nocturnal
flexibility, efficiency, and security.
drivers. Today, high-tech LED lighting is commonplace in automotive lamps, as lighting set makers are driven by
Osram provides lighting technology to major set makers
demand for efficient, safe lighting solutions combined
like Hella, who in turn supply leading OEMs like Audi
with greater styling flexibility. LED lighting was first used
and Mercedes. For premium car makers that can charge
in automotive lighting for Center High Mount Stop Lamps
premium prices, the latest in LED technology makes
(CHSML) in the 1980s, and although its initial adoption
clear sense, with Hella’s Mexico President Ignacio Moreno
has been slow, LED headlamps have gradually been used
Betanzo explaining that “LED lighting lasts much longer.
with greater frequency as accessibility to the technology
Even visually, a car looks much more luxurious with LED
has increased. Currently, at least 20 vehicle models in
lighting. It is not only a question of energy saving, but also
circulation have incorporated LED headlamps, ranging
of safety. Better lighting simply creates a safer car.” LED
from luxury models like the BMW i8 to more affordable cars
projector headlamps are becoming ubiquitous in cars like
like the 2014 Toyota Corolla. Even within the LED lighting
the Audi A8 but more affordable options pick cheaper
segment, different grades of technology are in use, with
reflector designs. Bortolan argues that LED lighting will
all-LED models contending with hybrid headlights that use
become much more widespread in the next decade,
LED low beams and halogen high beams.
although Osram is not abandoning traditional lighting solutions like halogen. “We should not make the mistake
LED lighting offers a longer service life, vibration
of thinking that LED lighting is the solution to every single
resistance, and shallower packaging compared to most
problem that exists in lighting. Current traditional lighting
bulb-type assemblies. Evidence has shown that safety
is of the highest standard today.” Osram is not seeking to
is also improved due to LED’s faster lighting times.
drive the adoption of LED at all costs, but rather offers all
Conventional brake lights like incandescent bulbs require
its available products to set makers, which in turn leaves it
250 milliseconds to reach 90% intensity, while LED lamps
up to OEMs to decide which lighting solution is the most
rise to full intensity 100 milliseconds faster. Paolo Bortolan,
appropriate and viable for each of the particular models
President and CEO of Osram Mexico, asserts that the best
in their stable.
Moving Forward with the Automobile
Ficosa is a multinational corporation devoted to the research, development, production and commercialisation of systems and parts for automobiles.
192
www.ficosa.com
T.: 52 81 8154 0400
| VIEW FROM THE TOP
R&D CENTER PROVIDES NUMEROUS ADVANCES FOR OEMS LUIS HERMAN ELIZALDE Director of Operations of Ficosa Mexico Q: What role does Mexico and Ficosa’s technology center
base so any such growth will not be a question of physical
in Monterrey play in the company’s global operations?
expansion, such as building new facilities or plants. Instead,
A: Ficosa is headquartered in Barcelona and has a presence
our growth will be dependent on identifying where Mexico
in 19 countries on four continents. Our North American
offers the greatest potential for us.
presence is entirely dedicated to the automotive industry, and we offer solutions to OEMs ranging from mirrors,
Q: How does your relationship with OEM clients impact
command and control devices, light cables, washer systems,
product development and design?
to electronics. This makes an important contribution to
A: We are not a typical supplier as we are able to develop
Ficosa’s global automotive division’s global sales of US$1
a client’s vision beyond the initial request, which is a far
billion. In North America, we have four manufacturing
broader service than that provided by most suppliers. For
facilities and two engineering centers. One of these centers
example, we introduced the new heater for the Chevrolet
is in Detroit and the other one was opened in Monterrey
Suburban and for the Mercedes ML500. In the past, OEMs
in 2005. Our engineering center is an R&D base where we
owned all of the design and technology, but now the
essentially create new designs from scratch and pitch them
supplier base is involved in R&D too. Around ten years ago,
to our clients. Of course, those clients need our designs to
OEMs tried to pull back from technological development.
meet particular concepts, but our long-term experience
There must now be equilibrium in the automotive supply
enables us to propose the best engineering solutions to
chain and the development will never be entirely up to one
them. The knowledge is shared between both our centers
side or the other.
in Mexico and the US, and our engineers have the capability to follow up with data using the CAT system. We have
Q: How do you manage your procurement strategy in
very good engineers in Mexico, but the majority of our
Mexico and what room is there for local Mexican suppliers
development takes place in Detroit because this is where
to work with you?
our main clients are located. We have developed a number
A: Ficosa’s Product Purchasing System is one of our
of patents related to lighting engineering, signs, blinkers,
standards, which helps us to apply specific methodology
and mirrors, while we have also developed integrated vision
and rules when sourcing suppliers. As a global company,
system cameras. One of the interesting products that we
we look for the best suppliers around the world to feed the
produced in Monterrey was a heater to help quickly defrost a
entire company. In Mexico, we choose a panel of suppliers
windshield in colder climates using a special fluid. We invest
to visit in order to assess their suitability. The information
4% of our total sales in R&D, which is a constant investment
obtained from that assessment is submitted to our corporate
that is very necessary given the strong competition we face.
head office in Barcelona. It is only once our head office approves a supplier that we can move on to develop them
Q: Where are you looking to increase your business in
here in Mexico. We do have the ability to choose our own
Mexico?
suppliers locally, but they have to go through the Ficosa
A: We are trying to increase our market share in North
Global Purchasing System. Most of our suppliers for the
America as a whole. We are growing a lot in Mexico due
North American market are based here. Our polymers still
to the new OEMs entering the country. We have a varied
come from the US for the most part, but some are sourced
customer base, including the major US OEMs. We provide
from Mexico. Most of our Mexican suppliers are in the
parts for Volkswagen, both for its operations in Mexico and
northern part of the country, although we are now building
to its plant in Chattanooga, as well as for Mercedes’s ML500.
up our supply chain in the central region. Logistically, there is
We are suppliers to BMW in the US so we are seeking to get
always a challenge when a company’s operations are global,
more work from them in Mexico, and we supply to Honda for
but we have a lot of experience and we share our knowledge
its CR-V vehicle and Nissan for its new facility. We already
between our locations worldwide. Ficosa’s standards are
have the capacity to expand and grow beyond our current
present throughout all of our processes.
193
LIGHTWEIGHT TRENDS WEIGH HEAVY ON ALUMINUM DEBATE What automotive industry experts all agree on is that,
aluminum bodied vehicles also boost safety levels by
irrespective of the energy source, weight reduction will play
ensuring shorter stopping distances.
a crucial role in reducing energy consumption. The race is on in the chemical industry to devise innovative solutions
According to a survey conducted by Ducker Worldwide
for the replacement of traditional metal components
on behalf of the Aluminum Association, more than
with plastic composites, but the solution with the most
75% of pickup trucks produced in North America will
widespread application potential may well be another
be aluminum-bodied by 2025, with Ford, GM, and Fiat
metal: aluminum. Aluminum is by no means a newcomer
Chrysler predicted to be the biggest users of aluminum
to the automotive industry as it has been used in cars for
sheet over the next decade. This would undoubtedly mean
over a century, despite widespread uptake being slow to
big business for the aluminum market, with the body sheet
materialize.
aluminum industry currently valued at roughly US$300 million a year. If all cars were to go all aluminum by 2025,
As early as 1900, aluminum was being used as an alternative
that market would leap to be worth over US$7.5 billion. The
to steel, although sheet aluminum was, and remains,
report findings show that Tesla, Mercedes-Benz, BMW, and
more expensive than steel. Cast aluminum brackets have
Ford will all exceed average aluminum content by 2015.
historically been even costlier. From the outset, aluminum
Pickup trucks by these OEMs will contain an average of
has been the preserve of the premium vehicle, with cars
249kg of aluminum per vehicle, E segment sedans 248kg,
featuring sheet steel body panels manufactured for the
SUVs 186kg, and minivans 180kg. The total North American
masses, and those with aluminum body panels restricted to
aluminum consumption for light vehicle construction is
more exclusive lines. Modern vehicles that have benefited
expected to increase 28% by 2015, compared to figures
from aluminum incorporation have been the Audi A8, the
recorded in 2012.
Jaguar XJR, and the Tesla Model S, which are all luxury vehicles. Nonetheless, the prevalence of aluminum use in
Due to ongoing cost barriers, increased aluminum use in
the automotive industry has steadily been increasing over
cars has mostly been focused on substitutions for auto
the last two decades while the lightweight alternative to
parts such as engine blocks, castings, and wheel rims. The
steel has been the focus of significant R&D investment.
reason for this is not only because of the expense related
According to research released by the Washington DC-
to the raw material cost, but also increased fabrication
based Aluminum Association, aluminum can provide
costs. The stages involved in assembling aluminum-bodied
5-7% fuel savings for every 10% of weight reduction when
vehicles far outnumber those for the assembly of their
used to replace traditional steel components in vehicles.
steel-bodied counterparts. The industry’s current leader
Aluminum also has a 20% smaller lifecycle CO2 footprint
in terms of production of aluminum-bodied vehicles, and
than steel. When aluminum structures are used in hybrid
purveyor of the world’s first all-aluminum SUV, is Jaguar
vehicles, 13.5% better fuel economy is observed, and
Land Rover. The company produces 95,000 all-aluminum
aluminum-bodied diesel vehicles net a 13.1% saving. Lighter
bodied vehicles a year, including its leading Jaguar XJR
SIMULATORS TRAIN WELL-ROUNDED BUS OPERATORS
194
One of the fundamental areas that allow the smooth sailing
have become pioneers in the creation of training courses.
of the transportation sector is the training of operators.
The first Master’s degree in Passenger Transportation seen
Today, as Mexico’s transportation sector sees more new
anywhere in the world was inaugurated in 2014 by CANAPAT
buses hit the roads, this has become particularly relevant.
and UNAM. Similar degrees are found in Europe and the
This importance is further exacerbated by the fact that
US but their academic content is oriented more toward
behavior at the wheel is directly connected to fuel efficiency
the logistics, carrier, and courier transportation sectors. In
and the maintenance of vehicles. Learning how to operate
comparison, 14 passenger transportation companies took
a bus is a studied mix of classroom, simulator and behind-
part in the development of this Master’s degree, making it
the-wheel instruction, all with a common goal: to create
truly unique in the world in terms of its content and focused
the safest bus operator possible. Mexican transportation
objectives. The transportation companies behind the course
companies, in collaboration with educational institutions,
view simulators as a major component of the process, as
and Range Rover models, at its plant in Solihull, UK. A look
F-150 closely. Should Ford pull off the all-aluminum feat
at the complexities involved in the assembly processes
hitch-free, other car-makers are certain to follow suit. The
highlights the reasons for the higher associated costs.
extent to which aluminum bodies will be brought to the
Traditional processes for affixing aluminum sheeting to
mass market in the near future is uncertain. However, Ford
vehicle frames involve thousands of rivets and meters of
has already demonstrated how the knowledge gained
adhesive, both of which are highly cost-intensive. Jaguar
from the development of the F-150 can be applied to other
Land Rover is currently purchasing 353 million rivets a year,
models by presenting its Ford Lightweight Concept Fusion
using 3,722 per Range Rover. Affixing all of these rivets
vehicle in June 2014. The Concept Fusion showcased a 25%
requires meticulous checking and insertion processes, and
weight reduction making it as light as the compact Fiesta,
any mistakes can lead to costly delays. Unlike some OEMs
by reducing the weight of the 2013 Fusion, which weighs
that closely safeguard assembly processes, Jaguar Land
in at 3,431lb (1556kg), by 800lb (362.8kg). The Lightweight
Rover has actually invited major competitors to its British
Concept Fusion features a 1.0l, 3-cylinder EcoBoost engine,
plant to observe production of the all-aluminum Range
with 30% of the weight savings coming from the suspension
Rover, the first all-aluminum SUV to be produced. Jaguar
and 35% from the interior and the glass. The impressive
Land Rover hopes that cooperation among industry
weight reduction was achieved with a mix of aluminum,
players will help to reduce the number and cost of complex
ultra-high-strength steels, magnesium, and carbon fibers.
processes involved in assembling aluminum bodies. However, for the time being at least, the expenses involved The first all-aluminum bodied mass-production vehicle,
in such innovations make them commercially unviable for
the Ford F-150, will go on sale at the end of 2014, and
mass-market vehicles like the Fusion. While OEMs scramble
represents both a milestone and a risk for the US giant.
to find ways to utilize aluminum to its full potential,
The truck’s all aluminum body will reduce the weight of the
longtime supporters of steel may also be making headway.
5,000lb (2267.9kg) F-series, Ford’s most profitable vehicle
The World Steel Association’s automotive division, World
and the bestselling vehicle in the US, by 700lbs (317kg).
Auto Steel, is pushing the benefits of the UltraLight Steel
The new F-150 features an aluminum cab and bed, affixed
Auto Body (ULSAB), with strong support from Porsche.
to a fully boxed steel frame, which has also seen its weight
In a joint project, the OEM and the association revealed
reduced by the use of high-strength steel. Ford is aiming
that an ULSAB structure has been assembled, weighed,
to produce 650,000 of these vehicles a year, almost seven
and proven to be lightweight, structurally sound, safe,
times as many as the vehicles produced by Jaguar Land
executable, and affordable. According to the study, the
Rover in its well-established UK plant. 2 million rivets a
ULSAB structure offers 25% weight savings at no extra cost,
year will be purchased to assemble the truck. Of course,
an 80% improvement in torsional rigidity, 52% improvement
Ford benefits from the fact that it previously owned Jaguar
in bending rigidity, and a 58% improvement in first body
Land Rover and played a significant role in devising the
mode, as well as meeting all mandated crash requirements.
systems currently in use in the UK factory, arguably giving
Perhaps the ultimate lightweight vehicle of the future
the OEM a head start on other mass volume producers.
will include elements of all technologies currently being developed. What is clear is that industry-wide collaboration,
Bearing in mind the challenges faced by the complexities
along with bravery on the part of those currently holding
of the assembly processes, other major OEMs will
executable innovations, will bring advances to benefit the
undoubtedly be observing the success or failure of the
industry, the consumer, and the environment.
they offer operators the experience of driving a bus in tough
chance to familiarize themselves with sections of the road,
driving conditions. Simulators come designed with an exact
while learning the right speed recommendations.
replica of the operator’s dashboard and with a virtual frontal view of the bus seen from the inside. They are able to visually
Grupo Flecha Amarilla has taken a step forward in adopting
reproduce the sensations of driving such as acceleration,
this technology in its training courses. The company
braking, speed, and the environment. The simulators include
already has four driving simulators that reproduce the
a steering wheel, a seat, clutch, brake and accelerator pedals;
driving characteristics of MAN Ferrostaal 8 gears, Scania
a shifter according to the brand of the bus and a screen
7 gears, Irizar PB Confort 7 gears, Volvo 7550 8 gears, and
tracking the name of the operator and instructor are entered
Volvo Bus 9700 12 semiautomatic gears. To complement
while the exercises are performed. At the end of each activity,
this series of attributes, the company’s simulators can
the simulator evaluates the performance and guides the
detect when the operator is tired, deviates from the
operator to try again based on the errors identified by the
road, or is driving too close to the vehicle in front or a
software. An interesting quality of the simulators is that the
pedestrian. Following the steps of Grupo Flecha Amarilla,
scenarios are designed as accurate visual representations of
CANAPAT hopes that this technology will complement
the routes the operators must take. This allows operators the
existing training courses offered by companies.
195
INNOVATION SPREADING ACROSS ALL AUTOMOTIVE SEGMENTS
Juan de la Concha, Business Director of International Business Group of 3M
67 years ago, 3M took a
the pieces while reducing the weight by 15%,” says de la
chance on Mexico as the
Concha. “All OEMs are pursuing such trends, putting an
next great prospect for
onus on suppliers to rapidly develop, manufacture, test
the automotive industry.
and make such products readily available. According to the
This gamble has paid off
market, the differentiation factors will be focused on fuel,
as today Mexico is seen
aesthetics, and engine performance, depending on the
as a prospective cash cow
segments OEMs focus on.” However, 3M identifies another
for the company. “Mexico
trend that will play a part in this differentiation process:
is
to
comfort. De La Concha explains that a lot of investment
hold a place in the top
revolves around interior design and finishing. “While all
10
widely
expected
3M
OEMs follow the same trends, there are different adaptions
worldwide,” says Juan de la Concha, Business Director of
that result in different cars.” Comfort is a wide-ranging
3M’s International Business Group. Given the vast range of
concept that encompasses many areas, from acoustics
products that 3M offers, R&D is never far from the forefront
and insulation to visuals and aesthetics. For example, 3M
of its operations. “5-6% of our global US$30 billion
puts forth mechanical fasteners made of foam, acrylic and
turnover is invested in R&D, and Mexico’s part of this global
adhesive. “Instead of using screws to fasten two parts
investment is likely to increase,” de la Concha remarks.
together, using tape increases comfort, diminishes noise
The company seeks to collaborate with the engineering
and increases the durability of said parts,” explains de la
centers of OEMs and Tier 1s to better understand the
Concha. Acoustics also play a part in comfort, through
needs of the market and develop new ideas and proposals
areas such as temperature and sound transmission.
involving its 46 technological platforms worldwide. The
“Our Thinsulate™ product provides exceptional sound
innovation process begins in the main engineering centers
absorption and excellent thermal insulation.”
operations
of
of OEMs and Tier 1 companies, before flowing to 3M’s own labs and then trickling down to local engineering centers in
De la Concha points out that the engineering innovations
Mexico. 3M has also been working on improving the roles
that mark the key differences between various OEMs are
that such local centers can play in this process. “Normally,
becoming crystal clear in Mexico. “Mexico is a new market
the local research centers receive simple engineering tasks
for engineering so OEMs have been releasing products
to adapt products to the local market,” says de la Concha.
depending on the maturity of the market. For example,
“However, investments over the past decade have made
we can see variations in interior design depending on
Mexican engineering centers undergo radical changes. We
regions of the country as local R&D begins to naturally
are jointly transforming the capacities of these centers so
affect these areas,” he says. But as innovation spreads
that Mexico can have the ability to not only design locally,
across all vehicle segments, 3M seeks to stay in the
but for the entire world.”
game as much as possible. It has recently launched new products with an aesthetic bent, offering films for plastic
196
With over 6,000 products circulating in Mexico and over
moldings that can provide either a metallic or wood
80,000 worldwide, 3M has kept its finger on the pulse
finishing, which he says makes an important difference
of the main automotive trends. Core products such as
for the consumers. 3M’s keen interest in incentivizing R&D
sandpaper and masking tape are just some of its bestsellers
in Mexico also took the form of an R&D center in San Luis
that can trace their roots back to the automotive industry.
Potosi in 2013, with an initial investment of US$7 million.
Today, motor efficiency has made sustainability the
“We invested in people and laboratories and we now want
leading trend that 3M must cater to. As part of this, the
to use our global capabilities to bring more products to
company has launched a product called Interam™ for
Mexico that are being developed in other places,” says
catalytic converters. “Catalytic converters are pieces of
de La Concha. While it may seem that 3M develops its
pottery containing precious metals that convert harmful
innovations based on the particular evolutions of specific
gases into ones that can be released into the atmosphere.
segments, customer feedback brings them all together.
Interam™ works as a seal for this critical piece in terms
De la Concha stresses that the company always seeks to
of pollution,” de la Concha explains. Alongside this, 3M
tie its R&D investments into getting closer to each of its
tackles weight reduction for vehicles, another key aspect
markets and to better serve local customers. As such, the
for emission reductions and sustainability. “For example,
opening of 3M’s engineering center in Mexico is part of
we have products for plastic parts modelling that use
the company’s goal to differentiate its product offering
microspheres that maintain the structural composition of
for the local Mexican automotive market.
GREEN TIRE DEMAND BOOSTS FUEL ECONOMY STANDARDS By LANXESS - With so many vehicles, it is no surprise that
This is why most new hybrid cars now come outfitted
North America is the largest global market for tires. The US
with low rolling resistance tires. The typical consumer
tire dealer industry includes about 11,000 companies with
who replaces original equipment tires with a set of four
combined annual revenues of about US$30 billion. Most of
low rolling resistance tires can save at least US$150 in fuel
the tires sold are replacement tires for passenger cars (50%)
over the life of the tires, according to calculations made
and commercial vehicles (20%), with the rest going to car
based on average US prices of gasoline. Considering that
manufacturers. The level of demand for tires is correlated
a low rolling resistance tire costs on average only US$20-
with vehicle usage, which in turn depends on the economy.
30 more than an aftermarket tire sold now, the benefits
As governments continue to ratchet up fuel economy
to consumers are clear. At higher oil prices, as has been
standards, car manufacturers have embraced the benefits
the case in recent years, lifecycle savings with low rolling
of low rolling resistance tires. Rolling resistance describes
resistance tires are close to double.
the amount of energy dissipated when a tire rolls across the road. The greater the rolling resistance, the more energy the
The selection of materials has a very large impact on a tire’s
engine must generate to propel the vehicle and the more
rolling resistance. About 50% of the energy dissipation
fuel the engine must consume to produce that energy. Thus,
in a tire occurs in the tread, and the types of materials
decreasing a tire’s rolling resistance is an effective way to
used there have a large effect on rolling resistance. The
increase a vehicle’s fuel efficiency.
key challenge is to formulate polymers that have low visco-elastic losses but still maintain tire grip on the road.
A tire’s performance is determined by three main qualities:
Specialty chemical manufacturers such as LANXESS have
traction or grip, durability, and rolling resistance, besides
focused on the development of exactly such polymers
attributes such as ride quality and noise. In the past, improving
suitable for tires. For example, LANXESS has unveiled
one of these qualities meant that the others suffered a
polymers that have been produced with neodymium
decline. Thus, reducing rolling resistance had adverse
catalyst systems (Nd-BR) to be used for tire compounds
effects on traction or durability. In recent years, however,
showing the potential for simultaneously improving rolling
thanks to improvements in tire materials and technology,
resistance and durability. The Nd-BR compound also
it is possible to increase tire fuel efficiency without having
has very good resistance to flex cracking and fatigue.
an adverse effect on other performance attributes. Due to
Additional advancements in materials technology through
innovative high performance rubbers, tires have improved in
tailored structures is widely expected and could lead to
all performance criteria. Today, it is possible to improve all
new materials that have directionally tailored properties
factors simultaneously. The result is a growing market of fuel
best suited to tire construction.
efficient tires that save consumers money by reducing fuel consumption and emissions, which protect the environment
In Europe alone, according to the Clear Air Initiative, studies
and lower dependence on foreign oil in countries such as
have shown that introducing green tires and labeling could
the US. Tire technology continues to improve, holding the
result in a reduction of some 20 million metric tonnes of
promise for even greater benefits in the years to come.
CO2 emissions and fuel savings worth US$8 billion annually. As such, from November 1, 2012, any tire sold within the
automaker’s
EU has to have a sticker that shows its rolling resistance,
perspective as it is possible to improve fuel efficiency
wet grip, and noise performance. European policymakers
Tires
are
low
hanging
fruit
from
an
significantly without incurring high costs. It is much harder
want tomorrow’s cars to have much lower CO2 emissions
to improve fuel efficiency in the engine or the design of
through technological innovations like low-carbon-footprint
the car body. According to calculations, every percent of
biofuels, green tires, and lightweight plastics. It is not only
fuel economy gained by improvements to the engine costs
the EU that is implementing tire labels. Countries such as
a carmaker somewhere between US$30 and US$40 but
Japan and South Korea have already implemented tire
a 1% improvement through an upgrade to the tires costs
labels. Brazil is already preparing to introduce a tire label
far less than that, at between US$6 to US$8. This makes
in 2016 and other countries like China will likely follow. In
improvements to tires one of the most cost effective
conclusion, tire labeling is an essential tool to making the
technologies for automakers to meet rising fuel economy
market for low rolling resistance tires more efficient and
standards. Hybrid electric and pure electric vehicle fuel
transparent and to help consumers make more informed
economy is more sensitive to tire rolling resistance because
decisions. It is an easy way to achieve increased fuel
these cars tend to be heavier due to their large batteries
economy while improving safety and reducing greenhouse
and extra weight, which means more fuel consumption.
gas emissions.
197
RISE OF AVANT-GARDE MANUFACTURING TECHNOLOGY The adoption of avant-
from Mexican companies in investing in manufacturing
garde
technology,” he says. This was made evident at Chicago’s
manufacturing spread
annual International Manufacturing Technology Show,
across a wide range of
where the largest international delegation was Mexican.
industries, with automotive
“This reflects Mexico’s desire to seek new technology and
being
go further in the understanding of sophisticated systems.”
technology
no
Emerging
exception. markets
like
Furthermore,
40%
of
the
consumption
of
machine
to
manufacturing technology that enters Mexico goes to the
distinguish themselves due
automotive industry. As a result, between 2012 and 2013,
to the rise in demand and
the consumption of manufacturing technology increased
consumption of advanced
by 10% and Morteral expects to see this grow by 15% in 2014.
Mexico Carlos Morteral, General Manager of AMT
has
have
begun
manufacturing technology in their automotive sectors. The Association for Manufacturing Technology (AMT),
Despite there being more automated and sophisticated
with 112 years of experience, has witnessed the evolution
systems entering the Mexican market, there is still a
of Mexico into one of the largest export destinations for
long road ahead to reach full integration. “Sourcing local
manufacturing technology for the US. Mexico’s proximity to
components in Mexico is an attribute to be fostered that will
the US means it has acquired a 90% market share for such
promote the adoption of more technology. Local Tier 1 and
equipment, amounting to approximately US$3.5 billion of
2 companies trying to become global players can become
manufactured technology in a range of applications. Carlos
so by implementing the right level of technology to meet
Morteral, General Manager of AMT, traces the manufacturing
the expectations of international customers,” Morteral
relationship between the US and Mexico back to the 1960s,
points out. The idea of Mexico hosting more technological
when the Mexican manufacturing industry began to bloom.
capacity has strengthened in AMT’s agenda through the
“The US industry was among the first to invest and show
Manufacturing Process Advisory Board initiative. “The
interest in Mexico back in the 1960s and 1970s, creating a
board meets every six to eight months, gathering plant
long-term preference which AMT had made its best effort to
managers and presidents of international and domestic
maintain and nurture.” A competitive advantage Mexico has
companies from a wide range of industries to discuss
developed by being a primary consumer of manufacturing
sourcing plans and the further integration of parts and
technology is the country’s familiarity with both imperial
components,” he explains. These meetings have also borne
and metric standards. This means that blueprint readings,
witness to an evolution of Mexican industry. The traditional
systems, and programming of controls are simplified.
industrial background of Mexico has tended to be in the northeastern states. However, the recent boom in the
198
As Mexico continues to rise as a global industrial player,
central regions has led AMT to begin promoting business
while the NAFTA region continues to dominate as a
development tour focusing on places like Irapuato, Silao,
consumer market, Morteral predicts sophistication will rise
and Queretaro to generate the adoption of technology in
in manufacturing processes. “AMT has seen a lot of interest
the plethora of manufacturing operations emerging there.
PROCESS CONTROL IMPROVES MANUFACTURING PRACTICES The automotive industry and its manufacturing practices
to carry out the measurement motions while the CMM
have gone from bulky and unrefined to complex and
machine moves in its linear fashion.” The automotive industry
concise. Alejandro Silva, Director General of Renishaw
adopts any practical innovation that will reduce costs, reduce
Mexico believes this evolution stems from the OEMs’
scrapping, and increase efficiency and leanness in processes.
increasing presence in Mexico that has pushed Tier 1 and
“Having a full understanding of the process control
2 companies to ramp up their performance. As a global
mechanisms can benefit customers by reducing scrap and
company with core skills in metrology, motion control, and
operation time,” says Silva. “Companies can fully automate
precision machining, Renishaw has flourished under this
the process and remain confident about the quality of the
change. “In the first year the company experienced a growth
components. The successful application of this technology is
of 45-50% and for our second year the expected growth
embodied in Renishaw’s manufacturing site in the UK, where
is approximately 25%,” Silva explains. As the automotive
operations are carried out 24/7 and are unmanned. There are
industry is driven by innovation, one of the new technological
about three or four workers running 20 machines and the
arrivals to Mexican shores is additive manufacturing,
products meet the defined tolerances complying with quality
commonly known as 3D printing. Renishaw’s additive
standards,” Silva comments. “Process control minimizes
manufacturing technologies encompass laser melting and
labor force size and reduces bottlenecks and scrapping to
injection molding technologies. The laser melting process is
almost zero.”
an emerging technology with a presence in the healthcare industry as well as the aerospace and high electronics
Renishaw has identified that in more developed markets
sectors. This technology is a digitally driven manufacturing
there is a higher incidence of these developed products.
process that uses laser energy to fuse metallic powders into
“Transnational companies are more likely to adopt these
3D objects. “Renishaw has recently introduced a 3D printing
methods in Mexico, where new Tier 1 and 2 arrivals are
system to Mexico, which utilizes metal to create new body
already entering with the machinery and technology in
forms for either prototypes or assembly manufacturing,”
place,” says Silva. However, as the innovation race continues,
Silva explains. This process is especially applicable to the
Mexican based Tier 1 and 2 companies must also step up their
automotive industry since it helps the creation of designs
game. “Renishaw is working on educating these companies
that were impossible in the past. This is important since
about the benefits of these systems and how the technology
laser melting significantly lessens the constraints on design.
works,” Silva explains. “Some companies have the false
“Having a full understanding of the process control mechanisms can benefit customers by reducing scrap and operation time. Companies can fully automate the process and remain confident about the quality of the components” Alejandro Silva, Director General of Renishaw Mexico
The demand for excellence is seen in the rising demand for
perception that faster CNC machines and cutting tools
metrology. “OEMs are requiring 100% inspection of parts,
improve production time, but if the part that comes out is in
and every part has to be measured for 10 to 20 features,
bad shape and does not meet quality standards, then it is a
depending on the component,” Silva comments. Some
complete waste. Technology can represent a big expense for
components go through more thorough revisions like
companies, but the processes are top quality and the return
engine blocks or suspension cases and it can be very time
in investment is significant. If companies can reduce their
consuming. “If all production has to be evaluated and there
production costs by 25%, it entails large savings.” Renishaw
are several CNC machines producing these parts, a huge
has been able to reduce costs by over US$500,000 in just
bottleneck is created in the CMM Inspection Lab, which
scrapping. The system only costs a fraction of this and it
slows down production,” says Silva. “In response to this,
is the only existing tool that can control scrapping.” With
Renishaw has created a revolutionary product designed
OEMs demanding more from their suppliers, companies are
to maximize the CMM throughput while maintaining high
looking for alternatives that will maintain quality, and probing
system accuracy. Revo is a dynamic five axis measuring head
systems have proven to be the heart of machines, and as
and probe system which can measure much faster than any
Silva states: “Probing solutions in machine tool and CMM is
other system. This is achieved by allowing the REVO head
the foundation for a successful manufacturing process.”
199
RISE IN POPULARITY OF ULTRA-LOW SULFUR DIESEL For many consumers, diesel conjures up images of smoke
emission standards. Oscar Silva, Director Advisory at
belching trucks and clattery passenger vehicles. Those
KPMG, explains that Mexico does have an established
negative perceptions have been put to rest with the
norm for fuel standards, NOM-086. According to NOM-
entry of a new, cleaner-burning type of diesel fuel named
086, PEMEX should have supplied the nation with ULSD by
ultra-low sulfur diesel (ULSD). Combined with advanced
2009, but the supply is still limited to the northern border
emission control technologies, ULSD reduces the sulfur
and the metropolitan areas of Monterrey, Guadalajara, and
content by 97%. Sulfur, a natural element of crude oil,
Mexico City. Silva attributes this lack of compliance to the
is one of the main causes of soot in diesel, which is the
lack of strong investment in additional refining capacity by
main culprit of noxious black exhaust fumes. New engines
PEMEX. As a result, US exports of ULSD to Mexico have
powered by ULSD utilize a particulate filter. As the soot
more than quadrupled from 25,000 barrels per day in
particles accumulate in the filter, pressure in the exhaust
2009 to 109,000 per day in 2012. This in turn has adversely
system increases, and once pressure has reached a certain
affected the implementation of advanced technologies
point, a sensor tells the engine management computer
in the Mexican automotive industry, with suppliers being
to inject more fuel into the engine. This causes heat to
forced to adapt their engines and other parts in order
build up, which burns the accumulated soot particles. This
to function with the remaining low quality fuel. Renato
entire cycle occurs within minutes and is undetectable by
Villalpando, Director General of Paccar Mexico, describes
the vehicle’s driver. ULSD has pushed automakers to the
this downgrade. “We launched a new engine in the US
limits in developing diesel vehicles with advanced emission
three years ago, and we are now launching the Mexican
control systems that meet emission standards as strict as
version with different emission levels.” The downgrade is
those governing gasoline-powered vehicles.
due to a technicality, as in order to apply better technology, the right fuel and sulfur contents are needed for the
Governments around the world have taken steps to
parts to operate correctly. “We can bring more complex
make diesel vehicles much cleaner by implementing new
technologies to the country, but these will not provide the
emission standards. As of 2006, almost all diesel-based
expected results and, in some cases, the components may
fuel available in the UK, EU, and the US is of a ULSD
be damaged by the Mexican fuel,” he adds.
type. The change first started in the EU with the Euro IV standard in 2005 that specified a maximum 50ppm, which
Despite the fact that the implementation of NOM-086 has
was followed by Euro V in 2008. In the US, new standards
moved at a snail’s pace, 2014 signals a change that could
were proposed by the Environmental Protection Agency
spark the full coverage of ULSD in Mexico. “KPMG has
(EPA) in 2007 and 2010. According to EPA estimates, the
a positive outlook. For example, gasoline efficiency has
implementation of new standards for diesel will see NOx
increased from 11.8km/l in 2008 to 13.1km/l in 2013, and are
emissions reduced by 2.6 million tonnes each year and
set to reach 14.9km/l by 2016, while CO2 emissions have
soot particulate matter will drop by 110,000 tonnes a year.
been lowered from 198g/km to 180g/km. The government
Mexico has lagged behind in its approach to implementing
has taken further steps by establishing NOM-163 that states
MARKET SEGMENTS THAT CAN MOST BENEFIT FROM ULSD
200
“Cummins has always tried to be on top of technology
Mexico is nine years behind the most advanced emission
related to emissions, and to exceed the emissions
regulations in the US and Europe, Cummins is seeking
regulation requirements in each of the countries we
to help bridge that gap with its technology. Hope has
work in,” explains Pedro Zermeño, ABO Components
been kindled with certain regulations in the oil and gas
BU Leader & Marketing FBU Mexico & Central America
industry as these should change the availability of needed
of Cummins. In the US, for example, it was ahead of the
technology. “The government is saying Ultra-Low Sulfur
game, since Cummins engines that complied with the
Diesel (ULSD) will be available in 2017, which will allow
EPA’s 2010 regulations were ready for the market by
us to introduce products that have lower emissions,”
2009. 18 years ago, Cummins was able to develop after-
Zermeño explains. “In the US, heavy duty vehicles face the
treatment systems which are now still part of the emission
strictest regulations. This makes sense, given the type of
controls rolled out in 2013. Zermeño says that considering
equipment that circulates in cities.” In this sector, Cummins
a standard method of measuring CO2 emissions, where
chance to offer new after treatment products for all engine
none previously existed. These norms seem to have shaken
types. “Public transportation vehicles in metropolitan
Mexico in the direction of compliance. In the first quarter of
areas, like Metrobus in Mexico City, are currently using
2014, the elaboration of ULSD by PEMEX reached 100,900
emission reduction technologies like Euro V,” says Pedro
barrels a day, a quantity that stands 14% above 2013 levels. In
Zermeño, ABO Components BU Leader & Marketing FBU
addition, the Energy Reform will incentivize this production
Mexico & Central America of Cummins. This is because
even further,” says Silva. “The Energy Reform that took
heavy duty OEMs are not giving a choice for engines
place and the expected FDI it will bring will make NOM-
with lower emission standards, they are only providing
086 official, and Mexico will then be able to keep up with
Euro V options. “This is a sort of self-regulation in which
international standards,” Silva comments. The automotive
companies are buying the only product available,” he adds.
industry likewise shares the same hopes. “We hope the
According to Zermeño, the government is already trying to
Energy Reform includes investments in refineries in order
retrofit old fleets with after treatment systems to reduce
to produce the required volumes of cleaner fuels. We have
emissions in Mexico City, Monterrey, and Guadalajara.
big expectations that what is being proposed will become a reality,” Villalpando shares.
As OEMs introduce Euro V technology, Tier 1 suppliers like Cummins are entering the fray. Ignacio García, Vice
Tied to the availability of ULSD and NOM-086 are the
President of Cummins, acknowledges that while ULSD
proposed changes for Mexico’s heavy duty vehicle
only provides 30% of the demand and the government
emissions standard, NOM-044. This new regulation aims
will import more to boost the figure to 50%, there are
to significantly lower the emissions of particulate matter
good incentives to introduce new technologies. “We are
and NOx from trucks and buses by requiring heavy duty
constantly bringing new technology to the market and we
vehicles sold in Mexico to be equipped with the latest
will make our Euro V engine available by the end of 2014,”
emission control technologies and diagnostic systems.
García states. The company recently launched its new ISX
These norms in unison will align Mexico’s regulatory
engine to meet Euro IV and V standards, and the five test
framework with international standards. The International
units circulating in Mexico have achieved an improved fuel
Council on Clean Transportation (ICCT) carried out a
efficiency of 5%. García feels the new emissions law will
cost benefit analysis of the modernized NOM-044, which
be implemented by 2018, while Silva bets on 2019. “These
found that tighter standards would result in a net benefit
investments will be deployed quickly and in the space
of US$123 billion for Mexico, also taking into account the
of five years, those fuels will be available,” Silva states.
value of avoiding 55,000 early deaths from air pollution.
According to him, the delay is partly beneficial because
While NOM-044 depends heavily on ULSD, the ICCT is
as soon as those fuels are available, even older models will
positive that the government will seek opportunities for
become more efficient. To successfully implement ULSD
early adoption. Over 30% of diesel fuel sold in Mexico
requires high technology as Garcia explains: “There is
already meets the ULSD standard. “The government is
a lot of complexity in the on-board diagnostics of these
well informed of the benefits this will bring the automotive
engines; the market is not ready for that yet.” With these
industry. All the pieces of the puzzle are coming together
hurdles to overcome, OEMs and suppliers are targeting
to bring the industry to an optimal level,” says Silva. Some
certain segments of the market. “Public transport is a huge
companies do not wish to wait for the government to
market and all OEMs will pour in to take advantage of its
pass the right laws. This haste has provided Cummins the
potential,” Silva comments.
has a good participation on the engine side where it has
The lack of availability of ULSD in Mexico to date has led
a solid market share. “For mid-range trucks, we have
to inventive alternatives for reducing emissions. “Natural
about 34% of market share and 28% in buses,” he adds.
gas engines have become a viable option, and Cummins
Hence, the company aims to push the envelope for such
implemented a project with a fleet of 50 natural gas buses
vehicles. Mexico City is notorious for its pollution issues
in Guadalajara, and 20 more in Mexico City. Natural gas
but, according to Zermeño, it will try to emulate what
engines result in a 40% fuel cost reduction, which is bound
California has done in terms of emission regulations for
to provide a good incentive for their increased use,” says
older vehicles. “California set a deadline for fleet owners
Zermeño. The company is also working on projects that
to have at least 60% of their fleets kitted out with emission
will seek to power units with energy created from the
control systems,” he adds, “In Mexico City, old engines are
methane gas obtained from trash. “We have double cycle
still working and although there are no set regulations, the
products in diesel, natural and methane gas,” he adds. But
government is working to reduce emissions from fleets.
while these alternatives hold potential, Cummins has set its
Suppliers like Cummins are now cooperating with the
sights on the future availability of ULSD and the fount of
government on this, and although the cost might be high,
technology and components it will bring to Mexico in the
the benefits are countless.”
years ahead.
201
DME HERALDED AS ALTERNATIVE FUEL OF CHOICE Natural ethanol, hydrogen
Matthew Walsh, Director General of Volvo Group Trucks Mexico
gas,
biodiesel,
propane, have
all
and
you the same distance. With DME, you only need to carry 30% more,” adds Walsh.
had
their time in the spotlight
“As fuel costs continue to go up in price, the awareness
and are now the most
of alternative fuels is also beginning to increase,” explains
widely known alternative
Walsh. Indeed, operators are looking for anything that can
fuels. However, none of
minimize their fuel consumption and improve profitability.
them have been wholly
“As the need continues to grow, the quest for alternative
convincing and the search
fuels will get fiercer. Therefore, developing DME has become
for the next alternative
a priority for Volvo Group as customers see the company as
fuel continues. For some,
a technology leader,” says Walsh. “The company’s biggest
dimethyl ether (DME) is the real fuel of the future. Volvo
weakness in the past was that although it came up with
Group is among those convinced of this and has been
technological innovations, it took too long to offer them
involved in the development of DME since the idea first
to the industry and competitors ended up beating them to
appeared. “As a world leader in creating alternative
the market. In the DME race, therefore, Volvo Group is at
energy solutions for heavy vehicles, the group made
full throttle to get the fuel out there. It has been tested in
the commitment to test eight different alternative fuels
Europe, and it is currently being tested in the US, Brazil, and
globally for the last decade, and recently launched a big
Australia to gain several points of view on just how flexible
program in the state of California for DME fuel,” says Volvo
it is as a fuel resource. We will make natural gas engines in
Group Trucks Mexico’s Director General, Matthew Walsh.
conjunction with DME engines enabling us to answer those who are determined that natural gas is the future.”
DME is a clean, colorless gas that is easy to liquefy and
202
transport. Used as a common propellant in aerosol
Having evaluated eight different options and deciding DME
sprays, in many personal care products, and lubricant
is the fuel of choice, Walsh admits that some barriers must
oil, it has an excellent long-term safety record. Recently,
still be dealt with before DME vehicles reach the market.
it has drawn attention for the remarkable potential it
Incentives must be provided by the Mexican government
holds as an automotive fuel as well as for electric power
to offset the initial cost structure, according to Walsh.
generation. Some of DME’s promising qualities are that it
“To get DME from a natural gas fueling center might cost
has a high oxygen content, it lacks sulfur and other noxious
anywhere between US$400,000 and US$1 million for the
compounds, and it provides clean combustion. Today, DME
conversion of just one location.” He points out that natural
production is primarily based on methanol dehydration, but
gas engines are popular in certain markets despite costing
one of its valuable characteristics is that it can be derived
US$30,000 more apiece than diesel engines. “This has
from a variety of abundant sources. “Volvo Group Trucks’
been made possible thanks to accelerated tax depreciation,
R&D department has found that agricultural products in
rebate programs, and access to contracts that depend on
over 90% of the world could produce DME, and you can
a certain percentage of a fleet running on natural gas.
even use some fossil fuels to make DME,” explains Walsh.
However, these same principles could be applied to DME
Research has shown that DME has evolved to become a
engines and trucks. Yet another barrier is presented by
modern and safe source of energy and compares favorably
the politics involved, including the fact that revenues from
to other energy sources. It provides low CO2 emissions and
PEMEX fund so much government activity.” For Walsh, it
a 90% reduction in NOx emissions compared with standard
is indisputable that the Mexican government is struggling
automotive fuels. Moreover, the automotive use of DME
with how to change the country’s heavy reliance on fossil
has the highest efficiency of all synthetic liquid fuels, with
fuel consumption. “The government is wondering how to
30% higher fuel economy than gasoline in passenger cars.
create the revenue stream for these alternative fuels, from
That is of course an attractive benefit considering ever
raising highway taxation to taxing tires,” says Walsh. As
stricter CAFE standards. According to Walsh, natural gas
many countries are facing similar scenarios, Volvo Group
is good for regional haul and light distribution, but it does
Trucks has begun meeting with governments around the
not fare well for long haul or heavy loads as it lacks the
world to prove that alternative fuel solutions can be made
strength to power vehicles in such conditions. “DME has
to work in markets facing high pollution levels and other
approximately 72% the strength of diesel, while natural gas
issues. “It is a no-brainer that clean technologies have to
has just 45% of that. This means you would have to carry
be brought in to compensate for what has been done to
about twice the amount of natural gas than diesel to get
the environment over the last century,” Walsh concludes.
JOINT INTERNATIONAL EFFORTS BENEFIT GROWTH OF SMES
Guillermo Fernández de la Garza, Executive Director of FUMEC
One of the lesser known
impact and cover a broader set of objectives. In line with
results of the signing of
this, FUMEC developed the TechPYME program for Mexican
NAFTA was the creation
companies focused on strategic niches in the automotive,
of
E.
aerospace, medical, and other highly dynamic sectors. This
Brown Jr. United States-
program helps to build innovation and support networks
Mexico
Foundation
for
for SMEs to enable them to improve on a wide range of
Science
(FUMEC).
the
The
George
One
capabilities, from certification standards to better business
of FUMEC’s main goals
models. “SMEs find it very difficult to develop the resources
is
the
of
needed for strong innovation programs. They need labs, and
science
advanced IT capabilities,” adds Fernández de la Garza. As
development
collaborative
efforts
dealing with each individual company challenge separately
in important industries for the US and Mexico, with the
would be impossible, FUMEC has grouped companies with
automotive sector being one of the institution’s early
similar synergies, enabling them to tackle these challenges
targets. It began by focusing on the automotive industry’s
together. Working with over 200 advanced manufacturing
pillars of competitiveness: the drive toward innovation, the
companies, FUMEC has developed strong links to the
understanding of market trends, manufacturing processes,
automotive industry, and is working hard to develop SME
and technology. It saw the future of all these factors as being
capabilities. This is being achieved through a large national
dependent on certain advances, such as better ties between
support network as part of the TechPYME program, and the
companies, education and research institutions formed
international network of its Technology Business Accelerators
within government programs, the internationalization of
(TechBA) program which is spread over eight global offices:
Mexican technology companies, and improved educational
five in the US, two in Canada, and one in Spain. TechBA’s HQ
platforms. One frequent concern for automotive companies
in Mexico is acting as an international accelerator of growth
looking to hire is whether the training that engineers receive
for Mexican technology companies. The TechPYME program
at universities is compatible with the needs of the industry.
begins with a group of business technology advisors who
FUMEC’s Executive Director, Guillermo Fernández de la
work with automotive companies in identifying their needs in
Garza, sees the need for a shift that would start at the very
product development, production processes, and marketing.
beginning by “developing basic education capabilities in
The SMEs’ role within the value chain is analyzed to spot
schools and helping children develop cognitive skills through
what specific contributions they could be making. Finally,
the technique of learning by doing.” This viewpoint was
articulators facilitate interaction between the companies
supported during the 2013 launch of the US-Mexico High
and the specialized technical groups of universities and
Level Economic Dialogue (HLED), when US Vice-President
R&D centers. TechBA provides support for international
Joe Biden, discussing the need for increased skilled labor,
acceleration of the SME’s, and the TechBA office specializing
referred to cognitive capability as “the new currency.”
in the automotive industry is based in Michigan and works
Spurred by this vision, much of FUMEC’s work has focused
closely with the ProMéxico office in Chicago. All TechBA
on promoting education innovation in technical high schools
offices work together to facilitate the interaction of small
and universities. “To bridge the gap between automotive
companies within a larger automotive industry support
companies, universities, and R&D centers, FUMEC partnered
network. An example of this was seen in the case of
with the AERI program of CONACYT, in order to provide
Industrias Forza, a company based in Morelos that produces
guidance to universities in respect to the future needs of
plastic covers to be used during the assembly process of
companies,” says Fernández de la Garza. For universities to
new cars to allow the vehicles to be moved around without
be effective, he calls upon them to improve their educational
damage to the exterior. Company representatives travelled
processes and have research infrastructure in place that
to Detroit, where they were able to interact directly with
will allow them to keep up with advances in the automotive
purchasing staff from large OEMs and Tier 1s, leading to the
industry. AERI targeted specific issues within the industry,
establishment of relationships with Nissan and other OEMs,
depending on local universities for support. “For instance,
both in Mexico and abroad.
and
technology
FUMEC has worked with universities to help them develop the capabilities to train people in embedded software for the
As the automotive industry evolves in Mexico, it has
automotive industry,” states Fernández de la Garza.
become evident to Fernández de la Garza that stronger Mexican innovation promotion institutions, like FUMEC, will
For Fernández de la Garza, focusing on strategic niche
be needed to support more sophisticated manufacturing
markets presents the opportunity to create a stronger
processes, both within the educational and private sectors.
203
BOUNDLESS OPPORTUNITIES IN ENERGY AVAILABILITY With 40 years under its belt developing solar energy
be lowered. “New laws in Mexico mandate that companies
solutions for a wide range of sectors, Mexican tech firm
can reduce their tax bill by generating energy from
Skylab has identified a change in the automotive industry
renewable resources,” says Garduño. The trend among
regarding energy availability and consumption. “The
automotive companies gathering into clusters represents
industry is taking this matter very seriously and is looking to
an opportunity for Skylab to offer the development,
harness renewable energy in its manufacturing processes,”
implementation, and management of solar parks to
says Gerardo Garduño, Director General of Skylab. The
help clusters to reduce energy costs. “We provide the
significant energy needs exhibited by automotive firms
technology and investment. We develop the project,
granted Skylab the opportunity to enter this niche market
obtain the permits for self-supply, and we provide energy
particularly in the central regions of the country. “We have
without the automotive industry investing any money,”
developed a project in Aguascalientes that is moving along
describes Garduño. All the company asks in return is a
nicely. It already has 1MW up and running, but the license
power purchase agreement to be signed for the energy it
goes up to 3.8MW, for a total investment of US$60 million,”
will generate for the next 20 to 25 years. Beyond its solar
he explains. Through projects such as this, Skylab’s vision
intentions, the company has also been investing in new
is to collaborate with automotive companies in providing
materials that use nanotechnology that it sees as being
solar energy systems under the self-supply scheme. “We
well-suited to automotive firms. “This material has been
want to develop solar parks to generate energy at a
used in planes to generate the energy needed during the
lower price than CFE, allowing automotive companies
flight. We see potential for it to be used in cars in Mexico
to generate savings of 10-12% in their plants and other
and across Central America.” Given the complexity of this
facilities,” Garduño clarifies.
advanced technology, Skylab has taken steps to secure
“We want to develop solar parks to generate energy at a lower price than CFE, allowing automotive companies to generate savings of 10-12%” Gerardo Garduño, Director General of Skylab
Currently, most automotive companies use electricity
the right partnerships to develop brands and patents. It
generated by CFE from fossil fuels. One major exception
has developed a project with Nissan supplier JATCO that
is Volkswagen that powers its Puebla and Silao plants
will be used as a basis to offer services and products to
from the 120MW La Bufa wind farm in Zacatecas, saving
automotive companies in the central region. “We believe
US$3.5 million a year along the way. Should others follow
this is the tip of the iceberg as we foresee exponential
this example, both their CO2 emissions and tax bills will
growth in the automotive sector,” Garduño comments.
Alternatives of interaction with the automotive industry
- Engineering and development - Standar tests - Specialized training - Exchange of technical staff
204
CIMA - Tecnológico de Monterrey, Toluca Campus
cima.tol.itesm.mx
| PROJECT SPOTLIGHT
ENVIRONMENTAL SUSTAINABILITY INTEGRATED INTO NEW PIRELLI PLANT By Tomás Grávalos - Pirelli & C. SpA, a global tire
reutilized onsite, and workers separate metals from plastics
manufacturer specialized in high-end, premium tires, made a
and textiles, regenerating materials like polythene while
decision in July 2010 to build a greenfield factory in Mexico.
the latest recycling technologies are applied. The factory at
The decision was based on an evaluation of the demand for
Silao is still completing its start-up phase and is currently
premium tires in the NAFTA region, the opportunity for skilled
manufacturing at about 40% of capacity. Menassi estimates
and cost-effective labor in Mexico, and upon visiting sites
that it consumes 30% less energy than the environmentally
in September 2010, on Guanajuato’s solid plans to build an
designed Romanian factory at the same stage of its start-
industrial automotive district with excellent infrastructure and
up. Pirelli views continuous improvement as a must so when
services. Giuliano Menassi, the Pirelli engineer who had just
its newest factory in Silao becomes fully operational in
finished overseeing the construction of an environmentally
2017, it will be one of the company’s most energy efficient
friendly factory in Romania, was selected to lead the project.
plants. Pirelli also signed an agreement for reforestation
Menassi’s design for the plant began with environmental
with the Institute of Ecology on November 1, 2013, adopting
aspects, starting with its energy consumption, efficiency
20 hectares for conservation of the protected natural area
from isolation, and materials. “The idea was to plan, from the
Cuenca de la Esperanza in Guanajuato. This three year
beginning, a sustainable factory,” he says.
project aims to plant 12,875 trees and maintain them during this period. These combined aspects make Pirelli’s plant at
Given the amount of sunlight in Silao, the building would rely
Silao a role model for how the industry can interact with
on a high percentage of natural lighting. Artificial lighting
the natural environment, creating a sustainable future for
would only be used at night, turned on when needed, in the
generations to come.
quantity needed, through the use of sensors designed to maintain a continuous level of light. Skylights would make
At a global level, Pirelli measures energy consumption per
up 8% of the roof’s surface, but Menassi was so thrilled with
ton of finished product; water consumption is measured and
the natural lighting beaming in through the skylights that
improved upon, while waste is measured in terms of kilos per
he created an internal garden to grace the entrance of the
ton of finished product as well as in terms of the percentage
factory. Building isolation was studied in detail in order to
recycled. CO2 emissions are also measured at the factory, and
maximize efficiency of air temperature conditioning. As a
the company conducts lifecycle analyses of each product
result, there is never a need to pay for heating, and there is
family, calculating its carbon footprint, as well as the carbon
no excess energy consumption by air conditioning systems.
footprint of Pirelli as a whole. Global goals for the company
Air is cooled by circulating it through water from a well in
include reducing energy consumption by 18% in 2020 over
the yard outside the factory. The well water has a constant
2009, which would reduce CO2 emissions by 400,000 tonnes
temperature of about 13-15°C, an adiabatic system draws air
in the 2014-2017 period, and reducing water withdrawal by
through the water and nebulizes it before the humidified air
58% in 2020 over 2009. Since efficiency and waste depend
is sprayed into the factory, cooling the atmosphere for free.
not only on building design, but also on the behavior and
Plumbing was also designed for sustainability. The water
culture of people, Pirelli invests time and resources in training
used for cooling is reutilized, as all of it is recovered and
its people on all aspects of sustainability.
recirculated. The water used in the manufacturing process is also treated internally and recycled. Even the bathrooms
The Silao plant, managed today by Fernando Madeira de
used by employees were designed with sensors to turn off
Toledo, produces premium tires for the North American
water and lights when not needed.
market, including so-called green performance tires. These are tires with improved environmental impact which also
The layout of the manufacturing process was another
feature high performance and safety traits. Worldwide,
important aspect in the design of the factory. It allows for
Pirelli plans for 48% of its total tire revenue to come from
an efficient flow of materials and people, including the
green performance tires by 2017. Innovations to help
use of the force of gravity as materials are loaded into
achieve this goal include the use of rice husks as a raw
a mixer and funneled down into the next stages of the
material, and high-tech sensors for truck tires that allow
process. Forklifts and carts also travel minimal distances
for greater safety and improved fleet management.
so the manufacturing process remains lean. 90% of waste generated during the manufacturing process is recycled and
Tomás Grávalos, CEO of Pirelli México
205
TRANSITION FROM SUPPLY CHAIN TO SUPPLY NETWORK
Ricardo Valenzuela, Director of Innovation, Incubation, and Development of ITESM
Universities are content
misunderstandings. The program has already seen groups
to align their courses and
of around 20 small companies formed according to
services to provide the
different specializations, for them to be taught together
industry with capable and
about how to improve and to set up regular follow-
trained
capital.
up meetings to guide the implementation of CeDIAM’s
However, ITESM has driven
recommendations. So far, these recommendations cover
off the beaten track to find
nine areas, including strategic planning, quality control,
itself a far more ambitious
and maintenance of production levels among others.
human
mission:
implementing
innovation
initiatives
According to Valenzuela, a company needs between 18
within the supply chain,
months and three years to be fully developed. “That timing
and elevating the competitiveness of suppliers and OEMs.
for an OEM or Tier 1 is understandable, but they cannot wait
The Development Center of the Automotive Industry
that long for their suppliers,” he adds. As a result, CeDIAM’s
in Mexico (CeDIAM) is where both of these goals meet.
model was designed to be fast, taking companies as far
Ricardo Valenzuela, Director of Innovation, Incubation,
as it can in a short timespan. To accelerate the project, the
and Development of ITESM describes that as this initiative
aforementioned groups were formed to allow specific players
gained momentum, CeDIAM drafted a strategic plan that
to be trained in a similar manner. “The cross-examination such
began with the enhancement of logistics capabilities. The
a process entailed actually benefited small companies since
first objective was to create synergies between companies,
trying to do business with some of these companies was
especially those involved in the ferrying of auto parts.
challenging,” Valenzuela admits, “CeDIAM ensured that the
Valenzuela
between
companies were following certain rules, which also helped
suppliers and OEMs can be tricky, though. “It depends
us to see how the capabilities of each company limited their
on the culture of the OEM and the type of relationship
ability to work with OEMs and Tier 1 suppliers,” he adds. “The
it has with its suppliers. Japanese OEMs have a big
business dynamics of the automotive industry are changing,
influence over their suppliers but also have a more solid
evolving from a supply chain to a supply network. CeDIAM
commitment, whereas the relationship American OEMs
is aiming to create a network where information is available
have with their suppliers is more contractual. Suppliers
for all involved,” he explains. As such, CeDIAM has a website
commit to delivering parts at a certain cost, volume, and
where Tier 1s can see which companies at the Tier 2 level and
timing, based on the terms of a signed contract.”
below are supplying particular products, who their clients
admits
that
creating
synergies
are, and what processes they carry out. “Transparency is The synergies amongst companies forged by CeDIAM
important as a business relationship has to be clear. This is
enable the transfer of knowledge and technology to
achieved by having valuable information available to all the
suppliers further down the supply chain. To encourage
parties involved.”
networking between Tier 1 and Tier 2 companies, CeDIAM
206
created its own trade show, named Expo Partes. “At
Additionally, SMEs can take advantage of the automotive
such trade shows, Tier 2s can meet up with procurement
industry’s
managers from Tier 1 companies. At each event we have
attributes this quest for specialization to a period in the
organized, five to ten companies have secured contracts.”
1980s where many OEMs jettisoned processes that were
Valenzuela stresses that SMEs suffer from a lack of
not part of their core business. This allowed specialized
guidance when seeking to move up the supply chain or
companies to come to the fore, providing important design
to become trusted companies to multinationals. Although
and technology developments. “This happened to Nissan
nobody is formally in charge of developing such companies
and JATCO. JATCO was part of Nissan but spun off into
or giving them the tools they need to compete, CeDIAM is
a separate company dedicated to transmissions. It now
helping to forge these tools through the creation of the
has the technology to develop transmissions and reach
National Suppliers Development Program, which is mainly
more clients,” says Valenzuela. “This will also happen lower
oriented to Tier 2, Tier 3, and Tier 4 suppliers. “Alongside
down the supply chain. We will reach a moment when
companies, ITESM faculty and external consultants,
small companies will sell their own unique technology. This
CeDIAM designed material for a basic consulting coaching
is part of our goal. CeDIAM is set to develop 100 Tier 2
model,” Valenzuela explains. He affirms that this program
suppliers in 2014, and once that goal is reached we are
does not seek to tell companies how to do their strategic
thinking about increasing to 300 Tier 2 suppliers for next
planning but coaches them and helps to resolve any
year’s development program.”
rising
need
for
specialization.
Valenzuela
| VIEW FROM THE TOP
ITESM SPIN-OFF HELPS TO INSPIRE OEMS ALEJANDRO ROJO VALERIO Director General of CIMA
Q: Why was CIMA founded as part of ITESM and what is
Q: Working with companies like GM and Bosch really put
its function?
CIMA on the map. What helped you secure these projects?
A: CIMA was founded in April 2004 out of ITESM’s Toluca
A: It was mainly down to our experience, as CIMA was
campus due to close relations with automotive heavyweights
only a few years old when we won GM’s project. We can
such as GM, Chrysler, Nissan and Ford. The Toluca campus
count on the accumulated experience of ITESM’s Toluca
is one of the members of Partners for the Advancement
campus going back to 1982. This has allowed CIMA to be
of Collaborative Engineering Education (PACE) University
viewed on a broader scale than just being a university-
Program, which brings together 56 universities around the
affiliated center. The transition was not easy, and we had
world, including 6 in Mexico. Since PACE began in 2000, it
to knock on a lot of doors of a lot of big companies to
has helped bring together universities with companies like
show that we could develop an excellent project. At first,
GM, Siemens, HP, Autodesk and Oracle. Furthermore, CIMA
we faced rejection but now companies seek us out and
began just as ITESM launched the first Master’s program in
we don’t knock on doors anymore. For example, we have
automotive engineering in Mexico. As such, CIMA’s focus
a big project with Macimex in their Tenango plant where
was not just to solve industry problems using state of
we are developing a laser machine for heat treatment of
the art equipment and methodologies, but also to create
crankshafts, a new development that has attracted OEMs
highly trained professionals for the automotive industry.
like GM, Ford, and Chrysler. All of them are interested in
We have a software suite that is tailored to help students
the way this machine could change how treatments are
and professors run simulations or plan automotive-
applied to crankshafts.
related activities. Combined with our laboratories and infrastructure, this setup helps us run projects with OEMs
Q: What is your approach to staying ahead of the latest
and suppliers. Another advantage we have is our proximity
technological trends?
to GM’s Technical Engineering Center in Toluca, one of only
A: We are not looking to develop a lot of projects; we focus
three in the Americas, which has over 800 engineers in
on specific high-impact projects, sometimes collaborating
residence, and other engineering centers from companies
with other research centers. We have developed testing
like Chrysler, Ford, and Nissan that have been established in
equipment for GM and Macimex. A major project that we
or near to Toluca.
are developing was requested by GM through the PACE network. The Portable Assisted Mobility Device (PAMD)
2007 saw CIMA shift gears. Prior to that, it was widely
is a very small transportation unit, which folds up nicely
felt among the international automotive community that
and allows people to combine public transport and PAMD
Mexico had neither the infrastructure nor the knowledge
to get to work. GM asked us to develop the project, after
base to carry out research or engineering. We had to work
56 universities presented alternative designs for PAMD.
hard to show companies that these resources did exist in
Another principal focus of CIMA has been our dedicated
the country. This led to CIMA working on larger projects
work on electric vehicles. We do not work on all the parts
with OEMs and suppliers. Our new orientation led us to
of the car, but mostly on its structure, its energy control,
get funding from the government through CONACYT,
and energy management. We are currently developing an
COMECYT, and the Ministry of Economy. The government
electric vehicle powered by hydrogen cells, along with IIE,
has dedicated funds for such projects, making it appealing
CENIDET, IPICYT and the University of San Luis Potosi.
for companies to work with us, as they know 40-60% of
IIE in Cuernavaca is focusing on the hydrogen cells while
the budget will come from government agencies. This
we are working on the car’s aluminum structure. We are
increased level of collaboration has led to CIMA’s budget
currently broadening the spectrum of our electric car
for projects increasing to US$2-3 million per year. As a
expertise to envelop power systems, manufacturing and
result, companies such as Bosch, Chrysler, Ford, GM, and
mechatronic centers. These are the most important areas
Mastretta, to name a few, have come to us.
for CIMA at the moment.
207
INNOVATION PARK SEEKS TO BE DEVELOPER AND INCUBATOR gleaming,
says the cluster has come to rely on PIT2’s support due to
LEED-certified building on
its specialized laboratories and industry links that allow
the Chihuahua campus of
it to harness new automotive technologies. These ties
ITESM, the PIT2 (Innovation
benefit ITESM’s students as they graduate with advanced
and Transfer of Technology
technical skills, making it easier for them to swiftly find
Park) aims to be one of
jobs in the automotive industry. PIT2 has ensured that its
the foundation stones of
courses teach cutting-edge techniques. Its manufacturing
the
automotive
processes teach lean manufacturing and Six Sigma, while it
future. In 2010, the vision
has incorporated the use of software like CATIA, Solidworks
for PIT2 came from ITESM
and Siemens’ NX into its design classes. Many of the park’s
Nestled
Antonio Ríos Ramírez, Director General of PIT2
in
state’s
a
as it sought to support
initiatives, including forging closer links with industry and
the needs of the government and private companies. The
offering more job opportunities for graduates, are tied to
PIT idea was born from a desire to support Chihuahua’s
partnerships with international institutions.
2
competitiveness by providing physical and organizational infrastructure to boost the role of SMEs in the state, and
Chihuahua has long been known for the manufacturing of
churn out highly employable students.
auto parts but Ríos Ramírez says PIT2 wants to be part of the state’s quest for an OEM. “The direction we are taking
Since opening its gates, the park has sought to become
is focused on design, engineering and testing. We have
a landing pad for all automotive companies coming to
agreements with companies like Ford and TRW to place
Chihuahua and the prospective automotive engineers
our students in their operations, allowing them to apply
seeking to work for them. The park has invested in
some of the technology developed within PIT2,” says Ríos
developing research facilities dedicated to the industries it
Ramírez. The technological park is also collaborating with
serves, has set aside space for companies wishing to work
TRW on bringing a new design center to the state that
there, and has forged links with Mexican and international
would focus on testing.
companies. The park’s Director General, Antonio Ríos Ramírez, says the first major coup by PIT2 was when it
Ríos Ramírez is confident PIT2’s track record will hold up to
landed Visteon as its first major client in 2010. The major
such scrutiny, but he is concerned about one area: the up-
auto parts supplier took up residence in the park and was
to-date technical knowledge of staff. “Around 30 to 35%
open to getting help from ITESM for its projects. “The park
of our professors are motivated to go into the industry
offers the chance for our students and staff to work on
and learn about new technological developments. Even in
various design projects for the automotive industry, as well
ITESM, which benefits from a high-tech environment and
as on specific Visteon projects, mainly revolving around
close ties to the industry, 60 to 65% of our staff is only
panels and lights,” says Ríos Ramírez. Visteon seems to
familiar with technology that is over a decade old. In the
have been satisfied with the quality of ITESM’s students
public education sphere, the amount of professors that are
since early 2014, when it grew the number of products
out of touch with new technology could reach 90 to 95%,”
it would be working on locally. PIT2’s metal mechanics
he clarifies. Ríos Ramírez adds that these old-fashioned
division has also been contracted by a client in Parral
professors are reducing the capacity of public education
to redesign a monoblock, and the park is collaborating
institutions to react quickly to the needs of the industry.
on developing new materials with CIMAV (Investigation
He calls for a major effort to overhaul this trend over the
Center for Advanced Materials).
next two to three years as it is slowing down Mexico’s progress. Up-to-date staff can also serve as a stepping
PIT2 has maintained close links with the Chihuahua
stone for the entrepreneurial ambitions of students and
Automotive Cluster over the last three years, and its links
recent graduates. “Mexican suppliers only supply 3% of
to the private sector have allowed it to help the cluster
the automotive industry in Chihuahua, which gives PIT2
set its priorities. “We have set out space for the cluster
and its students a massive opportunity to build up the
in our new PIT2 building. Around 80% of its meetings are
local supply chain. We provide a good outlet for students
carried out at our facilities, and our professors take part
who want to go in that direction. PIT2 has an incubator, an
in the cluster’s development,” explains Ríos Ramírez. In
accelerator and a venture capital program in place to help
order to focus its students’ efforts, PIT selects four or
them. I would like to see at least 20 companies created
five projects each semester and puts together taskforces
here to support the automotive supply chain,” concludes
of students and staff along with the cluster. Ríos Ramírez
Ríos Ramírez.
2
208
LAYING FOUNDATIONS FOR A KNOWLEDGE-BASED ECONOMY Nuevo Leon is one of the most developed regions in
as well as hybrid and electric models. A knowledge-based
Mexico, producing 8% of the national GDP. As speculation
economy not only increases and reinforces productivity
surrounds Mexico for its potential to become a high
in every economic sector, but also allows for the creation
technology manufacturer, the city of Monterrey has begun
of synergies and technological applications across a wide
to lay the foundations of a new paradigm: a knowledge-
range of industries. For example, Schneider Electric’s
based economy. Nuevo Leon stands as an outlier in the
PIIT tech center is developing an integrated energy
national context, in the sense that it does not compete with
solution that incorporates photovoltaic, electromagnetic,
the traditional Mexican economic centers but with areas
and software technologies through its team of 450
like Illinois, Texas, Brazil, and even Turkey. With the highest
engineers. “To create synergies across industries and
GDP per capita in the country at close to US$20,000,
foster collaboration between companies, PIIT allows
against the national average of US$10,000, it aims to
companies to collaborate with universities, get their hands
increase its high added value products and services in
on expensive technological equipment, have access to
different sectors in order to build on its head start. The
incubators, and use graduate students for their projects,”
strategy for creating a knowledge-based economy is a
says Parada Ávila.
complex puzzle that needs to be completed step-by-step through government initiatives, entrepreneurship, and the
He also discovered that, in order to complete the
participation of universities and skilled, talented people.
puzzle of a knowledge-based economy and consolidate
R&D parks are connecting the dots in this process, creating
Monterrey and PIIT as frontrunners, the creation of high-
a common place where strategic targets are pursued in
tech businesses is essential. Therefore, the government of
unison. The state-of-the-art R&D Park PIIT (Research
Nuevo Leon launched the Nuevo Leon Fund for Innovation
and Technological Innovation Park) was created in order
(FONLIN) program, which provides grants of up to
to foster this ecosystem of innovation, according to its
US$200,000 per case. This fund facilitated the creation of
President, Jaime Parada Ávila. “The completion of the
48 new businesses in two years in different areas ranging
project took seven years, a lightning pace when compared
from medical, IT, nanomaterials, and biotechnology to
to other international experiences where such parks can
automotive. “This has become a huge accomplishment.
take up to 15 years to be completed,” he says. Through the
In the past, there were no more than ten R&D centers in
collaboration of the triple helix of academia, government,
Monterrey but the region has now accumulated over 100.”
and the business sector, 35 R&D centers were created in PIIT. Of these, 14 belong to the private sector and the rest
The exponential growth of high-tech businesses is closely
belong to universities and the state government.
followed by the increased availability of professionals.
“In the past, there were no more than ten R&D centers in Monterrey but the region has now accumulated over 100”
Jaime Parada Ávila, President of PIIT
In terms of the automotive industry, PIIT benefits from the
Nuevo Leon now has over 150,000 students enrolled
northern region of the country long having been a reliable
in higher education programs and 15,000 in graduate
producer of components, auto parts, and assembled
studies. For Parada Ávila, there is an enormous obligation
products. This innovative and knowledge-driven ecosystem
to
is an important magnet for automotive companies wishing
opportunities or they will migrate to other areas. Spurred
to invest and expand their operations in Mexico. Katcon,
by this growing pool of human capital and after the success
a world leader in automotive exhausts, has decided to
of the PIIT project, Parada Ávila hopes the park will expand
establish a tech center in PIIT where it will develop new
to incorporate another 20-30 additional R&D centers with
products for the next generation of vehicles. Metalsa is
the ultimate goal of creating a community of 5,000-6,000
also developing a research center in the park to create
scientists and technicians. His final vision is for PIIT to have
lighter and more resistant frames in tune with the latest
around 50-60 R&D centers all operating together to form
environmental conditions, to be used for traditional cars
an important hub of knowledge and industrial activity.
provide
these
students
with
good
employment
209
| VIEW FROM THE TOP
INDUSTRY-ACADEMIA RECIPE FOR SUCCESS GERARDO VILLET Director of the External Affairs Division of the Autonomous University of San Luis Potosi (UASLP) Q: How are you bridging the gap between the skills of
65% of the scholarships for internships to students while
graduates and those the industry is demanding?
the rest is paid by the industry. In this manner, companies
A: We have close relationships with local industry
can bring promising students into their ranks, allowing
associations and the HR departments of companies
them to better develop the student’s skills. In the three
present in automotive clusters in and around San Luis
years that this program has been running, companies have
Potosi. UASLP uses its positioning and knowhow of the
retained 90% of the interns we placed with them.
Mexican automotive sector to provide services like training, certification, and development across the value chain.
Q: What role do incubator programs play in UASLP’s
Several groups within UASLP are working on modifying
activities?
our curriculum to meet industry demands, and this is done
A: 90% of the graduates from the engineering program are
every two years to ensure that we keep up with trends
working in the industry now, but our rector has demanded
in the automotive sector and beyond. Moreover, we have
that we see our students not only as future employees but
88 academic programs in the entire school, and we are
also as entrepreneurs. We aim to not only instill a deep
working on making internships mandatory from the fifth
understanding of the industry in our students, but also
semester for all programs. Another way we are bridging
to develop their creative thinking and business skills. We
the gap is through a program named Experimental.
have developed a program to support students that have
Through this program, we collaborate with the Superior
developed their own business plans, and this helps them
Education-Company Foundation, which is funded by
to find funding. However, although this program has been
Coparmex and the Federal Government. They provided
running for two years, no specific automotive projects
| VIEW FROM THE TOP
CARVING A NICHE IN AUTOMOTIVE R&D LEFT: David Ríos Jara, Director General of IPICYT RIGHT: Vladimir Escobar, Liaison Director of IPICYT
Q: What automotive industry projects is IPICYT currently
be made to be light-sensitive, as well as producing self-
involved in?
healing materials that could be automatically repaired
VE: IPICYT is highly interested in pursuing collaborations with
210
automotive
companies.
For
example,
after a slight scratch.
IPICYT
conducts investigation processes for defective parts for
DRJ: The relationship between IPICYT and automotive
certain Tier 1 suppliers to help them identify the source
companies around San Luis Potosi was established last
of the problem. We also focus on other interesting areas,
year. We expect this interaction to increase in the future,
such as the development of magnetic materials that can
it is just about showing them the interesting projects we
be used in several components like engines. Another area
can offer the industry. Some of our scientists are working
of interest concerns special coating materials, which can
on fuel cells that could improve energy management in
have yet been initiated. One business plan was submitted
collaboration between the school and various industries
regarding machining, for which an automotive industry use
until 2023. For example, we are building an office for
was ultimately found.
technology transfer, which will allow us to identify ways to assist technological development. It will help R&D take
Q: What interaction do you have with other universities
place in San Luis Potosi and will also teach us how to
and think-tanks?
best protect our intellectual property. This is a relatively
A: San Luis Potosi is lucky in that it enjoys collaboration
new concept, which has not been seen before. Another
between top educational institutions and contains think-
problem we are trying to solve is that purchasing any
tanks that perhaps do not exist in other states. There is
equipment for the university can take up to three months.
already a group of universities and companies that work
We need to speed this up in order to cater to the various
together on various collaboration projects. This was
companies that want to work with us.
born in the COPOCYT, which is similar to CONACYT, but operates at the state level. Another group, named Polo
Q:
How
crucial
is
collaboration
with
the
federal
Academico, is made up of top universities in San Luis
government to the success of these programs?
Potosi that have been recognized for their quality. These
A: The Secretary of Economic Development of San Luis
collaborations aim to foster ties that will see graduates
Potosi, along with the federal government, promotes the
better equipped to enter the workforce. Moreover, we
majority of the programs in place. For example, we are
work with IPICYT on various research projects. We are the
active in the Program of Stimulus for Innovation from
biggest university in the state, with 380 researchers in the
CONACYT, for which the federal government gives money
National System of Investigators (SNI). However, other
to the industry to develop innovation in Mexico. CONACYT
universities are more specialized in certain industries or
will give a company 30-40% of the cost of the program,
technologies so it is always beneficial for all of us to work
but if the company is developing a project with a university,
together.
then CONACYT will cover 70% of the costs. UASLP was called to participate in 45 of these innovation programs in
Q: How quickly are you able to adapt your strategy to the
2013, a major increase from the 20 programs we took part
needs of the market?
in just a year earlier. For automotive, Cummins is a very
A: The problem with being large is that we are slow to
active player with CONACYT and initiated seven projects
move. We have a long-term strategic plan to forge a strong
around San Luis Potosi in 2013 alone.
electric vehicles, as well as improve the distribution of the
part, models are required and a supercomputer facilitates
vehicle’s weight and its performance. In another project
the process of calculations and information management.
with Metalsa, we are looking to reduce the weight of the
If automotive companies do not have a supercomputer
chassis and improve fuel efficiency for heavy vehicles.
themselves, they have to send the information to third
Our researchers are identifying what metals can be
parties.
modified, and how to develop a composite of polymers and metal to reduce the weight. Valeo is also interested in
Q: How do you support small automotive companies
gaining access to IPICYT’s supercomputer center in order
aiming to pursue technological innovations?
to improve its product structuring modelling (BOM). It
DRJ: We have a specific program, Stimulus for Innovation,
currently sends physical data with needed configurations
which is focused on SMEs, although large companies can
to be made in France, after which French engineers
play a part in it too. This is a good way of establishing
make the necessary changes and send the data back.
relationships with SMEs in order to support them in their
This process can take up to a week, but with IPICYT’s
intellectual property and R&D development. Through this
capabilities, the waiting time could be reduced to days,
program SMEs receive 60% of the total project budget
or even hours.
from federal resources, leaving them to pay only 40% of the total project development costs. The strategy to
VE: Our computer center is highly developed as it has
enhance interaction between SMEs, R&D centers, and
several capabilities, from software design to processing
universities came from the federal government to stimulate
large amounts of data. When making a design for an auto
the participation of SMEs in the industry.
211
Mexico’s Northern States and their US borders have traditionally seen the most investment from the automotive and wider manufacturing industry, and today Nuevo Leon alone produces 11% of Mexico’s manufactured goods. Half a century ago the country’s largest automotive cluster was informally established along the US-Mexico border, and the region quickly became home to hives of thriving maquiladora activity. With 85% of Mexico’s automotive production still going to the US, the border states continue to be investment magnets. With every asset comes a liability however and the area’s prime positioning next to the US invariably left it heavily exposed to the harsh winds of the economic crisis, at a time when regional security concerns were also creating big business for due diligence experts. Incredibly the region emerged from this double blow altered but largely unscathed, and ultimately the demise of a number of traditional US manufacturing hubs has strengthened it further. Today the Northern region has specialized, leading the way in the attraction of high technology development to Mexico, and hosts the top R&D conglomerate in the country.
This chapter will examine the transition of the northern states from maquiladora to R&D hub through the region’s key public and private sector entities. It will also look at the real security situation as it stands and the measures being taken to address both the issues and the perception.
NORTHERN STATES
8
CHAPTER 8: NORTHERN STATES 216
VIEW FROM THE TOP: Chihuahua Seeks to Build on its Automotive Investment History
216
Government and Academia Links Needed for Economic Development
218
VIEW FROM THE TOP: Chihuahua Looks to Past and Present to Define Future
218
Chihuahua’s Automotive Success Story
220
VIEW FROM THE TOP: Turning Students into Automotive Entrepreneurs
221
VIEW FROM THE TOP: Trusted Construction Partner for Automotive Plants
222
Finders, Minders, and Grinders for Growth
222
Rubber Components from Japan to Chihuahua
223
Baby Steps for Cooling Systems Made in Chihuahua
224
Shelter Services Remain Focused at the Border
225
Weight Reduction through Innovative Cabling
226
VIEW FROM THE TOP: Coahuila Strives to Achieve Industry Consolidation
226
Coahuila Spotlight
228
VIEW FROM THE TOP: Developing Mexico’s Research Hub of Tomorrow
230
Nuevo Leon Cluster Predicts Continued Pride of Place
230
Nuevo Leon Spotlight
232
Increasing Variety and Capacity Key in Marketplace
233
Metrology Leader Directs Investments toward Mexico
234
VEHICLE SPOTLIGHT: 2015 Ford Fusion
236
VIEW FROM THE TOP: Sonora’s Economic Growth Boosted by Automotive Advances
237
VIEW FROM THE TOP: Scanning Global Tooling Market to Bring Best Options to Mexico
238
VIEW FROM THE TOP: Investors Attracted by Removal of Economic Barriers
239
Baja California Spotlight
215
| VIEW FROM THE TOP
CHIHUAHUA SEEKS TO BUILD ON ITS AUTOMOTIVE INVESTMENT HISTORY MANUEL RUSSEK VALLES Secretary of Economy of Chihuahua Q: How has your government been promoting the growth
for investment, clarifying the incentives it is putting in
of the automotive industry in Chihuahua?
place to bring investment to the state. The incentives and
A: We are seeking to promote the automotive industry on
our talented workforce are Chihuahua’s major cards in
a global level. We are not only focusing on North America
attracting investment. Once the first OEM comes here, we
but also on Europe and Asia to attract automotive
will see a boost for the automotive industry and Chihuahua
investment to the state. We estimate that given the
as a whole. The rise of Asia as a crucial economic market
strength of our export manufacturing industry, we could
means that we are targeting that market to bring an OEM
see 30% growth in Chihuahua’s automotive sector. We
here. Although the Bajio is doing a phenomenal job at
also want to shift from a labor-intensive workforce to a
developing its own automotive sector, Mexico’s northern
highly skilled workforce. In order for that to happen,
states will continue to grow. We offer natural advantages
we are looking to secure an OEM setting up a plant in
to conquer the Asian market and get an OEM here to
Chihuahua. The government is establishing clear policies
export its vehicles to the US.
GOVERNMENT AND ACADEMIA LINKS NEEDED FOR ECONOMIC DEVELOPMENT In 1973, as the maquiladora industry in Chihuahua was in full
involved, holding a series of meetings with Ford to help it
swing, the state’s private investors sought to have their own
negotiate with the government. The authorities set their
organization through which to help attract foreign investment
incentives but when a company sees it will have support
alongside the government. This led to the creation of DESEC
from the private sector in a given location, this will go a
(Economic Development of the State of Chihuahua). Given
long way toward making an investment happen. That is the
its roots in the private sector, DESEC sought to increase the
role DESEC played when Ford came here,” he says. Today,
state’s competitiveness in two major ways: selling the merits
DESEC still meets with investors to explain the advantages
of Chihuahua to potential foreign investors and ensuring
of investing in Chihuahua. In the 1990s, DESEC played a
better collaboration between industries, the government
larger role in the promotion of Chihuahua abroad, sending
and universities. “The broadening of Chihuahua’s economic
teams to international fairs and exhibitions to put on a united
horizons was accompanied by a growth in the complexity
front with the public sector. Changes in government have
of the manufacturing being done in the state,” explains
periodically altered DESEC’s focus over the years, but it
DESEC’s President, Alberto Terrazas Seyffert.
remains focused on certain major goals, such as attracting an OEM to Chihuahua.
Ciudad Juarez and the city of Chihuahua became early
216
assembly centers for the American automotive industry,
While DESEC runs its own programs, one of its foundations
but they have now grown to be automotive industry players
is to collaborate with the government and academic
in their right. Companies like Superior Industries and
institutions. As such, the success of its programs depends on
TRW manufacture wheels and auto parts in the state, but
their willingness to participate. Terrazas Seyffert examines
Chihuahua’s automotive crown jewel is Ford’s largest engine
this phenomenon by saying that in the 1990s, DESEC had a
plant in Latin America. Since opening its doors in 1983, the
successful program called Chihuahua Siglo XXI (21st Century
Ford plant has undergone three expansions, evidence of the
Chihuahua) that sought to arrange overseas promotion for
value it has found in Chihuahua. Terrazas Seyffert explains
the state. Upon a change in authorities, Chihuahua Siglo
that securing Ford’s investment was one of the early feathers
XXI fell by the wayside. A new body was created under the
in DESEC’s cap. “The private sector and DESEC were heavily
name of CODEC (Council for the Economic Development
Q: What incentives is this government going to provide to
Competitiveness and Innovation Institution, as a result of
continue its success in attracting automotive investment?
our strategic planning. We looked at the similar institute
A: The first incentive is to provide land for an OEM to
that exists in Monterrey as an example but we adapted its
build its facilities. We can also offer incentives on taxes,
format to the needs of Chihuahua. This institute will create
infrastructure, the labor force and the shelter program to
public policies on innovation to help make the whole
ensure a company entering Mexico can do so without facing
state more competitive. Our administration is certain
any labor or fiscal problems. Added to that, Chihuahua has
that investment in education and knowledge will lead to
gone ten years without seeing a single strike and our legal
growth.
framework is adapted to the particular working conditions of the state. Apart from these economic incentives, it
Q: What advantages does Chihuahua’s automotive cluster
is important to know that the business environment in
offer an OEM over other such clusters in Mexico?
Chihuahua is tailored to bring in investment. We are
A: We have certified sites, we have excellent infrastructure
seeking to develop a long-term economic and industrial
and we have a lot of space to offer. There is a lot of land
development plan for Chihuahua, and we are working with
where OEMs could establish themselves. We also already
the private sector and education institutions to make that
have a wealth of experience in knowing how to treat foreign
happen. We need to set medium and long-term objectives
companies that invest here. Chihuahua was one of the first
for Chihuahua for the next three, ten and 20 years.
states to bring foreign investment to Mexico so we know
Having these plans in place will mean that even when
how to grow business here. In terms of infrastructure, we
the government changes, targets will remain clear and
are also building a new rail line to access New Mexico and
subsequent administrations can continue working toward
Union Pacific is developing an intermodal terminal near
them. The governor has launched an initiative to create the
Ciudad Juarez.
of Chihuahua) and was divided across twelve regions in the
that fit Ford’s requirements upon graduation and can
state. While it might seem this added unnecessary levels of
therefore better find jobs within the giant’s operations.
bureaucracy, Terrazas Seyffert says these twelve different
Terrazas Seyffert says the creation of the cluster was
boards, comprised of municipal governments, private sector
a necessary step to bolster Chihuahua’s competitive
and university members, are better able to represent the
advantages for automotive business. Although the state
priorities of different regions. “These boards are beginning
received the largest automotive investment of any Mexican
to move in the same direction as Siglo XXI did. Each of
state over the last decade, it is facing more competition
these regions has different activities and priorities, the city
than ever before. “Chihuahua neighbors the largest market
of Chihuahua cannot decide what the priorities of Casas
in the world but we sometimes try to reach other markets
Grandes or Cuauhtemoc should be. The private sector
that would improve our competitive advantages. It is
understands very well how to combine the advantages of
important to broaden our markets but we have to remain
each region of Chihuahua to create an overarching strategy.
focused on the US for the moment. The automotive industry
The government needs to create a long-term plan that is
in Chihuahua has been focused on exports since the late
led by the private sector and universities as these do not
1970s, this has led to us having a tremendous wealth of
change every six years,” he explains.
expertise to draw on,” says Terrazas Seyffert. This wealth of expertise cannot distract from one important fact, outside
Within this new structure, DESEC retains its role as a
of the Ford engine plant, Chihuahua is home to no OEMs.
facilitator, as it has in the creation of the automotive cluster. Terrazas Seyffert says that DESEC used its international
DESEC responds to this reality by recommending that
links to bring people from different sectors to make sure the
Chihuahua blaze a trail in a different direction. Terrazas
Chihuahua automotive cluster could truly cater to the needs
Seyffert indicates that automotive companies are primarily
of the industry. The clusterization process itself represented
manufacturing hybrid and electric cars for the East Coast
a challenge for which DESEC brought in Spanish experts
and West Coast markets in the US. “Those companies are
who had set up similar clusters before. Although the cluster
not going to start selling electric cars around the world,
is independent of DESEC, it relies on the contributions of
they will sell to specific markets. If we see an OEM that
industry, government and academia to function. As such,
is focusing on the US market for electric vehicles, and if
DESEC has fostered links between these pillars for mutual
Chihuahua can develop the right supplier base, we will be
benefit. For example, Ford has reached out through the
able to make a good argument for such an OEM to be based
cluster to universities in Chihuahua to better train engineers
here. Tesla would be a good example of such an OEM.”
217
| VIEW FROM THE TOP
CHIHUAHUA LOOKS TO PAST AND PRESENT TO DEFINE FUTURE SERGIO MENDOZA President of Chihuahua Automotive Cluster Q: How has Chihuahua’s economy developed from its
creating their own integrated packages, strategies and
beginnings as a Maquiladora hub?
opportunities to attract automotive companies. Chihuahua
A: 30 years ago, Chihuahua was the home of the Twin-Plant
has learned from this history and must now choose how to
program. Offshore companies, known as Maquiladoras,
grow wisely and not just grow for growth’s sake.
would focus on labor-intensive operations while their US counterparts performed the capital intensive ones.
Q: What must Chihuahua do to further consolidate its
Chihuahua’s main advantage was its proximity to the
presence within the automotive industry?
US, with 80% of the processes focused in Ciudad Juarez
A: Several strategies need to be carried out across the
and 20% in the city of Chihuahua. Products would cross
whole supply chain. When the Auto Cluster began one and
the border from El Paso to Ciudad Juarez, carry out
a half years ago, nobody was fully aware of the real size of
the necessary labor processes and then go back. As
the automotive industry in Chihuahua. At a federal level,
the industry matured, Chihuahua started performing
Chihuahua was overlooked and that was hard to believe. The
more complex manufacturing processes, such as plastic
first step taken as a cluster was to run diagnostics to evaluate
injection moldings and die-casting of magnesium, zinc
the size and the current state of the automotive industry,
and aluminum. When Chihuahua began to develop this
and the results indicate we are one of the main engines for
expertise, it slowly started to be seen almost as an extension
the industry in Mexico. We felt that we first needed to set a
of the US. With this new mindset, some companies would
strategy regarding how we want to grow and then find who
send entire manufacturing processes to Chihuahua and
wants to grow with us. Secondly, the state needs to showcase
this maturity brought more suppliers to the State. Given
its experience, talents, and the opportunities it offers to
this history, Chihuahua only looked north for its market,
foreign investors. Thirdly, we must foster the creation and
customers, and investors. Most promotion efforts were
growth of local companies, either with local investors or
targeted to the US and Chihuahua was so successful that
through joint ventures. Chihuahua needs to create a virtuous
there was virtually full employment in cities like Ciudad
circle of growth, but this time with the participation of local
Juarez. There were even programs set to bring people
companies, a factor that was absent 30 years ago.
from other states as the demand for labor was so high. Then, the downturn came and brought a new category
Q: Can this wish list be achieved if the federal government
of challenges. In the process, other states woke up by
underestimates Chihuahua’s potential?
CHIHUAHUA’S AUTOMOTIVE SUCCESS STORY
218
By Sergio Mendoza - Over the last decade, Chihuahua
Chihuahua’s proximity to the US was an advantage, but this
has received more automotive investment than any other
alone was not enough. Projects were launched to bolster
Mexican state. According to the Secretariat of Economy,
the availability of skilled people, such as the opening of
Chihuahua has received 25% of the US$18 billion invested
ITESM’s Chihuahua Campus, regarded as one of the best
in Mexico over that period. In fact, Chihuahua’s automotive
technical universities in the country. Today, the state of
exports surpassed US$9 billion in 2013, even without an
Chihuahua has the largest percentage of manufacturing
OEM assembly plant located in the state. This success did
jobs in Mexico. It is also home to a bilingual, bicultural,
not happen overnight. Several initiatives were launched over
and highly skilled population, with over 3,000 engineers
40 years ago with the support and coordinated efforts of
graduating every year from colleges located in the state
local businesses, government, and educational institutions.
and investment in education and technology continues to
At the time, the term cluster had not even been coined for
be a priority. Chihuahua is also home to five engineering
such communal efforts.
and design centers, with Delphi’s Technical Center being
A: We certainly need the support of the government. The
in the city of Chihuahua and funded by CONACYT. CIMAV
issue was that we felt invisible and to make ourselves visible
is CONACYT’s lead point for nanotechnology research,
to the authorities we have had to show hard facts and
among other things. This lab is collaborating closely with
figures. Chihuahua has 113 automotive companies present
Sandia National Laboratories in New Mexico. We are
and some have several plants in the state, such as Delphi.
also trying to establish a link with Stanford’s Centre for
There are two OEMs in Ford and Bombardier Recreational
Automotive Research (CAR). One of our initiatives with
Products (BRP), 44 Tier 1 companies, 52 Tier 2s, and 15 Tier
these R&D centers was to jointly develop an academic
3s. According to INADEM’s numbers, Chihuahua is first in
program specifically for automotive engineers. Engineers
direct employment for the automotive industry in Mexico,
with a wide range of specializations could enter this
with over 130,000 direct jobs as of 2012. No other state
program and be taught the specific knowledge needed to
comes near the scope of Chihuahua. This position is a result
enter the automotive industry.
of the state’s long industrial history and the coordinated efforts of the private sector, our government and academia.
Q: How viable is the establishment of an industrial corridor
However, it is important to note that most of the jobs are
in Chihuahua and how could this serve the industry?
low added value with low wages. This is because Chihuahua
A: The biggest testament to Chihuahua’s success lies in the
has many companies doing light assembly processes and
millions of auto parts being made here. Depending on the
few companies doing complex manufacturing, like forging
vehicle the OEM assembles, Chihuahua can manufacture
and die-casting. Automotive companies here occupy over
up to 60% of the needed content. We are seeing the Bajio
1.1 billion m2 of industrial real estate and our estimated sales
region benefiting from a well-defined industrial corridor
for 2012 were a little over US$9 billion. Chihuahua occupies
that stretches to the US Midwest. It is well-structured with
first place in foreign direct investment, and the direct payroll
excellent railways and border-crossing facilities, which
is a little bit over US$2 billion a year. Education is also an
are not that far from each other. It would difficult for
important asset with ten Mexican technical universities in
Chihuahua to play a part in this corridor, so we need to think
the state. Our mission is to make these figures known to the
strategically about a new industrial corridor. Chihuahua is
industry. To further consolidate Chihuahua’s role, we have
already trying to develop it. The absence of plants in this
begun to attend national cluster meetings and collaborate
region could be seen as a negative, but I choose to see it
with ProMéxico, the Ministry of Economy and, as always, we
as a positive. California represents 11% of the US market
keep working with the Secretary of Economic Development
and has a demand of over 2 million vehicles and Chihuahua
at a state level.
can service this market through that corridor. As EPA restrictions become more stringent in the US, there will be
Q: To what extent could Chihuahua become a destination
a need for more fuel efficient vehicles. This new corridor
for R&D in Mexico?
can service two different markets, which will become a
A: The cluster collaborates closely with the regional R&D
differentiating factor for Chihuahua. We are in the process
centers, such as the ones run by Visteon in the city of
of building enough data and marketing material to show a
Chihuahua and Delphi in Ciudad Juarez. We also work
strong case for automotive companies that are yet to be
with CIMAV (Advanced Materials Research Lab), located
established in Mexico.
the largest in Mexico. Located in Ciudad Juarez, it employs
The growth of the Bajio region during the last few years is
over 2,000 engineers who collectively generate the largest
a reality that threatens Chihuahua’s leadership with regards
number of patents in the Mexican private sector each year.
to foreign investment. Just a few years ago, automotive companies only considered Mexico’s northern states for
Automotive companies that consider establishing an
their location, but with the flood of new investment to central
operation in Mexico will benefit from what Chihuahua has
Mexico, projects are now spreading to wider and more
to offer. The existing supplier base already manufactures
diverse areas. The competition among states is continuing
millions of auto parts every year and some estimates
to intensify, and this has led Chihuahua to think seriously
calculate that about 60% of the components needed to
about the future. New strategies are being developed by
assemble a car are already produced in the state. The shared
the same three sectors that worked together 40 years ago
need for local suppliers for metal stampings, machined
to establish the Chihuahua Automotive Cluster.
parts, forgings, and castings has further propelled ongoing efforts to develop new suppliers, technologies, training
Sergio Mendoza, President of the Chihuahua Automotive
programs, and the expansion of infrastructure.
Cluster
219
| VIEW FROM THE TOP
TURNING STUDENTS INTO AUTOMOTIVE ENTREPRENEURS GERARDO SILVEYRA Director of Engineering School of ITESM, Chihuahua Campus Q: What are the ambitions of the engineering school to
A: We have developed advisory councils with industry
support the automotive industry in Chihuahua?
leaders where we can identify their needs. We have noted
A: We are keen on supporting all the industries and clusters
that the industry is not looking to hire people with highly
that make Chihuahua tick, and automotive is among the
specialized skills. Companies are looking for soft skills,
most important. We are closely involved with the cluster
like teamwork, problem-solving, and analytical capability,
as the university is able to help it in one of its prime
as specific knowledge can be acquired by working in the
directives: innovation. ITESM is in the process of updating
industry. We are focused on developing those skills among
its education methods. We are investing in different
all of our students. We also allow our professors to be
technological platforms, such as smartphones and tablets
involved in real projects to keep updating their knowledge.
used in class, and we want to bring this modern approach
The technological park has around 25 companies which
to the automotive projects we work on. Another focus is
allow professors to work alongside them.
how to get our students involved in real industry projects. From there, we began developing technological parks,
Q: How does ITESM help students who want to start their
and partnered up with Visteon, an automotive design
own automotive companies?
company. Over the last six years, we have been involved in
A: We want to turn our students into entrepreneurs who
80 projects with automotive companies.
develop their own companies. We view an entrepreneur as someone with a positive attitude toward problem-
220
Q: How is ITESM working with the industry to assure that
solving. Our students need to develop their own ideas and
its curriculum conforms to real needs?
companies to support the automotive industry.
| VIEW FROM THE TOP
TRUSTED CONSTRUCTION PARTNER FOR AUTOMOTIVE PLANTS ALBERTO TERRAZAS SEYFFERT Financial Director of Grupo Copachisa Q: How did Grupo Copachisa navigate the process of
other construction materials. On the second expansion,
becoming a supplier for major OEMs and Tier 1 suppliers?
we provided all the steel structures. We have maintained
A: We have been doing construction for foreign companies in
a strong relationship with Ford through the years. Since
Mexico since the 1970s. Over the years, Grupo Copachisa has
then, we have worked on building plants for OEMs around
acquired all major international construction certifications.
Mexico, such as Mazda and Nissan.
We created a parallel company to manufacture joists, as many of our foreign clients demanded that our joists, our
Q: How did you go from building for an American OEM in
processes and even our welders all be certified by the SJI in
Chihuahua to Japanese OEMs nationwide?
the US. This company is able to meet those standards and
A: If customers see that you focus on their needs, it does not
supply the joists to our construction sites. The same goes for
matter where they come from. We have had construction
electromechanics and security, as Grupo Copachisa has built
projects with over 20 companies across Mexico in the last
a reputation in Mexico based on its adherence to international
two years and these come from Japan, Germany, France
standards and certifications for all these areas. Once foreign
and beyond. We are on the shortlist of any foreign investor
companies know that you can meet their specific needs,
looking for a construction company in Mexico. We do have
they are more than willing to work with you. This attitude
a few competitors, such as Urvitec and Docsa, but we are
needs to be more widespread among the entrepreneurs of
happy to compete with them, the quality of their work is
Chihuahua. If they want to play in the big league, they need
excellent so it drives us to be better.
to work as OEMs and Tier 1 suppliers require them to. It would be advantageous for Chihuahua and for Grupo Copachisa if
Q: How much is Grupo Copachisa focusing on getting
more companies committed to improving in this way. While
more automotive clients?
Grupo Copachisa might find itself facing more competitors,
A: We saw the current automotive investment boom
the whole economy of Chihuahua would improve and more
coming as early as 2007. Because of that, we set up steel
work would come our way. A rising tide lifts all boats.
production plants in Guanajuato and Queretaro to cater to incoming OEMs and suppliers. Our steel subsidiary gets
Q: How can Chihuahua’s clusters help this process to take
the raw material from Ternium or other suppliers but it is
place?
cheaper for us to then manufacture our own steel close to
A: The automotive and aerospace clusters alike are working
where our customers need to build. 80% of our work is now
very hard to increase the entrepreneurship of companies
outside Chihuahua and it is focused on where growth is
in Chihuahua. A colossal amount of money is spent by
happening, particularly the needs of the automotive sector
those two industries on logistics in Mexico, importing
in the Bajio region. The region is booming so much we
needed materials and products from overseas. Having all
now use only 25% of the steel we produce ourselves and
their suppliers on the ground in Mexico would allow OEMs
75% is sold to other projects. We are now in a position to
to save money and make them more competitive.
supply other construction companies, not just produce the materials needed by Grupo Copachisa. For the moment,
Q: How did Grupo Copachisa enter the automotive industry?
we are only producing steel for the construction business
A: We started off by carrying out a number of engineering
but we are not ruling out the possibility of becoming a
and construction projects for Delphi in the 1990s. Since
steel supplier directly for the automotive industry, given
then, our reputation has taken off and we have been
the high demand OEMs have for quality steel. We also have
involved in construction projects for Ford, Visteon and
a machining company, Altaser, which is already supplying
TRW. We were not part of building Ford’s original engine
automotive companies like TRW. The problem with the
plant in Chihuahua but we have been part of two expansions
automotive industry is that it requires high volumes
since then. We handled the general construction for one
and provides low margins, as opposed to the aerospace
of the expansions, including supplying the steel and all
industry which is about low volumes and high margins.
221
FINDERS, MINDERS, AND GRINDERS FOR GROWTH Often overlooked, Chihuahua is a silent giant in the
of services, including contract assemblies, outsourcing of
automotive industry. Sergio Mendoza, CEO of Factoria,
engineering functions, local representation, warehousing,
a company that has offered support services to foreign
just-in-time deliveries, vendor-managed inventory (VMI)
suppliers since 1995, has concluded that in order for
and third party logistics (3PL). “For example, one of our
the industry to thrive in the region it needs the support
clients is launching a new appliqué that goes into Visteon’s
of finders, grinders, and minders. Grinders make up the
instrument panel. When their executive arrived, we provided
bottom of the business pyramid and carry out the bulk of
translators so he could speak with the operators,” Mendoza
the daily work, while minders form the middle management
explains. “Easing cultural barriers is not the only service. We
that direct the grinders. Finders are at the top, being the
also provide logistics, importation and warehousing for the
company partners responsible for winning new business.
parts and we supply to Visteon just in time. This way, their
In terms of the state’s managements finders are deeply
client do not have to have inventory on the ground.”
involved in the detection of business opportunities to attract companies to the State. In Chihuahua, the role of
These outsourcing services enable companies to adopt lean
these finders was traditionally played by local companies
business models that help them thrive. “Many companies
from the private sector. “Finder companies sell shelter
are opting for this lean model. Inventories are costly and
services, offering industrial land and buildings. They
if suppliers are overseas, inventories can become critical
normally go offshore and showcase what the Chihuahua
and quite large,” Mendoza comments. Factoria is able to
has to offer,” details Mendoza. However, with the Bajio’s
help its OEM and Tier 1 clients achieve their inventory goals.
magnetic pull, these companies have extended their
Mendoza explains how this is achieved: “We have the parts
services to other states, when previously they concentrated
here but they belong to the supplier and not the local plant.
only on Chihuahua. “Years ago, their resources were mainly
With our services, our clients do not have to lease a building
destined for Chihuahua. Now, the situation has changed
or even have a footprint in Mexico.” This means that through
and other regions are being showcased by them also. This
outsourcing it becomes easier for companies to simply have
is a positive change for the country as a whole,” Mendoza
a local representative. Providing engineering support is also
admits. While the investment has spread to other regions
important. “Our role is to help our client understand the
for the benefit of Mexico, this transition has left a void in
complexities and characteristics of the issue by providing
Chihuahua and the role of finder has to be filled. Mendoza
data,” Mendoza adds. Acquiring this knowledge is achieved
believes the state government has to play a bigger role as
by a close collaboration with the quality and engineering
a finder for the regional automotive industry.
departments of the Tier 1 and OEM clients. “Without this interaction, it would not be possible to obtain the proper
Minimizing risk and investment requirements enable
information. Once you earn the trust of these centers, they
companies to take advantage of the low labor cost and the
endorse you, and if you help solve issues in the assembly
strategic location of Chihuahua. Factoria offers a wide range
line, they refer you to their suppliers.”
RUBBER COMPONENTS FROM JAPAN TO CHIHUAHUA The 2008 recession brought opportunities for many
company produces gas hoses in its Mexican facilities and
automotive companies that needed to rethink their
will soon bring other products.
strategies if they wanted to maintain their businesses.
222
DTR, a leader in rubber products for the automotive sector,
As many Japanese companies are coming to Mexico, DTR
was one of those companies. After the recession, the
has focused on selling only to other Japanese companies
company decided to push production in Mexico in order
although it is aware of possible interactions with non-
to keep its costs in place. A plant was built in Chihuahua
Japanese companies. For now however, DTR is looking
due to its proximity to the US, enabling DTR to export
for more Japanese customers in Mexico. The company is
to the US market. “Chihuahua is near the border but it is
already working with Mazda in Mexico. In terms of local
much safer than other border cities like Ciudad Juarez,”
challenges, DTR has had to adapt to the cultural differences
says Masanobu Kawaguchi, President of DTR Mexico. The
between Mexico and Japan in order to find a way to share
BABY STEPS FOR COOLING SYSTEMS MADE IN CHIHUAHUA Global markets have allowed specialized companies to
Audi plant in Puebla. Most of these customers approach
venture into new territories. This is the case for Tristone,
Tristone because they have already worked with the
the German expert in the design and manufacture of
company in Europe. Still, Mexico is a competitive market
flow technology systems for engine and battery cooling.
and with the presence of Continental, the leader in the
Tristone already has a significant presence in Europe
flow technology sector, Blanco is aware that Tristone
where it is a trusted supplier in its niche for some of the
has to put in extra effort to become an OEM’s preferred
most important OEMs like Volkswagen, BMW, and Jaguar.
supplier. As such, it has sought to further customize its
These links saw the company being requested by its
product offering, covering hoses, connectors and multi-
clients to set up subsidiaries in other countries. Tristone
branched assemblies. The lack of local suppliers for its
has therefore opened operations in Mexico and China and
products is a particular challenge for Blanco. For Tristone
has started a joint venture in India. These plants add to
Mexico, it has been difficult to find any that can meet the
Tristone’s manufacturing roster which has already seen it
requirements of its customers. “We are pushing as much
build plants in Poland, Italy, Turkey, and Spain.
as possible to have local suppliers. We even have people dedicated to finding them, but in many cases our European
Tristone entered Mexico in 2011 but it did not start
customers impose their European suppliers,” says Blanco.
production until March 2012. The company decided
“This is reasonable since OEMs need to ensure the quality
to establish in Chihuahua after looking at a number of
of their finished vehicles and the only way to do so is by
locations in central and northern Mexico. The decision
relying on well-known suppliers.” This means that although
was swayed by Tristone being able to take up residence
Tristone is trying to develop its Mexican supplier base, it is
in a plant that was once used by Goodyear and Veyance.
not profitable for the company to do so. “It is expensive
This meant that the facilities already had some machinery
to invest in tooling and training for local companies. Even
installed, which made the process of starting a plant in
the logistical cost of bringing in parts and materials from
a new country significantly easier. “Being located in the
Europe is less than the investment needed to develop local
north of the country allows us to fulfill our main objective
suppliers,” says Blanco.
of supplying the NAFTA region. We supply 54% of our production to the US while the rest is for the local
At the moment, the efforts and investments being made
market. Being in Chihuahua makes the supplying process
by Tristone in Mexico are focused on increasing production
much easier,” states Jesús Blanco, Managing Director of
capacity as well as sales. Its production capacity in the
Tristone Mexico. Although Tristone only has two years in
state will double by 2016, but R&D and engineering are
Mexico, it already counts some of the major players in the
not part of short-term plans for its Mexican operations. For
industry in its client portfolio. The company is working
now, Tristone will keep its focus on manufacturing engine
with Volkswagen, BMW, Bosch, Chrysler, Ford, and GM,
cooling systems in Chihuahua, although Blanco stresses it
while also being in talks to start with Nissan and the new
can create a specialized product at a client’s request.
its knowledge and technology. “When teaching something
resources for DTR come from American Industries and they
to new workers in Japan, we do not dwell on small details
are focused on finding the right personnel for the company.
because we assume these are understood beforehand,
Kawaguchi explains that 2017 will be an important year for
but in Mexico we need to mention them because people
the company as many of the strategies it has right now will
here do not see the things in the same way,” explains
have to change. The company will not be able to use the
Kawaguchi. The best solution that the company has found
shelter system anymore and their IMMEX program will end,
is to provide examples of good and bad products so that
therefore DTR will be pushed to rethink its strategies and
people can understand what is expected.
find more customers and suppliers in Mexico. It still has not been decided if the plant in Chihuahua should remain there
American Industries, a shelter service company, has assisted
in the future and if it will grow, because those decisions
DTR in overcoming some of the issues it has encountered in
will depend on what happens between 2015 and 2020. If
Mexico. “American Industries has helped us a lot since it has
exports increase as they are expected to, then production in
worked with other Japanese companies before, thus they
Mexico will increase as well. Right now, DTR is selling US$6
are already aware of our culture and work ethics,” explains
million a year, and the company wants to double this over
Kawaguchi. Right now, the people in charge of human
the 2015-2020 period.
223
SHELTER SERVICES REMAIN FOCUSED AT THE BORDER An increasing number of small and medium-sized Tier
difficult. Companies have to navigate through foreign and
1 and 2 suppliers are coming to Mexico based on the
challenging cultural and business environments that exist
recommendations of OEMs with plants in the country. For
in this country,” says Russell. Mexico Shelter Manufacturing
these companies, entering a new business environment
Partnership (MSMP) is the business model Tecma has
can be a risky endeavor. “These companies are going to
adopted for Mexico in order to cover its clients’ unique
make huge investments in an environment that they do
needs. “This model helps them to produce quality products
not understand, so it is understandable that they might
at a competitive cost and to make timely deliveries, two
feel a touch of anxiety,” explains Alan Russell, CEO of
factors that are key to the success of manufacturing
Tecma. His company offers business solutions that enable
companies. The shelter services that Tecma provides can
manufacturers to establish their maquiladora operations in
be in a full-service package or contracted according to
Mexico. The main objective of the company is to make its
the customer’s specific needs,” explains Russell. He states
customers’ operations work more efficiently by providing
that many of the companies that Tecma works with have
shelter services, consulting, HR and accounting services,
operated at the same location for years and have never
and logistics and transportation. “Our primary focus is on
had to relocate a factory before, which is why shelter
shelter services, and our flexibility is what sets us apart
services can be a soothing balm when adapting to a new
from others offering similar services,” says Russell. “Tecma
business environment. “There is a need for the services
offers tailored services packages to each of its customers,
that we provide to help companies avoid complications,
based on the specific needs that each company finds
allowing their managers to focus on their own mission
when entering Mexico.”
of producing parts,” says Russell. The Mexican market is increasing its attractiveness to manufacturing companies
Starting as a contract manufacturer, Tecma did not
as it becomes more competitive with China, which is no
develop its expertise in any one particular industry. Russell
longer the obvious choice, and many factories once gone
says his company’s strength lies in being able to make
from Mexican shores are slowly beginning to return. “In the
things happen in Mexico. “There are many companies
past, we had to convince companies that they needed to be
that find themselves having to come to Mexico but feel
in central locations instead of offshore, but now companies
anxious about it as the ins and outs of this market can be
are looking to come to Mexico,” explains Russell.
LEONI
Redesigning the way to make cable.
Innovation, Quality & Environmental Care, define the way that we make cable. We improve day to day working with high quality standards ensuring the customer satisfaction and offering them a new products portfolio. Our strategy is ensuring a continued growth and competitiveness in the global environment.
“LEONI Cable works with the best automotive companies providing excellence to the entire world.” 224
WEIGHT REDUCTION THROUGH INNOVATIVE CABLING The automotive industry’s
stable growth, the Mexican market is growing exponentially
necessary
on
and will continue to do so for the next 20 to 25 years,”
continued quality drives
says Ávila. The production of the Cuauhtémoc plant covers
technological
20%-25% of the North American market for cables, and
right
Everardo Ávila, Managing Director of Leoni Mexico
down
focus
innovation value
should reach 30% of the market by 2016. “The situation will
chain. For Leoni, a German
the
probably be different six years from now, and we will have
leader in the production of
invested in other regions by then. But at this moment, we
cables, cable systems, and
see Mexico as the future,” states Ávila. Leoni is very aware
wires, this has proven to
of the fact that the North American market is three to four
be true. The firm focuses
years behind the European market in terms of automotive
on pre-finished and ready-
technology. “While in Europe, all new cars have GPS, a
to-install systems which have been adjusted to each of
camera, and different applications, we are just beginning to
the 32 sites where it operates worldwide, including three
see these features becoming commonplace in the US,” says
locations in Mexico: Sonora, Durango, and Chihuahua. The
Ávila. Leoni has the advantage of knowing the European
first two are focused on the production of wire harnesses,
trends, and is developing the cables and the technology to
while the Chihuahua facility specializes in manufacturing
suit them. This gives Leoni’s American plants the ability to
cables. The latter is that Leoni is counting on to earn a
pick up on European tendencies and include them in their
stronger position in the American market. Located in
production lines. “By doing this, customers do not have to
Ciudad Cuauhtemoc, this plant began operations in 1998
develop new technology on their own or find a different
with just a small warehouse but was producing cables by
supplier as we already have the type of cable they seek,
1999. In the years of the financial crisis, the Chihuahua
which is likely to have been approved in Europe,” Ávila tells.
plant only had 200 employees but now it has closer to
Leoni works closely with its customers to develop solutions
700, after Leoni Cable invested around US$50 million over
that best fit their requirements and needs, and can even
the past four years.
design off-the-shelf cables and compounds to best suit the requirements of clients with specific needs.
Leoni’s automotive cables business unit is the leading manufacturer of single-core automotive cables globally.
Its ambition to stay ahead of market conditions is what
This positioning has come of the back of the company
pushed the growth of Leoni’s Mexican operations, even
harnessing the market’s latest trends, such as weight
in the midst of the 2008 economic recession that shook
reduction. For example, the company is improving special
the automotive industry. During this period, the company
conductors and finding ways to reduce the cables’ diameter.
made a risky decision by investing in new technologies
To achieve this, Leoni has been working for two years with
and equipment in the Chihuahua plant. This was done as
aluminum cables for batteries that will replace the 35mm
part of a strategy to prepare for the years following the
battery cable. “We are producing this aluminum cable in a
economic crisis. “We started to think about the future
13mm size to replace existing 35mm cables, reducing the
during the recession and began investing in technology,
weight and the amount of materials used down to a third,”
equipment, and talent in order to be prepared. Our idea was
says Everardo Ávila, Managing Director of Leoni Mexico.
to be able to offer clients interesting products while our
“Another device in Leoni’s innovation catalog consists of
competitors were figuring out what to do once the crisis
a coaxial cable used for telematics that can be installed
was over. We took a gamble and it paid off,” explains Ávila.
in GPS, cameras, and radios. With telematics becoming in
As more OEMs are coming into the country, Leoni Cable is
increasing demand for the automotive industry, this cable
sure its business will grow. “If strong German companies
allows for different options in a single component while
such as Audi or Volkswagen have set up operations in
reducing weight because fewer elements are used. Leoni
Mexico, it is because they see that this market will stay
is already coordinating with its suppliers to determine
strong for the next years,” assures Ávila. The companies
the specifications of materials used in conductors, with
coming to Mexico need suppliers to cover their needs in
a copper-steel mix being most frequently used in the
the region. Being a German company, Leoni is well-known
company’s cables.”
by other European firms as they have worked together in other countries. In this sense, Mexico will provide new
Mexico
Leoni’s
business opportunities with familiar faces. “Having the
international strategy, given the growth seen in the NAFTA
has
become
an
important
part
of
same suppliers in a new country ensures equal quality and
region. “While other emerging markets are experiencing
confidence,” states Ávila.
225
| VIEW FROM THE TOP
COAHUILA STRIVES TO ACHIEVE INDUSTRY CONSOLIDATION JOSÉ ANTONIO GUTIÉRREZ JARDON Secretary of Economic Development of Coahuila Q: What role has the automotive industry played in the
rescued the industry from the depths of the 2008 crisis,
economic transformation and social development of
and we are now facing an automotive boom in the region,
Coahuila?
producing nearly 600,000 units annually.
A: Coahuila has had one of the most important automotive clusters in the country for almost 40 years. The southeast
Q: What is your approach to offering tax and land incentives
region of the state has developed over the years, with the
to the automotive sector, and what investments are being
presence of four OEMs to date. Socially, we can ensure
made into infrastructure to accommodate growth?
that a third generation of workers will become an active
A: Our government has always been proactive and
ingredient in this thriving industry. We can say that the
supportive of the automotive industry. It fully understands
automotive industry runs in the family in Coahuila. It all
that this sector lies at the heart of this region. Aggressive
started with GM and a Chrysler engine plant in the late
incentives are offered to newcomers, and our full support is
1970s and 1980s, before a Chrysler truck plant came in the
extended to established companies in order to guarantee
1990s, Daimler in the 2000s, and Fiat most recently.
that they stay and expand here. There is no secret in our strategy; it is all about support and commitment. The
Q: What progression has there been since the Automotive
state laws have been modified to provide aggressive
Industry Reactivation Program was implemented in 2009?
incentive programs in terms of land and taxes. The
A: To this date, companies are running three shift programs
infrastructure investments being made in the industrial
and the entry of new suppliers is imminent. The program
areas make Coahuila a world class location to invest in.
COAHUILA SPOTLIGHT As other states in the northern part of the country,
sector, Freightliner established itself in 2009 and has an
Coahuila’s economy has long had a strong focus on mining
annual production capacity of 30,000 vehicles. It generates
export oriented manufacturing. The latter sector alone
over 1,600 direct jobs and is specialized in the assembly of
represents 36% of the GDP of the state and employs more
buses and trucks. These three big players together provide
than 220,000 people. However, automotive has quietly
8,100 direct jobs and more than 10,000 indirect jobs.
snuck up to claim 19% of the state’s GDP, as it now produces
226
light vehicles, heavy vehicles and auto parts. Saltillo has
The establishment of OEMs has generated a snowball effect
hosted the GM and Chrysler assembly plants since 1981, as
in which suppliers of raw materials as well as auto parts
well as a Freightliner plant. The GM plant provides more
have begun operations in the state. The productivity in
than 6,000 direct jobs and is considered the OEM’s plant
Coahuila’s automotive sector is the highest in all of Mexico
with the highest productivity index in Mexico. It focuses
with one out of four vehicles made in the country being
both on the assembly of vehicles, and the manufacturing
assembled in the state. Starting during the administration
of engines and transmissions. On the other hand, Chrysler’s
of President Felipe Calderón, the government of Coahuila
plant began operations as an engine assembly plant but it
has established fiscal benefits for the automotive sector to
now works only on the assembly of the Dodge Ram and of
push the establishment of new companies. It also seems
the V8 and V615 engines. This plant contributes 500 direct
that the fact that recent OEM investment announcements
jobs to the state. In October 2013, Chrysler announced a
have targeted other northern states and the Bajio region
further investment of US$164 million in Mexico, which will be
has not unduly threatened the position of Coahuila as an
directed to the growth of its Coahuila plant and to start the
appealing automotive hub. Even when OEMs invest in
production of Tigershark motors. Within the heavy vehicle
other states, Coahuila can fall back on a strong automotive
One clear example is the Laguna-Norte corridor that
region. More than 280 automotive companies are located
starts in Acuña and ends in Torreon, Coahuila. This will
within a radius of 500km of our Laguna and southeast
create great logistic benefits for all companies investing
regions. In order to make that goal a reality, we are heavily
here. To fuel automotive industry growth, four regional
focused on strengthening our local supplier sector to
networking councils exist in Coahuila to develop stronger
help automotive companies meet their local content
ties among all industry participants. Additionally, the
requirements.
state government participates in an association called CIDIAC that involves the OEMs and major suppliers, as
Q: What is your outlook on the contribution that the
well as research centers and universities. This association
automotive industry will make to Coahuila’s economic
creates strategies and promotes best practices among its
development?
members to consolidate the region’s automotive cluster.
A: According to INEGI, the GDP of automotive and transportation equipment manufacturing in Mexico grew
Q: How can Mexico move from low cost manufacturing
12.6% in the first quarter of 2014 year-on-year. According
toward a more high-tech industry, and what role could
to specialists, the automotive industry in Coahuila is
Coahuila play in this?
expected to grow 7.5% during 2014. The growth rates
A: Coahuila is currently playing a role in this matter. We
shown by the automotive industry in Coahuila have long
have evolved with new high-tech companies in the region
been outstanding. From 1998 to 2010, the automotive
serving the automotive industry and the aerospace
industry in Coahuila maintained an annual growth rate
industry. Companies like Magna and Alcoa have established
of 2.7%. Today, the automotive industry represents 22.3%
new robotic plants in the region while Magna has also
of Coahuila’s GDP and creates one of every ten jobs. The
invested in a power train technology plant in the southeast
state of Coahuila represents 3.4% of Mexico’s GDP, ranking
of the state.
in eighth place nationwide. Additionally, we are one of the five states that jointly produce 75.2% of light vehicles in the
Q: How important is the attraction of another OEM to
country. Although the economy has shown conservative
Coahuila?
growth in the last two years, the arrival of new auto part
A: We believe bringing in another OEM could consolidate
plants across the state shows that it will keep being a
us as the most important cluster of the North American
significant driver economic growth and job creation.
network that can supply in those companies. This possible
decided to launch a strategic project to strengthen
interaction between states has been made an objective by
capacities and knowledge in the research centers and
the current administration, in a project labelled as targeting
education institutions in the state. The idea is to take into
the growth of productive supply chains inside Coahuila
consideration the needs of the companies established in
and beyond. The tag of “the Mexican Detroit” is one that
the state, whether they are assembly lines, Tier 1s, Tier 2s,
Coahuila is fiercely trying to protect. Aware that it must
or SMEs to come up with joint solutions. Right now, the
benefit the rest of the country while maintaining its own
program is undergoing its third project, which has the
competitive edge, the government of Coahuila is using
support of CONACYT and regroups COMIMSA, CIQA,
state and national arguments to attract more companies
the Saltillo Technological Institute, and the Autonomous
within the sector. In the expos and fairs the government has
University of Coahuila. The main objective of this particular
attended, it has pushed the fact that Mexico is an extremely
project is to develop an environmentally friendly vehicle
attractive option in terms of manufacturing and assembly,
with innovative materials.
for its low labor costs and the 45 trade agreements it has with international markets. Coahuila is keen to show itself as
Recently,
a profitable exportation platform in Mexico and highlights
components manufacturer, announced its plan to establish
its contribution to overcoming financial and innovation
in Coahuila, through an investment of US$20 million
challenges for the automotive sector across Mexico since
and the creation of 600 direct jobs. The Secretariat of
2008 through its Innovation System for Automotive
Economic Development and Competitiveness of Coahuila
Clusters (SIECCA). Taking the state’s southeast production
also announced that between 12 and 15 Asian companies,
region as an example, SIECCA seeks to provide an ideal
some of them automotive, are interested in establishing
model for a cluster, by coming up with a replicable system
plants in the state, showing the confidence that foreign
tackling R&D and financing. As part of SIECCA, Coahuila
companies have in the state and in Mexico.
Sixxon
Precision
Machinery,
a
machining
227
| VIEW FROM THE TOP
DEVELOPING MEXICO’S RESEARCH HUB OF TOMORROW ROLANDO ZUBIRÁN ROBERT Secretary of Economic Development of Nuevo Leon Q: How pivotal is the automotive segment to Nuevo
Nuevo Leon because of our developed supply chain and
Leon’s economy?
logistics solutions. Finally, the last pillar of our competitive
A: The automotive sector has been the fastest growing
advantage is the triple helix based on the cluster strategy
sector in the last three years with a growth of 45%,
that we have developed since 2008.
surpassing even traditional manufacturing. Nuevo Leon is very much a pioneer in the national context. We
Q: Why has the cluster approach been so important for
stand apart from other Mexican states due to our main
the development of the automotive sector?
competitive advantage, which is that we do not compete
A: The founding members of the strategy were Metalsa’s
with traditional Mexican manufacturing hubs but rather
Enrique Zambrano, Vitro’s Hugo Lara, and Sisamex’s
against places like Illinois, Texas, Brazil, and Turkey. We
Armando Mirandez who now serves as CLAUT President.
produce 11% of all manufactured goods in Mexico, and
During his first trip to Nuevo Leon, President Enrique
with 4% of the country’s population, we produce 8% of
Peña Nieto spoke about the importance of clusters in
the national GDP. Mexico has to undergo a transformation
the automotive sector, and suggested that the federal
process and the only way is to shift GDP per capita. Nuevo
government should emulate our model nationwide. As a
Leon is aiming to reach GDP per capita of US$30,000, up
result, the Ministry of Economy is using Nuevo Leon as
from the current US$20,000 which is already double the
a point of reference for building up strategic economic
country’s average. To achieve this, we need a broad-based
sectors. Although we are concentrating heavily on the
economy, which is why we are shifting from traditional
automotive sector, we have a targeted strategy for
manufacturing toward more specialized sectors. One of
identifying key players that we would like to integrate
the Governor’s aspirations for 2015 is to bring the right
into the supply chain and that will add value to the supply
OEM to the state. We do not want to waste US$200 million
process. It is for this reason that Nuevo Leon stopped
on incentives to just attract any OEM. On the contrary,
going to investment fairs to promote the state. Instead,
we need an OEM whose strategic market is the US for
we are working with clusters to identify the essential
logistical purposes.
needs of the sector. Other states might give away land to attract a company, but Nuevo Leon offers something much
Q: As the country’s central regions continue to attract
more valuable: a genuine business case to integrate the
more
company into the supply chain and make it much more
investment,
what
remain
Nuevo
Leon’s
key
strengths?
competitive in Mexico.
A: Nuevo Leon has four main competitive advantages
228
that stand out. The first is our human capital, as we have
Q: What areas are you focusing on to increase Mexico’s
the highest level of education in the country, being an
added value as a production base?
average of 10.5 years of schooling per person compared
A: We are betting heavily on R&D in the automotive sector
to the national average of 8.5 years. Secondly, our logistics
and are working hard to tie labor supply and demand. Nuevo
platform is the main hub for the US market, since 85% of
Leon does not suffer, like other places such as the Bajio, from
Mexico’s economic activity transits to the US. Thirdly, we
a vicious cycle of human capital in which one employee can
are the supply chain capital of Mexico to the US. For the
move through several companies and end up with a salary
automotive sector alone, Nuevo Leon represents 27% of
that is 45% higher due to the scarcity of labor. The problem
the national auto parts industry. Within a 150 mile radius
we face is that of rotation. To fix this, we need to focus on
across the northern quarter of Nuevo Leon and its border
training, making employees more efficient, and targeting
states you will find 67% of all the Tier 1 and Tier 2 supply
the best talents for the sector through in-house programs.
chain. The Bajio region is growing on the back of a decade
We are also integrating local suppliers into the supply chain.
of economic promotion, but nonetheless the majority of
The main problem is that they often lack international
investment capital from Tier 1 and 2 suppliers comes to
quality certifications or simply their credit availability is
insufficient to sustain a 60-90 day policy that contracts
parks often have technical schools located beside them,
often require. The sheer scale of the OEMs is also daunting
which benefit from a lot of initiatives that seek to boost
as many establish contracts with their suppliers through
their development. We are currently moving towards the
their holding companies abroad. Another sector that is
IT sector and we have put in place reconversion programs
symbiotically tied to automotive is the white goods sector.
to turn general engineers into software programmers.
This is integrated with 85% of local supply, resulting in an
These are run in collaboration with the educational and
advantage for many suppliers since they could also be used
private sectors. We pay for the training, the university
for the automotive industry. Nevertheless, the automotive
provides it, and finally the company guarantees engineers
sector has higher quality assurance requirements, so we
a spot if they complete the program. We are doing the
have to scale up a notch. In comparison, the automotive
same in advanced engineering for R&D centers within
sector locally sources approximately 40%, and we are
the automotive sector. PIIT (Research and Technological
attempting to bring this figure up to 70%. Our local sourcing
Innovation Park) has become the jewel in our crown and it
percentage is directly related to cheap labor. We are trying
has been visited by many luminaries for its achievements.
to shift this to add value in the high-end bracket as this is
It demonstrates R&D capacity with practical applications.
where the area of opportunity lies.
We have invested over US$400 million in PIIT and that little microcosm now has 1,300 researchers, 34% of whom
Q: What systems has the state put in place to help SMEs
have doctorates.
undergo certification processes and gain better access to finance so they can meet OEM supplier standards?
Q: Do you think that Nuevo Leon has the capacity to help
A: Nuevo Leon has several organizations that work with
change the perception of Mexico as a viable source of
the clusters and with the private sector, such as the CCM
R&D?
(Center of Competitiveness in Monterrey). These provide
A: This is a work in progress but there is a natural and
very specialized certification programs that surpass
gradual change in perception taking place. Mexico is not
established quality and credit standards. The government
just attractive for cheap labor. When comparing China and
of Nuevo Leon helps such programs by linking them up
Mexico, we find similarities, so where is the added value?
with federal funding and existing programs that directly
It is in the fact that Mexico is also creating, designing,
target the capacity building of companies. There has also
and producing. The mindset will change gradually, just
been a change in terms of the responsibility of allocating
as happened in Japan after the 1950s. China is starting to
resources. This used to be the duty of the state government,
specialize and outsource non-specialized manufacturing to
but now this has shifted to the federal government. This
developing countries. Nuevo Leon is also experiencing this
allows us to help channel resources directly to companies
shift. We are starting to see companies creating hubs here,
that most need them, through a mechanism from INADEM,
like GE which chose Nuevo Leon as its Latin American base
the National Institute for SMEs. These links to the federal
to consolidate all global financial operations. We have seen
government have also allowed us to begin collaborating
PepsiCo and Schneider Electric establish their Mexican
with Mexico City and neighboring states to put together
R&D centers here. Siemens is consolidating operations in
a more intricate and linked supplier network. These
Nuevo Leon, Mondelez International invested over US$600
particular projects even extend across the border as they
million last year, and Caterpillar added another US$500
involve Texas, Coahuila, and San Luis Potosi.
million. We are definitely starting to see a shift of locating R&D centers where production centers are.
Q: How much are you continuing to invest in human capital development?
Q: Do you think the security issue in Nuevo Leon still
A: Nuevo Leon is the state with the lowest poverty
merits discussion?
percentage and we have a US$90 billion economy that
A: It is really a battle of perception. You can see this in the
exports more than all Central American countries put
US State Department warnings. We may have decreased
together. We are the big industrial machine of Mexico
crime rates by 70% over 18 months, but to remove a US
and human capital is no exception. We have the largest
warning requires five to six consecutive cycles of positive
population of engineers, at over 6,000, as well as 11,000
evaluations. Even though we have the results, building a
technicians and operators. Nuevo Leon is the state with the
reputation takes a long time while shattering it takes an
largest population of adults with a professional education.
instant. The best judges of the real situation, however, are
We have the highest enrolment of students in the sciences
the companies themselves and they will remain here. The
and engineering at 15,000, and we have the largest amount
perception of insecurity lingers but we are overcoming this
of industrial parks in the country at more than 137. These
obstacle and we are regaining companies’ trust.
229
NUEVO LEON CLUSTER PREDICTS CONTINUED PRIDE OF PLACE The creation of CLAUT,
its Mexico factory now standing as the biggest truck
Nuevo Leon’s automotive
manufacturing plant in North America.
cluster, spurred
Manuel Montoya, Director General of CLAUT
was by
directly automotive
While Coahuila and Nuevo Leon helped each other rise in
investment in the north
the north, some in those states and beyond see the new
of
Mexico,
even
when
wave of investment happening in the Bajío region as a threat.
it
started
in
other
Montoya says that CLAUT has benefited, not suffered, from
states. Manuel Montoya,
this trend as investment has continued to come its way. For
Director
of
example, Nemak will produce the engine blocks for the Audi
CLAUT, explains that the
General
plant in Puebla. “We do not compete with other clusters.
entire industry received
On the contrary, we sell to them or buy from them as we
a massive boost in the 1980s when GM and Chrysler
focus on different segments of the automotive industry.
established plants in Saltillo, Coahuila, soon to be followed
Furthermore, we should help to develop the national
by their Tier 1 suppliers. A surge of joint ventures took
companies through a collaborative initiative. Business
place, such as between the locally based Grupo ALFA and
is growing so we should all take advantage of that,” says
Ford, which resulted in the creation of Nemak. After waves
Montoya. “The Nuevo Leon region is home to a good
of investment to Coahuila and beyond resulting in growing
base of technicians as a result of the strength of its steel,
expertise and a skilled labor force, the official automotive
food, aerospace, and white goods sectors. 2,600 foreign
cluster, CLAUT, was established in 2007, making it the
companies are established in Monterrey, which has led to a
oldest industry cluster in Mexico. CLAUT came about
developed supplier base filled with expertise. For example,
largely as a result of US companies realizing they could
Mexico has a dearth of Tier 2 suppliers but many of those
not remain competitive while manufacturing in the US or
that exist are in Nuevo Leon. Stamping, plastic injection,
Canada. Navistar closed a factory in Canada right after
and forging amongst other areas are all fields at which we
the start of the financial crisis, followed in 2012 by the
excel,” says Montoya. A 2012 national study identified 160
closure of their Texas plant. This has led to 75% of the
Tier 2 companies in the country, 70 of which were focused
company’s production taking place in Nuevo Leon today,
on the automotive industry. Out of those companies, half
leaving just 25% in the US. Another example is Freightliner
were part of CLAUT, including those working on the latest
that established operations in Saltillo four years ago, with
automotive technology and R&D.
NUEVO LEON SPOTLIGHT
230
Nuevo Leon is one of Mexico’s vital industrial and economic
In May 2014, cheers must have resounded in the halls of
centers, contributing 7.5% of national GDP. While Nuevo Leon
Monterrey’s government buildings when Korean OEM Kia
is still waiting on an OEM to elevate its importance for the
Motors confirmed its interest in building a plant in the town
automotive sector, its auto parts industry contributes to 3%
of Pesqueria. Production would be divided into two model
of the country’s automotive industrial production. Of the more
platforms with a combined capacity of 300,000 vehicles
than 190 auto parts companies in the state, only 50 are of
a year. It would help satisfy demand in the US where Kia
foreign origin, showing the strength of its local suppliers. Due
and its affiliate Hyundai have been facing constraints in
to its proximity to the US, the automotive industry in Nuevo
their ability to supply the market, even though its plants in
Leon serves mostly the US market. The auto parts industry in
Georgia and Alabama are operating at or even above their
Nuevo Leon is the third largest nationally and employs over
official capacity. According to the announcement, the
60,000 people. Investment in the automotive sector in Nuevo
construction of the plant would begin with the intention of
Leon reached US$870 million in 2013. Nuevo Leon ranks
manufacturing the Soul, the Forte, and the Picanto models
first nationally in the production of cylinder heads, motors,
starting in 2016. Kia’s announcement brings hope to Nuevo
batteries, laminated and tempered glass, and harnesses. It
Leon since it will prove that its abilities go beyond auto
ranks second in the production of trucks and buses, electrical
parts manufacturing and extend to assembly too. Prior
and electronic equipment, and plastic parts for the automotive
to Kia’s news, Nuevo Leon’s automotive and auto parts
industry. It also produces bodies, transmissions, brakes, seats,
industry was predicting growth by 5% during 2014. The
metal stamp, tires, and steering and suspension systems.
role of Nuevo Leon’s auto industry has been to support
CLAUT has a very close relationship with CONACYT,
sense in Mexico anymore as it does not produce wealth
presenting about 15 technical projects a year from various
for the region.” For this reason, the cluster aims to support
companies. Moreover, the cluster has received a lot of
companies at the Tier 2 level to develop and grow. The final
support from the Ministry of Economy, which has stated
goal is to make the industry more integrated to support
CLAUT’s projects benefit the entire industry. Through
the development of high-technology production. “Many
the Program for the Development of Industries with High
international companies have realized that our engineers
Technology (PRODIAT), the government and clusters like
are good. Moreover, Mexico has a big supply of them
CLAUT are aiming to bridge economic gaps that exist in
compared to other countries, even the likes of Germany. This
industries like automotive. “We work directly with the
will enable us to move towards more R&D being conducted
government to establish the correct public policy that will
here,” says Montoya. He adds that the region’s success in
enable the industry to prosper,” says Montoya. The first point
terms of technological development is simply a natural
on PRODIAT’s agenda is to strengthen training programs.
progression. “Monterrey is no longer as cheap as other parts
Although Nuevo Leon is home to some of the best higher
of the country. If a company is looking to put labor-intensive
education institutes in the country, including a number
operations in place, Monterrey is not the most cost-effective
of government-sponsored technical schools, companies
location. However, for an operation with machining,
have complained that students often graduate with only
foundering, and stamping, Monterrey is optimal,” explains
superficial
requirements.
Montoya. This sentiment is supported by the fact that a
Therefore, CLAUT has begun collaboration with educational
number of companies have already set up R&D centers in
bodies to better identify the skills needed by the industry.
the region. “Navistar started an engineering center in 2012,
“It is true that the industry has grown exponentially over the
and they already have 100 engineers designing trucks here.
past few decades, but now we find ourselves at a bottleneck
Yazaki has also established an engineering center. These
for trained technicians and skilled engineers. It is expensive
companies no longer see Nuevo Leon as just a place for
for a company to train all of their incoming employees,
manufacturing,” adds Montoya.
knowledge
about
industry
as it is to poach already trained employees of established companies. We need to facilitate this,” says Montoya.
Growth is expected to continue in the region that CLAUT covers, projecting 30% growth for the next three years.
Boosting the local supplier base in order to increase local
“We have already grown 100% since the economic crisis.
content levels is another important role of the cluster.
Before the crisis, Mexico produced 2 million cars, which fell
OEMs in the region say 80-85% of materials are sourced
to 1.5 million. Today, we are producing almost 3 million cars
in Mexico, but there is still room to grow. “A large part of
and by 2017, that number will reach 4 million. As we are a
this percentage comes from foreign companies based in
region of important suppliers, this million vehicle increase
Mexico, so CLAUT’s mission is to increase local content from
means a significantly larger market for CLAUT and its
local suppliers. The maquiladora concept does not make
members,” says Montoya.
the national sector through the integration of a strong
from chassis, wheels, fenders, coils, wheels, roofs, trunks,
local supply chain. ProMéxico promotes the development
engine structures, doors, and outside protections. This
of supply chains in the manufacturing industry in order
shift from imported steel to locally produced steel will
to link local suppliers with transnational companies and
act as a beacon for further automotive investment
importers. To date, this campaign has been successful in
and will have a direct impact on the reduction of costs
Nuevo Leon. The state is a national leader in attracting
for local manufacturers. Nevertheless, Nuevo Leon still
foreign direct investment, having brought in US$3.5 billion
needs to improve on some key areas, such as training
in investment in the first half of 2014. One industry that
and human capital, particularly given the technical level
will directly benefit from increased automotive industry
of manpower that OEMs like Kia require. Therefore, the
activity is the steel industry. Nuevo Leon used to have
government is pushing for the creation of vocational high
to import 100% of its steel but a recent US$1.1 billion
schools, or vocational courses within existing schools,
investment in a cold rolling mill by Tenigal, a partnership
that will graduate specialized technicians. Such an effort
between Ternium and Nippon Steel Corporation, will
should link up well with growing interest to establish R&D
represent a breakthrough. This investment is the largest
centers in the state. Metalsa, Katcon and Sisamex have all
investment in Nuevo Leon in the last decade and will
opened R&D facilities in Nuevo Leon already, while Italian
have a capacity of 1.5 million tonnes of cold plates and
automaker Fiat is considering following suit. Besides
400,000 tonnes of coated sheets. These are thought to
education, security has also threatened to hold Nuevo
meet the needs of the automotive industry in the state
Leon back slightly. But as crime seems to be dropping,
and the country. The steel coming from the plant will
the state’s business community has remained loyal, with
be used in the production of automotive parts ranging
foreign companies continuing to invest.
231
INCREASING VARIETY AND CAPACITY KEY IN MARKETPLACE Japanese
Aisin
as volume. We have to recognize the growing needs of the
ranks as the fifth largest
Mexican market, and that means producing more kinds of
automotive
supplier
the
world,
and
the
company’s
operations important
Toshio Tanaka, President of Aisin Mexicana
supplier
in
products through increased capacity.” The location of any
today
new production facility will, to a great extent, be decided on
Mexican
the basis of Aisin’s major local clients. The supplier’s flagship
form part
of
an
customer in Mexico is Toyota, but demand is increasing from
its
fellow Japanese OEMs such as Honda in Celaya and Mazda
20-country presence. With
in Salamanca, as well as North American based players. For
competitors hot on its heels
now Aisin will monitor demand, with Tanaka saying that “the
however, Aisin Mexicana’s
location will depend on customer needs. If Honda Mexico
President Toshio Tanaka
has a key demand, we might decide to build it in Celaya,
explains that one of the company’s main challenges for 2014
but if our US customers are also increasing their demand,
will be to stay ahead of the pack. “Compared to just a few
we may consider sites in the North.” Mexico’s transportation
years ago, we are facing much more competition in Mexico.”
costs are also a critical factor when it comes to site location.
Aisin’s size in itself can sometimes act as a double-edged
“Our current products are small and therefore we could
sword, allowing smaller specialist suppliers to creep up in
send them to Celaya at an affordable rate, however Aisin
market share terms in specific products. “Aisin is one of the
Group produces many parts, and if our customers from
largest automotive technology manufacturers in the world,
Mexico require some bigger products here, we will need to
but some of our competitors specialize in just a single one
consider a particular location for that also,” says Tanaka.
of our products, allowing them to have very competitive costs,” says Tanaka. “Some years ago, we were the only
With plans for more local production and procurement
producer of these products in Mexico but new OEMs are
still in the making, Aisin continues to rely heavily on its
coming and bringing their suppliers too.”
innovation drive to maintain a competitive edge. Aisin can take up to eight years to introduce new advanced
Sustained and steady competition means that price pressure
technology for its automotive parts, largely because of
from customers invariably remains heavy, and Tanaka
the testing required. “Innovations across our product
reasons that while cost reduction requests must be seriously
lines focus on reducing size, weight, cost, and component
considered if the company wants to stay on top, lowering
numbers. Systems such as power sliding doors require
costs is not a straightforward matter. Tanaka believes
testing to resist extreme temperature changes and
that Aisin’s integrated production system has served the
impacts, among other factors. A doorframe unit might
company well in enabling it to compete effectively with
be updated every year but advanced parts like this need
new incoming suppliers, but the time has come to intensify
much longer periods for improvements,” explains Tanaka.
efforts to stay ahead. Having been in Mexico for 16 years,
For the time being Aisin Mexicana relies on its parent
Aisin is now looking to further localize its current supply base
company in Japan for R&D. “We have three global R&D
in order to reduce costs and enhance its competitiveness.
centers based in Japan, China, and the US, and we pay a
With 85-90% of general products and almost 100% of
fee to our Japanese company for the use of their designs
aluminum components already sourced within NAFTA, the
and drawings”, explains Tanaka. Whether or not Aisin’s
company’s regional procurement initiatives are very strong,
advanced technology development will ever take place
but Tanaka believes that Mexico can produce many of the
in Mexico will to a large extent depend on what its OEM
same materials, helping Aisin to improve localization.
clients do. “It is possible that we might start designing technologies here, but it all depends on our customers.
232
Aisin’s production in Mexico currently focuses on door locks,
Nissan has a design department in Toluca, but Honda,
door checks, and door handles, all of which were produced
Mazda, and Toyota have no design presence in Mexico,”
at the company’s facility in Cienega de Flores, Nuevo Leon.
says Tanaka. The main reasons behind this are practical, as
Globally, the company has been increasing its production
developers from Aisin are accustomed to working closely
capacity in emerging markets such as Brazil, India, and
with their OEMs on technological developments. Aisin has
China, but it has not yet decided if, where, or when to do
two approaches to design development, the first involving
so in Mexico. Tanaka explains that the company is currently
direct development from OEM-provided designs, and the
investigating the expansion of its capacity in Mexico, with
second based on Aisin’s own in-house design. In both
a final decision likely to be made by 2015. “Wherever it
cases the design departments of both Aisin and its OEM
takes place, the expansion will need to feed variety as well
customer work closely together.
METROLOGY LEADER DIRECTS INVESTMENTS TOWARD MEXICO Quality assurance is one
Volkswagen. The company is in constant communication
of
with its clients’ quality, production, engineering and
the
most
features
the
product development departments, allowing for its heavy
needs of customers. The
R&D investments to be tailored to the market. In Germany,
materials
satisfy
the
Mahr works with the University of Göttingen in developing
must
new technology, and it has contacted ITESM, University of
comply with the highest
Nuevo Leon, and smaller technical universities in Mexico to
standards while companies
start programs focused on metrology. Currently, no Mexican
rely
labor
Jorge Escarcega, General Manager of Mahr Mexico
to
important
used
and
employed
high-technology
university offers formal training in metrology but Mahr has
equipment and innovation
on
not had problems in finding the right technicians. Escarcega
to help ensure that these
links this to the quality of universities and schools in the
standards are consistently reached. The automotive industry
regions where the company is present. “The programs or
has arguably developed the most advanced metrology
internships we establish help us to get qualified people that
technology in the world, a niche market in which Germany’s
we are able to train. At the moment, we have students from
Mahr has found a solid line of business. “With over 150 years
the mechanical and electrical engineering program of the
of manufacturing and selling a wide variety of dimensional
University of Nuevo Leon, but we also have people studying
metrology equipment, Mahr provides products ranging
accounting and logistics that are being trained in the way
from the most basic and standard machinery to high-tech
the company does business in Mexico. These collaborations
and specialized equipment,” says Jorge Escarcega, General
are a great experience for both the students and Mahr,”
Manager of Mahr Mexico. Despite its presence in other
states Escarcega.
industries such as aerospace, Mahr’s central interest remains in the automotive sector, where it focuses on dimensional
Even though the company seeks to keep expanding
metrology for special measurements of form, roughness,
its operations in Mexico, Escarcega does not see itself
length, and other parameters. “We have global agreements
becoming a particularly large player, preferring to retain
with the likes of Volkswagen, Bosch, Mercedes-Benz, and
its mid-sized nature. “The plan is to continue growing and
BMW, and in the US we are working together with Ford,
we are looking to have just the right amount of people for
Chrysler, and GM. We have agreements in Mexico for supplying
the market,” says Escarcega. “Mahr is certainly betting on
products and solutions for which our specialized technicians
Mexico. We are focusing on the central and the northern
provide 24-hour support,” explains Escarcega. Catering
regions, with a presence nationwide. We have sales offices
to such powerhouses, Mahr has developed measurement
and offer technical services in Guanajuato, Queretaro,
solutions for engines, transmissions, special shafts, and
State of Mexico, Mexico City, Puebla, Nuevo Leon, Sonora
applications for users across the automotive industry.
and Baja California. In Queretaro and Nuevo Leon, we also
However, it also has the capacity to create special products
possess demonstration areas where we can show clients
the discerning customer. For instance, it has developed
our equipment and where we can showcase certain special
advanced equipment specialized in roughness measurement
applications for our measuring services,” explains Escarcega.
for Volkswagen Mexico, which is more advanced than the machinery used by Volkswagen in Germany, according to
Mahr is now preparing for the future in an ever-changing
Escarcega. For GM, Mahr has designed specific equipment
industry driven by innovation. From its headquarters
for measuring diameters, surfaces, and other dimensions
in Germany, the company has began working with new
used in transmissions and engines.
market trends like nanotechnology, green manufacturing, and intelligent materials. Escarcega forecasts that these
With more than 17 years in Mexico, the company’s pace of
types of technologies will soon arrive to the Mexican
growth has been measured but it has seen its expansion
market. To understand the best rate of technology release
pick up speed in the last five years. This has seen Mahr make
in Mexico, Mahr Mexico reports to the US and Germany on
Mexico one of the main focuses of its global vision, and it is
the trends that are taking place here, especially regarding
planning on bringing more investment to the country as part
the expectations of customers like Volkswagen, Ford and
of its long-term strategy. “We are investing alone and with
Bosch. “Very interesting times for the automotive industry
other companies. We are also developing distributors and
are just around the corner. We are trying to keep our
representative offices in different areas of the country,” says
investments coming to develop and provide technology
Escarcega. Mahr maintains close ties with its customers as
that will match the evolutions that we see taking place,”
evidenced in its agreements with Bosch, John Deere, GM and
explains Escarcega.
233
| VEHICLE SPOTLIGHT: 2015 FORD FUSION The Ford Fusion could be said to be a milestone in the
some manufacturing was moved to Michigan in 2013 due
OEM’s history, as it is the tangible result of a change
to a need for additional capacity.
in Ford’s mentality, reflected in hybrid technology and innovative design. The Fusion, which has been in
The highlight of this car is the incorporation of hybrid
production since 2006, was the first car to showcase
technology. The Ford Fusion offers five powertrain options
Ford’s new grill. The 2013 line is based on the Ford CD3
with two hybrid variants. The regular versions come with
platform and includes three models that are available
Duratec powertrains and ElectShift six-gear transmissions.
in standard and hybrid versions: S, SE, and Titanium.
The Duratec engine works in an Atkinson cycle manner,
Although the final assembly process for the Fusion takes
providing more thermal efficiency in the air-gasoline
place in Ford’s Hermosillo stamping and assembly plant,
combustion process. Ford, as most OEMs today, considers
the rising costs of gasoline when designing and improving
Energi, with 40mpg for city and 36mpg for highway. In
vehicles, which has seen the Fusion models come equipped
tests, Ford discovered that driving techniques can improve
with EcoBoost engines. These turbocharged, direct
fuel economy by 24%. For this reason, the OEM included
injection engines are an affordable option that achieve
the Eco Driving mode in the Fusion, which rates driving
20% better fuel efficiency while reducing greenhouse
behaviors by analyzing parameters such as gear selection
emissions by 15% when compared to similar engines. The
and vehicle speed to allow drivers to know how they are
hybrid version has an EPA estimated fuel efficiency of
driving in terms of fuel efficiency. Other technologies found
44mpg for city and 41mpg for highway. Its gasoline engine
in this car include the SYNC system, which allows users to
also runs on Atkinson cycles, delivering 188hp. Since 2013,
use smartphone applications through voice commands,
the Fusion also has a plug-in hybrid model, the Fusion
and a camera that displays a rear-view on the dashboard.
| VIEW FROM THE TOP
SONORA’S ECONOMIC GROWTH BOOSTED BY AUTOMOTIVE ADVANCES MOISÉS GÓMEZ REYNA Secretary of Economy of Sonora Q: What factors have led to the major investments in the
This has led to the creation of teaching techniques and
automotive, electronics, aerospace, and metal mechanic
methodology courses that are implemented according to
industries in Sonora in recent years?
specifically identified industry needs. Sonora’s automotive
A: Several factors have led to investments in different
industry is constantly integrating its various production
sectors, but perhaps the most important factor is our
and assembly operations with high-performing suppliers,
competitive operational cost that has helped Sonora to
but it is still showing great potential for growth within its
distinguish itself in the creation of high-quality products
supply chain. The state government is currently carrying
recognized worldwide, especially in the automotive and
out an aggressive program to grow its industrial base
aerospace industries. We are considered to be the largest
and boost high value manufacturing sectors. This has
Asia-Pacific automotive cluster in the Americas due to
seen significant investments being made in infrastructure,
our natural access to the Pacific Ocean through the port
education, and training programs and incentives aimed at
of Guaymas. Each company must consider our state for
strategic investment projects. The state has demonstrated
future expansion thanks to our privileged geographical
its commitment to the industry through the direct
position and our excellent connectivity with the US and
involvement of highest government officials in articulating
the world by air, ocean, and land.
a strategic vision for the automotive sector. We also seek expert assistance when required from consultancy
Q: What role has the automotive industry played in the
firms, and team up when needed with OEM’s and Tier 1
economic and social development of Sonora?
companies on supplier strategies.
A: For the past several years, we have seen an economic growth close to 6%, well beyond the national average.
Sonora has the ability to attract leading OEMs through
Our manufacturing sector represents close to 21% of our
the presence of over 80 automotive companies already
state’s GDP, and accounts for the employment of just over
established in our state. We have become more diverse
180,000 workers, which is 16% of our active population,
in our industrial base and have looked into other sectors
which has an average age is 25 years. Ever since Ford
which can be of importance to the automotive sector. We
decided to invest in Sonora back in 1986, the automotive
are also incentivizing our Tier 1 suppliers to assume greater
industry has wielded great importance over its economic
roles in the centralization of their supply chain in order to
and social development. The automotive industry has
reduce costs. This will then foster regional production and
created strong links between the industry and academia
local content. With the Ford presence in Sonora, 61% of
with the dynamic participation of current plant production
the material that comes from Mexican suppliers originates
engineers in the development of practical training.
from the Ford supplier campus.
The turning point for Sonora’s automotive industry came in 1986 when Ford Motor Company decided to open a stamping and assembly plant in the state capital of Hermosillo. Following this investment, the automotive industry became seen as a key sector for long-term development. Numerous companies from the US, Canada, Japan, and Europe followed Ford to Sonora, including Euromex, Magna Steyr, IHS Global Insight, Yazaki, Leoni Cable, and Sumitomo. Nowadays, the Sonora automotive industry employs more than 15,000 people, contributing approximately 9.7% of the state’s GDP. With a production of 443,000 vehicles per year, the automotive cluster in Sonora is the largest on the Pacific side of the Americas. Ford remains the central piece in Sonora’s automotive edifice. The OEM has remained loyal to Sonora and, during Felipe Calderon’s administration, increased production in its plant with a new investment of US$1.3 billion. This expansion resulted in the creation of 1,000 direct jobs and 7,000 indirect jobs. The government now has to take steps to equalize the entire supply chain, which can only stand it in good stead when trying to attract a new OEM and more top tier suppliers.
236
| VIEW FROM THE TOP
SCANNING GLOBAL TOOLING MARKET TO BRING BEST OPTIONS TO MEXICO JUAN CARLOS ELIZONDO Director of Globextools Q: How does Globextools stand out in the Mexican
is that we are not married to one particular brand or product.
market where domestic suppliers have not always had the
We are constantly researching and studying all the options
capacity or knowhow to serve OEMs or Tier 1 companies?
available in the global tooling marketplace to make sure
A: Our market analysis has proved to us that while the
we are presenting the highest quality and value possible
Mexican automotive industry is expanding, it is underserved
to our clients. We are constantly adding new products and
by the existing supplier base currently operating within
replacing older technologies with newer efficiencies as they
the country. Too often, the industry is compelled to find
become available. There are always challenges in balancing
supply solutions outside of Mexico. Globextools is working
quality and cost benefits and ultimately it is our job to give
to constantly find solutions to this challenge by servicing
our customers a variety of options so they can make their
the industry from within Mexico. If the item in question is
own well-informed decision. We achieve this with product
not yet available in Mexico, then we source or develop it for
tests for proper evaluation so that our customers can have
our clients so that they have the convenience and speed of
confidence in their final decision.
working within the country. Many of the parts we supply to the automotive sector can affect the safety of a worker or
Q: Should measures be taken to reduce imports in
end user. We take the responsibility of safety and quality
areas such as tooling for industrial use to increase the
assurance extremely seriously as no profit is worth a human
competitiveness of Mexico’s automotive industry?
life. Naturally, specific requirements and policies vary from
A: We believe in the free global market. Mexico is one
customer to customer and from industry to industry but
of the best examples in the world of an emerging global
our cross-sectorial presence sees us take the best practices
powerhouse providing manufacturing of quality and value.
from each and apply them across all our operations.
In our opinion, reducing imports with protectionist policies only creates a weaker and less competitive supplier network
Q: How do you intend to address the implementation of
over the long-term. Reducing imports only postpones the
the right quality assurance methods and techniques to
inevitable and that is that a country has to compete on
avoid product interruptions?
a global scale. Most of our customers are manufacturing
A: We view this challenge as one of the larger opportunities
in Mexico, therefore their supplier base should also be
for us to succeed in separating ourselves from our
manufacturing as much domestically as possible. Our
competition. We are willing to invest in any quality
company is also competing globally by offering the best
assurance system our policy required by our clients. This
value whether that is through manufacturing a part in
investment makes us a stronger provider. Our company
Mexico or importing it. We believe this flexibility makes
adapts to the quality standards of each of our clients and
Globextools a more efficient supplier for our customers,
if they have not yet developed their own standard on any
which ultimately makes them more competitive in the
given part, they can be assured that we are providing the
global market. We are all related and our customers are
highest quality possible. 70% of our current customer
only as competitive as their suppliers and suppliers are
base was developed from a single part that a competitor
only as successful as their customers.
failed to provide to these customers either on time, at a competitive price, or at a specific quality needed. This has
Q: What is your outlook for the development of
shown the value of providing solutions for our customers
Globextools and the wider tooling segment in Mexico?
when our competition could not.
A: We will only grow at a pace that will allow us to maintain our extremely high levels of customer service and quality
Q: How does Globextools shape its product portfolio to
assurance. We are looking to increase our sales by 40%
stand out from its competitors’ offerings?
over the coming year. Few question the fact that Mexico is
A: We offer too many products and brands to list. More
on track to be among the top 10 fastest growing economies
importantly, what makes us different from our competitors
in the world over the next 35 years.
237
| VIEW FROM THE TOP
INVESTORS ATTRACTED BY REMOVAL OF ECONOMIC BARRIERS CARLO HUMBERTO BONFANTE OLACHE Secretary of Economy of Baja California Q: What factors have led to the investments made by the
strong training program has made our guest companies
likes of Toyota, Kenworth, and Hyundai in Baja California
extremely pleased with the quality of our skilled workforce.
in recent years?
We are committed to diminishing or eliminating economic
A: We have a privileged geographic location that provides
inhibitors. For example, we can now offer a new energy
easy access to the Western US market and a point of
supply scheme through a cogeneration contract with
entry to other important international markets. We enjoy
Intergen, to reduce energy cost in the summer months
manufacturing flexibility, fast transportation to the US, and
where there is a special tariff during peak demand hours.
our world-class infrastructure and industry expertise have
Additionally, we have natural gas at the most competitive
contributed to positioning Baja California as an attractive
prices in Mexico.
location for investments. This paired with a world-renowned skilled labor force makes Baja California a very attractive
Baja California has granted several incentives to automotive
investment location. In April of 2014, the transportation
companies and their suppliers, not only during their landing
industry had a work force of 23,778 highly skilled employees.
but also when they have consolidated expansion projects.
According to INEGI, there are 78 companies engaged in
For instance, a payroll exemption incentive is granted every
the manufacturing of components used in the transport
time a company has an expansion project. Other incentives
industry, and the off-road market has led to the growth of
include a 30% water discount on consumption over the
an additional 25 companies. Between 2008 and 2013, private
monthly bill for companies with in-house water treatment
investments amounted to US$5 billion. In the first 5 months
plants to recycle and reuse water and 100% exemption in
of 2014, the economy of Baja California created 34,947 new
water connection fees. Regarding infrastructure, there are
jobs, which is 81% more than San Luis Potosi, 78% more than
important projects for border crossing points and we are
Aguascalientes, 54% more than Queretaro and 7% more
undertaking great efforts to be able to provide railroad
than Guanajuato. Economic diversification has been a critical
connections between Ensenada, Tijuana, and Tecate, to
success factor, and from a highly concentrated electronic
offer cost competitive alternatives for exporting products
industry the state has now become a well-known location of
to California, Nevada, Arizona, and the East Coast.
aerospace industry, medical devices, automotive, and others. The key to creating a successful automotive industry in Of course we are always looking to attract more world-class
Baja California has been the cooperation between all
automotive manufacturing operations in Baja California; a
stakeholders. Academic institutions are participating in
good example is Hyundai’s recent expansion in Tijuana, of
innovation projects and are adjusting their curricula to
US$131 million to cast engines in-house. We work with the
meet current and future industry needs. Private and public
automotive companies to attract new suppliers. For example,
universities are focusing their efforts on matching industry
Uni-Pol will establish an operation in Mexicali in early 2015.
labor force needs. As proof, every year 18,000 engineers and 25,000 technical workers graduate to support local
238
Q: What strategy has been taken to create an optimal
industries. In addition, curricula and training programs
environment to attract and retain automotive companies
are constantly evaluated to keep up with technological
in the state?
requirements. The state government works closely with
A: We made our entire fiscal and non-fiscal incentives
their federal counterparts to develop programs and funds
package into a law that benefits new companies as well as
that foster innovation and technological development
already established ones. All companies that are investing
in key sectors, and to promote the inclusion of local
in our state receive a fair stimulus for the job creation and
suppliers into the value chain. Currently, Baja California is
economic impact of their projects within the region. We
one of the top five states that fund new products, design,
also have supplier development programs and funding
processes, services, and other measures to increase the
for innovation and technology co-development efforts. A
competitiveness of companies.

Q: What steps are being taken to support the local
automotive industry and with other industries in which
supplier base for the automotive industry?
their skills are valued, and we do this on a local, national,
A: We have a financial program in place that is exclusive for
and international basis to maximize their exposure. A strong
local suppliers. Once a local supplier establishes a commercial
local supplier base strengthens the whole automotive value
relationship with an automotive company, we provide a
chain and makes our state more competitive.
credit line with preferential terms that can be used to fulfill the company’s orders in a timely manner. When they deliver
Q: What is your outlook on the contribution of the
and invoice their goods and services, we give the company
automotive industry to Baja California’s GDP in 2014?
another line of credit on which the local supplier can
A: The production value of the automotive industry was
discount any invoice so that their cash flow is not affected.
around US$900 million in the first quarter of 2014 alone,
We also have a supplier development program that helps
representing 42% of the total value of the manufacturing
local companies obtain the certifications required in order
industry in Baja California, and we expect a growing
to better serve automotive industry clients, and we provide
participation by the end of the year. Our priority is
funding for the certifications so the final cost for the supplier
achieving better railroad connectivity and developing the
is very attainable. We promote our local suppliers with the
local supplier base.
BAJA CALIFORNIA SPOTLIGHT With a reputation as a maquila hub and bordering the
production of trucks and pickup trucks, in addition to
US, Baja California has one of Mexico’s most enviable
the remanufacturing of alternators, starters, engines, and
levels of economic activity. After the signing of NAFTA,
transmissions. This breadth of operation has seen more
Baja California’s fate became intricately linked to the US
than 80 suppliers to the automotive industry operating in
economy. Although Baja California has sometimes been
Baja California. Major names like like Hyundai Translead,
perceived as dangerous in the media, Mexicali, the state
ThyssenKrupp Budd, Honeywell Automotive, LN Safety
capital, is considered one of the most prosperous cities in
Glass, Autoliv, SKD Automotive, and Furukawa Electric
Mexico. Despite the high recognition for its manufacturing
serve the Mexican and US automotive markets from
industry, other sectors such as automotive, tourism, and
Baja California, manufacturing windshields, seat belts,
agriculture have taken pride of place in the state’s GDP.
sensors, radiators, engine parts, air bags, and harnesses.
The arrival of Toyota with a platform to manufacture the
These companies operate thanks to the labor of almost
Tacoma pickup truck in 2004 and the presence of Kenworth,
30,000 dedicated workers, ranging from basic labor to
assembling its tractors in Baja California, dominate the
specialized high-level professionals. 63% of the jobs in
state’s automotive landscape. The manufacturing of
the auto industry are located in the border city of Tijuana,
automotive parts and vehicle assembly are also showing
while Mexicali claims 27% of the human capital, followed
great development potential for Baja California. Major
by Ensenada with 8%, and the remaining 2% distributed
European, Asian, and American companies have all set
between Tecate and Rosarito. The manufacturing of niche
up shop there, but 78% of the automotive industry in Baja
vehicles, such as the Shelby Cobra 427, stands as evidence
California belongs to large and medium-sized companies.
that the Baja California automotive sector is capable of
The other 22% is divided among smaller enterprises, most
working on specialized products and processes.
of them local suppliers that have developed thanks to the opening of plants of foreign origin.
Just like many of the states with automotive industry activity in the country, Baja California has a dependency
Five industrial clusters have been built in Baja California,
on major OEMs like Kenworth, Toyota and Hyundai. In 2013,
catering to the sectors where the state foresees the
Toyota announced a planned increase in the production
most significant growth. These clusters are automotive,
of the Tacoma pickup truck, while Hyundai Translead
electronics, aerospace, medical, and renewable energy.
expanded its operations, incorporating its new die casting
However, the automotive sector has pulled ahead due
process for the manufacture of engines and transmissions
to its different segments present the state, ranging from
into its plant. The current Baja California administration is
assembly plants to manufacturing and remanufacturing
focusing its efforts on consolidating the automotive sector,
facilities
with activities throughout 2014 seeking to promote Baja
for
automotive
parts,
and
even
off-road
vehicles. For now, the industry is heavily focused on the
California as an attractive investment destination.
239
A notable bulk of the recent investment that has poured into Mexico’s automotive industry has been concentrated on the country’s central region, and it has been welcomed with open arms. Japanese and German companies looking to near shore operations for the North and South American markets in particular have been increasingly attracted to the country’s central states, which have been offering attractive incentives and vast labor pools. The region’s major NAFTA motorways, highways 45 and 57, are accessible from most states within the region, and forge straight through some, allowing easy access to the US, the country’s ports as well as major North and South American hubs. Some of the nation’s major industrial parks can be found in this region with more still under development and a number already almost at full capacity. Ripples from the stones broken on the ever-increasing sum of new plants are being felt in surrounding areas, propagating wealth and employment opportunities in once sleepy hollows. The Bajio region is now predicted to become the largest automotive cluster in Latin America as early as 2015.
This chapter will provide an overview of the automotive industry developments in the central region and looks at growth and opportunities within the most significant clusters and industrial parks. The region’s key players from both the public and private sectors will discuss the strengths buoying and the challenges shadowing the region, and shed light on what lies ahead.
CENTRAL STATES
9
CHAPTER 9: CENTRAL STATES 244
VIEW FROM THE TOP: Guanajuato Strives to Ramp up its Industrial Capacity
246
VIEW FROM THE TOP: Clusters for Growth
246
VIEW FROM THE TOP: Inland Port Drives Guanajuato Industry Growth
248
VIEW FROM THE TOP: Investing in Engineers for the Bajio Region
249
VIEW FROM THE TOP: Mexico Provides Advantages in Sunroof Manufacturing
250
Japanese Brake Suppliers Follow OEMs to Bajio
251
Zacatecas Spotlight
253
Korean Tubing Supplier Finds Home in Zacatecas
254
VIEW FROM THE TOP: Automotive Investment in Aguascalientes Heats Up
256
VIEW FROM THE TOP: Transmissions from Nissan Subsidiary in High Demand
257
Brand Diversity Helps Door Interior Supplier
257
Aguascalientes Spotlight
258
VIEW FROM THE TOP: Small State Dreams of Big Growth
260
VIEW FROM THE TOP: Triple Helix Collaboration Supports Queretaro Suppliers
260
Queretaro Spotlight
261
State of Mexico Spotlight
262
VEHICLE SPOTLIGHT: Chevrolet Aveo
264
VIEW FROM THE TOP: San Luis Potosi Lives Up to its Reputation
266
Industrial Parks Reap Benefits of Regional Ripples
267
Steel Wheels Still Worthy Competitor for Aluminum
268
Mexico’s Free Trade Zone Pioneer Keeps Evolving
268
San Luis Potosi’s First Industrial Park Nearing Full Capacity
243
| VIEW FROM THE TOP
GUANAJUATO STRIVES TO RAMP UP ITS INDUSTRIAL CAPACITY HECTOR LÓPEZ SANTILLANA Secretary of Economy of Guanajuato Q: How has the trajectory for the economic plan of
beyond. We have been opening public high schools and
Guanajuato evolved, and what have been the major recent
universities with a focus on engineering. During the last
developments?
administration, 25 universities were opened, of which 90%
A: From 2005 to 2011, the automotive sector in
concentrate on engineering, and we have 92,000 students
Guanajuato grew by 53%. This is happening due to four
studying technical automotive careers. In this aspect we
factors. Guanajuato has invested heavily in a good public
are copying the German model. We have 20,000 students
education system, we have been receiving a significant
graduating each year from technical programs at institutes
amount of FDI, there is good security in the state, and
like the CONALEP and CETIS. We also understand that
the tough immigration stance adopted by the US has
an engineer who speaks English generally makes more
prevented some of our population from emigrating,
than twice as much as someone who graduates from
while others have returned. The wider North American
the humanities area who also speaks a second language.
regional context has been central to the plan that we have
We have been really encouraging both engineering and
developed for the state. Historically, raw materials and
language courses. Mechatronic and industrial maintenance
finished products have been imported from Asia to North
engineers who speak English make between US$1,160-
America, arriving at the Pacific Coast. Mexico has an
1,545 a month as a starting salary. In contrast, a business
advantage because it takes less time and is cheaper for
administration major who speaks another language makes
the merchandise to arrive at the ports of Manzanillo and
about US$770 a month. All Guanajuato residents are also
Lazaro Cardenas than to pass through the US. With this in
entitled to apply for the scholarships that we offer to enter
mind, Guanajuato is extremely well placed. According to
this field.
figures released by the Fundación Metrópoli de España, 45% of the Mexican population lives in 17% of the country’s
Q: To what extent do you work directly with automotive
territory, producing more than half of the GDP. This area is
companies to tailor educational offerings that meet their
made up of San Luis Potosi, Aguascalientes, Guadalajara,
specific needs?
Morelia, and Mexico City. At the outskirts of this key area
A: Much of the equipment, study guides, and instructors
are Guanajuato and Queretaro, and therefore we are in a
are chosen by private sector entities. We approach
natural spill-over location. In Guanajuato, 60% of the 2.5
companies directly to find out what type of equipment
million population is below 29 years old, and we have a
they need prospective employees to be familiar with.
slightly larger population than San Luis Potosi, Queretaro,
As a result, we have acquired computer numerical
and Aguascalientes combined. From 2005 to 2010,
control equipment and robots for use in our educational
Guanajuato experienced the second largest population
facilities. For example, both Mazda and Honda provide
growth in the country, growing by 14%, representing a
equipment to us. We have also created incentives for
labor force growth of 65,000 people annually. The GDP
companies to establish their own training centers, which
of Guanajuato has to grow at an annual rate of 5.7% for
will be incorporated into our systems. We are opening
the next ten years in order to accommodate the growing
institutes for Pirelli, Volkswagen, and American Axle.
population. We foresee the automotive industry helping
These companies will give us their training programs and
significantly to fuel this growth.
we will provide the equipment. This will help us bridge the gap between the graduating engineering skillset and
244
Q: What particular investments have you been making in
the practical requirements of OEMs and suppliers. At the
terms of developing this human capital?
same time, we have been working on the creation of an
A: We have steadily been developing the percentage of
automotive cluster in Guanajuato, essentially based on
suitable employees for sectors such as automotive. Today,
the model of the Nuevo Leon cluster. Various companies
we have identified this figure as 34%, and in the short-
are supplying us with prognostics of their required
term we plan to increase this to 38%, and then 45% and
personnel in the next five years, which we can use as
a basis for course development. Finally, the governor
to ensure competitive energy supply to fuel industrial
has authorized scholarships for 30 students to go to
operations?
Germany and ten students to go to Japan to be trained
A: Energy provision is a national concern, but we do not
in their respective automotive industries. These students
have a supply problem in Guanajuato. Although there is no
will be able to return to Mexico with a valuable skillset
short-term energy problem, we do have to prepare for the
in place.
long-term. This includes investing in sustainable energies such as photovoltaic, bio-fuels, and wind energy. We have
Q: Do you believe that Guanajuato has the capacity to
created a thermoelectric plant in Salamanca. We used
host greater amounts of technology development?
to generate electricity through the burning of fuel, but
A: We certainly want companies to bring major engineering
now we have switched to natural gas. We are conducting
processes. We do not want badly paid, low-quality factory
a pilot project with Desmex in the Puerto Interior for a
employment. We had that type of employment in the past,
photovoltaic plant in order to generate 1MW of energy.
and we have learned a lot from that experience. Now we
There is another project being done with Solartec and a
want sustainable, well-paid employment. The automotive
third one for a 30-acre photovoltaic park in Salamanca.
industry has brought along technology that ensures better
We are working with CFE in Guanajuato to generate the
employment for better-capacitated people. We must
correct environment and legal framework to create an
diversify into new sectors that involve more technology.
internal market for the use of renewable energies as well
Car design will continue to take place in headquarters in
as to facilitate investment. We are currently looking at the
Detroit, Germany, and Japan, however, we can do a lot of
possibility of providing all public schools and buildings
the engineering here in Mexico. A method we are using
with solar energy. This would facilitate investment and
to attract engineering investment in Guanajuato, and
would help make this technology more accessible. In the
at the same time capacitate our population, is building
northern part of the state, we have carried out studies that
technological parks. We are in the starting phase of this.
indicate that Guanajuato has the sufficient wind resources
Whether or not it will work is unknown but we believe it is
to power a wind farm, which we are currently investing in.
worth investing in. Q: What does the future hold for Guanajuato? Q: How much of a priority have you made infrastructural
A: Guanajuato will produce one out of every five vehicles
development?
manufactured in Mexico by 2016, and the Bajio region will
A: In terms of logistics, Guanajuato is one of the most
produce two or three out of every five vehicles. In 2013,
well-connected states in the country. We have two
14% of the state’s GDP came from the automotive sector,
federal highways passing through the state, and we have
but in the next few years, this will grow to 21%. This will
developed a system of roads to connect these highways
have a very powerful impact on the size and quality of
to the ports of Lazaro Cardenas and Manzanillo. Other
the employment pool, and exportations will invariably
highways have been created to connect Guanajuato with
grow. In 1990, Guanajuato exported less than US$1 billion.
the Gulf of Mexico and the northern states. The road
Today the state exports more than US$13 billion, with
that connects Celaya with Acambaro is currently being
65% of this coming from the automotive sector. To ensure
finished to connect with Highway 15 and this will be a four-
that this trend will continue to grow we need to focus on
lane, toll-free highway. There is also a four-lane, toll-free
strengthening the supply chain. Ten years ago, no-one
highway that connects Irapuato to Penjamo. The freeway
even knew who we were and we had to fight for funds.
that connects Salamanca to Morelia all the way to Lazaro
Today the results of working hard to bring big companies
Cardenas is now being constructed from Salamanca
to the state are paying off. Now the challenge is going
to Leon, and then it will connect to the Aguascalientes-
to be the development of the supply chain to optimize
Guadalajara Highway. There is a highway between Silao
functionality and profit. There are many opportunities for
and San Felipe, which will connect to Highway 57, which
Tier 2 and 3 national companies to establish themselves.
connects the GM plants in Silao and San Luis Potosi.
Right now a lot of our public policy is concentrated on
As a result, San Felipe has become a hub of low-cost
trying to establish how to convert local businesses into
manufacturing for both plants, where Lear is making seats,
automotive providers. For example, shoe sole makers
Condumex is making harnesses, and another company is
understand injection mold technology, and some have
doing plastic injection.
become automotive suppliers. Some leather factories have also made the shift to the automotive industry. All of this
Q: Besides offering the right infrastructural and human
will take more time, but what has really generated interest
capital environment, which steps has Guanajuato taken
in Guanajuato is the velocity of its growth.
245
| VIEW FROM THE TOP
CLUSTERS FOR GROWTH FIDEL OTAKE President of Guanajuato Automotive Cluster
Q: What are the main priorities of the Guanajuato
on our agenda concerns shared service facilities. The state
Automotive Cluster?
is going to have a lot of automotive companies with special
A: The first priority of our cluster is to develop human
needs, but today we do not have anything to offer in terms of
resources. To do so, we link up universities, the government,
specialized services. We need metrological labs, for example.
and the industry in order to ensure the right supply of human
Although some companies have these incorporated into their
capital. Our second priority is to develop the supplier base,
plants, we need to provide these facilities independently.
especially local suppliers. When OEMs come, they often
This is something we have to work on in conjunction
bring their critical suppliers with them, but this approach
with the federal and state governments. We also need a
has its limitations. There are many necessities that these
dedicated government lab that provides measurements and
few suppliers cannot satisfy. The third priority is to increase
certifications. Another need is a state-owned technology
technology development. R&D is essential, and we need to
center that works specifically with the automotive industry
link existing technology centers more effectively with the
to support corporate technology centers.
automotive industry. We need to work on developing new products and processes. Mexico has very good scientists
Q: What have been the critical success factors for
and engineers, and it is capable of developing world-class
Guanajuato as an industrial hub?
technology, but we need to place a greater emphasis on this
A: Mexico’s industrial areas are in the north and the center
and bigger budgets must be allocated. The fourth priority
of the country. Guanajuato is strategically positioned in
| VIEW FROM THE TOP
INLAND PORT DRIVES GUANAJUATO INDUSTRY GROWTH RAFAEL TORRES RAMOS Director General of Guanajuato Inland Port
246
Q: Since the establishment of the industrial park, how
connections, lighting systems, and power lines. Next was
successful have you been in attracting companies here?
the development of the logistical complex. We signed
A: During the first two years, we focused on planning and
an agreement with Ferromex to run an intermodal cargo
infrastructural development. The airport was already in
platform, and the government assigned 40 hectares of land
place, as were the railroad and the highway running past the
to the customs office. Six years ago, we sold the first plot
industrial park, but there was still some infrastructure that
of land to Faurecia, a French company. Today, we have 74
needed to be developed. We needed a new 150KW 30km
companies in the park representing a committed investment
power line from Silao. We set up a trust to safeguard the
of more than US$250 million and 15,000 jobs. This growth
relevant external and internal infrastructure for the park with
has been to a large degree driven by our close connection
a private industrial developer called Lintel. In accordance
with the Japanese investment community. In 2009, we went
with the trust, Lintel developed the infrastructure inside
to an aerospace event in Tokyo, and we recognized the
the industrial park including streets, water and sewage
opportunity to start working with Japanese companies. We
the center to connect with the US, with more highways
A: It is very important for us to believe in and develop the
and railroads being built through the state to facilitate that
local supply base. This is not easy to address and presents
connection. Another attractive aspect of Guanajuato is that it
challenges, especially early on. Initially, we will have to
has four or five main cities. This avoids the concentration and
import some parts from other states or from outside the
overuse of labor and other resources in one central location.
country. However, suppliers will eventually move here, but
We have some major automotive names here including GKN,
we must also develop local suppliers. In that process it is
American Axle, and Getrag. These companies have brought
important to be very close to the suppliers to guide them
new technology and state-of-the-art operations, and have
through capacitation measures. The government can also
raised the caliber of the entire state.
help by providing incentives, not only for big companies, but also for smaller, local ones. Technology is also an
Q: How will you balance the future growth of the cluster
important factor. Guanajuato has created a body to link
with an adequate provision of resources?
the government, academia, and companies in establishing
A: We cannot really control that situation. OEMs have made
technology projects that have the sole aim of helping SMEs.
the decision to come to Guanajuato, which has put a lot of pressure on resources, universities, and suppliers. OEMs
Q: How should clusters work together to increase their
often keep their investment plans secret until the last minute
value contribution to the automotive industry in Mexico?
as they have to negotiate with the government and address
A: The clusters have to act as a network in order to maintain
many areas before the announcement is made. Once plans
Mexico’s competitive edge over other countries. If the
are revealed, everyone has to adapt. We do not have years in
clusters work together to maintain our competitive edge,
advance to prepare for an adequate environment. Of course
we will be able to continue to grow. There are some areas
that presents challenges, but that is the way the automotive
that the national associations cannot address. For example,
industry works. For the most part, OEMs do come with all
Mexico has a shortage of electromechanical technicians,
the resources they need, as do big Tier 1 companies.
which AMIA cannot solve. We are not here to fight about issues that are already being worked on, but we do want to
Q: How can the cluster help SMEs meet the requirements
resolve issues as they arise in the cluster in order to be more
needed to supply global companies entering the market?
productive and create better synergies.
started working with Honda and Mazda, which led us to triple
is already crowded and the costs there are very high. Salary
our customer base during 2011 to 2013. Today, we have 35
rates here are lower and we have a very young population to
Japanese companies in the park and a total of 44 automotive
fuel the workforce. Perhaps in 20 years, the boom will move
companies, making up 173,000m2 of automotive industry
on to a different location, but the Bajio region will be the
space. 15 more companies have announced investments
most important automotive investment destination for the
in the park, representing an investment of US$377 million.
next decade.
Our goal is to reach an almost complete occupancy rate in the park with 120 companies and 25,000 jobs by 2018,
Q: Is the young population in this region really right to fill
and we expect most of this growth to come from Japanese
the ranks of the automotive workforce?
automotive companies.
A: Absolutely, since automotive companies need people that can be trained and we have a lot of easily trainable talent here.
Q: What are the main advantages of setting up operations
In the past, a lot of people from Guanajuato left for the US. We
in central Guanajuato?
had the third highest level of migration of any Mexican state,
A: Unfortunately, the northern border states are not as safe
but we have now fallen to tenth as people are staying here to
as the central ones. This is one of the main reasons why the
work. The city of Leon historically had a very strong leather
central area of the country, from Queretaro to Aguascalientes,
industry but many of the workers from that industry are now
has become the most important automotive cluster for
moving to the automotive industry. In the last eight years, the
Mexico. Just as once happened with Detroit, Alabama,
state of Guanajuato has also invested in developing technical
and Kentucky in the US, the entire central region is now
courses in universities. There are 27 new universities, and the
blooming. The infrastructure in the central part of Mexico was
budget of the state is focused on developing technicians and
underdeveloped in the past but it is now strong. Monterrey
engineers across these institutions.
247
| VIEW FROM THE TOP
INVESTING IN ENGINEERS FOR THE BAJIO REGION ALDELMO REYES PABLO Director of National Polytechnic Institute, Guanajuato Campus Q: What role does National Polytechnic Institute (IPN)
A: IPN stays in close communication with the industries
play
in the Inland Port and has a department in charge of
in
supporting
Mexico’s
economic
and
social
development?
maintaining those links. The companies inform IPN of
A: IPN is one of the main institutions that offer
their areas of opportunity and the number of students
engineering training in Mexico. Its main objective has
they need, then IPN looks at its community of students
been to translate knowledge into practical applications
and evaluates their profiles to match them with the best
for various industries, including automotive. Five years
companies. All of our engineering students get at least
ago, there was no solid institution in Guanajuato offering
six months of work experience in the industry where they
engineering, which is why IPN established itself here with
acquire additional abilities to the ones obtained in class. At
the support of the government. With the industrial growth
the end of the program, there is an optional course where
taking place in the Bajio region, IPN’s presence was
students have the opportunity to tackle a specific industry
needed to fuel the creation of human capital and attract
problem within a set timeframe with the support of IPN
investment at the same time. It is only natural to create
faculty. This program benefits both sides, as students gain
that strong relationship with the industry in Guanajuato,
a better understanding of the industry’s needs and the
which is an industrial heartland, and it is important to
companies get help to efficiently tackle their problems.
have this institution established here in the Inland Port given companies’ need for highly skilled human labor.
Q: How is IPN helping students to develop a way of understanding the evolving technological requirements
Q: How has IPN developed its academic program to
of the automotive industry?
ensure students are prepared to successfully meet the
A: It is crucial for students to acquire knowledge about high
demands of the automotive industry?
technology as the automotive industry is now demanding
A: Before the arrival of IPN, Automotive Systems
this. We do not have the economic means to continually
Engineering courses did not exist in Guanajuato. In order
buy new equipment, but we ensure that students can stay
to ensure that the quality of the engineering programs
updated on the latest innovations through cooperation with
is adequate, the professors must have a Master’s or a
companies and teachers with industry experience. When
doctorate and speak fluent English since, as the world
students finish their courses, they have the opportunity
becomes increasingly globalized, it is vital to speak a
to participate in collaborative projects with students from
language other than Spanish. The professors must have
other institutions. We do not just make sure our students
experience in the automotive industry, or other relevant
stay ahead of the curve, we also arrange for our teachers
sectors, to be better able to arm students with the skills
to spend month-long stays in the automotive industry to
that they need outside the classroom. In terms of courses,
keep track of the evolution in technology.
IPN has launched Automotive Systems Engineering, Biotechnology Engineering, and Aeronautical Engineering
Q: How is your business incubation system helping the
which focuses on materials. Pharmaceutics Engineering is
growth of SMEs in the automotive industry?
also popular because of the presence of pharmaceutical
A: IPN’s next objective is to develop the incubation
companies like Bayer that have established research
system and help entrepreneurial students to start up their
centers in Latin America. Automotive is by far the most
companies. There is a major opportunity for small Mexican
popular sector on our roster. Out of a total student
companies to establish themselves in the automotive
population of 1,800, around 700 of them are studying
industry due to the lack of Mexican suppliers, which is
automotive courses.
causing suppliers to move here from other countries to fulfil the needs of the industry. This is the moment for
248
Q: How are you working with the industry to identify areas
Mexican entrepreneurs to seize the opportunity to grow
in which more human resources are needed?
and attend to those needs themselves.
| VIEW FROM THE TOP
MEXICO PROVIDES ADVANTAGES IN SUNROOF MANUFACTURING MARIO DIAZ Plant Manager of Inalfa Roof Systems Q: How successful has Guanajuato been for you as a base
Q: Does it make economic sense to ship sunroofs to
of operations?
Europe from Mexico?
A: There is one thing that is very important to our business:
A: We are not shipping a huge amount of sunroofs to Europe.
localization. Guanajuato is very convenient from a logistical
In terms of investment and capacity, the cost of doing so is
stand point. It is expensive to transport our products and
compensated by specific savings. Due to the volumes in
so, it is important for us to be close to the customer. From
question, it makes sense to produce them here in Mexico
Guanajuato, all our customers are in a 350km radius from
rather than establish plants in Europe because the amount
our plant. From this area, we can easily move material
of sunroofs needed there is too small to set up a complete
from the border and the ports. We can export or import
production line. The lines are standard but need some
material from Europe through Veracruz and Tamaulipas,
expensive tooling that is specific to the model we produce.
or from Japan through Lazaro Cardenas. We are also near the US border at Laredo. The state government gave us a
Q: What new technology are you introducing for your
lot of incentives while another major aspect is the safety
sunroofs and to your production processes?
we enjoy in Guanajuato. Our original plan for Mexico was
A: The main focus of our technical innovation is on reducing
to solely provide a service for the local market, but we
the weight of the sunroof. The new model that we are
saw such great results from the outset that after just two
producing has a weight reduction of 3%. This contributes to
years of operation, Mexico became a benchmark for Inalfa
the weight of the car, which affects gas consumption. We do
in other countries. Mexico has been home to the creation
not change the materials being used but the design of the
of many great ideas to improve our processes. Our main
sunroof itself. We make it lighter by removing components
customer in Mexico is Ford, but we are now starting work
that were superfluous. Improvements to our designs are
for GM and also have ongoing projects for Honda, Fiat, and
currently made by our design center in Michigan.
Volkswagen. The entire industry uses the same material to join the Q: What have been the main opportunities to increase
sunroofs to the vehicle, but we have a specific technology
your project portfolio?
that has given us a competitive edge. Our processes
A: More opportunities have been coming our way as
are semi-automated, making the best use of robots and
a consequence of good results. At first, Ford just saw
conveyers. We use human intervention for the assembly,
us a supplier to its Hermosillo plant, and the platform
and there are people supervising even in semi-automated
we were producing here was a direct transfer from the
stations. That is a standard process all over the globe for
one supplied to the Ford plant in Flat Rock, Michigan.
Inalfa, which is turned into an advantage here, due to
Now that Mexico’s potential has become clear, we are
Mexico’s cheaper labor conditions.
exporting from Mexico to Flat Rock. We are producing the sunroof for the Ford Fusion, which is being made in
Q: How successful are your efforts to localize your supply
Hermosillo, but we are also shipping these sunroofs to
base in Mexico?
Flat Rock and Valencia, Spain. We are also producing the
A: For our current projects in terms of sourcing by value
panoramic sunroof for the Cadillac SRX for GM that will
we are just importing 20%. 80% is localized here in Mexico,
be produced in Ramos Arizpe, Coahuila. Volkswagen is a
including plastic injections, motors, and glass. At the
big customer for us in Europe and did not know that we
beginning, it was hard to find the right Mexican suppliers
were in Mexico at first, but we are now working together.
as they were also just starting out. Our standards are
We also hope to expand our project portfolio with Audi.
higher than those of other producers, but now that our
We are planning to double our current plant size next
suppliers know our standards, it is easier to work together.
year, taking it to 3,716m . As more work comes our way,
There are other suppliers aligned to the global strategy of
a third expansion will most likely not be far away.
the company that are coming here for us from abroad.
2
249
JAPANESE BRAKE SUPPLIERS FOLLOW OEMS TO BAJIO The Bajio region has seen an influx of investment by
role the plant will play. “Strategically, we need to think
Japanese OEMs in the past few years, and their key suppliers
about what products we will make at our new factory in
have not been far behind. Akebono Brakes, a Japanese
Guanajuato. At first, we will just assemble disk brakes but
manufacturer of components for automobiles, motorbikes,
we will try to procure the materials needed from inside of
trains, and industrial machinery recently opened a new
Mexico. We need to do this to actually make a profit,” says
production plant in Guanajuato. Keiji Yamanaka, President
Yamanaka. “Importing the entire material portfolio does
for Akebono Brakes Mexico, explained that the production
not make economic sense, therefore Akebono Brakes will
plant was built entirely to serve Nissan, saying that the OEM
look to source more supplies domestically.” The company
has a very strong localization program in place, meaning
is particularly keen on finding steelmakers to create the
the supplier needed to come to Mexico to support it and
drum brake and ancillary products, as well as casting, as
others. “Our customers are consistently moving operations
these processes make up 85% of the brake pad. Otscon’s
overseas and we need to be there for them. Nissan,
Serrage explains that meeting regulations presents
Mazda, and Honda are all expanding production, and as
another challenge when seeking new suppliers to produce
their supplier, we need to follow their movements,” says
an auto part as vital to safety as brakes. “Any change, no
Yamanaka. He also confirms that although his company was
matter how minute, has to undergo rigorous studies to
driven by the need to service Nissan, producing in Mexico
ensure that it results in equal or better quality than the
also fits in well with the company’s own globalization
previous model.” Otscon currently imports mainly from
expansion strategy. Beyond Japan, the Mexican plant adds
Japan and the US, but is trying to improve on its present
to the company’s two factories in China, four in the US, and
40% of locally sourced content. Describing the processes
others in Thailand, Indonesia, and Vietnam. “We are really
this requires, Serrage says that Otscon “is installing
happy with our location in Guanajuato. The infrastructure
equipment right now to be able to make that transition.
is excellent and all of our clients are nearby,” proclaims
In order to pick a supplier, we have to conduct numerous
Yamanaka. Otscon, another Japanese brakes supplier, tells a
audits and ensure they have the right certifications. If
similar story. Otscon recently established a plant in San Luis
they pass these tests, they then have to go to our design
Potosi, and the company’s Plant Manager, Michael Serrage,
department to provide prototypes for testing.”
explained that the company works for Toyota, Honda, Subaru, and Nissan in the US, while the Mexican plant was
Whether or not such Japanese Tier 1 suppliers will also bring
primarily established to provide parking brakes to Nissan.
technology development with them to Mexico remains to
“Currently, our plant here has about 10% of the capacity of
be seen. Akebono is well-known for its braking technology,
our US facility. But by 2015, we expect to also be working
evidenced by its partnership with McLaren, which fits its
for Mazda, which is why our plant has a lot of room to grow.
P1 with Akebono brakes. With OEMs increasingly trying
We will need to add shifts, employees, and equipment, so we
to lighten their vehicles, Akebono is trying to offer more
planned the plant so that it would have the setup to double
aluminum products and is currently exploring how to
its capacity,” Serrage tells.
produce these more advanced products in Mexico. In
“Our customers are consistently moving operations overseas and we need to be there for them, and as their supplier, we need to follow their movements” Keiji Yamanaka, President for Akebono Brakes Mexico
250
Establishing an expensive new plant in order to be near
terms of technology development, the company’s Mexican
a major customer is not without its burdens, however,
operations presently rely on its technology institute and
with most major investments taking up to five years to
development in Detroit. Like Akebono, Otscon is focusing
become profitable. Yamanaka explains that one of the
on producing lighter components using materials such as
difficulties Akebono Brakes has faced in Mexico is the cost
aluminum, composite injection molding, and magnesium.
of supplies and energy, which he sees as not competitive.
However, Serrage reiterates Yamanaka’s viewpoint that
Whilst Mexico is a strategic location to supply the US
many
market, the company is still establishing exactly what
expensive to source them in North America.
of
these
materials
are
currently
prohibitively
ZACATECAS SPOTLIGHT Zacatecas, Mexico’s tenth-largest state, has long been
led to the company investing US$7.5 million in expanding
associated with the country’s mining and agriculture
its current capacity. “We thought we would have to double
industries, accounting for some 21% of Mexico’s gold
or triple our initial investment within three years but it
production and 53.2% of its silver. Recently however, the
became necessary to do so after just two years,” explains
state has begun to receive attention from the automotive
Yoshida.
and aerospace sectors with the likes of Ahresty, Delphi, Entrada Group, and Yusa already having invested there.
Entrada Group, a company providing shelter services
The Asian automotive industry in particular has been
to a host of clients, invested in Fresnillo in Zacatecas
taking advantage of Zacatecas’s proximity to the many
after recognizing its potential to compete with China in
major investments taking place in and around Mexico’s
terms of labor costs. Entrada’s Vice President of Business
Bajio region. In April 2014, the Zacatecas government
Development, Douglas Donahue, explains that many foreign
announced that 2014 would see US$134 million invested
automotive suppliers have chosen to establish under a
in the state by five automotive companies from Japan,
shelter company in Zacatecas solely to provide for Mexican
South Korea, and China, generating 1,900 jobs in total. The
based clients that demanded they be closer. As time
state is particularly attractive to Tier 2 and 3 companies,
passes, such suppliers have gradually been taking greater
who commonly require greater support and attractive
advantage of the state’s strengths. “They come here with
rental rates. Takeshi Yoshida, the President of Koide, a
a basic concept, wanting to access cheap labor and to be
Japanese supplier of auto parts for Yusa, outlines some
close to their clients. However, they start moving on to more
of Zacatecas’s attractive features, saying that “Zacatecas
sophisticated processes, such as seeing up joint programs
offered more incentives than other states. We also aim to
with local technical schools and universities to develop
remain a medium-sized company with around 200 staff,
employees,” says Donahue. The news that Zacatecas is
so being in Zacatecas means we do not have to compete
becoming more than just a mining and agricultural state will
for personnel with larger companies in major industrial
of course take time to reach a wider audience, and the state
clusters. Over three years here, we have managed to keep
must continue to invest in modernizing. It seems certain
our turnover of staff very low compared to companies in
that the state will continue to benefit from the trickle-down
nearby states.” Koide established its plant in Zacatecas in
effect of surrounding Bajio investment, and its authorities
2011 exclusively to serve its major customer Yusa, but the
would do well to position Zacatecas shrewdly to seize on
wealth of opportunities being presented in the region has
any long-term opportunities that come its way.
251
252
KOREAN TUBING SUPPLIER FINDS HOME IN ZACATECAS Koide, a supplier of precision steel tubing products for Japanese OEMs, first entered Mexico in 2011 through a US$2 million investment to support the expansion of Japanese automotive interests in the country. It was not Koide’s first foray into North America, as it expanded its cutting and machining division with a plant in Tennessee back in 1998. Takeshi Yoshida, President of Koide Mexico, explains why Zacatecas was selected to open a plant. “The first reason is that one of our immediate customers, Yusa, is based here, while Zacatecas also offered attractive incentives. Finally, we want to remain a medium-sized company and being in Zacatecas means that we do not have to compete for personnel with larger companies in the major industrial clusters of Guanajuato or Aguascalientes.” Although the initial orders from Koide’s customers in Mexico justified
“Zacatecas
offered
incentives.
We
to
a
remain
attractive
also
want
medium-sized
company and being in Zacatecas means that we do not have to compete
for
personnel
with
larger companies in the major industrial clusters of Guanajuato or Aguascalientes”
starting up one plant, the company quickly saw the demand
Takeshi Yoshida, President of Koide
for its tubing products far outstripped its expectations.
We have to count on suppliers for that and, unfortunately,
Yoshida states that more Japanese automotive companies
there is very little access to the right raw materials here in
came to Mexico than expected, leading Koide to begin
Mexico,” he says. On top of that, he adds that most suppliers
building a second facility in 2013 at a cost of US$7.5 million.
that do exist in Mexico have not been approved by OEMs,
The company has been regularly bringing new production
which means Koide cannot turn to them. Encouraging its
lines to Mexico and is currently churning out around 3 million
Asian suppliers to move to Mexico has proved tricky. “Our
pieces a month. “Koide is focusing heavily on growing its
suppliers know that the Mexican market is growing and that
tubing business, which has huge potential in Mexico,” says
coming here would enable them to access a whole range
Yoshida. The company currently imports raw materials from
of new customers for their products through Koide,” states
the US and Japan, but is trying to get its own suppliers
Yoshida. “They are eager to come but since their manpower
to bring their manufacturing here. “The pieces we require
is limited, they have to choose their priorities carefully,
for our tubing products come in a vast array of sizes and
between North America and Asia.”
dimensions that all go toward our anti-vibration devices for the automotive industry. This creates a large opportunity for
Koide only brought two Japanese staff to work in Mexico,
suppliers to work with us.” Koide currently sources 40% to
hiring over 70 locals to man its operations. Some hand-
50% of its content from Mexican suppliers but is committed
picked Mexican staff will be sent to China and Japan this
to increasing this number. “In Mexico, our production costs
year to be trained on the latest cutting and sharpening
represent 70% of the product’s final price so we are looking
machines and technologies for up to two years. During that
at how to optimize the production time, which machines
time, it will update its operations here, with the trainees
could help us speed up the process, and how to reduce
being ready to handle any new machines by the time they
inventory. Increasing local content is also a part of this
return. Yoshida explains that although the production
process as freight costs when importing materials from Asia
processes in Japan and Mexico are virtually identical, the
are high. Our customers understand the necessity of these
Mexican plant is less automated. Mexico’s labor costs have
imports so they still pay for these freight costs. But as the
led to Koide using more employees on the production line
Mexican market grows stronger over the next two to three
but it is now looking to increase automation to be more
years, they will no longer be willing to do so,” he says.
competitive.
Currently, some of the raw materials used in Koide’s
Koide will keep bringing more machines to Mexico until
production process are difficult to find in Mexico, according
June 2014, a necessary consequence of growing from one
to Yoshida. “Tubes are produced from coils that are welded
customer to seven in three years. Koide has also brought
together. After welding, the large diameter tubes undergo a
over a sister company to Mexico to produce cold forging
tube drawing process, where they are fed through a die to
parts for the Mexican and US automotive markets. Yoshida
reach a smaller diameter. Koide takes care of this process,
explains that an investment plan has been outlined that
as well as cutting and shaping the tubes, but we do not
would see this company’s plant open in the same industrial
process the raw materials or make the tube ourselves.
park in Zacatecas by 2015.
253
| VIEW FROM THE TOP
AUTOMOTIVE INVESTMENT IN AGUASCALIENTES HEATS UP RODOLFO ESAÚ GARZA DE VEGA Secretary of Economic Development of Aguascalientes Q: What were the main factors that led to Aguascalientes’
parts were only being produced in that part of the country.
transition into an automotive industry hub?
After this experience, Nissan took the decision to reinvest
A: Before Aguascalientes became an automotive hub,
in other places where it already had a presence. Nissan
it played an important role in the railroad industry. The
evaluated several states in Mexico, but it already had a well-
maintenance and repairs of trains took place here. This
developed support chain in Aguascalientes comprised of
was the strongest and most important sector in the
education facilities, suppliers, and training schools. Also
state, but this industry closed 30 years ago, leaving many
Aguascalientes is a very safe place with a good business
people unemployed. It was during that time that Nissan
climate. We have not had a strike for over 40 years. The
appeared and employed many of the people that had lost
small size of the state is advantageous in the sense that
their jobs. Nissan became a lifeline for Aguascalientes and
security can be controlled far more easily. For example, we
the cyclical history of its projects here is interesting. 32
have introduced checkpoints and we have access to the
years ago, the current Governor Carlos Lozano de la Torre
Plataforma Mexico and the American database where we
was the Secretary of Economic Development tasked with
can obtain information on car plates. We are working very
coordinating Nissan’s investment in Aguascalientes. Over
strongly with the neighboring states to improve the roads
three decades later, as governor, Lozano promoted the
and the security.
investment of their second facility here. One of the reasons the state has grown so much and performed so well is
Q: Are you concerned that your reliance on one OEM
because of the strong relationships it has established with
could create vulnerabilities?
the business community, and our relationship with Nissan
A: Dependency on just one OEM is a concern for us, which
has played a crucial role in developing the local economy.
is why we are diversifying into other productive sectors. We
Nissan has had a lot of influence on many related sectors
are working on electronics, clean energy, and IT projects.
such as logistics and transportation as well, and we are
A lot was learned during the crisis, when both Nissan and
seeing this trend coming about again with the opening of
its suppliers had a hard time surviving. During that time,
its second facility.
the government and the companies worked together to find ways to continue production without cutting jobs
Q: What are the key factors that made Nissan choose
or restructuring entire organizations. From that point
Aguascalientes once again as the destination for a major
forward, our strategy has been to liaise closely with Nissan
investment?
and identify any problems and concerns before these
A: In the last 30 years, the Nissan Aguascalientes plant
arise. Currently, its only problem is that it does not have
has become one of the company’s most productive
enough production capacity to meet demand.
plants worldwide and holds the number one position for
254
several processes. Over this time, Nissan has developed,
Q: Do you have ambitions to attract another large OEM to
trained, and educated people to become highly skilled
Aguascalientes?
professionals oriented in the Nissan way. We also have a
A: We currently do not have any plans to aggressively
strong communication bridge with Japan, and the presence
chase another OEM as we want to focus on making the
of Nissan has an impact on Japanese inward investment
Nissan project very successful. We do not want to have
in the entire automotive industry. I was based in Japan as
competition between two companies at this time. We
a trade commissioner in the Mexican embassy during the
recently received a German OEM that conducted a
Fukushima earthquake and tsunami. This natural disaster
physical study of Aguascalientes, and it concluded that it
had a strong impact on the way of doing business in
was interested in establishing here. We told the German
Japan, the country learned that diversification is important
firm that we would focus on Nissan, as we felt we were
in order to minimize risk. During the tsunami, production
not able to receive it properly at this time. It would have
lines stopped for several weeks, or even months, as certain
been unfair on them, on Nissan, and on us. This was a
professional approach, as we were essentially saying
controlled from this new facility. This shift in technology
that we did not have the current capacity to provide the
has been happening in Aguascalientes as we continue to
best operating conditions. Once the Nissan project is
focus on helping companies with R&D in order to have
consolidated, we may consider a new project. Another
better paid jobs and more qualified people.
benefit of only working with Nissan and its suppliers is that the working environment in Aguascalientes is very
Q: How do incentives in Aguascalientes differ to
friendly in terms of communication between companies.
surroundng states?
A group of Japanese companies in Aguascalientes, named
A: Some states are very aggressive in what they offer in
GIA, meets every month to share information on salaries,
terms of land donations and tax reductions. We are not
best practices, and many other things. They also have
as aggressive, since we focus our resources on creating
gentleman’s agreements in place, where they ensure that
secure long-term business plans, besides only attracting
staff will not jump from one company to another. All of this
the companies. We want both the needs of the companies
cooperation has helped secure the establishment of other
and the communities to be addressed for the long-term.
Japanese companies in the state.
Education is a major focus point and we are assigning specific funds for that as we want the companies to have
Q: In what ways are you ensuring and supporting the
people with the right capabilities and skills to fuel growth.
growth of automotive SMEs in Aguascalientes?
Another focus is creating a stable business climate. To do
A: The main concern for suppliers is being close to their
so, we have good relationships with the unions, which is one
clients and to have the best logistics. A trend right now is that
of the reasons we have not had a strike for many years. We
many smaller suppliers are starting to work for more than
have also invested in infrastructure to improve the logistical
one company. For example, a supplier of Nissan that comes
capabilities of the state. Although we do not offer land
to Aguascalientes can also act as a supplier for Mazda, VW,
incentives or tax reductions, in some cases, municipalities will
Audi, and other companies that are already here. This is due
offer incentives on permits and licenses. Another incentive
to our good roads, highways, airports and railroads, enabling
we offer companies that come here consists of a scholarship
easy access to the Bajio region. Suppliers are also exporting
that we grant for new people they hire. The government
to the US by taking advantage of Mexico’s FTAs. We have to
pays up to two minimum wages for up to three months per
help local companies to develop and reach the next level. In
company. This is an ongoing program, and even existing
most cases, they do not have the quality requirements for
companies that are adding more production lines can apply
the automotive industry, the certificates, the volumes that
for this scholarship. These things are intangible but have a
big companies need, or the pricing they demand. We work
long-term impact. Incentives like land or tax reduction may
alongside Nissan to identify the services and products it needs
have some impact at the beginning but tend to fade after a
and then work with suppliers so they can also contribute to
while.
the automotive sector. Every year, the Expo Partes event sees Nissan and other major companies present their needs in
Q: What is the outlook for Aguascalientes’ automotive
terms of volume and quality. We are working with universities
industry development for 2014?
and technical schools to ensure the employability of students
A: We are currently seeing very strong growth in the
and create a skilled and knowledgeable workforce. The
automotive industry. However, we still do not know
automotive industry has specific requirements so the new
exactly how much the Nissan plant will produce once it is
campus of the Autonomous University of Aguascalientes is
at full capacity. Some of Nissan’s suppliers have also not
focusing on engineering, robotics, and other careers needed
yet started production here, and they are still importing
by the sector. The universities are focusing on what the
parts while they finish their construction. Once they begin
companies need, making sure that people graduate with a
operating and manufacturing here, we will see growth in
high skill set and are ready to form part of the sector.
terms of employment and economic development. We will continue to see connected growth in areas like hospitality,
Q: How important is it for the state government to
retail, and food. Although such links to Nissan are not visible,
contribute to more high technology bases?
they are clearly present. However, we are also focusing on
A: This is one of our main goals, and we are focusing on
other sectors such as clean energy projects, and we are
promoting R&D and developing a highly skilled force, which
also expanding our natural gas connection because many
is already happening. For example, Nissan is developing
industries require it, especially those that use heat for their
a regional training center where people from across the
processes. Moreover, we want Aguascalientes to become
Americas will come to train. We also have the biggest site
a sustainable state, and we plan on increasing our fleet of
server for Nissan, so all production and information will be
taxis using the electric Nissan Leaf.
255
| VIEW FROM THE TOP
TRANSMISSIONS FROM NISSAN SUBSIDIARY IN HIGH DEMAND HIROYUKI KAI President of JATCO Mexico (JMEX) Q: What propelled the decision to invest US$220 million
A: Highly qualified labor is one of the main requirements
dollars in a new Mexican plant exclusively to serve Nissan?
to ensure JATCO’s high technology products, and it is
A: Mexico is a country that is more than capable of
important for us to see a steady stream of highly skilled
supplying high technology products to main automotive
personnel from local universities ready to work with us.
markets. Nissan has been steadily allocating more
Aguascalientes’ geographic location in Mexico allows us
investment to the American vehicle market and JATCO, as
to meet competitive costs in the logistics operations for
part of Nissan Group, has been able to add an additional
NAFTA supplied parts from our local partners. Good road
annual production capacity of 400,000 continuously
communication networks also ensure the on-time arrival of
variable transmissions (CVT) by using a second site for
parts and allow continuity of manufacturing processes for
JMEX, our Mexican arm. This will allow us to support
our customers.
additional new production capacity and to match demand in both America and Europe for four-cylinder vehicle
Q: How is JATCO differentiating itself as competition in
models, mainly the Nissan Altima.
the industry increases? A: Higher demand by our main local customer Nissan has
Q: What investments are you making into R&D to meet
given us the opportunity to grow our manufacturing capacity
continuing demand for the most innovative technology?
locally. This has always been a steady source of growth for
A: JATCO’s high technology for CVT has seen the adoption
us, which our competition cannot match. At the same time,
of a new CVT generation called CVT8-ARO/ASO and CVT7
new potential customers are turning their eyes to Mexico’s
APZ. New additional products are also to be adopted by
automotive manufacturing capacities to meet their future
the end of 2014 for Nissan’s hybrid electric vehicles (HEV).
growth requirements and we stand ready to serve them.
In Mexico and outside, JATCO’s global volume capacity has been increased by over 30% due to new vehicle
Q: How are the dynamics of the industry changing as
launches such as the new Rogue and Altima in America
suppliers take a larger role in driving product design?
and Europe. We have become highly skilled in developing
A: The automotive industry is looking for high fuel
ecological CVT products and it is our plan to integrate high
efficiency,
technology products in vehicles that can perform at a high
environmentally friendly products. JATCO is fully ready
level of fuel efficiency such as the Infiniti JX.
to produce and support these kinds of components. We
a
comfortable
driving
experience,
and
want to keep meeting industry demands and to provide Q: How has JATCO’s developed its supply of products and
the right volume of products. We are therefore committed
services for the Mexican market?
to meeting and promoting suppliers willing to change
A: JATCO Global has identified and evaluated suppliers
and improve their processes to comply with quality and
both worldwide and locally in Mexico. We are aiming to
environmental policies.
ensure all our suppliers conduct quality operations by auditing them through our SQA team in order to meet
Q: What are JATCO’s expansion plans for Mexico for the
our high standards. After evaluation, suppliers should
immediate future?
be powered up and have the capacity to follow ANPQ
A: JMEX has already built an additional 62,500m2 of
Automotive standards in order to be fully validated.
production space. We also have developed a warehouse
After the standards have been launched and adopted, we
for parts and shipping and are considering a new case
monitor performance on a monthly basis for each supplier
sub-assembly line. All these areas represent an additional
according to our balanced scorecards.
700 new employees to cover the annual capacity of 400,000 annual CVT units. This will make JMEX capable
256
Q: How does Mexico’s attractiveness as a manufacturing
of meeting up to 1.7 million CVT units annually from 2014
base differ in comparison with your operations elsewhere?
onwards.
BRAND DIVERSITY HELPS DOOR INTERIOR SUPPLIER Nissan’s investment in Aguascalientes brought with it a
notified by them that Kasai is a possible candidate to provide
host of suppliers, which set up shop in areas immediately
door fittings for their supply network, but the competition
surrounding the plant as well as further afar. The OEM’s
is fierce.” Another big problem for suppliers is the small
traditional suppliers in Japan were pressed to establish
volumes of auto parts often needed by the OEMs. “The
operations in Mexico to fuel the company’s local growth. In
volumes requested by many OEMs are not as high as what
turn, these have found room for growth, often surpassing
we are used to with Nissan. For example, Volkswagen wanted
their initial expectations. Kasai, a Tier 1 supplier of interior
fittings for just one car model,” says Sekino. The prospect
parts, established a plant in Mexico to supply Nissan with
of low volume orders from a client means weighing up
interior door fittings. Globally, Kasai supplies Japanese OEMs
economic viability against experience gained. “Even if the
including Nissan, Mazda, Toyota, Hino Motors, Daihatsu,
requested volume is quite low, we still need to invest in new
and Mazda, and although Nissan has been its main focus in
machinery and production systems for different parts. For
Mexico, Kasai has been reconnecting with old friends on new
example, our injection machine is the same machine needed
shores. Shuichi Sekino, Director General for Kasai México,
for our Nissan, Mazda, and Honda parts, so that way we can
explained that opportunities to expand its client base came
maximize our capacity use. We cannot necessarily benefit in
quickly, doubling the company’s size in Mexico in just five
the same way from German volume demand.” This is because
years. “Honda has its main Tier 1 suppliers in the US, but
German technology differs from Japanese technology and a
when it started producing the CRV in Guadalajara, it began
specific capacity is needed to fabricate parts and moldings
to search for suppliers in Mexico and preferred to go with a
for German OEMs. Despite all of these challenges, Sekino says
Japanese company.” With Nissan, Honda, and Mazda steadily
that these potential relationships will end up bringing a lot of
expanding operations, Sekino predicts another doubling of
business to Kasai’s doors. Further adding to his reluctance
growth for the supplier in a few years.
to incorporate whole new equipment, Japanese technology is still being adapted to the Mexican market, and Sekino
Being well-positioned to capture fresh demand from
explains that Kasai has developed a unique type of press
Japanese OEMs clearly presents opportunities but these also
molding that it is looking to bring to Mexico. “Kasai Press
exist through non-Japanese companies looking to source
Molding is vertical, unlike most horizontal injection molding.
more content locally. Establishing a new supplier relationship
This enables us to adjust the height of the pieces, use two or
is not easy however, as Sekino explains. “Supplying to
three different materials at once, and alter thickness, which
a new non-Japanese client involves a very complicated
helps in the creation of lighter pieces,” says Sekino. Kasai has
procedure. We have been in contact with German OEMs,
not yet brought this technology to the Mexican market as it
including Volkswagen, BMW, and Daimler. We have been
needs a commitment for a certain volume first.
AGUASCALIENTES SPOTLIGHT If necessity is the mother of invention then Aguascalientes
30 years ago jump-started the state’s entire economy and
has borne many offspring. Although it is the country’s sixth
has continued to do so ever since. The state’s Secretary
smallest state, its size indicates nothing about its powers
of Economic Development, Rodolfo Esaú Garza de Vega,
of regeneration. As its name suggests, Aguascalientes
explained that the 2011 tsunami that struck Japan shifted
began life as a thermal spa center. Many years after the
the country’s entire perspective of doing business, making
state’s water dried up, it built a name for itself as a train
diversification a key priority. In the automotive industry
maintenance and repair hub. But the eventual closure of
particularly, downtime can result in heavy losses, and the
the country’s railway industry also led to the evaporation
advantages of having plants in a number of worldwide
of work in that field. Luckily for the state, it was around
locations became undeniable. Nissan took the decision
this time, in the early 1980s, that Nissan decided to set up
to invest heavily in production outside of Japan, and
production in Mexico, and Aguascalientes was selected as
Aguascalientes in Mexico was once again selected. “Nissan
the state of choice for the Japanese OEM giant. The state
evaluated several states in Mexico, but in Aguascalientes
provided an ideal central location, along with a wealth of
they already had a well-developed support chain comprised
then-unemployed railway engineers to fuel the valuable
of education facilities, suppliers and training schools. It was
low-cost skilled labor that did and continues to make the
all these factors that helped Nissan make the decision to
country as a whole so attractive. The arrival of Nissan over
reinvest in the state,” tells Garza de Vega.
257
| VIEW FROM THE TOP
SMALL STATE DREAMS OF BIG GROWTH JUAN CARLOS ITUARTE ZARZA Undersecretary of Economic Development of Queretaro
Q: How has Queretaro forged its close relationship with
Even in tough times, our companies have implemented
the automotive industry over the years?
good productivity programs, allowing us to remain
A: The automotive industry is the main contributor to our
productive in the depths of the 2008 financial crisis.
economy, making up almost 10% of the total GDP, one-
We learnt a lot of lessons during the crisis, leading us to
third of our manufacturing GDP, and over 10% of our total
diversify our economy further by investing in other sectors
employment. This is not a new situation, although many
such as aerospace and biotech. This actually helped us to
recent investments have drawn more attention to the
increase competitiveness within the automotive industry
Bajio region as a whole. Queretaro has been the host to
too, as we obtained better research centers, improved
Tier 1 suppliers for a long time, which has kept us close to
institutions, and a generally more competitive industrial
many big OEMs. Companies like TREMEC have been here
environment.
for a long time, while US, Europena and Asian companies have been new arrivals. We do not have any light vehicle
Q: What sort of incentives does the Queretaro government
OEMs in the state, although we do have heavy vehicle
offer to companies looking to establish an industrial base
OEMs such as Scania and MAN Truck & Bus. Alongside
here?
these, we have 67 Tier 1 suppliers and over 250 Tier 2
A: Being one of the smallest states in Mexico means that
suppliers.
we have certain limitations. We do not have unlimited land for development, and we have just one industrial
Q: Do you think that not having a light vehicle OEM hurts
corridor that goes from Queretaro City to the San Juan del
Queretaro’s international perception as an investment
Rio area. We are trying to expand our industrial corridor
destination?
as much as we can, but we have natural barriers in the
A: We are very well known at the Tier 1 level for our world-
Sierra Gorda area to the north. Our budget is also not
class production sites. Not having an OEM obviously plays
unlimited and we have modest finances in place. This has
a part, but when companies do their investigations in
led to us developing a strategy that focuses on bringing
Mexico, they are pleasantly surprised by the strengths of
the right companies to Queretaro. With that in mind, we
our state. That is actually a good thing since it means that
are focusing on developing suppliers and supporting
when companies choose to invest in Queretaro, they are
synergies between local universities and the private
doing so based on a strong business case built on solid
sector. We do not see incentives as a sustainable strategy
market research. We would like to have an OEM but it is
to attract FDI, therefore we do not offer land incentives or
not necessarily something that we are seeking at all costs.
tax exemptions. Instead, collected taxes are reinvested in
We are consistently in the top three choices when OEMs
initiatives that can help the competitiveness of companies
are looking for a plant location, so we are confident about
located here.
the future. Q: How extensively are you working to develop your local
258
Q: What are the main benefits of investing in Queretaro
supplier base?
for automotive industry companies?
A: We have a strong program to develop local suppliers
A: The human resources and the high levels of R&D
which contains many phases. Large companies based
taking place here are Queretaro’s main strengths. We
here, such as TREMEC, are opening their doors to local
have historically been better known internationally
companies so that these can understand what big
for the aerospace sector, although the automotive
companies do, what kind of parts they are using and
sector represents a bigger proportion of our economy.
buying, at what price, and at what volume. In the last four
Productivity
labor
years alone, we have identified opportunities for local
environment is very strong. We are a very stable state
automotive suppliers valued at US$3 billion. Thanks to the
with good union relations and without a history of strikes.
commitment and trust that large automotive firms have
in
Queretaro
is
high,
and
the
placed in the government, more and more opportunities are arising for local suppliers. Most of the issues that these suppliers face have to do with materials availability and their technological capacity. We have therefore established a trust fund which enables us to provide low-interest loans and make technology available to these companies. To be a successful supplier, you have to take the leap from being a small company to a solid medium-sized one and there is no easy way to do that. We help as much as we can. Right now, one of the main challenges is the pace of growth in the Bajio. There have been major investments from Japanese companies, which came in very quickly. We need to make sure that the right conditions are in place to attract such companies. This includes the expansion of our industrial corridor by pushing investment to some of our smaller municipalities, and to the desert area of the state. Making that shift successfully means that we
The Queretaro government largely funds the universities
have to work closely with industrial developers. Most of
that specialize in doing this, but we also seek support
Mexico’s industrial parks are private, so we aim to show
from the federal government. Engineering is becoming a
developers the possibilities of developing world-class
much more attractive qualification. A few years ago, we
parks in Queretaro.
noticed that the level of engineers graduating in Queretaro was excellent but that we could not necessarily make
Q: Do you see the relationship between northern and
the right opportunities available to them. We therefore
central states as one of cooperation or competition?
started working with companies to offer opportunities for
A: We compete but we also compliment each other. The
engineering graduates in a variety of segments. General
difference between Queretaro and some northern states
Electric has an R&D center here, as does Ericsson, which
is the diversity of our companies. The northern states
elevates the entire industrial segment. Since we are a small
have more companies from the US, whilst Queretaro has
state with just two metropolitan areas and one industrial
a strong contingent of European and Asian companies.
corridor, our industrial community is very tightly knit.
Many companies sending their employees to Mexico are
As a local government, our doors are wide open and we
looking for a nice city that offers a high standard of living
enjoy regular close contact with the representatives of
for their executives, and we can offer that. We also work
all of the major companies operating here. We also work
closely together with northern states. Right now, we are
very closely with the Ministry of Economy, CONACYT and
working on a project with Nuevo Leon and Guanajuato,
INADEM to help provide the best environment possible for
along with JICA, the Japanese agency for international
our companies.
cooperation. Q: What are Queretaro’s expectations for growth over the Q: To what extent is the development of the right
coming years?
engineering
A: Right now, our expectations are very high. In recent
workforce
the
responsibility
of
the
government?
years, our GDP growth rate has hovered around 6%,
A: The task of establishing the right workforce to fuel
which is well above the national level. Our job growth is
economic growth is a joint effort between the public and
also well above the national level. The average income in
private sectors. Ensuring that the right types of graduates
the state has also increased from MX$270 (US$20) per
are available is crucial, especially in a state with a very
day to MX$310 (US$24) per day, placing us third in the
diversified industrial base. We work together in different
country. This is because we are growing very fast and we
areas as this task cannot be achieved by either side
have been focusing on adding value. The next aspect in
alone. Students need to be trained in the right way, and
need of improvement is the concentration of this growth.
graduates need to be given the right jobs, then trained and
Right now, our growth is focused in metropolitan areas, so
retained in the most effective way possible. For example,
we want it to have a broader reach. We need to not only
when a company establishes itself here and presents very
grow the number of jobs in areas beyond the metropolitan
specific human capital needs, we work together with local
center, but also increase the quality of jobs available, which
institutions to train students exactly in line with those needs.
poses a huge challenge.
259
| VIEW FROM THE TOP
TRIPLE HELIX COLLABORATION SUPPORTS QUERETARO SUPPLIERS ROBERT NEAL President of the Queretaro Automotive Cluster Q: What are the main characteristics that set the Queretaro
and Monterrey is about five hours away. People are also
Automotive Cluster apart?
attracted to Queretaro because of our links to the US, the
A: The cluster’s aim is to anticipate the needs of the
state’s safety, the fact that the cost of real estate is not
automotive industry in Queretaro from an educational
restrictive despite industrial growth, and the support of
and labor perspective. We also have a firm dedication to
the government in the development of industrial parks.
supplier development in order to help local companies become Tier 3 suppliers and escalate upwards. The
Q: What role is triple-helix collaboration playing in the
cluster wants to set the optimum stage for businesses
state’s development plans and how does the cluster
to operate in Queretaro through the expertise of those
support this?
companies that have been here for some time. Over the
A: Queretaro really encourages relationships between
last decade, the state’s economy has truly blossomed.
universities and the private sector. As part of my role as
The first day I came to Queretaro was my second day
president of the Queretaro Cluster, I participate in a joint
in Mexico, and my expectations were totally different
program sponsored by the governor, which brings together
from the reality. When I walked into TREMEC’s facility, I
the government, industry, and education communities.
was greeted with a world-class manufacturing operation,
The governor has recognized that in order to build a good
which genuinely took my breath away. Today, Queretaro
automotive foundation, the government must provide the
hosts companies like TRW and Delphi, while many others
right support, the education sector has to bring the right
have recently established operations here or are planning
people in, and the industry has to be able to count on these
to do so, as the state has a lot to offer. We are three
two elements. The importance of working together cannot
and a half hours away from the Chrysler base in Toluca,
be understated. We want to eventually reach the German
QUERETARO SPOTLIGHT Automotive
260
remains
the
leading
contributor
to
land incentives or tax exemptions. Instead, collected
Queretaro’s economic development. It makes up almost
taxes are reinvested in projects that can help improve
10% of total GDP, one-third of its manufacturing GDP, and
the competitiveness of established companies. The state
accounts for over 10% of total employment. It also helped
now has 300 companies that are active in the automotive
the state see a strong 4% GDP growth in 2014 so far, as
industry, of which 58 are operating at the Tier 1 level, close
opposed to a measly 0.8% growth in 2013. Queretaro
to 100 at Tier 2 and 3, and the remaining 140 lower down
benefits from having highly integrated commercial
the supply chain. Industrial parks have been the clear
ties with international markets, which is reflected in
beneficiaries of this diversity, with the El Marqués industrial
the amount of investment that poured in 2013. Of the
park alone having seen the creation of 1,000 direct jobs
77 investment projects that were launched in 2013 in
for automotive projects last year. The state of Queretaro
Queretaro, 23 represented a combined investment of
has garnered a reputation for attracting investment from
US$418 million in the automotive industry, generating
transnational companies, especially from Japanese and
over 4,000 direct jobs. According to the Undersecretary
American suppliers whose production is mostly destined
of Economic Development, Juan Carlos Ituarte Zarza, the
for exportation. While the state might not have a light
geographical limitations associated with being one of
vehicle OEM so far, its consolidated automotive industry
Mexico’s smallest states has enabled Quretaro to adopt
has led the Queretaro government to strive for higher
innovative and dynamic strategies when developing its
goals such as transitioning toward higher technology and
industrial capacity. Queretaro does not see incentives
netting more R&D centers, proving that attracting an OEM
as a sustainable strategy for FDI, so it does not offer
is not the only goal.
model where companies and universities work very closely
body, which deals with national issues. Regional needs
in product development.
are taken care of through local clusters. Manufacturing and assembly processes are also common factors in both
Q: Do you feel that the needs of the private sector and
industries, and require similar training. This creates a
the strategies of the state government are aligned in
natural pull for collaboration.
Queretaro? A: We enjoy close relationships with the federal Ministry of
Q: Was Queretaro disappointed not to host the new
Economy and the Ministry of Labor. To secure international
Honda facility?
investment, we have to work hard to compete and the local
A: The establishment of the Honda facility in Celaya has
government understands that. It provides assistance with
created many opportunities for suppliers in Queretaro, and
training and helps to build the supply base. There is a state
that in itself is incredibly positive. Companies that are already
program that partly subsidizes technological investments
here are expanding their capacity in response. For example,
by companies, and the state government also supports
Tremec has received two contracts for transmissions and
universities with general industry research projects in order to
transmission components in the heavy vehicle sector for
grow the sector. Support is also provided for land acquisition
international companies that need North American content.
and leasing, with the Queretaro industrial park partly being
Those two contracts will represent 10% of our sales over
sponsored by the authorities. There is an understanding that
the next three years. That is new business, and the same
the growth needs to be supported by infrastructure, so roads
is happening all throughout Queretaro. This state is quite
and flight paths are being developed accordingly. Today,
diversified in providing electrical assembly, machining, steel
getting from Queretaro to the US is straightforward. The
and aluminum manufacturing, stamping houses, and dye
airport underwent a complete renovation three years ago
shops. This mix means that the companies here do everything
and can now handle more than 15 flights a day, which are
form light assembly, component assembly, injection molding,
always full of executive teams from international companies.
to interiors, and we are extremely well positioned to supply regional production. We also have Case New Holland, as
Q: What do you think the automotive cluster can learn
well as Volkswagen Bus and MAN Truck & Bus based in
from the aerospace cluster?
Queretaro. Although they only assemble vehicles here and
A: There are many synergies between companies in the
do not manufacture them, they play the role of OEMs and
aerospace and automotive sectors in terms of educational
have good communication with the suppliers. All of these
and labor needs. I am part of FEMIA, the national aerospace
factors make our local automotive sector very dynamic.
STATE OF MEXICO SPOTLIGHT The economic dynamism that the automotive industry
The most important investments the state has received
imprints on the regions where it establishes itself makes
date back to the 2000s. In 2006, Chrysler announced a
it an invaluable sector to have. Few states in Mexico are
joint investment with its suppliers of US$1 billion with the
more aware of this fact than the State of Mexico, which
objective to assembling new models in its Toluca plant.
traces its relationship with the sector back to 1962.
In 2008, Ford announced a new assembly project in its
Its long automotive tradition places the state in third
Cuautitlan Izcalli plant, with the investment exceeding
place in terms of automotive and auto parts investment,
US$1 billion. Finally, in 2009, Chrysler invested US$500
generating 10% of the total value of the industry. The State
million again in Toluca to manufacture the Fiat 500. Over
of Mexico has one of the most enviable proliferations of
the first semester of 2014, the state has invested US$200
OEMs, such as GM, Chrysler, Volvo, Daimler, Nissan, Ford,
million in the development of industrial parks, benefitting
BMW and Peugeot. While the Big Three American OEMs
the automotive companies established within them.
all have assembly plants in the state, the others focus on the production of components, technological centers,
In terms of infrastructure, the State of Mexico can hold its
testing centers or even warehousing of parts. The state
head high due to its strong connectivity and developed
is currently in third position nationwide for the amount
infrastructure, with over 14,000km of roads and highways
of cars being assembled, and has generated 45,000
and over 1,400km of rail lines. Maybe its keenest attribute
direct manufacturing jobs with OEMs. Beyond this, the
is its proximity to the vast consumer market and workforce
assembled 243 Tier 1, 2 and 3 companies have created
of Mexico City, making it ideal for the establishment of
83,000 direct jobs.
OEMs and suppliers.
261
| VEHICLE SPOTLIGHT: CHEVROLET AVEO Aveo reigns supreme in Mexico’s automotive industry by
Aveo’s signature double grill, creased metalwork, and
being the bestselling car for the past three years, with
sweat-back headlights make it a stylish and distinguished
65,331 units sold in 2013. The Aveo is a subcompact car
member of the subcompact segment. Its light controls
that traces its lineage to GM’s South Korean subsidiary,
and its four cylinder 1.6-litre engine that provides 103hp
Daewoo, and is marketed worldwide in 120 countries
intend to make it easy to manoeuver around town and on
under six brands. It first became a household name in
highways.
Mexico in 2006 when it entered the market as the Pontiac G3. In 2008, the Aveo’s reputation was further bolstered
The Aveo LS and LT model come equipped with 14-inch
when it garnered a “Made in Mexico” stamp after it began
and 15-inch steel rims respectively, with the larger style
to be manufactured at the GM plant in San Luis Potosi.
coupled with aluminum rims to furnish the LTZ model
with a touch of style. One of the reasons Aveo’s ride
column, side impact door beams, and three-point seat
quality is undoubtedly smooth is the generous sidewalls
belts. Technological amenities, although modest, are
of its Goodyear Excellence economy tires. Another easily
sufficient enough to fulfill a driver’s basic requirements.
overlooked detail that actually places the Aveo above the
For instance, the four speaker sound system can be
class norm is its boot capacity of 290l with the rear seats
controlled from the steering wheel and it supports
in place, and 653l with them folded.
Bluetooth connection and has an additional USB port. This system enables drivers to have their hands on
This car is equipped with ABS in both the front and
the wheel at all times. As a vehicle that appreciates
rear wheels and includes security features like airbags
practicality and value, it certainly ticks all the boxes for
in the driver and passenger sides, collapsible steering
the Mexican consumer market.
| VIEW FROM THE TOP
SAN LUIS POTOSI LIVES UP TO ITS REPUTATION LEFT: Fernando Macías Morales, Secretary of Economic Development of San Luis Potosi RIGHT: Paola Félix Beltrán, Director General of the Secretariat of Economic Development of San Luis Potosi
Q: How did San Luis Potosi evolve to become a center of
container units. KCSM has its largest intermodal station in
automotive manufacturing?
San Luis Potosi, which allows for close collaboration.
FM: San Luis Potosi is one of the states with the oldest history as a center for manufacturing activities. The state was
FM: We do not believe in extremely fast growth as it is
founded as a mining center, but around 60 years ago, during
very difficult for infrastructural and social development to
the boom in the manufacturing of hard metal all over Mexico,
take place at the same pace. Problems arise with housing,
San Luis Potosi benefited from being midway between the
labor availability, and even with security. The development
Valley of Mexico and the north. Public industrial zones were
of San Luis Potosi has been extremely steady and that
developed in San Luis Potosi under presidential decrees,
means that we are able to offer a good quality of life and a
accompanied by an active policy to attract companies here.
supportive environment to the people that live here.
At one point, our collection of industrial zones was the largest in Mexico. Having a large metal mechanic industry along
Q: To what extent do you compete with neighboring
with some chemical manufacturing made San Luis Potosi
states?
an ideal location for automotive manufacturers. We are not
FM: San Luis Potosi believes in regional development, and
the biggest hub in the country but we are one of the most
we do not compete with our neighbors. Competing with
strategic. Today, we are really focusing on creating long-term
neighboring states can push up the cost of incentives, for
sustainable growth by establishing incentives for medium to
example, which does not benefit any of us. Without regional
long-term automotive investment. This focus has paid off with
development none of the states will succeed, we need each
our success in bringing BMW to San Luis Potosi, and shows
other and there is enough industry for all of us to develop.
the well-earned trust that automotive leaders have in us.
Certain investments fit better in other locations than ours, and vice versa, and we have to be able to recognize that.
Q: Most central states credit their unique attractiveness to
As some investments are more strategic than others, we
their geographical location. How do you stand out from
should have enough communication with other economic
your immediate neighbors?
development bodies to work together. We have very good
PF: Our main differentiator is that we have one of the
communications with the states surrounding us.
most important roads running through the state, which is Highway 57, also known as the NAFTA highway. Highway
Q: Does ample room for growth remain considering the
70, which connects to the ports on both the Gulf of Mexico
number of industrial parks in San Luis Potosi that are
and the Pacific Ocean, also crosses San Luis Potosi, giving
already at peak capacity?
the state direct access to the ports of Lazaro Cardenas,
PF: Some of the private parks, such as the one in Colinas
Altamira, and Veracruz. It is true that we are in a very
de San Luis, have seen a lot of movement in the last two
good geographical location, but we also have very strong
years. We also have private investors looking to develop
infrastructure to support that. We are known as the ‘two
industrial parks in the metropolitan area. We are also
hour city’ as we are just two hours from Aguascalientes,
developing more industrial space in Matehuala, which has
Guanajuato, and Zacatecas. That connection really helps
universities, technical schools, and is two hours closer to the
facilitate companies to take optimal advantage of the
north than the city of San Luis Potosi. PEMEX is developing
developments taking place in the Bajio region. We are
a pipeline that will pass just 7km from Matehuala, and that
also working closely with Kansas City Southern de Mexico,
presents new opportunities for this land to be developed. It
which last year announced a rail connection from San Luis
is therefore an area of interest for development land from
Potosi to the railway line serving the port of Veracruz. The
private investment.
connection to the Altamira Port is also being worked on.
264
We do currently have a connection but we are expanding
Q: How has the presence of GM shaped San Luis Potosi,
the height of the tunnels to accommodate double height
and how useful was it in attracting BMW?
FM: GM arrived during a very difficult time and the plant was
Before investing to try and attract an OEM, every state
designed to have a larger capacity than it has today. During
should evaluate properly how much it has invested in the
the first few years, the plant produced no more than 45,000
past, and how adapted it is to the manufacturing industry
cars. In recent years, this has increased with the introduction
in order to support any investment made. We have proven
of the Chevrolet Aveo, the best-selling car in Latin America,
to many companies that we have the conditions in San
as well as trucks. As of today it is producing close to 130,000
Luis Potosi to support automotive companies. Incentives
cars and 270,000 transmissions. There is still room for growth
have to be offered in a very intelligent way and need to be
in that plant. We have recognized that San Luis Potosi still
assessed carefully in terms of value and return on investment.
needs to invest a lot in supporting that plant to convince GM
Assisting a company is very important to us, but we want
that is should bring more production to Mexico. We believe
to see companies expand beyond an initial investment
there is also room for another OEM, given our infrastructure
incentive. Expansion means a positive result was achieved,
and labor support. We also have a harmonious labor
and it means that companies found what they were looking
environment and have experienced no strikes. This is not to
for. We believe incentives need to be tailored to the individual
say that problems do not arise, but union leaders, companies,
company rather than sweeping incentive offerings. Certain
and governmental bodies have worked very closely to ensure
companies will require very specific incentives, and the state
that agreements are reached and problems prevented. The
will do the best it can to help them establish themselves.
BMW investment will generate 1,500 jobs by 2019, which will only serve to further encourage our economy, and the
PF: Right now we are working on a development center
accompanying suppliers will reinforce the state’s already
for Tool & Dye, which is being supported by CONACYT.
solid supplier base. BMW already has doubled its number of
INADEM supported this during the first stage, and CIATEC
Mexican suppliers to over 100 over the last four years, and
is now starting the center. CONACYT is studying the way
more opportunities are there for the taking.
this is being done, which will benefit all of the central states and the automotive industry. It is difficult to find Tool & Dye
Q: What is really needed to attract a major OEM, and why
manufacturers in Mexico. We are working with ProMĂŠxico
do you disagree with providing incentives?
to host a Tool & Dye conference that will connect suppliers
FM: Attracting an OEM cannot be compared to attracting a
from all over the world and Mexico to help develop this
supplier in terms of the investment it represents for a state.
segment.
265
INDUSTRIAL PARKS REAP BENEFITS OF REGIONAL RIPPLES Argo Industrial Group Director Gerardo Bocard explains that
for them, but leasing allows them to begin capitalizing on
San Luis Potosi’s industrial parks are benefiting from the
their investment,” says Bocard. On the other hand, Bocard’s
increased global visibility of the state. “San Luis Potosi has a
experience shows that Japanese companies tend to want to
long industrial tradition, but what we do not have is the same
own their buildings as they prefer creating a long-term year
tradition with marketing ourselves,” he says. Comparing
relationship with their suppliers lasting for several decades.
San Luis Potosi to Monterrey, Bocard says: “Around the
“It is part of the culture, and it is also practical. Nissan, for
time that Monterrey propelled the success of its one major
example, will see no need to change if a provider always
brewing company, San Luis Potosi was already home to
delivers.” It was for this reason that the Argo Industrial
seven brewing entities. We also had a mining industry when
Group decided to purchase land itself in the neighboring
Nuevo Leon did not have one. Monterrey was founded 100
Logistik II Industrial Park, enabling it to sell additional land
years after San Luis Potosi, and moreover, San Luis Potosi
to companies looking for a long-term investment.
has been the capital of Mexico twice.” Yet the growth of the relative newcomer has outshone that of the former capital.
Investing in the right infrastructure for Millennium Industrial
“The state has now been rediscovered and to the delight
Park was no small expense for the Argo Group. 18MW of
of foreign companies, we have all of the resources needed
energy was purchased from CFE in order to ensure that
for them to thrive here. Companies outside of Mexico have
each lot had at least 250KW available from the start.
started showing interest in settling in central Mexico during
The group also purchased water rights from the federal
the fourth wave of investment. The first wave started on the
government that allow for a well to be dug in the park. The
border with the US and each wave has progressively moved
excavation for the well found water at 500m but further
further down geographically,” he explains.
digging to 700m ensured a deep enough reserve of water
“The state has now been rediscovered and to the delight of foreign companies, we have all of the resources needed for them to thrive here” Gerardo Bocard, Diector of Argo Industrial Group
The Millennium Industrial Park, owned by the Argo Industrial
to supply the park for years. Given the desert present in
Group, covers 200 acres, and is currently filled to 80%
and around San Luis Potosi, such a find was essential for
capacity. The majority of the 26 companies with existing
the industrial park’s self-sufficiency. The well provides
operations in the park are active in the automotive industry,
capacity for the extraction of about 30 liters of water
including Cummins, TI Automotive, Continental, Mitsumi,
per second, but with the current 26 companies using the
Flexi-Tech, and Nobel. The remaining 20% of land is available
equivalent of four liters of water per second.
for lease and represents enough space to accommodate a
266
minimum of four companies and a maximum of 15. The whole
Looking ahead, industrial parks may well make one of
region seems to be enjoying the ripple effect of Nissan’s
most lucrative investments for savvy developers. Bocard
investment in Aguascalientes, with suppliers to the OEM
explains that most regional construction companies in San
giant arriving en masse. “The Nissan plant has taken up a
Luis Potosi concentrate on government infrastructure and
lot of the human resources. However, providers do not want
housing, with only five companies doing industrial building.
to be too far away from them, so they look to surrounding
“Last year the federal and state governments did not have
states. Mazda and Honda are in Guanajuato while Querétaro
money to invest which, coupled with a small housing crisis
has a lot of competition with other suppliers from the
affecting Mexico, reduced construction work significantly.
automotive and aerospace industries. As such, San Luis
Argo, however, enjoyed a very good year, and 2014 will be
Potosi provides an optimum environment for establishing
even better,” says Bocard. The group is in the process of
their business,” Bocard explains. In terms of the commercial
finishing a 5,000m2 building that will be ready later this
commitment suppliers are looking for, preference is often
year. 16 acres of land have just been sold to a Japanese
based on origin. “American and European companies feel
company for the production of air conditioning equipment.
that by leasing, they can concentrate capital on their core
Bocard also hopes that a 10,000m2 project will shortly be
business. Constructing a building is a dead investment
agreed, capping a busy and successful year for Argo.
STEEL WHEELS STILL WORTHY COMPETITOR FOR ALUMINUM The
steel
wheel
versus
aluminum alloy debate has been
José Alberto Enríquez, Regional Operations Manager for North America of Maxion Wheels
running
for
at least six workers however, and we will keep aiming to automatize some processes.”
some
time, and the jury is still not
Enríquez attributes the continued development of the wheel
entirely in on which comes
industry in Mexico to the increased availability of specialized
up trumps. Steel rims have
suppliers. Maxion Wheels used to import most of its steel from
long
applauded
Brazil, Japan, and Europe, but it is now expanding its Mexican
for their cost, relatively
been
supply base through providers such as Otscon, which has an
easy
manufacturing
established presence in the country. Although Maxion Wheels
requirements, and long
imposes a strict methodology when choosing suppliers that
durability, but alloys offer
can see a supplier take at least a year to become accepted,
the driver a customizable product that provides a lighter
the company now sources most of its raw materials locally.
and more maneuverable driving experience. Unlike steel,
Maxion Wheels has been steadily working to reduce the
aluminum alloys can be cast and worked in varying designs,
weight of its steel rims. “Over the last three years, we have
allowing owners to personalize the appearance of their
been able to reduce the weight of each wheel by 450g or
cars. Alloy wheels can be polished, painted, machined, or
more,” Enríquez states. Enríquez does admit however that
chromed, although all of these finishes require specific
the tide is turning in favor of aluminum wheels, given the
care since alloys can be more vulnerable to damage from
material’s efficiency and weight reduction capabilities, yet
saltwater corrosion and harsh cleaners. The weight of alloys
he believes the installation of a weight reduction production
is also considerably less than steel wheels, resulting in less
line in the San Luis Potosi plant sets the company’s steel
stress on the suspension and better handling. Aluminum rims
apart. Maxion is also researching the capabilities of high-
can suffer more during road impacts, however, with bending
strength steel in Brazil. “The steel process is very complex,
and cracking a real possibility. On the other hand, these rims
and our current strategy is to use higher strength steel to
are less susceptible to heat, and this can result in better
reduce weight while maintaining the structural strength and
breaking and less heat damage to both rims and tires.
manufacturing process. In order to make steel wheels lighter while maintaining their original qualities, we have designed
Despite the many advantages of alloys, rim-maker Maxion
big ventilation holes in the wheels that help reduce weight.
Wheels is continuing to increase steel wheel production
Another benefit of high-strength steel is that it makes it
capacity in Mexico as a direct result of sustained demand.
possible to reduce the thickness and add a backbone of
Maxion Wheels is the world’s largest wheel-making enterprise
aluminum or chrome to improve the appearance of the
and entered the Mexican market in 2009 with the purchase
wheels,” Enriquez explains. Wheel appearance is indeed a big
of a Meritor plant in San Luis Potosi. The company has been
driver of demand, and Maxion Wheels is not sitting back in
growing globally and, according to Regional Operations
this respect. According to Enríquez, the company is engaging
Manager for North America, José Alberto Enríquez, has seen
in aggressive product development in order to create well-
a major rise in demand in Mexico. Maxion Wheels’ San Luis
defined steel wheels that could be mistaken for aluminum
Potosi plant focuses on steel and commercial wheels, and
alloys at first glance. Many SUVs and ATVs continue to use
its plant in Chihuahua produces alloys. “With both plants
steel wheels and by adapting the physical appearance of
currently operating at 90%, the company is investing to
these wheels and reducing their weight, Maxion’s steel
boost production, with the Chihuahua plant set to double its
wheels are serious competitors for their alloy counterparts.
capacity in the next two years,” says Enríquez. While Mexico
“We offer very good and innovative engineering solutions for
catches up on the automation front, the company is also
both kinds of wheels, and all those we produce are robust
focusing on reducing cycle time and waste, with Enríquez
and can stand all types of terrain,” Enríquez asserts. Steel also
maintaining that Maxion Wheels’ Mexico plants are among
presents many benefits, specifically in a country like Mexico
the highest rated in the world for efficiency. “Mexico remains
where road quality and corrosive air pollution must be taken
a complicated place to get fully automated processes in
into consideration. One challenge to Maxion Wheels’ support
place and is not at the same level as Brazil, the US, or Europe,”
of steel is that clients such as Chrysler and Ford have been
Enriquez comments, adding, “Machinery is expensive, but
reducing steel content in their vehicles. However increased
this is made up for with savings in labor costs. The machinery
demand is coming from Japanese OEMs like Mazda and
in our plants has the capacity for about 6.5 million wheels per
Honda. Diversifying the company’s client base to include
year, after a total investment of US$100 million. Increasing
more Japanese OEMs has created opportunities for the
investment in automation is not easy. Every robot substitutes
company.
267
MEXICO’S FREE TRADE ZONE PIONEER KEEPS EVOLVING Mexico’s first free trade zone (FTZ) was established in
modal terminal was initially leased to Kansas City Southern
San Luis Potosi in 2008, in a bid to continue building
de México (KCSM) for a decade, after which period KCSM
the country’s attractiveness as a globally competitive
decided to purchase the land. A general cargo terminal is
investment destination. The interior port, known as the
currently being developed, which will be completed within
WTC Industrial, consists of about 1,300 acres located near
the next 5 years. Three commercial buildings are also
a major railway line and the main trade highway running
about to become available, with the zone’s Alpha Building
between Mexico City and US border at Nuevo Laredo.
currently being tenanted. Proving the WTC’s commitment
WTC is a hybrid zone, offering both domestic zone and
to the industry, automotive companies will enjoy the
FTZ services. Today, the WTC remains the only FTZ in the
services of logistic consultants such as Kuehne + Nagel or
central region and has become an attractive port of call
trucking and transportation giant J.B. Hunt that have set
for automotive companies and their suppliers alike, and 13
up facilities in the zone.
companies have already been authorized to use the WTC as a FTZ according to Esteban Puente, Commercial Director
Special legislation was passed to allow the area to be
for the WTC. Automotive tenants make up about 80% of
used as a FTZ. Duties and tariffs are deferred until the
the WTC client list. Many of these are Japanese suppliers of
merchandise is about to enter the local marketplace.
OEMs like Mazda, Honda, and Nissan, all of whom are based
The Mexican version of the free trade zone permits raw
in the central region and whose suppliers need to be close
materials and components to enter Mexico duty-free for
by. The WTC operates as an inter-modal terminal, enabling
manufacturing, assembly and other services, similar to
users to switch between trains and trucks. “Although
the maquiladoras. “Operating within a FTZ offers several
trucks have long been the mode of transportation of
advantages,
choice, the railway is being increasingly used, given that
customs benefits. Looking at the logistics side, operating
its regulatory environment is being adapted to support
within the FTZ means that a container can be brought from
growth. “We receive 2,500 containers from Honda. From
the port without being opened. Under regular operations
the WTC, we send them on to Guadalajara while also
in Mexico, when a container arrives at a port, it is opened
ferrying containers to automotive clusters in Queretaro
by the customs broker, who has to check and catalog all
and Guanajuato,” says Puente, who explains that the inter-
of the merchandise. This then goes to the customs office
including
administrative,
logistical,
and
SAN LUIS POTOSI’S FIRST INDUSTRIAL PARK NEARING FULL CAPACITY Parque Tres Naciones was the first industrial park to be
security,” says Sánchez Ávila. Security remains a concern
established in the state of San Luis Potosi at a time when
for foreign companies coming to Mexico, and four guarded
industrial activity was concentrated in the north and
entrances and a force of 38 security guards on site provide
development in the central regions was in its infancy. The
security at all times. Sánchez Ávila maintains that one of
park, which is located along Highway 57, welcomed Daimler
the biggest incentives for companies establishing in San
as one of the first companies to establish a presence in the
Luis Potosi is quite simple: the weather, which plays a large
park, where it now has a national distribution center. “When
role in construction costs. “San Luis Potosi does not have
Daimler arrived to San Luis Potosi there was nothing here, it
hurricanes, volcanoes, or earthquakes, and the soil is hard
really saw the potential of the location,” explains the park’s
which is good for construction. There is also little humidity,
Director General, Cecilia Sánchez Ávila. “Demand has risen
which is particularly good for the automotive industry
so steeply that industrial land availability is now limited.
since it safeguards against component erosion. With no
Expansion space is available, but the park has just ten units
air conditioning or heating needed, the area also offers
for lease and built-to-suit projects remaining. Some 48% of
significant long-term savings on energy.” Keen to create
the park’s tenants are active in the automotive industry, and
a sustainable and self-sufficient operating environment,
come from Asia, Europe and the Americas.”
Sánchez Ávila explains that the park has implemented environmentally sound development measures. “From the
268
“The park offers full infrastructure, including natural
outset we had high environmental standards, and we are
gas delivery, electricity, pressurized water systems, and
continuously updating our standards to comply with new
which goes through the merchandise again if any red light
term collection of duties and tariffs. Mexico’s support of
has been flagged. This can cause delays and damage the
free trade zones highlights awareness of this.”
goods. By using a FTZ, the company only has to submit an electronic invoice, which passes through the customs office
WTC intends to keep pushing for Mexico’s FTZ industry to
and then the container comes directly to the company,”
evolve. “We want to smooth out the kinks in the customs
explains Puente. Furthermore taxes are only payable if the
program nationwide, as creating these sorts of free trade
merchandise is to be released into the Mexican marketplace.
zones adds to the economic attractiveness of the country,”
Goods bound for the US or other foreign markets can leave
says Puente. He dismisses the idea that a plethora of FTZs
Mexico free of any duties or tariffs.
springing up across Mexico would create competition
“Operating within a FTZ offers several advantages, including administrative, logistical, and customs benefits”
Esteban Puente, Commercial Director for the WTC Industrial
As Puente explains, the FTZ’s true intent is to attract more
for the WTC and offer a wider array of choices for OEMs
foreign direct investment into Mexico, particularly in the
and suppliers entering the country. “We are competing
booming automotive sector. This will put the country
as a country for investment with other nations that offer
on a better footing to compete with other international
free trade zones, so we all share in the success of these
trade zones, such as those in China. Although Mexico’s
programs.” In fact, he offers three pieces of advice for
maquiladora regime created incentives and implemented
anyone looking to establish a similar zone in Mexico.
efforts to reduce duties and tariffs for inbound materials,
“Firstly, you should view your relevant local authority as
the FTZ structure has an advantage over this prior scheme.
an ally not an enemy. Secondly, collaborate closely with
It is familiar and compatible with existing regulations
consultants, customs brokers, and private commercial
established by the World Trade Organization. Puente says
tenants to create the best environment as a team. Finally,
that “an environment is being created in Mexico where
comply with the requirements laid down by authorities
investments can flow freely, generating employment and
and ensure you have the capacity to invest fully in this
wealth, reap long-term rewards greater than the short-
commitment.”
environmental laws and requirements,” says Sánchez Ávila.
years. Sánchez Ávila explains that Tres Naciones works very
The park has even gone so far as to reject companies that
closely with the government and other industrial parks.
cannot meet internal environmental regulations, which must
The park also offers economic assistance to students who
be complied with by all tenants. Tres Naciones has its own
struggle to afford the four-year degree programs needed
closed water circuit, water well, and treatment plant, and
to enter the skilled parts of the manufacturing industry,
each company is required to use 20% of its space as green
while a number of students also gain work experience on
areas irrigated with treated water. The park’s emissions are
site. “Ten years ago, the government and the population
also reduced through collective transportation measures for
of San Luis Potosi were complaining about the levels of
workers. Major transportation companies, including TUM,
unemployment for graduates, and companies in turn were
FedEx, and Estafeta, work together in the park to provide
complaining about the lack of experience and specialization
multi-client single container transportation solutions for
of graduates. We saw that the needs of both were not
tenants. Multimodal transportation, railway services, and
aligned, so we cooperated with the companies and the
customs support is also available. “Even though we do not
universities and devised new criteria to be implemented in
have customs offices on site, this is located right beside
the courses,” says Sánchez Ávila.
us, so customs come to the companies here and seal containers, which are not opened until they arrive to the
This multilateral approach should make 2014 a good year
final destination,” explains Sánchez Ávila. San Luis Potosi’s
for the park. It is working closely with ProMéxico to come up
long manufacturing history has made its human capital
with the best strategy for growth. Sánchez Ávila remembers
factor strong. Demand continues to grow, with Sánchez
that when Tres Naciones started, the state was not usually
Ávila expecting that the number people working within Tres
considered as an investment for FDI, but it has now been
Naciones will increase from 13,000 to 20,000 in the coming
put on the map, in no small part thanks to the park.
269
As the sound of corks popping reverberates in excited OEM investment recipient states around Mexico, industry experts are anxiously hoping that the country’s logistics network can not only bear the weight of increased demand but also buoy success. With one major OEM increasing its local procurement levels from US$500,000 to US$14 billion in five years alone, the pressure on the country’s infrastructure network cannot be underestimated. Unlike the US, road transportation dominates railway in Mexico, and upgrading the country’s much used and abused artery of highways is no small task. The government’s six-year infrastructure plan promises a US$316 billion investment in upgrades to the country’s roads, railways, ports, and telecoms by 2018 and will potentially increase GDP by 5%. Whilst the burden lies on the public sector to churn out infrastructural upgrades before bottlenecks can form, the opportunities being created for logistics solution providers that can support lean supply chain management strategies are immense and varied.
This chapter will focus on the main logistical trends being addressed by the most established companies within Mexico, who will provide insight into the processes and systems currently oiling trade flows. Federal and state infrastructure plans will be illuminated, and opinions on the likelihood of these being rolled out quickly enough are discussed.
LOGISTICS
10
CHAPTER 10: LOGISTICS 274
Uncorking Logistical Bottlenecks
274
Bajio: Land of Opportunity for Logistics
276
VIEW FROM THE TOP: Resilience Strengthens Links in Supply Chain
278
VIEW FROM THE TOP: One-Stop Shop for Automotive Logistics
280
VEHICLE SPOTLIGHT: Freightliner Cascadia
282
Logistics Provider Plays it Smart Through Multi-Tasking
283
VIEW FROM THE TOP: Adopting the “Made in Mexico” Approach to Logistics
284
Integrated Solutions Offered Around the Globe
284
Software Solutions Support Supply Chain Management
286
Logistics Service Providers in Demand
287
Technology Broadens Horizons for E-Logistics
288
Sustainable Supply Chains Key to Automotive Logistics
288
Streamlined Business Model Spurs Growth in Logistics
290
Logistics Provider Needs Supply Chain Visibility
291
VIEW FROM THE TOP: Private Freight Terminal in Mexico Bucks Industry Trend
292
Resilient Smaller Fleets Offer More Efficiency
293
Twenty Years Leading Mexico’s Trailer Industry
294
Mexico Needs Rail Freight to Take Rightful Place
296
Optimal Load Factor from Automotive Railcar Fleet
296
Port of Veracruz
297
Port of Manzanillo
298
VIEW FROM THE TOP: Top Rail Company Invests Ahead of Automotive Expansion
298
Well-Chosen Networks Lead to Logistical Success
300
VIEW FROM THE TOP: Port of Veracruz Sees Automotive as Top Priority
301
VIEW FROM THE TOP: Automotive Industry Stands to Benefit from Altamira Expansion
302
VIEW FROM THE TOP: Shipping Giant Expands Mexican Logistical Coverage
303
Port of Lazaro Cardenas
273
UNCORKING LOGISTICAL BOTTLENECKS Few are better positioned to comment on the state of
2016. Investments by major OEMs have in turn attracted
the automotive industry than Eduardo Solís, Executive
droves of international Tier 1 and 2 suppliers to Mexico,
President of AMIA. For Solís, continued exponential growth
providing more suppliers to assist OEMs in the quest for
of the industry is inevitable, evidenced by the steady rise in
the most optimized supply chain. In the last five years alone,
manufacturing and export figures. However, Solís’ optimism
Ford has gone from sourcing US$500,000 locally produced
is somewhat quelled due to potential logistical bottlenecks
materials to US$14 billion. This allows the company to fuel
caused by booming automotive production. “There are no
operations worldwide with high-quality, low-cost materials
bottlenecks today, but I certainly see bottlenecks arising if
sourced directly from Mexico. Today, Ford does not produce
the right actions are not taken over the next five years at
a single product that does not contain at least one Mexican
Veracruz, Lazaro Cardenas, and Laredo. We must do our
component. This puts an operational link between Ford
homework because the indicators show a growth of exports
Mexico and each of the company’s 32 global plants, links that
in the next five years of about 1 million vehicles. Mexico must
also exist within Mexico. Ford’s plant in Hermosillo produces
have the right ports, railroads, and infrastructure in order to
cockpits while its sister plant in Cuautitlan produces
keep up with this growth,” says Solís.
individual components.
“The indicators show a growth of exports in the next five years of about 1 million vehicles. Mexico better have the right ports, railroads, and infrastructure in order to keep up with this growth” Eduardo Solís, Executive President of AMIA
Today, 19 major global car companies already have plants
Access to optimal logistical solutions within Mexico is
on the ground in Mexico, with many planning to expand
therefore essential in the race to reduce procurement and
operations or enter the market. Nissan has recently
distribution lead times in an industry driven by cost. Indeed,
opened its second Mexican plant in Aguascalientes, at
according to Solís, logistical costs are one of the three most
an investment of US$2 billion, Audi is approaching the
important areas that automotive makers analyze when
same level of investment with a US$1.3 billion assembly
considering where to build a plant, along with labor costs
plant in Puebla to start making the Q5 model there, and
and government incentives. Therefore as plans for new
BMW recently announced a US$1 billion investment in San
production centers and increased production capacities
Luis Potosi. Projections have stating that production will
abound, concerns have been growing about the ability
grow to reach 3.7 million units by 2015 and 4 million in
of Mexico’s infrastructural development to sustain this
BAJIO: LAND OF OPPORTUNITY FOR LOGISTICS Logistics is the oil that keeps the automotive industry
one container for one destination. “We offer flexibility
running smoothly. “Behind a vehicle lies countless days
in adapting the solution according to the needs of our
of work, design, and supplies. Logistics ensures that
automotive clients and they in return can have savings of
everything arrives on time to the assembly lines,” explains
30% in their supply chain management.”
Ricardo Becerril, National Director of Operations of
274
Estafeta Mexicana. In response to the industry’s growth,
The transition of the industry to the Bajio region sparked
the company developed a tailored solution for the supply
interesting developments for the company. “Of our
chain called LTL consolidation. “The industry views time
US$33.8 million investment, US$21.4 million was allocated
as an essential added value factor so this solution focuses
to main infrastructure projects. One of these was the
on next day delivery,” he adds. LTL entails consolidating
creation of the new Logistics Center in Guanajuato’s
shipments of different sizes and characteristics into
Inland Port,” Becerril explains. According to Becerril, given
growth. Mexico’s automotive industry investment is often
established in the country. The company analyzes each
concentrated in urban clusters, but these clusters do not
site, its transportation needs for inbound goods, and how
always have easy access to the railroads. Industry analysts
best to answer those needs. An estimated volume for each
have also pointed to the fact that capital expenditure on
vehicle line is also established to understand how best to
new construction equipment has not increased adequately
deliver tailor-made logistic solutions for each OEM, each
in line with industrial manufacturing growth in Mexico. Ford’s
plant, and each type of vehicle.
Purchasing Manager, Leo Torres, believes that logistics is the area in which Mexico can improve the most, after
Given the export-dominant nature of Mexican automotive
engineering. “In Germany, trains move inside the plants.
production, the key for transport providers is how swiftly
Although Mexico has trains, they are not reliable and they are
they can get the cars to the country’s key ports or across the
not on time. It is not just about putting the infrastructure in
border. Ferromex’s business model therefore looks at every
place; you have to build a culture of logistics. Mexico needs
means of export for vehicles, not only for cross-border trade
a national automotive development plan that engages the
but also the entire global network. It is here that intermodal
government, private, and education sectors,” says Torres.
transportation solutions are really helping to improve
However, Mexico’s largest railroad operator, Ferromex,
efficiency and competitiveness within the automotive supply
is hoping to provide light at the end of the tunnel in the
chain. Ferromex controls a vital point for exporting vehicles
country’s quest for a sophisticated logistical network. The
in the port of Veracruz, enabling it to combine logistical
company manages over 8,500km of track nationwide, and
services. However, media reports have stated that despite
its specialized division Automotriz is attempting to address
currently undergoing a decade long revamp, the port is not
specific challenges faced within the automotive sector.
far off operating at full capacity, meaning that Ferromex
While capital expenditure in Mexico on new equipment may
will need to diversify its access to sea lanes. Furthermore,
have lagged in general, Ferromex itself budgeted US$450
the port is also not the most optimal location to service the
million in this respect in 2013, with US$57 million of this
automotive industry’s booming cluster in Guanajuato. Closer
going to the automotive division, according to Ferromex
hubs include the ports of Manzanillo and Lazaro Cardenas.
Automotriz’s Assistant Vice President, Alberto Sánchez
Collaboration between the port and Kansas City Southern
Varela. “This investment is specifically targeted at the impact
de Mexico (KCSM), Ferromex’s closest rival, has already
the automotive plants will have on our network. These funds
seen the Lazaro Cardenas-Kansas City rail corridor being
will be allocated to cover that growth segment, aside the
well utilized for around 15 years. KCSM has been reporting
natural expansion our business is undergoing,” he explains.
double-digit growth in car loads transported for the last few
For Ferromex, the announcement of the creation of a new
years. It enjoys the same alliances with US railroad companies
OEM plant in Mexico is rarely news since much of the firm’s
such as Union Pacific. Ferromex recognizes the pressure to
collaboration with car makers begins ahead of time. As
continuously diversify its logistical portfolio, and Sánchez
Sánchez Varela explains, developing relationships with new
Varela says the company is already talking to customers
investors a couple of years early allows the company not
about their business needs for the Pacific and is actively
just to be competitive, but also to anticipate how much time
considering how best to integrate that avenue into their
is needed to prepare for the extra volume of cargo and fit
logistics efforts. With so much investment and competition
this seamlessly into its natural growth. Ferromex has sought
between major providers like Ferromex and KCSM, there is
to provide targeted logistical solutions for each major plant
hope yet for Mexico’s logistical network.
the automotive industry’s crucial role in the region, it will
Connectivity is an essential factor in creating a logistical
test the logistics center in terms of extended collection
circuit and Estafeta is striving to expand its network by
hours and next day deliveries. “We will create a logistics
opening an additional 39 new sales points around Mexico.
circuit for collection and delivery times so we can connect
“We have strong ties with the ports in the Gulf of Mexico and
our clients with their suppliers in other regions,” he adds.
the Pacific and we also receive cargo from airports. We have
The company’s business model focuses on express cargo
an air fleet, which we hope to use in order to begin operations
with deliveries of up to five days operated via land or
at airports,” Becerril states. “The automotive industry is
air. Nevertheless, the location of the logistics center has
very stringent about timeliness, there can be no mistakes
placed the company in an area rich in opportunity. “The
in delivery and collection times. A lack of consistency can
intermodal Puerto Interior has recently been inaugurated
seriously affect the production times of companies.” With
in Guanajuato and being inside the inland port will see
this in mind, Estafeta is taking further steps to optimize its
demand for our services pick up.” This proximity enables
logistics services, mainly by increasing its connectivity. “By
the company to evaluate the dynamics of the railway
being in Puerto Interior and in close proximity to the airport,
transportation as a viable alternative for a specially
we will be able to ensure a multimodal transportation service
designed product or strategy clients may need.
that includes air, truck, and railway,” Becerril expresses.
275
| VIEW FROM THE TOP
RESILIENCE STRENGTHENS LINKS IN SUPPLY CHAIN JOSE LUIS GARCIA PÉREZ Vice President of Operations of DHL Supply Chain Mexico Q: How have recent changes in global manufacturing
One way to create resilience is to target more than
and procurement strategies in the automotive industry
one supplier for a particular component during the
impacted supply chain management strategies?
procurement phase. For example, with an engine you have
A: The emergence of new strategies geared toward the
to find more than one source because it is such a critical
regionalization of production is a trend in the automotive
component. You can also look at using alternate supply
industry. We are moving away from the scheme where cars
chains to have different methods of transportation like
were produced in one country and exported globally, and we
using trains, planes, and ships. The other crucial aspect
see vehicles being produced regionally for a specific group
of the supply chain is visibility, which means knowing
of markets. Mexico is one of the major nodes of production
where your product or raw material is at any given point
in this industry, and it exports not only throughout the
in any time during the delivery process. If there is any
Americas, but also to Europe and even Asia and the Middle
issue with the documentation or another potential issue
East. The government is also driving these changes with the
that may affect the transit time, you need to know so you
major reforms that are taking place, including the ambitious
will be able to calculate the impact at your plant or with
program for infrastructure investment. We are waiting for
your end user. Crucial times where the flow of goods is
the secondary legislation in order to understand exactly
at its peak, such as Black Friday, are a good example of
how the regulations will work. However, we expect the
the relevance of supply chain visibility. This year the bad
reforms will propel a positive change.
weather impacted supply chain times, and it is essential during these challenging times to be resilient.
Q: What significance is the new hybrid of lean and resilient manufacturing having on procurement strategies?
Q: As a supply chain manager, what role do you play in
A: This lean and resilient approach means that supply
process innovation?
chains are becoming more and more complex to manage,
A: In Germany, we are developing products to improve
and therefore companies must make sure they are
supply chain logistics. For example, we are creating
very robust. There is an increased cost pressure, which
delivery robots and humidity controls for warehousing. We
results in keeping inventories as low as possible while
also developed one of the best locks for containers, which
not endangering supply to the market. Inventories in the
can only be opened by satellite signals. One of the greatest
automotive industry can be very expensive due to the
values we bring to our clients is our engineering expertise,
high value of goods involved. Also, the product life cycle
but ultimately we are logistics experts. We can cover
is becoming shorter, which means that in the past we used
the whole supply chain between our three divisions. We
to see the same model being produced for around seven
can move goods by any means of transportation, deliver
or eight years. Now we see far more frequent changes. The
express parcels, and manage the entire supply chain. At
development cycle is also shortening; it used to be two
DHL Supply Chain what we do is manage transportation,
to three years, but now the target is closer to less than
inventories, warehousing, added value through sub-
a year. Shortened product and design cycles imply that
assemblies, re-labeling, re-packaging, and sequencing,
you need to be much quicker to market, and inventories
all supported by the most sophisticated IT solutions.
need to be much lower. This also suggests that the supply
We advise our clients on the best strategies and design
chain is constantly under much more stress than it used
solutions, and provide them with options. If a solution is
to be. Anything that happens globally may also affect
implemented, we also do shadow management in order
your supply chain, such as a natural event that causes
to understand how the process is working. This helps us
temporary blockages. Supply chains are also vulnerable to
identify issues that the client may not have been aware of.
political unrest. Therefore, you have to be resilient in order
276
to deal with these conditions and enable your supply chain
Q: What is your main advice to clients looking to plan a
to deal with more stress than it was designed for.
successful supply chain strategy?
A: The number one piece of advice that I can give is focused
wants to retain or delegate operational control. When it
on the importance of finding a balance between the level of
comes to warehousing we follow our customers. With
service you want to give a customer and the price you are
Ford Hermosillo, for example, we have 700 people inside
willing to pay. A higher level of service requires a higher level
the plant assisting. For other customers we might invest in
of cost and every business has the privilege of balancing these
an installation and have our people outside of the plant. A
factors, so we have to help them find that balance. Another
customer may demand a solution to lower costs for truck
interesting point is that in the supply chain you can adjust
transportation. In this case we would design a network and
various levers for different results. You can increase your
invest in strategically located cross-docks.
inventory, which will give you a quicker service but you incur a higher cost. At the same time, a lower inventory without an adequate supply chain can result in losses to your business, so you really need to adjust the two factors consciously and establish the right approach. Within the supply chain there are also different strategies; you can have all of your inventories in one place and supply from there or you can deploy part of the inventories to different geographical locations. This means that for some parts your service will be quicker but others may still require transportation. For carmakers the real need is a good distribution network, as they need to have such a broad geographic reach. Q: What particular automotive trends are forcing changes in supply chain management? A: The regionalization trend is changing the game when it comes to warehousing. There has also been a major increase
Q: How much development of Mexico’s infrastructure is
in terms of the available options to configure a car, which
required to meet demand?
means more parts. Hybrid electric vehicles also represent a
A: Mexico has always had logistical challenges due to the
new trend because the batteries are considered hazardous
geographic nature of the country. We do not have any
materials and therefore need to be stored and collected
domestic ship transportation within Mexico (cabotage),
(recovered when useful life is over) carefully. We are currently
and that is a great area of opportunity. We only have four
developing a special technology to achieve that. Full electric
major ports, so they need to be expanded considerably.
vehicles will also bring in different requirements.
The development of the Port of Veracruz was a project that was held back for many years while the environmental
Q: To what extent do you provide customized solutions
impact assessment was completed. Now the permits have
to customers?
been released and that will go ahead. There are 60 airports
A: We can customize solutions to a large extent, and this
in Mexico but four or five handle 80% of the volume. The
can be perfectly seen in our involvement in the logistics
airport of Mexico City needs to be developed as it is already
for Formula 1. In terms of how far we tailor services to our
operating over capacity. As far as ground transportation
customers, it generally depends on the particular needs
is concerned, 80% of it takes place by truck and that is
of the client. Sometimes the client himself does not know
a problem. We do not use trains enough while it is clear
what his real needs are because they can be hidden behind
that rail is the most cost-effective transport when you are
excess inventories, for instance. In this regard, we have a
shipping distances over 450km. We need a lot more multi-
broad portfolio of services we can offer to our clients. When
modal ramps to support this type of transportation too.
you look at large OEM plants, we can provide maintenance,
All of this requires a lot more investment, especially if car
repair, and operations (MRO) support, which means having
production is going to increase by up to 40% over the next
tools and consumables close to the actual production point.
two to three years. Mexico also needs to reduce its logistics
That can be as simple as having a single warehouse with
costs, as although the country is a logistics platform, these
those parts next to or inside the plant, or it can be as complex
costs are still far too high. Logistics here make up 9-13%
as having a number of automated delivery machines on site
of the average cost of the industry, while in a developed
that stock tools and parts for immediate access. How far we
country, this is generally closer to 6-7%. We participate in
go depends on a number of factors including the size of the
a number of forums with government and industry leaders
plant, the expense on materials, and how far the customer
in order to address this.
277
| VIEW FROM THE TOP
ONE-STOP SHOP FOR AUTOMOTIVE LOGISTICS MAURO GONZÁLEZ Managing Director of Kuehne + Nagel Mexico
Q: What role has the automotive industry played in
A: Kuehne + Nagel has a unique operational system that
Kuehne + Nagel’s double digit growth?
is used worldwide for the end-to-end supply chain and
A: More and more OEMs are confirming or planning on
it also has a unique financial system. Kuehne + Nagel
opening manufacturing plants in Mexico. The biggest
does not work with third parties, which is a competitive
growth that Kuehne + Nagel will see for 2014 and 2015 will
advantage. In the local market, only 10-15% of logistics
be from the automotive division. The main concerns involve
companies fully use the benefits of technology; the rest
government reforms and the obscurity surrounding the
are yet to optimize and automatize their processes.
taxes on imports, as these will certainly change the game
Technology increases competitiveness and offers full
on the cash flow side. One of the areas of opportunity
visibility, enabling a company to pre-plan shipments,
that needs to be addressed is the development of human
manage warehousing, and handle customs and urgent
resources. The government’s strategies for developing
shipments. There is still a huge gap in the Mexican
human resources in the automotive industry are very
logistics industry, and technology will be the great leveler.
coherent. But other sectors, like logistics, are seeing a
Logistics is like an iceberg, and most companies focus
widening gap between the government, universities,
on visible aspects like transportation costs and transit
and logistics companies. The lack of specialized human
times. But there are many factors below the surface such
resources has created a high turnover rate within the
as technology, security, liabilities, customer satisfaction,
logistics industry, which is unhealthy. If local talent is not
packaging, and so on. There is much that is yet to be
fully developed, then logistics companies will continue to
explored in Mexico and Kuehne + Nagel is focusing on
bring people from abroad to fill this gap.
technology in order to uncover these areas.
Q: What is Kuehne + Nagel’s strategy to maintain its
Q: What demand are you seeing from the automotive
current client base while looking for new clients?
industry for warehousing in terms of size, location, and
A: We changed our business model in 2014 to focus on
provision?
our existing customers. These customers are expecting
A: The demand depends on the location and the type of
huge growth and we want to be there to support them. We
company, whether it works in production, distribution or
are cherry-picking new customers as we want to create
aftermarket. The biggest demand for warehousing is in the
synergies in our client base. For example, if they are going
Bajio region. There is a rising demand in the north from
to the same destination or have similar structures, we can
nearshoring companies trying to take advantage of the
combine their volumes and reduce their logistics costs.
proximity to the US in towns like Saltillo, Mexicali, Chihuahua,
By analyzing the end-to-end supply chain, we find these
and Monterrey. We have two main logistics models in terms
synergies and create economies of scale. We have a wide
of warehousing. One is called “Share,” which incorporates
range of customers, like Getrag and Volkswagen, while
warehouses for multiple customers in the biggest cities
we are also finalizing an approach with Ford and other
of the country. The “Dedicate” warehouses are built-to-
companies. We have a very strong proposal for over-land
suit and depend on each customer’s requirements. For
shipment in North America. If we are importing something
example, Pirelli has a built-to-suit warehouse inside its
for a company to the Chicago and Michigan area, we want
Guanajuato plant, which was built with our expertise and
to offer the same service to other importing or exporting
design. “Dedicate” can cluster up to three companies in one
companies that are going to the same destinations. This
warehouse, or it can be fully dedicated to one company. The
will help us to close the loop and offer a strong circuit
location of the warehouses depends on the logistics trends
dedicated to the automotive industry.
and the location of the customers. Mexico lacks Class A warehouses but there is no more land available in Mexico
278
Q: How sophisticated is the logistics industry in terms of
City. You have to go further out to build, and the country
technology and process automation in Mexico?
has to invest in these facilities.
Q: How willing are automotive companies to completely
Q: How has Kuehne + Nagel adapted its services to the
outsource their logistics management to companies like
changes taking place in the automotive industry’s global
Kuehne + Nagel?
manufacturing and procurement strategies?
A: This willingness to outsource logistics management
A: Historically, the logistics services for the automotive
depends on which part of the supply chain the focus is
industry were fragmented as the sector was very price-
on. OEMs tend to retain control over their logistics and
driven. There are now new trends that are opening up the
only outsource certain parts, especially since the current
industry, allowing for, more integration and synchronization
tendency for OEMs is integration and the adoption
of the supply chain. For example, we are consolidating
of the 4PL (fourth-party logistics) system. Tier 1 and 2
many services for Hella Automotive, such as international
companies outsource far more in terms of management
forwarding,
as they are more focused on the production side. Kuehne
distribution. We are not only servicing one plant but multiple
+ Nagel specializes in Tier 1 and 2 suppliers but it wants
ones in Mexico. This integration has an additional layer of
to become stronger in its links to OEMs by offering them
complexity because you need the right infrastructure and
integrated solutions.
IT resources. What distinguishes Kuehne + Nagel from its
custom
clearance,
warehousing,
and
competitors is its CIEL system, which offers greater visibility We have strategic discussions with our customers
across the entire supply chain to the customer. This allows us
every six months to discuss their future outlook and
to combine several services like air and sea freight, customs
needs. These discussions tend to include not only the
clearance, reverse logistics, distribution, and warehousing.
logistics and production staff, but also sales, financing,
On top of that we are offering 4PL, which Kuehne + Nagel
and marketing as these teams can come up with ideas
calls Integrated Logistics, where we create different
or solutions that impact logistics. It is important to
logistical models by analyzing distribution networks and
have these discussions given how quickly the scope
end-to-end freight audits. We also present improvement
of the1 automotive industry is changing. Some of these usExpress-Euro.pdf 05/06/14 11:49
projects to our clients as an added value service. This lets
companies are growing so quickly that we need to
us decide on one set of goals per industry, such as zero
develop a network analysis every eight months, since
line shutdowns for the automotive industry. Essentially, all
whatever was presented eight months prior in terms of
of our commodities and products are aligned with the KPIs
national distribution might no longer be applicable to
the customer is looking for; we combine various services
their needs.
into one single solution for our customers.
279
| VEHICLE SPOTLIGHT: FREIGHTLINER CASCADIA Freightliner, a subsidiary of Daimler, shows once again
incorporating the Detroit DD15 engine that reaches 90%
its innovative strength with its flagship model Cascadia.
peak torque in just 1.5 seconds. Cascadia incorporates
It is available in both efficient and high performance
BlueTec SCR emissions technology which provides a fuel
models as well as being sold in three variations: Raised
economy of up to 5%, rock-bottom emissions and also a
Roof, Day Cab, and Mid Roof XT. After an investment of
high performance of 350-600hp.
US$400 million in its development, and over one million man hours of development and testing, it is now being
The rise in operative and fuel costs has given Cascadia an
assembled in Saltillo, Coahuila. It has fast become one
opportunity to innovate and stand out. Cascadia is also
of the most exported units in the country. The Cascadia
available with the new Cummins ISX12 G heavy duty gas
is designed with total cost of ownership in mind,
engine that can operate with either CNG or LNG.
Freightliner has focused on the needs of operators,
hydraulic clutch system with the pedal having been made
aware that it was often going against the grain with the
easier to engage to reduce driver fatigue. Considered
Cascadia. High on the list of customer requests was a
to be the quietest truck on the road, according to
larger cab and Cascadia delivers on this by increasing
Freightliner, its sculpted lines at the back and side reduce
the size of its cabin by 20%. This allows for a larger door
the low frequency vibration of the body. Where panels
opening and bigger seats with more room between them,
on some other trucks may act like speakers, producing
offering more storage space.
a distracting low frequency rumble, this is not the case with Cascadia. By listening to operators, Freightliner has
Furthering improvements to driver comfort, Cascadia
engineered a truck suited to the high demands of the
has significantly reduced the clutch effort through its
consumer market.
LOGISTICS PROVIDER PLAYS IT SMART THROUGH MULTI-TASKING According
Gilles
trying to enter a market through this approach. Although
Cudia, General Manager
recalls have been happening during the last few years
of
GEFCO
to
México,
his
because of some safety problems, we wish they would not
entrance
to
happen again. We cannot prepare our expansion with this
the market might have
kind of operation exclusively, we need to focus on regular
seemed late, but it arrived
logistics too.”
company’s
at the right time to claim
Gilles Cudia, General Manager of GEFCO México
an important share of the
According to GEFCO’s general manager, the proximity to
logistics market. “Before
the US is one of the most attractive features of Mexico. He
we came here, we carried
sees this country as allowing GEFCO to demonstrate its full
out market studies and
capabilities in the region before fully entering the US market.
concluded that it was safe for us to enter Mexico. The
“Given that the vast majority of all cars made here go to the
logistics of the automotive industry are very complex and
US, there are a lot of parts that are crossing the border,”
more global than any other industry, so being in Mexico
explains Cudia. “It is far more interesting for GEFCO to focus
has opened many opportunities for us,” assures Cudia.
on international flows for now, as this area will continue to
GEFCO has a presence in 37 countries and offers five main
outstrip the domestic market. Even as production increases
activities: inland transport, overseas transport, customs,
here, it will be impossible for the domestic market to absorb
finished vehicle logistics (FVL), and warehousing. GEFCO
the extra 1 million cars that will be made here per year.”
estimates that it will be carrying out the whole of its
The key for the success of the company is its customers
operations by the beginning of 2015, just two years after
in other parts of the world that support GEFCO because
starting its Mexican activities in May 2013.
they know how the company works. “We are like a start-up here because we are still small and not well-known in the
GEFCO provides added value through customization, post-
country. We are becoming more visible one step at a time.
production operations, and pre-delivery inspections that
It is important for us to have customers from other parts of
are done to ensure that there are no problems with the
the world, even when companies here do not know who we
cars. “When a country is as big as Mexico, logistics must
are, because our reputation changes once they realize the
be thoroughly organized before they are implemented. We
kinds of customers we have. That already speaks well of us
have done this through a range of studies to help us look for
and our services.” At the moment, OEMs are the main target
an angle to enter the market. Many competitors are already
for GEFCO, but the French company is aware that suppliers
here, such as those from Europe, North American firms and
also provide an attractive opportunity.
big Mexican players. It does not matter what we do in Europe,
282
this is the place where we have to prove what we can do,”
Logistics are becoming increasingly globalized, which is a
explains Cudia. GEFCO has a special card to play in Mexico:
challenge because it implies different types of operations.
its expertise managing automotive recalls. During one of
In just one operation there can be inland and maritime
the largest recalls for GM vehicles in Europe, GEFCO was
transportation, warehousing, and customs. Cudia claims
in charge of logistics for the entire operation. In the last ten
GEFCO’s expertise in bridging all of these processes is what
years, OEMs have faced a spate of recalls, which can benefit
sets the company apart from its competitors. “We have a
GEFCO’s positioning in Mexico. Although they might be seen
solid engineering team for long-term operations, and our
as a problem that damages the image of an OEM, Cudia sees
partners also subcontract our engineers. This differentiates
this as a way of preventing accidents. By taking care of their
us in the automotive industry. We organize everything with
customers, the companies improve their image. Apart from
our suppliers and partners, resulting in a mix of services
that, these recalls are a significant challenge for the logistic
that we can provide for different activities,” states Cudia.
companies. “A recall is a reverse logistics process. It is more
Right now, GEFCO’s strategy is to keep growing and finding
complicated than just sending a truck to the dealership to
customers. As a small company, everyone in GEFCO has to
load the cars and bring them back. One would think that if
take on several responsibilities, which helps to keep costs
we can go from A to B, we can go from B to A as easily. This
low. The company does not have its own trucks and it does
is definitely not the case, as it is much more complicated,”
not want to invest in warehousing. “We have to follow our
says Cudia. In Europe, GEFCO regularly conducts this reverse
strategy and start growing step-by-step. The market is
logistics process for cars that have problems. Nevertheless,
mature and there are many companies that have been well-
Cudia is certain that GEFCO’s expertise in reverse logistics
established for years. We have to prove ourselves in this
cannot be its area of strength to enter a market. “We are not
market and then expand,” states Cudia.
| VIEW FROM THE TOP
ADOPTING THE “MADE IN MEXICO” APPROACH TO LOGISTICS PIOTR ZALESKI Chief Operating Officer of Hellmann Mexico
Q: How is Hellmann positioning itself to take advantage
the short term but it will gain momentum over the next five
of increasing investment in the Mexican automotive
to six years. My personal perception is that there will be a
industry?
drop in volume of automotive parts coming from China. At
A: We have a dedicated automotive team of 45 people
the same time, there will be an increase of raw materials
spread across our seven branches that take care of our
coming from other parts of Asia, and the European market
automotive clients and their needs. Our client base consists
will remain stable.
mostly of suppliers like Grupo Bocar, Johnson Controls, Federal Mogul, Continental Automotive, Mann+Hummel,
Q: Potential logistics bottlenecks are a real concern for
Benteler, and ThyssenKrupp. We develop relationships
the automotive industry. How are you helping your clients
with our clients locally but we apply our expertise globally.
through this dilemma?
The reason we focus on Tier 1 and 2 companies is that the
A: The lack of infrastructure is a great problem for our
profit margins are much higher than with OEMs. We still
customers. From the early stages, we work with our
work with Nissan and MAN Truck & Bus in Queretaro, but
customers on the strategic decisions that determine
these are smaller operations.
the location of their plants. Mexico’s infrastructure is underdeveloped, and it will take at least 15-20 years to reach
Q: How do you distinguish yourself from other international
the level where Europe and the US are today. We prepare
logistics conglomerates in the Mexican market?
our customers by making them aware of the situation.
A: The main difference between Hellmann and other
We bring all of our automotive clients together every two
freight forwarding companies is that we are a family-
years in workshops where they can exchange ideas and
owned company with a local philosophy. We entered
best practices. During these workshops, we present them
Mexico in 2001 through a joint venture with a customs
with the current status of Mexican infrastructure and our
broker and have developed our expertise in the Mexican
predictions on the development of the industry within the
market over 13 years. We have discovered that when you
country from an international perspective. This campaign
operate in a region like Latin America, business must
has been fruitful; it has led to our clients adopting various
be very personalized. To maintain that personalized
development strategies after frank and open discussions.
approach, human resources are crucial. The best company with the best procedures in place is bound to fail if it does
Q: Automotive clusters are trying to simplify customs
not have the right human resources; therefore Hellmann
procedures by installing FTZs, or having US customs
makes sure to maintain a low turnover rate. We also keep
processes done inside the parks. To what extent is this
the numbers of international staff very low, whereas other
strategy plausible?
companies bring international people into key positions.
A: The Bajio region has more potential for customs, as
For 2014, in collaboration with our global HR team, we are
the customs office and the state governments are more
implementing a new program that will enable our workers
flexible there. The governments are actively trying to
to go abroad to our branches in the US, Germany, and Hong
attract companies and make the location more attractive
Kong. We offer our workers the right motivations in the
for investment. This simplified process can only be possible
middle and long-term; this has led Hellmann’s operations
if the reforms are successful and give the forwarder more
in the Americas to have the lowest turnover rate.
rights and flexibility in the customs procedures. The only inflexible part of the Mexican supply chain is the
Q: To what extent is Hellmann focusing more on the
customs process. For Mexico to be more competitive,
Mexican market rather than on international freight?
it needs to work on its infrastructure and optimize the
A: We are certainly identifying a shift in the automotive
customs processes. The procedure is currently the same
industry’s manufacturing strategies as factories begin to
for transportation by sea or by air. Every permit requires a
move from Asia to Mexico. This will not be noticeable in
customs broker.
283
INTEGRATED SOLUTIONS OFFERED AROUND THE GLOBE The investment boom in the automotive industry has thrown
chain “does not happen often,” according to Minke, but is
a gauntlet down at the feet of logistics service providers.
gaining momentum in Mexico and other Latin American
They are now scrambling to find a way to provide integrated
countries. Even with typical bill of lading (BL) tracking,
solutions as the needs of the automotive sector vary, says
ULS’ software includes the list of suppliers and the
Sjef Minke, Director General of United Logistics Services
value of the merchandise in its reports to the customer.
(ULS). ULS analyses the client’s entire supply chain from
“Knowing when containers arrive has no added value, but
its suppliers and transportations modes to warehouses,
knowing when the inventory is in transit does. This means
and then combines these to deliver an integrated solution.
the client can keep track of how much inventory and
“For example, if an automotive client uses sea and trucking,
money is in transit while monitoring the performance of
ULS seeks to consolidate these areas in order to improve
their suppliers,” explains Minke. The global nature of the
lead times, costs, and even safety.” Through customized
automotive industry and its constant movement of cargo
integrated logistics solutions, Minke estimates up to 37% of
means that ULS’ system runs 24/7 and is continuously
supply chain costs can be saved for automotive companies.
updated by offices in Mexico and around the world
“The logistics industry is predicted to grow between 2-3% in Mexico for 2014. This means that maintaining a balance between an international and local vision is capital” Sjef Minke, Director General of United Logistics Services (ULS)
Being fully immersed in the nuances of the automotive
through a single communications platform, that does not
supply chain requires a proactive approach to software.
require manual input but sends the updates automatically
ULS’ system tracks bookings and cargo readiness dates,
to the clients.
which allows it to show clients a run-through list of suppliers, stating whether these are complying with
Pushing for integrated solutions has allowed ULS to gain
schedules, if their lead times are reliable and how they
deep insights into the workings of the automotive supply
are affecting inventory. This close scrutiny of the supply
chain. “The growth pattern of the automotive industry
SOFTWARE SOLUTIONS SUPPORT SUPPLY CHAIN MANAGEMENT Technology and logistics are never distant from one
trucks. Erik Markeset, Tsol’s CEO, says that the system he
another, and logistics and technology consulting provider
implemented accounts for all the variables and calculates
Tsol aims to bring them closer yet with a range of solutions
the lowest cost for TMM’s system requirements. After this,
to make supply chain management flow more smoothly.
the system’s execution mechanism directly messages the
The company’s tools include a warehouse management
right rail or trucking company, informing it of the order to
system (WMS), transportation management system (TMS),
move vehicles. It then tracks the order, delivering updates
fleet management system (FMS), and supply chain design
to the customer so the process can later be scrutinized
software (SLD).
and further optimized. Finally, Tsol can handle the settlement process when the carrier sends the invoice. In
284
One of its early successes, when it was known as CP
the US, an electronic EDI 210 invoice is sent, which enters
Consulting, was to offer a system that integrated the
the system for validation when the payment is authorized.
railway transportation and trucking services of Grupo
Tsol is currently working on an Oracle TMS for Mexico,
TMM, one of Mexico’s logistical leaders. TMM’s desire
looking into how the mandatory Mexican electronic
was to match the amount of finished vehicles to be
invoices could be received by that system and processed
transported with the optimal number of train, cars, and
for the benefit of automotive companies.
in Mexico has been erratic, compared to the worldwide
a strategy, but a must. ULS’s 24/7 system operating in
market that moves slowly.” Minke attributes the rise in
14 languages requires a highly developed communication
the demand for Mexican manufacturing to a decrease
network between branches. This means having “someone
in European manufacturing activity due to “a stagnant
who speaks Mandarin here is advantageous as he is
market and rising labour prices.” ULS sees companies
able to liaise between a buyer in China and a seller in
transferring operations to Mexico focus on two areas:
Mexico,” says Minke. This global approach emanates
moving machinery and finding the right operators.
from ULS’ determination to go “beyond being a typical
“ULS’ integrated system gives it an advantage in helping
forwarder.” Minke explains that “our whole scheme of
companies establish here by being involved in the early
solutions is not limited to Mexico. For example, our cargo
stages of such a move,” says Minke. “We run a complete
insurance is contracted in Hong Kong but provides global
door-to-door operation from packaging and insurance
coverage. This means ULS does not need to comply with
to follow-ups on maintenance. The service can go even
the additional constraints applied on Mexican insurance
further. For example, a Mexican client was sourcing raw
such as agreeing to travel only on toll roads with an
materials from Italy as this material was not available in
armed escort. A general worldwide policy allows ULS’
Mexico. ULS was able to find a supplier in China with the
deductibles to be far smaller.”
same certifications, which ultimately reduced logistical costs,” he adds. While such an integration process could
“Transnational companies that establish themselves in
appeal to companies of all sizes, ULS targets medium-
Mexico feel more at ease doing business with a company
sized companies for whom it believes it can add real value.
that has a global outlook,” adds Minke. However, maintaining an international perspective overall can
Maintaining a proactive and integrated service also
be detrimental when turning to the local applications
demands specialised human capital. According to Minke,
of logistics. Cultural friction and language barriers can
“there is a lack of experienced people in the logistics
be created when trying to interact with other types
industry in Mexico, which also suffers from a high
of workforce. For Minke, “establishing a business plan
turnover rate.” When ULS began operations in Mexico, it
requires a vision for the future, but at the end of the day,
hired highly trained people believed to be able to handle
you must focus on the daily demands of a business such
all its services. The company was soon disillusioned
as incorporating a local workforce into your culture.” This
as these experienced people often clashed with the
is all the more necessary in Mexico, which ULS sees as a
companys established business model. As such, it applied
crucial emerging market. According to Minke, “the logistics
a different HR strategy: hiring experienced staff for key
industry is predicted to grow between 2-3% in Mexico for
positions but training the rest up from scratch, so as to
2014. This means that maintaining a balance between an
be able to teach the company’s corporate culture and
international and local vision is capital, especially when
offer them career opportunities. At the same time, having
offering integrated solutions for the local supply chain and
an international staff has become “not a philosophy, or
then branching out to the globalized automotive industry.”
Markeset’s professional background in the US has helped
called Oracle Transportation Management (OTM) for
Tsol adopt a business model where it seeks international
finished vehicles. Other automotive companies like Subaru
solutions that could help the Mexican market. For example,
and Volvo use it worldwide,” explains Markeset.
the company has automotive clients in the US, although not yet in Mexico. It has been working to install its TMS
Tsol is now looking to make inroads into the Mexican
for Toyota, collaborating with Oracle to implement this
automotive sector, currently seeking clients it believes it
software for finished vehicles. The software is used to track
could assist on a number of fronts. “We can support clients
vehicles imported from Japan and will relay messages
by identifying what technology they might need on the
indicating the number of vehicles sent on certain ships
logistics side and provide this to them. We are also strong
to American ports. Toyota can thereby track the types
on network design, which helps to define where to locate
and quantities of vehicles that are coming in and plan
plants and distribution centers, considering the sources of
accordingly. Trucks will pick up the vehicles at the ports
inbound material, destination of products, service levels, and
and transport them to a railhead from where they will be
needed inventories,” states Markeset. High Jump Software,
distributed to Mexico, Canada, and the US. Mexico forms
which Tsol sells and operates, is already used by Toyota
part of this picture as Toyota produces trucks just south
for an auto parts warehouse in the Czech Republic and by
of the border. Most of its trucks are outbound to the US
Mitsubishi for a manufacturing plant in Brazil. The software
but the system loses those that stay in Mexico once they
helps automotive companies to manage inbound and
are picked up by the Mexican trucking company. “This is
outbound transportation, as well as warehouse operations,
a good example of how an OEM uses a specific product
such as receiving, storing, packing, and shipping material.
285
LOGISTICS SERVICE PROVIDERS IN DEMAND Although logistics are often seen as a cold succession of
company. As a result, we have been able to reduce the
processes, human capital, strong values, good interpersonal
turnover in the company.”
skills are often the key to success for a logistics provider. With 75 years of experience, German company Schnellecke
Few companies outsource their logistics in Mexico, but
decided to shift from being a transportation company
a growing interest in doing do so is becoming evident,
to becoming a logistics solutions provider. In Mexico, it
according to Vossler. He says the most underestimated
first entered the market as a joint venture with a Mexican
problem with outsourcing logistics solutions is that many
company, known as Seglo. However, Schnellecke has owned
companies do not understand how this process really takes
100% of Seglo since April 2010, but decided to keep the
place. “Many customers do not realize that they have to
brand name. The main reason behind this decision is the
establish their expectations and be able to translate these into
presence that the brand already has in the market, although
KPIs. There cannot be an improvement in the process if there
cultural matters also played a significant role. “Schnellecke
are no standards to be measured against, and that is what
is a very German word that might be complicated to
Seglo emphasizes when talking to its possible customers.”
pronounce and remember in the Americas, so we have no
Another problem with outsourcing is that companies might
plans to change the name of our Mexican branch,” explains
not want to give control over part of their operations to a
Volker Vossler, Vice President of Operations of Seglo.
third party. “The company needs to understand that it will
“There cannot be an improvement in the process if there are no standards to be measured against, and that is what Seglo emphasizes when talking to its possible customers” Volker Vossler, Vice President of Operations of Seglo
The company has expanded to 11 business units in the
give away certain responsibilities, but that we engage with
country, and logistic solutions for the automotive industry
them while doing so. We familiarize ourselves with our
make up 85% of its operation in Mexico. The company caters
customers in order to learn how to handle the business and
to OEMs like Ford, GM, Chrysler, Fiat, and Volkswagen, as well
culture of each company,” says Vossler. “The key for having
as to Tier 1 suppliers like TI Automotive. “In the future, this
a good relationship with the customers is for both parties
line of business will become more important because Tier 1
to respect the principles and values of each other.” Once a
companies will grow and need to improve their processes
good relationship is established, customers can see the real
and plants,” explains Vossler. In Europe, Tier 1 companies are
benefits Seglo can offer. “We are experts in logistics; we
already an important business for Schnellecke.
offer everything from IT, to process systems and personnel management. We can eliminate problems and interruptions
Vossler says there are notable discrepancies in Mexico’s
in the supply chain, reduce costs, and even change fixed
education system, with knowledge and skills varying greatly
costs into variable ones,” explains Vossler.
among people graduating from different universities. For
286
this reason the company has stressed constant training of
Seglo already participates in the consumer goods industry
its staff. Vossler is aware that offering career and personal
with P&G and Danone but is looking to expand into
development might sometimes be more attractive for people
other sectors, with automotive being a particular focus.
than money. “We focus on retaining our people. The salary
As more industries are looking at entering or increasing
has to be fair, but you also have to give recognition for
their investment in Mexico, Seglo has prepared itself for a
the job a person does and consider growth opportunities.
new and more diverse customer base. “Everybody knows
Sometimes in Mexico, a worker can be receiving good
that Mexico is a logistics platform with great geographic
remuneration, working conditions, and benefits, but if the
conditions and HR. It would be better for new companies
working environment is not healthy, they may quit. We have
to focus on their business and not try to fully tackle the
a system in which people are recognized before the entire
logistics areas in Mexico, which can be complicated. We
department in which they work. At first I was very skeptical
have adapted some of our German values and programs
about that system, but it works and it has improved the
to Mexico and have taken the best out of both cultures to
personnel’s satisfaction levels and the productivity in the
serve the market,” says Vossler.
TECHNOLOGY BROADENS HORIZONS FOR E-LOGISTICS “In the past, logistics would normally take a backseat to
inventory costs and making the most out of warehousing
innovation, especially at a time when a global approach
space through improved inventory control. “Dachser views
to logistics was not commonplace,” says Christian Speit,
e-logistics as the future,” says Speit. The challenge of
Country Manager for Dachser de México. “But the wave of
applying e-logistics to automotive companies in Mexico is
globalization has created a need within logistics companies
the lack of compatibility between various software programs,
to be flexible all around the globe.” This has proven to be
or in some instances, the lack of specific software being
particularly true as automotive companies branched out,
implemented in companies’ operations. However, according
leading to logistics becoming more sophisticated in emerging
to Speit, more and more companies are running on software
markets. Globalization represents a particular challenge for
such as SAP so it has become easier to exchange information
Dachser as its automotive solutions have become a vertical
via Electronic Data Interchange (EDI). “Companies have to
commercial product, rolled out on a worldwide basis, with
make a real commitment if they truly want to use e-logistics.
Mexico taking pride of place as its “commercial lead in the
I have often seen companies express their appreciation
Americas for the automotive business.” The expansion
for the track-and-trace system but they do not actually
to emerging markets also began to see manufacturing
implement it.” One unfortunate side effect of e-logistics is
and procurement strategies evolve within the automotive
the removal of personal interaction which, according to
industry. “A new model came into being, preferring flexibility,
Speit, is something most successful logistics businesses
lean management and quick decision-making, to which
depend on. To address this and maintain a balance between
logistics also had to adapt,” says Speit, adding that this is
technology and personalised service, Dachser has invested in
how Dachser seeks to position itself in the market.
a dedicated Order Management System (OMS) team that is able to operate the systems and invest in “human capital that
As a family-owned company, Dachser’s goals have differed
can help Dachser develop its product and approach potential
somewhat from public companies in their approach to
clients in a personalised way.”
adapting to the industry’s new needs. For Speit, Dachser is not “seeking to be one of the largest companies in
Despite such challenges, e-logistics has not only improved
the market. It wants to be a true alternative to clients by
the efficiency of automotive companies but has also opened
providing them with tailor-made solutions.” Dachser has
up new areas of opportunity. The growth of automotive
identified an area of opportunity in the links between Tier
entities in the Bajio region, especially in Guanajuato and
1 and 2 suppliers. According to Speit, logistics remain a
Queretaro, has created a niche market of “many companies
challenge in Mexico “due to a deficit of infrastructure and
that export smaller quantities of goods to Central America,”
a comparatively high level of bureaucracy.” Interestingly,
comments Speit. Speit says its one-stop shop approach
these barriers have allowed logistics companies to take
allows Dachser to help customers in a range of services
advantage of the growing need of automotive companies to
from “sending one truckload to Tennessee to shipping many
entrust all “their logistics to one source” to circumvent these
containers from Malaysia to Mexico.” As logistics companies
barriers. Dachser found that its one-stop shop approach
such as Dachser progressively expand their services, it hopes
demanded an integration of services only achievable
automotive companies will outsource their management
through technology. Therefore, the company designed an
tasks, allowing logistics to play a larger role in not only
in-house IT system to align all operations. “Dachser’s new
managing the supply chains but in their design and planning.
focus on e-logistics allows for more visibility throughout
This offers Dachser the possibility to offer yet another of its
the logistical process and provides the chance to be more
key services: contract logistics. Dachser occupies first place
productive,” adds Speit. It has also prompted a faster
in Germany and ranks third in Europe for contract logistics,
adaptation to trends in the automotive industry such as the
but for Speit this service “would be challenging to apply to
rise of intermodal transportation. “E-logistics has become
the Mexican market because it requires specific investment
a key component for intermodal solutions, since it tackles
and knowledge.” Although the transfer of knowledge would
the new logistical challenges of combining different modes
be challenging, Dachser’s future strategy is to amalgamate
of transportation.” E-logistics allows for a better tracking of
this new service to its existing portfolio in the Mexican market.
purchase orders, parts and pieces which is paramount for the automotive industry, given the staggering number of
Although problems remain, Speit sees logistics as having
pieces in transit at any given time. Dachser’s advanced IT
become easier in Mexico over the last 15 years. He firmly
systems allow its clients to track and trace their products in
believes the rise of e-logistics is not only inevitable, but
real-time through GPS. The advantage of intelligent logistics
desirable, as it provides companies like Dachser with the tools
is that they can help the client’s balance sheet by reducing
to help Mexico build a more efficient automotive industry.
287
SUSTAINABLE SUPPLY CHAINS KEY TO AUTOMOTIVE LOGISTICS Over 21 years in the industry, Saúl Romero Blake, Director
options ranging from rail, trucking, air and sea freight, and
General of logistics consultancy Seeds Linking Group, has
even the characteristics of each product. This latter point is
seen a complete change in the way multinational automotive
particularly important. “For example, customs will be familiar
companies approach the establishment of operations in
with simple products like aluminum rims. But if customs has
Mexico. He has seen them “transition from being somewhat
to deal with a complex product, then plans have to made
indifferent about logistics to identifying a real need to
about how taxes will be paid and how customs and borders
have their supply chains firmly in place upon their arrival
will be cleared,” Romero Blake explains. With existing supply
to Mexican shores.” Long before the first brick is laid for an
chains, the logic is simpler. “Only two steps can be taken: cost
automotive plant, companies undergo an extensive process
reduction and efficiency improvement. One way in which
evaluating Mexico’s potential as an investment destination.
Seeds Linking Group helps reduce costs in existing chains
“One of the most important deciding factors in that
is through a close SWOT analysis of production processes,”
process is the sophistication of the country’s supply chain
says Romero Blake. “A further important consideration is the
and logistics,” says Romero Blake. “Automotive companies
presence of third manufacturing countries in existing supply
are renewing efforts to optimize supply chains by paying
chains. This could see a company with a plant in Mexico
attention to certain aspects, such as the need to pay import
sourcing parts from Asia, first send those parts to Central
duties, access to free trade zones, and how to find the most
America to be partly processed before being dispatched
convenient gateways into Mexico, from entering via the port
to Mexico.” Romero Blake explains that this additional step
of Veracruz to rolling goods across the border from Texas.”
might seem like it adds a layer to the supply chain but
The role of logistics has evolved and companies like Seeds
actually can result in overall savings.
Linking Group specialize in analysing the processes in order to offer the best cost reduction options to their customers.
Improving the efficiency of a supply chain can be achieved
For supply chains that have to be built from scratch, Seeds
in a number of ways. Seeds Linking Group specializes in the
Linking Group factors in potential locations, transportation
adoption of sustainable practices, and one manner in which
STREAMLINED BUSINESS MODEL SPURS GROWTH IN LOGISTICS The business model of Senator International (Senator)
has set up a monthly review of its operations to keep track
has been streamlined to facilitate quick decision-making,
of performance and detect areas of opportunity.
a factor that weighs down numerous other logistics
288
companies, according to Luis Gómez, General Manager of
Senator has identified the growing importance of reverse
Senator Logistics. This focus on efficiency has been made
logistics as a core capability for companies in sustainably
clear in Senator’s warehouse management. Answering to
managing their operations. For example, it provides this
the automotive industry’s insistence for on-time delivery,
service for customers that need to send machinery or parts
the company has strategically placed a warehouse in Mexico
to Europe for repair. Most of the cargo involved in reverse
City’s airport. “Although the warehouse might seem small
logistics is sensitive machinery and must be sent using
compared to competitors, high efficiency is maintained
isolated packaging. For efficiency purposes Senator contacts
and a wide range of services is offered in order to comply
other packaging companies for support in creating special
with airline and carrier regulations,” explains Gómez. He
crates. Gómez illustrates that if the sensitive parts are sent
attributes this efficiency to a series of strategic partnerships
to Germany, thanks to an extensive network, a specialized
that help Senator to operate numerous segments including
Senator team is present in Germany and can deal with this
pick and pack, switch or break down pallets, and providing
type of packaging. Senator is looking to replicate the success
dunnage for sensitive and unstackable cargo. To further this
of its EU network here in Mexico. Although the automotive
streamlined model, the company decided to implement the
industry is building up its presence in the Bajio region, Gómez
Cargo-wise and Global Solutions software for its sales and
explains that constant communication with clients does not
marketing operations. “This new system enables a fluent
always require a company to move. “Although other logistics
communication between branches and partners operating
operators have been pressured to move entire operations
within the automotive industry,” comments Gómez. Senator
to the Bajio, Senator has not seen this need as Mexico City’s
it advises its clients to enhance sustainability is through the
are sometimes reluctant to engage in sustainability actions
optimization of the reverse supply chain. For example, Romero
due to a “culture of complacency and unwillingness to
Blake explains that packaging made for the automotive
change logistics practices.” Thankfully, the globalized nature
industry is made in the US with Mexican cardboard. This
of the automotive industry means that many OEMs and top
means that Mexican cardboard travels to the US to make the
suppliers have green policies that can be applied to their
packaging and is then imported back into the country along
Mexican supply chains. He calls upon the heads of Mexican
with the auto parts. To convert this into a green process, the
operations to open a dialogue with their international
companies can recycle packaging or even send it back to
headquarters on how to best apply these policies here.
the country of origin. Romero Blake says that “dealing with
Seeds Linking Group has netted its clients in Mexico up to
packaging might seem inconsequential but it represents a
US$2 million in savings by greening up their supply chains,
lot of waste, given the volumes of packaging involved in the
affirms Romero Blake. “Seeds Linking Group met this level
automotive industry.” Seeds Linking Group shows companies
of success in the automotive industry during a project with
that simple steps like recycling of packaging can save money
11 Tier 1 companies in the Nuevo Leon automotive cluster,
and optimize the production processes. Another strategy
and we are now looking to replicate this success with the
that can help to green up the supply chain is switching
San Luis Potosi cluster.”
modes of transportation. Some companies transfer a lot of freight by truck, which is less environmentally friendly and
Seeds Linking Group has acted as a consultant for ports,
energy efficient than rail. By charting the precise distances
inland ports, and intermodal terminals to enable them to
goods have to travel on each leg of their journey along the
better align their operations with the needs of the market.
supply chain, companies can figure out if they can use rail
“In the past, companies did not prioritise logistics when
instead. Journeys of less than 804km along the railway line
settling into a country or a new market, but it is now
are seen as short-haul journeys and cannot be integrated into
essential,” Romero Blake comments, returning to his original
the railway network in a cost effective manner, but Romero
point. “By ensuring that the clusters, the ports, the railway
Blake explains that a company can apply for rail use if the
networks, and all other logistics requirements are firmly in
distance to be covered is over 804km. Seeds Linking Group
place before automotive companies come to Mexico, the
uses this as part of its calculations about which companies
country will be able to add logistical efficiency to its cheap
should use rail or trucking. Automotive companies pose a
labor costs. Without logistics, there would be no expansion
particular challenge, however, as Romero Blake says they
in the automotive industry,” Romero Blake concludes.
“Although other logistics operators have been pressured to move entire operations to the Bajio, Senator has not seen this need as Mexico City’s airport is a hub for all airlines and offers many options” Luis Gómez, General Manager of Senator Logistics
airport is a hub for all airlines and offers many options.
Notwithstanding
However, with the expected boom in the automotive industry,
progressing in another of its roles: attracting investment
we will set up part of our operations in Puebla,” Gómez
to Mexico. Frequent concerns among potential investors
explains. Despite being the hub that Gómez describes, the
are the quality of Mexican infrastructure and the crowded
saturation of Benito Juarez Airport has prompted a need
nature of Mexico City. To solve these, Senator points
for greater air connectivity in the country and speculations
at the potential offered by alternative regions that
have begun about the possible building of a second airport
are less crowded, and proposes industrial parks that
in the municipality of Texcoco. Senator sees this possibility as
match companies’ infrastructure requirements. When
having a positive impact on its operations and the company
advising companies on where to establish operations
would consider a future investment in the new airport. “This
in Mexico, Senator recommends the Bajio region as it
forward thinking approach has allowed Senator to navigate
is advantageously located, with access to railway and
the waves of reform that Mexico is undergoing. The reform
intermodal
generating a growing concern within the logistics and
services aim to meet one of Senator’s goals: moving
automotive industries is the introduction of a new VAT on
beyond the forwarding of freight to become one of the
IMMEX imports which will have an impact of around US$30
points of reference that companies turn to when entering
billion on these two sectors,” Gómez estimates.
the Mexican market, in the automotive sector and beyond.
these
concerns,
transportation.
All
Senator
these
extra
continues
advisory
289
LOGISTICS PROVIDER NEEDS SUPPLY CHAIN VISIBILITY Like butter scraped over too much bread, large shipment
Mexico, servicing over 30,000 zip codes, so connectivity is
and logistics companies face the danger of spreading their
a crucial element in maintaining its network. “We have more
operations to such an extent that they lose focus of their
than 390 access points in Mexico where our clients can ship
main core business. Daniel Miranda, Automotive Marketing
their cargo, in addition to having a presence in every airport,”
Segment Manager of UPS Mexico, stresses the importance
Miranda comments. These service centers are oriented to the
of overlapping a global logistics strategy with a local one to
automotive clusters spread across Mexico.
prevent this loss of focus. Considering the worldwide reach of the automotive industry and the fact that most decisions
In 2013, UPS launched a new product, Preferred Less-
take place in overseas headquarters, close ties with local
Than-Container-Load (PLCL), an expedited ocean freight
branches is essential. As a carrier and forwarder, UPS further
service between Asia and three Mexican cities: Monterrey,
maintains its unified front through its software system.
Mexico City, and Guadalajara. This service was initially
“Our systems are the same around the world. The tracking
launched in Japan in 2010 and in just two years, demand
number assigned in China for a Less-Than-Container-Load
led to the expansion into the US from 27 Asian ports and
(LCL) shipment remains the same when it arrives to the US
seven Western European ports to the US, Canada, and
or Mexico,” Miranda explains. “All our network and operation
now Mexico. “In this service, if a PLCL arrives from China,
hubs are connected, creating a seamless process for the
instead of taking it directly to a Mexican port, it goes to
customer.”
Long Beach, California. From there, it makes an inbound
“We have more than 390 access points in Mexico where our clients can ship their cargo, in addition to having a presence in every airport” Daniel Miranda, Automotive Marketing Segment Manager of UPS Mexico
290
UPS’ ability to strike a chord on a local and global scale
movement to Laredo and then to the three cities in
makes it possible for the company to identify the most
Mexico,” Miranda explains. This service was created to meet
important logistics needs of the industry. In response to the
customer demands resulting mostly from the growth of US
close commercial ties Mexico has with the US, the company
nearshoring, as Mexico is quickly becoming the preferred
designed a new product called Cross Border Connect (CBC).
nearshoring location for US based companies looking to
This service integrates UPS’s brokerage capabilities to
manufacture goods for NAFTA. In order for PLCL to work,
reduce customs delays associated with border regulations
it uses the UPS CBC service, which integrates include
and lengthy paperwork. This means there is a faster transit of
speed, pricing, enhanced visibility, and reliability. UPS’
cargo that allows companies to have reliable networks and be
PLCL can potentially cut a typical three-week LCL ocean
better positioned within the supply chain. Having identified
transit time by up to 20% and offers cost savings of up to
issues at the border surrounding clearance processes and
60% versus standard UPS air freight. What distinguishes
the resulting bottlenecks, this solution eases the crossing
PLCL from any other ocean shipment is the level of
of goods. Miranda shares a success story with Chrysler’s
visibility it offers to customers. The integrated software
aftermarket brand Mopar. The company was experiencing
ensures that companies can anticipate and control their
issues with visibility, customs delay, and lack of control
inbound supply chain operations. This service is useful if
because the packages were small in volume. “In response,
the component is crucial for a just-in-time procurement
we developed a solution where we automated the outbound
mode that needs to arrive as quickly as possible to the
processes and this offered visibility,” Miranda explains.
warehouse. Miranda describes a success story where one
“These tools not only gave access to the shipper, but also
of UPS’ clients was shipping transmissions to the US using
the distributor, buyer, and end customer,” he adds. Miranda
charters: “UPS suggested carrying out the clearance at the
points out that the key aspect of visibility is the availability
airport, which is 30 minutes away from their site, and take
of information in the same platform. “In the logistics industry,
it to the customers’ warehouses in the US. While it would
other companies use different platforms for different
take longer, it cost 30% of what the company used to pay.”
applications, whereas we integrated all of our services into
This supplier used this service for urgent shipments and
the same system.” UPS’ fleet covers 35,000km per day in
now uses it as the normal mode of transportation.
| VIEW FROM THE TOP
PRIVATE FREIGHT TERMINAL IN MEXICO BUCKS INDUSTRY TREND JOSÉ LUIS MUÑOZ President of Terminal Intermodal de Queretaro
Q: What differentiates Terminal Intermodal de Queretaro
from the automotive industry. As exports grow, we are
from other intermodal terminals in Mexico?
improving our operations to cater to this expansion. We are
A: Terminal Intermodal de Queretaro was the first private
expanding our courtyards and storage space to cope with
terminal in Mexico. That has given us a breadth of operation
the increased levels of freight coming through.
that many terminals do not have. It is likely that we have the most advanced technology, allowing us to provide
Q: What do you view as the major problems facing
continuous tracking of the customer’s goods from beginning
logistics in Mexico?
to end. However, having the most comprehensive equipment
A: The main logistical problem is interconnection. Our
and technology is enhanced by our accompanying expertise.
terminal can receive goods from all ports, but cannot export
Even though the initial study showed the state was not
to all ports. For example, we can receive a shipment from
perceived as offering a lot of business opportunities, I bought
the port of Manzanillo from Ferromex, but products cannot
five acres of land and built a customs area. This was in 1993,
be sent back as Kansas City Southern de México (KCSM) will
just before the financial crisis hit. Our debt went up but we
not take them. The use of intermodal solutions is essential
were able to overcome this adversity, in large part thanks to
for the development of logistics but the railroad network in
NAFTA. After this, I presented my plan for the terminal to the
Mexico is a real problem. Some companies, unaware of the
Treasury, which gave me permission to go ahead and develop
potential of Queretaro, have actually used highways to take
it in Queretaro. Soon after, GM became my first client.
their products to other states that have a direct rail link to the US. We keep spreading information about what our terminal
Q: What are your growth perspectives in a crowded
can offer customers, and we continue to attract customers
Mexican market?
who see that it makes sense to work with us. Intermodal will
A: NAFTA affected my business in a very positive manner.
become particularly relevant as more terminals continue
Today, along with Mexico in general, our terminal is growing
to invest and expand. The terminal at Pantaco is investing
and expanding to different sectors and different markets.
money to service all the country’s rail operators. The one
90% of the exports going through the terminal are bound
at Toluca belongs to KCSM. San Luis Potosi has authorized
for Asia, especially China. For auto parts and full vehicles,
the construction of three terminals but those operations
fortunes have been mixed. We currently move a lot of parts
will be expensive. That leaves Queretaro where the railroad
for TREMEC, but outside that, few auto parts pass through
itself does not need improvement. Currently, a freight train
the terminal. A few years ago, we also handled vehicles for
passes our terminal every five hours or so. This rate could
Honda and Land Rover, but these have since moved on to
be increased to a train every fifteen minutes. However, I see
other states. We depend heavily on railroad companies
this increase coming very slowly over a long period of time.
so if we do not strike an agreement with them, it will not matter if business booms in my area. As it stands, we do not
Q: What does the future hold for Terminal Intermodal de
have the cooperation of the railroad companies, which has
Queretaro?
undoubtedly slowed down my business. Trucking remains an
A: This business of owning private terminals is not easy. You
option, but it is more expensive and insecure. However, this
have to be very specialized to understand this business and
has not majorly dented our overall business. We have four
to make it grow. I do not see more private investors wanting
important customers that each transport 500 containers
to start a terminal as you need a minimum of US$25 million. I
a month, and in total we work with about 4,000 to 5,000
am confident about our future growth but I cannot quantify it
containers a month. My finances are good because I do not
as I depend on the decisions of the government and an end to
have partners, which allows Terminal Intermodal de Queretaro
the lack of cooperation from certain freight train companies.
to maintain its streamlined working process, allowing me
Right now, we have the ideal terminal for Queretaro. We
to make quick decisions and keep my customers happy by
will grow over the next five years and even if we do not get
avoiding needless bureaucracy. 30% of our business comes
business from Honda, we will get business from its suppliers.
291
RESILIENT SMALLER FLEETS OFFER MORE EFFICIENCY “The business model of Don Miguel Transportes has
travel through this route. While the automotive industry is
been streamlined to promote efficient services and quick
transitioning to the Bajio region, de los Rios believes it can
decision-making, a factor that distinguishes us from other
serve that market from Chihuahua just as efficiently. “The
fleet companies,” says its Director General, Jaime de los
perception is that as industries go to other regions, fleet
Rios. Rebranded in 2008, the company started with 30
companies must migrate alongside them. I do not see this
truck units, but it has now expanded to accommodate 50
as necessary.” Despite surging costs like toll roads, for Don
units and 120 trailers. De los Rios ventures to say that “with
Miguel Transportes, the northern region of the country
50 trucks, we can accomplish the work of a company that
continues to represent a vast market of opportunity.
has 100. This is precisely because, by being a small fleet, we can control maintenance and other factors.”
The automotive boom has sparked ambitious growth opportunities for Don Miguel Transportes. “Already 40-45%
Don Miguel Transportes’ fleet is characterized by varied
of our business comes from that sector, especially from our
brands, like Navistar and Kenworth for which it owns the
biggest client Grupo Bocar,” says de los Rios. His target for
T600 and T800 units. Diversity is not seen as a major
the next five years is to double the number of units from
concern, according to de los Rios, who claims OEMs
50 to 100 to seize future growth. However, achieving this
change their models constantly and have different series.
expansion will require the consideration of many factors
It is also distinguished by its wide age spectrum. “The
besides fuel and toll road costs. Firstly, buying new units is
average age of our units is eight years, although we do
an important investment, according to de los Rios. “Today,
have new units from 2014,” says de los Rios. Having a
the price of units from OEMs like Navistar, Kenworth or
wide age range allows the company to comply with the
Freightliner oscillates between US$116,000 and US$120,000.”
demands of clients as the automotive industry is notorious
As an SME, purchasing these can seem daunting, but de los
for its high spec requirements in terms of fuel efficiency
Rios points out that associations like CANAPAT can help its
and green practices. For example, one client, Ryder, has
members acquire new fleets through government funding
a fleet age limit of five years that Don Miguel Transportes
and incentives. However, according to de los Rios, there are
complies with. “If there is a potential client with a particular
times when SME companies do not even get the chance
need, the company has to make sure that it is met, even
to buy any of these units from the association, as they are
if it means we need to buy other units,” he adds. While
largely snapped up by big corporations.
having a wide range in terms of age and brand in the fleet can pose a challenge in terms of maintenance and
The purchasing of new fleets is also influenced by government
servicing, it allows Don Miguel Transportes the opportunity
regulations such as Article 50 of the Law of Roads, Bridges,
to efficiently serve a client base with diverse needs.
and Federal Ground Transportation that regulates the use
“The perception is that as industries go to other regions, fleet companies must migrate alongside them”
Jaime de los Rios, Director General of Don Miguel Transportes
292
Rising fuel prices are not the only barrier fleet owners
of double-skip trailers. Don Miguel Transportes does have a
must overcome. For de los Rios, toll roads are becoming
few double-skip trailers, and for de los Rios, these reforms
more expensive and represent an ever higher cost. Don
will help regulate their use. When these units are used, de los
Miguel Transportes has identified a discrepancy in the
Rios ensures that they use toll roads as these are in far better
northern region of the country in terms of toll road costs.
condition than ordinary freeways. While some steps are taken
“The distance from El Paso to Chihuahua is 400km but
for the growth of SMEs, Don Miguel Transportes has a defined
involves the use of two expensive toll roads that cost over
approach in terms of fleet purchasing and management.
US$80. The same distance travelled is far cheaper in other
“Being one of the most used modes of conveyance by any
states like Nuevo Leon,” de los Rios explains. At a glance,
industry, the transportation of goods via trucks should be
US$80 might not seem like a significant expense but this
seen as one of the priorities on the government’s agenda. It
cost accumulates with the amount of trucks that must
must help that sector continue to grow.
TWENTY YEARS LEADING MEXICO’S TRAILER INDUSTRY Gabriel García Díaz, President of Utility Trailers de
also drove the company to expand these services overseas,
México, says the company’s holding group Utility Trailer
and it now has seven aftermarket locations in Mexico and one
Manufacturing supported him in the right way when he
in Colombia. García Díaz explains that the gross profit for a
opened up the Mexican subsidiary. Instead of pumping
trailer ranges between 10 and 20%, but this rises to 34% for
capital into the fledgling start-up, the group consistently
auto parts, with a net profit of over 10%. In 2012, for the first
supervised his planning and growth strategies to ensure
time, the company drew more profits from the aftermarket
Utility Trailers de México could stand on its own. This
than from sales. “This part of the business is good for us and
preparation allowed the company to survive the numerous
for the market as well,” states García.
challenges that have beleaguered the Mexican industry, such as the financial crises of 1994 and 2008, by showing an
The next challenge for the company will be to face
ability to adapt its services to market conditions. Soon after
changes coming from the establishment of the reforms,
the company was established in Mexico, the 1994 crisis hit,
especially the Energy Reform, and the formulation of the
leading to a massive devaluation of the Mexican peso. This
NOM-012-SCT-2-2008, often referred to as NOM-12. This
wiped out some of Mexico’s bigger trailer companies. Many
legally binding norm regulates the weight and maximum
of Utility Trailers’ investments were in US dollars, helping it
dimensions of trailers that can circulate on federal
to survive, while the NAFTA agreement allowed it to scale up
highways. The NOM-12 states that the payload capacity for
production. After 1995, the company began pulling in more
full double trailers has to be reduced by five metric tonnes.
investment, reinvesting in expanding its fleet of trailers and
“For the first time, the weight of the trailer has become
growing its market share. This expansion hinged on one key
a competitive advantage,” says García Díaz, certain this
aspect. Prior to NAFTA, Mexico was not allowed to import
norm will help Utility Trailers de México to stand out.
trailers from the US. After this, Utility Trailers de México
“Our 40-foot dry van trailer that is used in most double
became the first company to do so, allowing it to become
operations weighs 5,300kg, whereas the competition’s
the market leader and use the advantages presented on
weighs up to 7,000kg. This represents a 1,700kg difference
each side of the border. Today, this sees Utility Trailers
in each trailer, so if you use two trailers for double
produce 40,000 trailers a year. Refrigerated trailers, known
operations, the customers will save more than 3,000kg
as reefers, are made in Salt Lake City, Utah, while dry vans
in payload capacity.” The NOM-12 also forbids the use
are made in Arkansas. Automatized production lines mean
of double operations in petroleum tanks but PEMEX has
40 trailers are produced a day in Arkansas, as opposed to
around 150 carriers over the age of 20 working on double
just five a day at the plant in Mexico.
operations. Due to the norm, PEMEX will be unable to keep its fleet running as it is and will have to move from double
This savvy approach to trailer distribution has been
to single trailers in a five-year period in order to not affect
translated today to Utility Trailers de México having a
its distribution, García Díaz estimates. Utility Trailers de
balanced customer base across three segments. Big fleet
México is looking for a joint venture with Spanish company
carriers, namely companies that use their fleets to offer
Cobo to begin creating lighter tank vessels in Mexico,
transportation services to third-party customers, make up
while securing a competitive price for their import in the
40% of its customer base. Next, major private firms like
meantime. An alternative for the company is an agreement
Grupo Bimbo or FEMSA that own trailers to move their
with Polar Tank Trailers, a company in Minnesota that
own production take up another 30%. The remaining 30%
produces premium petroleum tanks but its products are
is comprised of owner-operators, most of which are SMEs
far more expensive than the Spanish ones. García Díaz
that often struggle to obtain financing to lease new trailers.
expects to sell around 100 of these tank trailers in 2014.
Having spotted an opportunity, Utility Trailers de México
Along with these partnership plans, Utility Trailers de
provides the financing itself by taking out loans from
México is also ramping up its expansion plans, by building
banks or financing companies and extending the credit to
new facilities in its 40,000m2 Queretaro property that
the owner-operators. Another example of the company’s
will include warehouses, offices, aftermarket, trailer sales,
adaptation to the needs of the Mexican market can be found
services, and assembly or manufacturing lines for tanks.
in its aftermarket services. After the financial crisis of 2008,
For 2014, García Díaz forecasts sales of 2,000 trailers a
Utility Trailers had to change its strategy and look for a way to
year which will bring in US$10 million. In 2015, he predicts
keep up its business. The company spotted the potential of
the sales volume will reach US$12 million. Interestingly, this
the unattended aftermarket business in Mexico and began to
growth does not come from selling more trailers. “We sold
invest in it. After just five years, Utility Trailers de México grew
2,000 trailers in 2012 but many of them had a low margin.
its aftermarket profits tenfold and gross sales fivefold. This
We need to be more selective with our customers.”
293
MEXICO NEEDS RAIL FREIGHT TO TAKE RIGHTFUL PLACE The privatization of Mexico’s railways in 1995 has led to
uncertainty surrounding the concession agreements and
steady rejuvenation in the industry. A report released in
instead advocates joint public private efforts to support
the first quarter of 2014 by the International Transport
infrastructural development in the coming years.
Forum of the OECD declared the sector to have made continuous
decades.
Despite present uncertainties about exactly how the
According to a report titled Railway Freight Development
improvement
in
the
last
two
sector will develop in the coming years, investment
in Mexico, railway traffic in the country has doubled since
is continuing and further growth is inevitable, with
the reforms, its contribution to GDP has increased 56%,
increased
and its share of transportation has improved by more than
automotive industry in Mexico leading to heavy logistics
a third. Mexico’s railways now carry more freight than any
demand. US railway goliath Union Pacific owns a 26%
railway in the EU apart from Germany, more than those of
share in Ferromex, and Mexico is playing a major role in
France, Spain, Italy, and Austria combined, and as much
the company’s bottom line. Bernardo Ayala, President
general freight as Brazil. Nearshoring trends in North
of Union Pacific Mexico, explains that “the automotive
America have also played a major role in Mexico’s railway
industry accounts for about 40% of our business in
industry boom, while the country’s leading rail company
Mexico, making it our largest segment. In 2013, 10% of
Ferromex and close competitor Kansas City Southern de
our total revenues came from Mexico, representing US$2.1
Mexico (KCSM) have both reported notable growth levels
billion. We are also still forecasting growth for which we
in recent years. The performance of these two is on par
are excited.” The company predominantly moves finished
with many of the busiest rail freight systems in the world,
vehicles northbound and auto parts southbound. Auto
as they run the most productive freight railways in all of
parts move in box containers and vehicles on auto-racks
Latin America.
or multi-levels, which include bi-level and tri-level rail
manufacturing
for
the
North
American
“The automotive industry accounts for about 40% of our business in Mexico, making it our largest segment. In 2013, 10% of our total revenues came from Mexico, representing US$2.1 billion” Bernardo Ayala, President of Union Pacific Mexico
The announcement of potential reforms to the sector
cars. Ayala explains that bi-levels are generally used for
that relate to the exclusivity of the concessionaire
suburban units and pick-up trucks, and tri-levels are used
rights granted to Ferromex and KCSM at the time of the
for smaller compact models.
privatization has led to recent ripples in the sector. The
294
rights granted are not due to expire for another 13 years
Ayala believes that competition in the Mexican railway
and remain in place for a further seven years beyond that
sector is strong and the segmented nature of the market has
to support infrastructure management. Notwithstanding
resulted in healthy growth. “There is a lot of competition,
this, Mexico’s lower house has approved a bill that would
which is very good for the customers, and ultimately the
open up these concessions to increased competition by
integrated network has allowed a lot of growth. Each
forcing the owners to share line operation. The bill has been
railroad has different competitive advantages. Ferromex
put forward in response to concerns that the duopoly has
might have a very good offering to one location in Mexico,
led to stagnation in infrastructure development, although
which is also served by KCSM, but the service offering
ultimately the railway infrastructure remains under the
for that particular area might be better with Ferromex.
ownership and responsibility of the public sector. The
We will opt for whatever option has the best synergies,
Reform on the Regulatory Law of the Railway Service,
and of course the customer is free to choose any kind
approved in February 2014, and currently under debate,
of combination,” Ayala explains. “All parties involved are
proposes opening up the sector by obligating the existing
working hard to make sure the right product offerings are in
concessionaires to share their lines or risk having the
place nationwide, including ensuring an adequate number
concessions revoked. In addition, the government will be
of railcars to handle the increasing amount of shipments.
able to revoke a concession if the lines are not sufficiently
Railcars are contributed to a national pool, and whichever
well maintained. The OECD report advises against creating
company has the most cars has the ability to handle more
freight and therefore a competitive advantage,” says
the trucking segment. While only 30% of freight in the US
Ayala. To this end, Union Pacific is assigning more railcars
is moved by truck, almost 75% is moved by truck in Mexico.
and creating new offerings, such as the Autoflex, which
Intermodal therefore has an important role to play in
can be converted to either a bi-level or tri-level depending
optimizing the freight network, and Union Pacific recently
on the configuration needed.
initiated a new intermodal service between Laredo, Texas, and Memphis, Tennessee. “This route allows auto parts to
The right infrastructure is of course needed to support
be brought southbound to Port Laredo where they are de-
better railcar offerings, leading Ayala to assert: “This is why
ramped and trucked into Mexico. At the port of Laredo,
investment is so important, not only from our side but also
we have a pretty large intermodal terminal. We are able
from our Mexican counterparts, because we really need a
to offer steel wheel or through product into Mexico, but
fully integrated network. We are focused on making sure
we also offer trucking from the border into the country or
that we have the right assets and investments in place
from Mexico to our ramps at the border. The steel wheel
to allow us to provide the best service possible to our
product is a through train coming into Mexico by rail, and
customers.” Ayala is confident that the tunnels in Mexico
once this reaches its destination, it can then be brought by
are well-developed and railroads are being continuously
truck to the final plant destination,” Ayala explains.
invested in, although overall adequate infrastructure remains a challenge nationwide and further investment
A further way to improve efficiency in the rail sector
is needed. “There are good examples of infrastructure
would be the development of a Mexican version of the US
improvement right now. For example, Salamanca has
CDPEC program. Industry participants including Union
been developing excellent infrastructure to support the
Pacific have been pushing hard for Mexico’s equivalent,
establishment of the Mazda plant. This sort of investment
the MEC program. “If you have a free trade zone and are
needs to be kept up and demand dictates the need for
able to bring goods directly from the US to that zone,
additional capacity,” explains Ayala. The government’s
then a lot of pressure is relieved from the borders, helping
infrastructure plan promises further upgrading of roads
the entire industry. Zones for the development of specific
and ports, as well as proposed city bi-passes, and Union
parts can also be established allowing those parts to be
Pacific believes joint public and private cooperation is
shipped easily from the US to Mexico and supporting
needed to ensure these plans are followed through in order
greater fluidity. The more steps taken to decongest
to improve efficiency and competitiveness for Mexico.
activity at the border, the more trade will be promoted
Union Pacific itself is investing significantly in improving
between both countries,” asserts Ayala. The effective
transport lines. “We are investing in maintenance of the
execution of efforts to optimize Mexico’s railway network
tracks, commercial facilities, and new equipment. This
could undoubtedly see the sector become increasingly
year we are opening our Santa Teresa facility at El Paso,
efficient, but one area that must also be addressed,
which gives us the flexibility to ship by rail to Mexico and
according to Ayala, is the security situation. Railway lines
then switch to truck, or the other way around,” explains
continue to be subject to container theft and vandalism
Ayala. The Santa Teresa base, a state-of-the-art facility
of the tracks, which Ayala sees as preventing rail from
representing a US$400 million capital investment for
meeting its full potential in Mexico. “Rail lines, plates, and
the company, will play an important role in serving the
other materials are removed to be sold, creating a safety
Mexican market, primarily the central northern region.
issue that must be rectified immediately. Throughout
Union Pacific currently has six gateways to serve Mexico
the logistics supply chain in Mexico, there are high levels
and is continuing to invest in track maintenance for those
of theft and vandalism and these issues have to be
routes. Included in these are Nogales, El Paso, Eagle Pass,
addressed.”
Laredo, and Brownsville, all of which Ayala claims will see some investment this year. The upgrading of these
Overall opportunities remain strong and just looking
gateways also includes technology development and
at the economies of scale involved in automotive
the company is investing in developing CTC technology,
sector growth, there is undoubtedly going to be a
which will monitor trains coming into the gateways.
need for more transportation. Union Pacific believes
Whilst Union Pacific is largely responsible for the US
opportunities to create truck to rail conversions exist
side of the operations, it works closely with Ferromex.
as auto producers continue to look to the rail network
“Ferromex also invests heavily to mirror our investments
to address freight needs, and the railway will continue
on the US side because investment is obviously needed
to play a very important role in supporting that growth.
on both sides of the border to ensure capacity is matched
“As a network, the US-Mexico-Canada sphere will be an
effectively. KCSM is doing the same and is investing in its
important route for the long-term future. We are going
network,” says Ayala.
to be very focused on the automotive segment. With big OEMs announcing new production sites over the
While Mexico’s railway network continues to develop, the
next year, we expect more investment to support that
country’s logistics needs continue to be heavily served by
growth,” concludes Ayala.
295
OPTIMAL LOAD FACTOR FROM AUTOMOTIVE RAILCAR FLEET Mexico has been reaping the benefits of its natural
to covering that growth segment, aside from the natural
geographical position for some time, and arguably a
expansion our business is undergoing,” says Sanchez.
significant portion of investment has been captured by this strength alone. After all, a major determining factor in
Ferromex has worked as much as possible to find optimal
deciding where to set up shop is a country’s capacity to
logistical solutions for each new OEM plant before it is
deliver on the logistical side. By looking at the raw numbers,
officially announced. The first step in developing the right
one would assume that Mexico, with around 300 Tier 1
solutions is to analyze each site, its transportation needs
global suppliers for the automotive industry, has little to
for inbound goods, and how to best answer those needs.
worry about regarding the supply chain. Ensuring logistics
Once complete, the distribution market will shift for each
within Mexico are top notch has had a direct impact on
vehicle, and an estimate of volume is needed to understand
OEMs both domestically and internationally. As automotive
how best to deliver tailor-made logistics solutions for each
OEMs announce plans to increase their production capacity,
OEM, each plant, and each type of vehicle. This is where
Mexico’s logistics providers are doing everything in their
intermodal transportation solutions are helping to improve
power to upgrade the country’s transport links to handle
the efficiency and competitiveness of the automotive
the industry’s extra capacity. Such is the case of Ferromex,
supply chain. Given the export-dominated nature of
Mexico’s key railroad operator, which manages over 8,500km
Mexican automotive production, the key for transport
of track nationwide. The company expects OEMs to set up
providers is how swiftly they can get the cars to ports or
shop in regions with easy access to the railroad given that
across the border to US and Canadian markets. Fortunately
Mexico’s automotive industry is often concentrated in urban
enough, Ferromex’s services in Mexico are provided under
clusters. Ferromex earmarked US$450 million for capital
the same rules that the US and Canada expect. “This has
expenditures (CAPEX) in 2013, much of it going directly
allowed the process of taking a vehicle from a Mexican
to providing better logistics for the automotive industry.
plant to an American or Canadian sales point much more
Alberto Sánchez Varela, Ferromex Automotive’s Assistant
transparent,” says Sánchez Varela. “We have managed to
Vice President, says that US$57 million of this budget went
implement the same standards across North America, on
to the company’s automotive network capacity, with the
the biggest railway network in the world, which gives us
fleet growing by 55% to include 700 triple-level wagons (a
many advantages from a logistical standpoint. This makes
117% increase), 350 double-level wagons (a 26% increase),
the shipment of taking cars across the border much more
and 40 automax wagons (a 56% increase). “This investment
efficient since the US and Canadian governments feel
is specifically targeted at the impact the automotive plants
comfortable that any shipment coming from us can be
will have on our network. These funds will be allocated
treated like they would treat their domestic ones. That
PORT OF VERACRUZ
296
API Veracruz is the main gateway to Mexico on the Gulf of
increase logistic and operative competitiveness. Veracruz is
Mexico. According to the National Infrastructure Program
aiming at enhancing its mobility and transportation services
2014-2018, Veracruz will receive a total investment of
with an investment of US$44 million that will connect
US$4.6 billion of which US$1.9 billion comes from public
the port with the Santa Fe Multimodal Terminal, which
funds. Veracruz holds the biggest market share with 71% of
will be covered by the rail routes of KCSM and Ferrosur.
automotive port movements. With the new infrastructure
However, in 2013, the port experienced a saturation of
plan, the port will be able serve 48 ships simultaneously,
vehicle merchandise as more automotive companies sought
increasing its cargo movement from 21 million tonnes to 110
to connect to markets in Central and South America.
million tonnes. With this investment, Veracruz will undergo
During the first trimester of 2014, the port experienced a
an expansion that includes specialised terminals, equipment,
decrease in mobilization of automotive cargo by 12%, with
and warehousing. US$3.54 million has been allocated to the
approximately 40,000 vehicles being exported. However,
establishment of the Logistics Activities Zone (ZAL) which
it is important to note that operations increased by 4% in
will contribute to the optimization of logistic activities
April year-on-year. Having undergone this saturation but
within the port. Likewise, US$385,000 has been allotted
now able to plan for new infrastructure thanks to additional
to the construction of a control center that will monitor
investment, Veracruz will hold its position as the preferred
the access and transit of ground transportation in order to
port for automotive operations.
helps us at border crossings and has given us the upper
in the Lazaro Cardenas port through its rail corridor for
hand against other modes of transportation.” One of the
around 15 years. One way in which Ferromex is seeking to
responsibilities of Ferromex Automotive is how to combine
stave off its competition is through the way it invests its
the company’s rail positioning and automotive solutions to
CAPEX, according to Sánchez Varela, as seen in the hefty
best service the customer. The main driver is for Ferromex
proportion of its 2013 investment that was given over
to be able to transport the cars to their final destination
to the automotive division. “Most class 1 railroads invest
in the shortest possible distance. As such, Ferromex has a
about 20% of their CAPEX but Ferromex will be averaging
range of options to chose from. To the east, one corridor
a 30% level of investment for the next few years. This is a
runs up the US’ Eastern seaboard and Canada, while another
huge investment but we have a solid revenue stream and
goes up the Western corridor. “We also have the biggest
are gaining more business. We look very carefully at how
fleet of automotive railcars that are used to transport these
to improve our capacity and our investment is integrated
vehicles. We have a huge and competitive load factor which
so that spending on one area of the business does not
eventually translates into savings for our customers as well
adversely affect another area,” explains Sánchez.
as having a fleet large enough to handle all their needs,” emphasizes Sánchez Varela. Logistics costs are one of the three most important areas that automakers analyze when considering where to build a plant, along with labor costs, and government incentives. As such, Ferromex has always sought to understand its place in the supply market, allowing it to grow from transporting 500,000 vehicles a year to 1.5 million in 2013. The firm’s business model looks at every export means for vehicles, not only cross-border trade. Ferromex controls a vital point for exporting vehicles in the port of Veracruz. However, it is also looking to diversify its access to sea lanes via the ports of Manzanillo and Lazaro Cardenas, among other possibilities. The company is talking to customers about business needs for the Pacific and is actively considering how best to integrate that avenue into its logistics efforts. On the other hand, KCSM, Ferromex’s closest rival, has been reporting double-digit growth in car loads transported for the last few years. It enjoys similar alliances with US railroad companies such as Union Pacific. In addition, the company has been present
PORT OF MANZANILLO The Port of Manzanillo holds the leading position in terms
to the surge in traffic of containerized cargo by 22% seen
of containerization processes, with the capacity to move
last year, it decided to create the Dedicated Container
over 1.8 million TEU. In the entry of containers (TEU), it
Terminal II (TECII) with an investment US$392 million.
holds a participation of 68% on the Pacific and 46% for
TECII will have a capacity of 400,000 TEU, which will be
the whole country. Positioned as the main entry point of
able to move 2 million TEU.
containerized cargo, Manzanillo holds a reputation for its security and social stability that allows it to attract major
The aim of the port is to reach an offloading capacity of
private investment. By 2020, it is predicted that the port will
4 million TEU, which amounts to the entire offloading
register an investment of US$5.7 billion. In 2013, Manzanillo
done by all ports nationwide. This new investment will
received the vast majority of port investments, according
boost Manzanillo’s role within the automotive industry as
to the SCT. Manzanillo has focused on developing its
it only holds a 1% market share. While the port manages
multimodal transportation services by collaborating with
annually 2 million containers of merchandise, it only has the
Ferromex and creating an intricate network with three
volume capacity to handle 65,000 vehicle units. To increase
ports on the Pacific and three in the Gulf of Mexico. It
its participation, the port is currently designing its first
stands in 66th place among ports worldwide and is fifth in
Specialized Automotive Terminal, with investment expected
Latin America for equipment and productivity. Responding
to reach US$192 million prior to completion in 2015.
297
| VIEW FROM THE TOP
TOP RAIL COMPANY INVESTS AHEAD OF AUTOMOTIVE EXPANSION JOSÉ ZOZAYA President of Kansas City Southern de México Q: How have you adapted your strategy to respond to the
Q: Which role does intermodal transportation play in your
shift in automotive industry activity to the Bajio?
activities?
A: All the automotive factories in the Bajio region are very
A: This is a crucial component of our services, and we have
well-supplied by our services as well as our trucking partners,
kept investing to grow our intermodal capabilities over
offering direct links to the US and all of Mexico’s major ports.
the years. We have three intermodal stations in Mexico, at
We also work together with federal and state agencies that
Toluca, Nuevo Leon and San Luis Potosi, which allow us to
promote investment around Mexico. When these agencies
provide better outgoing intermodal services. The automotive
hear of a potential new investment in a certain area of the
industry naturally receives vast amounts of auto parts, which
country, they invite us to participate in the site selection.
are mostly shipped in containers via inter-modal services. In
Companies often consider being located in two or three
every logistic movement, both we and our customers require
different states so meeting with keyservice providers such
the utmost efficiency. Therefore, every journey is analyzed
as Kansas City Southern de México (KCSM) helps to provide
on that basis to see if only using rail is the best option, or
some clarity as to which area would suit them best. In terms
whether it would be better to employ a combination of rail
of changing our strategy or expanding our coverage, we do
and truck, or even rail, truck and shipping.
sometimes talk with OEMs and manufacturers to discover the rail services they might require. The first concern of
Q: How much do you need to partner up with specialized
new arrivals is to find out which routes we operate, from a
shipping or trucking firms to meet your intermodal needs?
location near their plant site to Mexico City, to the border and
A: KCSM specializes specifically in rail, and this will always
within the US. We sit down with them to analyze our routes
remain our core service. Therefore, we have agreements with
and to match these with any needs they might have. Another
trucking and shipping companies, since we do not own such
crucial factor is our capacity to move a certain volume of
companies. We purely dedicate ourselves to providing an
cars out of the factory and to move containers inside. As it
efficient railway service. The permanence of our partnerships
stands, automotive makes up just under 20% of our business
depends on the total number of movements that we foresee
in Mexico, including auto parts and finished vehicles.
along a given route, as a one-time movement does not
WELL-CHOSEN NETWORKS LEAD TO LOGISTICAL SUCCESS
298
The network of offices put together by logistics company
Baja California takes care of the opportunities that exist in
Sea Cargo has largely been motivated by the evolution of
serving the massive Californian automotive market. “The
the Mexican automotive sector around the country. Its CEO,
automotive industry and its suppliers are considered one
Eduardo Velez, explains how the company has identified
of the most demanding markets in Mexico. The rapid flux
specific objectives for each of its bases of operations. For
of the automotive production chain requires trustworthy
example, a big presence in Aguascalientes puts Sea Cargo in
partners and we are very focused on being one of them,” he
a prime position to cater to the Asian automakers that have
says. This ambition is shared by many logistics companies,
set up production facilities there. The Aguascalientes office
and Sea Cargo is battling them in the Mexico’s northern and
has formed strong partnerships with mechanical and auto
Bajio regions. Velez explains that Sea Cargo’s supply chains
parts companies like Donaldson that can be trusted suppliers
services in the Bajio revolve around stockpiling supplies that
to OEMs. The Queretaro office covers the automotive and
can be used to partially assemble auto parts within the main
aerospace industries alike, Chihuahua and Monterrey focus
plants. These parts then go on to other companies for further
on the automotive clusters in those regions, and Ensenada,
assembly, using more sophisticated technical processes,
require such a business partnership. Unlike Ferromex, we
work with AMPIP to spread awareness among automotive
have not found it necessary to begin our own automotive
companies of the advantages they will draw from having rail
division in order to provide such services internally. We have
access to their facilities.
different strategies and different ways of managing our businesses. KCSM is very efficient in the way we work with
Q: How can KCSM help the rail system in Mexico move
other services, without the need to own them or to establish
more than 30% of all the cargo in the country?
a formal partnership with them.
A: We are helping to increase that percentage every day by convincing customers to move their freight by rail. Mexico
Q: What should be set as government priorities in terms
will reach 35% in the next eight to ten years, which is a good
of infrastructure development?
target, considering that the US moves around 40% of its
A: KCSM has a firm commitment with the Mexican
cargo by rail. The geographies of the two countries are
authorities to increase the country’s industrial potential and
obviously quite different, however. The large flat sections
competitiveness. On the Pacific side, KCSM is working with the
of the US make it much easier to run a railroad while this is
port of Lazaro Cardenas to ensure all inbound and outbound
made more expensive in Mexico by its mountainous terrain.
freight is expedited through the terminal to maximize asset optimization. Likewise, we are working with APM Terminals to
Q: To what extent are you lobbying the government to
design the rail access for its new terminal at Lazaro Cardenas,
invest in expanding the country’s rail capacity?
which represents an investment of almost US$1 billion and
A: We are lobbying the government while making a lot
will double the port’s container handling capacity. On the
of direct investment ourselves. For 2014 alone, we have
Gulf of Mexico, we are expanding the rail infrastructure
allocated US$143 million to invest in our own network. But
at the port of Veracruz to allow KCSM to connect directly.
as shown in the National Infrastructure Plan, the government
This expansion will be able to accommodate the forecasted
has been making a large investment as well, including the
growth of the automotive industry in terms of the numbers
International Bridge in Matamoros, and the by-passes of
of finished vehicles that will pass through Veracruz. The port
Celaya, Manzanillo, and other cities. Our competitors like
of Veracruz already handles 70% of the vehicles exported by
Ferromex, Ferrosur and Ferrovalle are part of this process,
sea from Mexico and KCSM has invested sufficiently to be
while the building of new tracks and new routes could also
able to accommodate any growth that comes on top of this.
see fresh competition arise. This scenario is providing the
We are collaborating with the Intermodal Logistics Terminal
proper setting for public-private partnerships to thrive in the
of Hidalgo which, along with our own facility in Toluca, will
area of railway expansion and the development of general
handle much of the extra automotive movement coming
infrastructure. In terms of promoting the future of the railway
out of the Bajio over the next few years. KCSM works closely
industry in Mexico, all these companies and ourselves lobby
with big rail users like the automotive industry to facilitate
the government through the Mexican Railway Association
the connection to their sites, much to their benefit. We also
(AMF), of which I am the president this year.
before going on to final assembly. Sea Cargo is involved in
Cargo, particularly given the area’s reputation as the safest
overseeing the storage, the timing of the entire operation,
in Mexico,” says Velez. In other regions of Mexico, physical
and delivery to the final assembler. Mastery over this stage
safety has been a prime consideration for most companies,
of the process has seen Sea Cargo find clients among OEMs
as much as fiscal and infrastructural security. “Given how
like Volkswagen and direct suppliers like Continental. This
a stolen truck can cause severe interruptions to firms’
heavyweight client list helped Sea Cargo stretch its logistical
distribution flows and production, Sea Cargo attempts to
tendrils around the world. “We are active members of diverse
control the value chain as much as possible to ensure the
networks in the US, Asia, and Europe, through which we
highest degree of safety possible,” says Velez. The company
interact with reliable partners. Such partners are important
is making strides to get certified on the security side,
due to the variety in how supply chains can be structured,”
which Velez is counting on to gain even more credibility
says Velez. The globalized nature of the industry means that
among its customer base. Building up this credibility is key
automotive components could be brought into Mexico from
in a market where more logistics companies are jostling for
France or Germany, having been originally manufactured in
position. “We will be serving all industries, but Sea Cargo’s
South Korea, China, or Japan.
main priority is the automotive industry. We are looking to expand into the ports of Manzanillo and Altamira for that
“On a more local level, the trend of automotive companies
very reason. It is not an easy market to enter, but once you
investing in the Bajio region has been beneficial for Sea
are in, the synergies carry you forward.”
299
| VIEW FROM THE TOP
PORT OF VERACRUZ SEES AUTOMOTIVE AS TOP PRIORITY JUAN IGNACIO FERNÁNDEZ CARBAJAL Director General of API Veracruz Q: API Veracruz handles cargo for many industries. How
of this type of cargo, while we will also expand the existing
much specific attention is given to the needs of the
berths and storage areas in the current port.
automotive sector? A: The port of Veracruz has become the main entrance and
Q: What impact will the port’s expansion plans have on
exit point for the transfer of cars and auto parts in Mexico.
the range of services available to automotive companies?
It has solidified this leading position in recent years by
A: The expansion will be divided into two stages from 2014
transferring 65.6% of the cargo related to the automotive
to 2018 and from 2019 to 2030. The main impact will be
industry. Due to the limitations imposed by Argentina and
seen in the faster unloading and loading of goods, increased
Brazil on the commercial flow of vehicles, the port actually
storage capacity, and the new berthing position for special
experienced a decrease in volume last year. However, with
car carriers. Likewise, CPV and SSA are making investments
the entry of OEMs and the establishment of more assembly
to improve existing infrastructure. The permission papers
lines in Mexico, we expect volumes to increase once again.
are being drafted to allow the creation of a new automotive
The port’s main destination areas are the east coast of
terminal, which will improve the competitiveness of the port
the US, Europe, and South America, which are all markets
operators and provide more efficient storage capacity for
that OEMs are keen to tap into. Given the importance of
vehicles. The expansion of the port will help achieve higher
the automotive industry, improving the Port of Veracruz’
efficiency and safety in the handling of automotive goods.
infrastructure is high on the agenda. We have taken steps
This infrastructure project contemplates 35 additional new
to become the port with the most developed connectivity
berths that will be able to receive vessels of over 400m
by establishing more links with Ferrosur and KCSM. The
in length and with a draft of 18m. This means the port will
port also has links with 54 maritime routes and 27 major
allow the entry of larger, new generation vessels.
shipping companies operating within them. The development of the Logistics Activities Zone (ZAL) and
300
Q: How have changes in automotive manufacturing
the Support Center for Transportation Logistics (CALT) are
strategies impacted API Veracruz?
necessary in order to compete with other national ports.
A: Given the recent investment boom in the Mexican
The new ZAL covers 135 acres and will be able to receive
automotive industry and the ongoing establishment of
a higher tonnage of goods, while it will also incorporate
OEM plants, it is important for us to establish contact with
an intermodal service patio of 26 acres. Most importantly,
the OEMs in order to understand and develop strategies
merchandise will be able to remain in ZAL for a period of
to better serve the growing volume of automotive goods
60 months without having to pay taxes and will continue
the port handles. It is crucial for automotive companies
to be subject to handling, storage, distribution, and even
to establish ties with us as we can help them design and
maintenance. This is interesting for automotive companies
establish domestic routes, as well as reserve spaces and
that wish to import goods into Mexico. Additionally, the ZAL
warehouses either inside the port or in our Logistics Activities
has the capacity to park 650 trucks with well-structured
Zone (ZAL). Automotive companies have shown interest in
roads that improve mobility inside the port. We have
the Port of Veracruz because of its ease of handling bi-level
incorporated new monitoring and control technology that
and tri-level rail cars which increases cargo capacity, as well
allows us to measure in real time the movement of cargo with
as double stowage in containerized cargo. The port also has
trucks within the port area. Additionally, we have allocated
two assignees, CPV and SSA, in charge of the storage and
US$44 million for the construction of a new railway pass to
efficient movement of vehicles within the port. As we expect
Santa Fe. This marks an important leap to increase the flow
volumes in the automotive industry to increase, it is important
of cargo via rail. The construction now stands at near 80%
for the port to target essential development projects,
completion. When finished, it will provide a 19.5km route
including its expansion. For the automotive industry, we are
that will cross ZAL until Santa Fe where it will connect with
contemplating a new facility specialized in the management
KSC and Ferrosur.
| VIEW FROM THE TOP
AUTOMOTIVE INDUSTRY STANDS TO BENEFIT FROM ALTAMIRA EXPANSION JOSÉ CARLOS RODRÍGUEZ MONTEMAYOR Director General of API Altamira
Q: Which factors consolidated Altamira’s double-digit
Q: The National Infrastructure Program outlines an
growth, and what role did the automotive industry play
investment of US$4.7 billion in port infrastructure. What
in this growth?
allocation can API Altamira expect from this?
A: The Port of Altamira is very well-planned, as it is designed
A: According to President Enrique Peña Nieto’s statements,
to host any kind of industrial development. Because of its
the investments planned for API Altamira are estimated
wide territory, a client’s requirements can be adapted within
at MX$10.7 billion (US$830 million) from 2013 to 2018.
the port’s infrastructural capacity. It is worth mentioning
The most notable works will include the improvement of
that API Altamira is considered to be the most extensive
railway and other land transportation infrastructure within
complex in Mexico and Latin America. Since its creation
the port’s premises. These investments will yield great
in 1985, Altamira has been the most developed project of
benefits for the cargo segments, especially the automotive
its kind along the coast of the Gulf of Mexico. The port’s
industry, as railroad infrastructure will become more
maritime terminals contain state-of-the-art technology and
efficient, speeding up shipping movements.
highly qualified staff, and its Regional Environmental Impact Manifest facilitates the establishment of new companies
Q: How is API Altamira collaborating with Ferromex and
to take advantage of its expansion potential of up to 90
KCSM to improve its railway service?
docking positions. The port currently has 12 terminals and
A: API Altamira carries out specific promotion activities
17 docking positions. Regarding the automotive industry’s
in collaboration with Ferromex and KCSM in order to
role in the port’s activities, API Altamira closely collaborates
increase cargo volumes transported by railways, fostering
with this industry by handling auto parts as well as the
intermodal transportation and diversifying the logistic
importing and exporting of cars, trucks, and chassis. API
chain in the port. Ferromex currently offers a daily
Altamira is the second largest Mexican port in terms of
cargo service from Altamira to the country’s northeast
vehicle transportation through the Gulf of Mexico, mainly
region, receiving double and triple-level auto-carriers,
for exports to the US and South America.
double stack container trains, and single trains for the automotive industry. We also work with KCSM in pushing
Q: Which API Altamira facilities focus specifically on the
intermodal cargo movement, and we are working with SCT
automotive sector?
on modernizing and expanding the Valles-Rio Verde rail
A: API Altamira has a company specialized in automotive
section, which links API Altamira and Tampico with San
storage: AMPORTS de México, which offers clients a full
Luis Potosi and the central region. The expansion of the
coverage of their global needs, cargo loading and unloading
Valles-Rio Verde section will reduce logistics costs for
for ships and trains, inspections for pre-deliveries and
bodybuilders in the central region, making API Altamira
pre-shipping, interior and exterior cleaning services, tire
the best option for their operations.
changes and replacements, paint jobs, and minor repairs, among others. AMPORTS currently operates four terminals
Q: How has the Ports without Paperwork (PSP) system
in Mexico, at the ports of Mazatlan, Lazaro Cardenas, and
helped improve the efficiency of information transfers?
Altamira, as well as Toluca. It also operates in Salamanca,
A: The PSP model consists of a virtual platform that
Guanajuato, with a facility having an annual capacity of more
speeds up transactions, requests for maritime and other
than 500,000 vehicles, promoting direct vehicle distribution.
port services, and information exchanges among the
The AMPORTS terminal in API Altamira has 27 hectares of
different actors involved in the port’s processes. PSP
paved surface that is safe, fenced, and has proper lighting in
also helps to reduce costs, homogenize information, and
order to achieve the secure and adequate handling of vehicles
make information available at all times. Regarding the
given its annual capacity of 200,000 vehicles. The terminal
automotive sector, users will find a new benefit, consisting
also has 1.765km2 for additional construction of processing
of a mechanism that enables them to notify us of the
activities, such as assembly and mechanical operations.
services they will need and follow the status of their orders.
301
| VIEW FROM THE TOP
SHIPPING GIANT EXPANDS LOGISTICAL COVERAGE MICHAEL HANSEN Director General Middle America of Maersk Line
Q: Mexico is seeking for manufacturing to return here
A: The automotive industry plays an important role in
from Asia. How would this affect your operations?
this expansion as it is the fastest growing industry in the
A: Mexico has many FTAs which will ensure imports and
country. This industry is driving quality standards forward
exports will keep growing, so I am not overly concerned.
in Mexico, including the requirements for ports, for rail
There may be a drop in imports as more locally sourced
providers, and for maritime transport companies like
content is obtained. However, I predict Mexico will continue
Maersk Line. No other industry is pushing the boundaries
to import more parts, assemble the products here, and
of quality as much as automotive. The container terminal
then export the finished goods. We are seeing an increase
operators are eager to meet the automotive industry
in the exporting of finished goods to Costa Rica, Panama,
specifications, because this also satisfies all their other
Chile, and Peru thanks to the Trans-Pacific Partnership.
clients such as large retailers. This is the impact the
That tendency will prevail as Mexico has a skilled labor
automotive industry has on the general logistics chain in
force, efficient production, and low costs.
Mexico.
Q: How does the US$900 million expansion of the TEC2
Q: How do you balance cost, speed and efficiency in the
deep-water terminal at Lazaro Cardenas influence the
strategies you offer to your customers?
sophistication of the Mexican transportation infrastructure?
A: It is very difficult to strike a balance as the automotive
A: The terminal will be finished in 2016 but is just a part of
industry requires a premium service at the lowest cost.
the general infrastructure plan. As the automotive industry
Because the automotive industry has so much clout, it
grows, infrastructure is needed to support it. The port of
usually gets its way. Meeting that low-cost and high-
Veracruz is key for linking the Mexican market to Europe
quality demand is an ongoing challenge for us as a
and Brazil, but being the oldest port in the country, it cannot
transport provider. The automotive industry needs to
cope with the modern requirements of import and export. It
realize that just because it has muscle does not mean
is a heavily congested, multi-purpose port which sees a lot
it should always use it. Companies could end up with a
of activity take place in a limited area. There has been growth
supplier who accepts this challenge but ends up providing
in other ports, Lazaro Cardenas is expanding with several
a poorer service, leading to higher costs for operations
terminals and a new terminal has been built in Manzanillo.
and across the supply chain. This situation could even lead
Rail infrastructure is another problem. Links from the Gulf
to factories being shut down as needed materials do not
Coast and from Manzanillo are inefficient, but they are more
arrive on time. This industry has a huge cost focus but
effective from Lazaro Cardenas. The federal government
companies need to reflect on the balance between costs
must invest to support the ambitions of the industry.
and the need for quality. If a company wants to move a
Volkswagen, Ford, and Nissan can have all the ambition in
lot of goods at a low cost, it becomes less interesting for
the world, but if the government does not support them
us. Maersk Line would be more interested in a medium-
with infrastructure investments, those ambitions will not
sized company with less volume. Automotive companies
be realized. This is also a concern for Maersk Line. Our
need to reflect on what they need from their providers
entire industry interacts with the government, and we have
and how this matches up with their supply chain. Maersk
made it very clear that updating the port of Veracruz and
Line is good at delivering quality, but we are far from the
increasing investment in infrastructure are an absolute
cheapest. We provide a trustworthy service and our clients
must. The recent National Infrastructure Plan shows that
know their goods will arrive on time. We have the newest
the government is willing to take a step forward, but it must
fleet, the newest containers, and we have the best track
start implementing it.
record for reliability. Sadly, this is far from the industry standard as on-time arrivals hover around 50-60%. We
302
Q: How much of the expansion of the ports is being
show the automotive industry what we are capable of and
targeted for the automotive industry?
the automotive companies must figure out how much it
is worth to know that their containers will arrive on time.
A: Fuel is our biggest cost. We focus tremendously on
This strategy has been successful with a number of OEMs.
reducing our fuel consumption to minimize the environmental
We are now the largest carrier for Volkswagen in Mexico,
impact of out CO2 emissions from burning heavy bunker fuel
we have a significant presence with Nissan, and we are
and to reduce cost. Our main tactic to achieve these dual
growing our business with GM and Ford.
objectives has been to slow ships down so they burn less fuel. Transit times are slower today than in the past, especially on
Q: What can be improved in terms of rail transportation to
backhaul routes where trade is imbalanced. Mexico imports
enhance Mexico’s overall logistics performance?
many goods from East Asia but does not export many goods
A: Infrastructure must improve in central areas as the rail
back there. The import leg is competitive for the country
network in Queretaro is not sophisticated enough to support
so Maersk Line tries to meet its customers’ expectations in
the needed movement of cargo. As a result, trucks are used
terms of time. On the return leg, we reduce speed as nobody
to bring containers from Manzanillo, but that is not the best
is willing to pay for it. All of our global services have been
option in terms of sustainability, efficiency, and security.
shaped in this way to reduce our fuel costs and our CO2
Having efficient rail infrastructure would be safer, faster, more
emissions. We also integrate the latest technology, such as
reliable, and more environmentally friendly. The rail network
engines and construction techniques, to reduce our fuel
is only efficient from Lazaro Cardenas to Mexico City and
bill. Our latest ships, the Triple E Class, are the largest in the
Monterrey. Ferromex and KCSM have discussed plans for
world. Triple E means Economy of Scale, Energy Efficient,
the Bajio region but no steps have been taken to develop
and Environmentally Improved.” 18,000 containers can be
them. For example, there is no rail service for Honda’s plant
accommodated on each ship but their overall environmental
in Celaya, Guanajuato. Ferromex may have a terminal at the
impact is reduced.
Inland Port in Guanajuato but a lot more needs to be done. Mexico City has three large inland terminals, Queretaro and
Q: When wil Mexican ports be able to accommodate
San Luis Potosi need similar strategic investments to support
Maersk’s biggest ships like the Triple E Class?
the rail movement there. In particular, Ferromex needs to do
A: Only the port of Lazaro Cardenas is close to being able
a lot of work internally to provide a real value proposition
to welcome our biggest ships, but it is not there yet. The
that is interesting for the automotive industry. The two rail
improvement of infrastructure will be driven by demand.
operators have a de facto duopoly, Manzanillo for Ferromex
If the automotive industry causes Mexico to have more
and Lazaro Cardenas for KCSM, so they have not had to
imports and exports, then bigger ships will have to come
worry about how to get more cargo.
and ports will have to accommodate them. At the moment, we have the right size of ship, and there are no current
Q: How are you trying to reduce your US$7 billion fuel bill
plans to go bigger. In a couple of years, if a rise in demand
and how are you using trade imbalances between Mexico
justified sending bigger ships to Mexico, we would be
and Asia to save on fuel consumption?
willing to bring those ships in at Lazaro Cardenas.
PORT OF LAZARO CARDENAS With 35 years of existence, the Port of Lazaro Cardenas
global supply chains since it is connected to 150 ports and
is a young and dynamic port located on the Pacific Coast
38 countries. Lazaro Cardenas holds the leading position
in the state of Michoacan. Given its strategic geographic
as the main Pacific vehicular cargo port with 67% market
position, it has become a bridge joining the commercial flow
share. In terms of imports, auto parts account for 23% while
between Asia and Mexico. It is the deepest port in Mexico,
exports of auto parts make up only 8%. Lazaro Cardenas
with navigation areas of up to 18m, and has a displacement
manages 213,000 automotive units a year, and to further
capacity of 170,000 tonnes. Important investments totalling
consolidate its presence within the industry, it is creating
US$63 million have been allocated to the development of
the first automated terminal for cars in Latin America with
TEC2, which will have a capacity of 1.2 million TEUs per
an investment of US$40 million. During the first stages, the
year and will eliminate existing logistics bottlenecks and
terminal will have the capacity to handle up to 750,000
maximize efficiency in all processes. This new container
units per year, but once finished it can process between 1
terminal will promote Mexico’s competitiveness as it will
million and 1.3 million units. Lazaro Cardenas’ importance is
offer service to ships with the capacity to transport up to
unquestionable as it has jumped on the global port ranking
15,000 containers. Lazaro Cardenas has tightened its ties to
from 279th place to 94th in the space of eight years.
303
It is exports rather than internal sales that are driving Mexico’s automotive industry growth; however, the country’s domestic market is benefiting from wider economic growth and saw sales increase by 9% in 2013. While in the past American brands dominated the scene, the domestic market now features one of the most varied and diverse vehicle parks in the world. Some 40 brands and 220 vehicle models can be seen on Mexico’s roads. 2013 saw domestic sales climb over the one millionunit mark for the first time in a decade, although new car purchase levels on the whole remain disappointingly below their potential. For every 1,000 people in Mexico only 8 new cars are sold, which has generated fierce competition amongst dealers. While progress in the consumer car market remains sluggish, the fleet sector is seeing interesting growth opportunities, with some of the biggest fleet companies in the world operating in Mexico. The healthy competition and demand in the sector has sparked innovative fleet management strategies and driven down fleet rates, and recent fiscal reforms are incentivizing increased leasing.
This chapter will look at the growing internal market both in terms of distribution and sales. Key distributors discuss underlying factors impacting domestic sales and new business strategies applied. Mexico’s journey from a single-brand dealer network base to a dynamic and competitive multi-brand dealership environment is examined. Strategic insights directly from the leading fleet mobility service providers elucidate the growing trends of leasing and management outsourcing within Mexican fleet owners’ strategies, as well as the growing awareness of and focus on total cost of ownership (TCO). Major fleet owners discuss their fleet purchasing decisions and shed light on key influential factors including price and aftersales services. Finally, the major factors inhibiting internal market growth will be discussed, as well as the measures being taken to address these.
DOMESTIC MARKET & FLEETS
11
CHAPTER 11: DOMESTIC MARKET & FLEETS 308
VIEW FROM THE TOP: Weak Internal Market Weighing Heavily on Distributors
309
Multi-Brand Dealerships Improving Business for All
310
VIEW FROM THE TOP: Integrated Solutions Spell Success for Brand Purveyors
311
Local CSR Initiatives on the Rise
312
VIEW FROM THE TOP: Leasing Increasingly Popular for Fleet Owners of all Sizes
313
PROJECT SPOTLIGHT: Porsche Plants the Seeds for Mexican Market Success
314
Steady Momentum for Fleet Mobility Services
315
Fleet Management Companies Build Trust
316
VIEW FROM THE TOP: Financing Solutions for Optimal TCO
318
VIEW FROM THE TOP: Outsourcing Fleet Management Reduces TCO
318
VIEW FROM THE TOP: Personal Touch to Commercial Automotive Financing
321
High Hopes for Nationwide Fleet Renewal
322
Considerations Driving Fleet Purchasing Decisions
323
Lucrative Leasing Segment Sows Seeds for Growth
324
VEHICLE SPOTLIGHT: Navistar ProStar
326
VIEW FROM THE TOP: In-House Fleet Management Allows far Tighter Control
327
Small Carriers Need Greater Decision-Making Power
328
VIEW FROM THE TOP: The Backbone of Mexico’s Connectivity
329
VIEW FROM THE TOP: Domestic Bus Builder Eyes International Expansion
330
VIEW FROM THE TOP: Anticipating Passenger Trends
331
Interstate Transportation in High Demand
332
Making the Formal Choice the Right Choice
333
Natural Gas Opportunities for Mexican Fleets
307
| VIEW FROM THE TOP
WEAK INTERNAL MARKET WEIGHING HEAVILY ON DISTRIBUTORS GUILLERMO ROSALES ZÁRATE Director General of AMDA Q: How have AMDA’s priorities evolved since its creation?
around 7 million vehicles have been imported since then.
A: The Mexican Association of Automotive Distributors
For every new vehicle that has been sold in Mexico, a used
(AMDA) was founded in 1945 with the aim of representing
one has been imported from the US. In the past, analysts and
vehicle distributors in both the light and heavy duty
public officials believed used car sales had nothing to do with
segments. Throughout its long history, the organization
the new vehicle market since the consumer segments were
has witnessed Mexico’s changing marketing strategies, and
seen as being wholly separate. This theory was debunked
we currently represent over 1,500 dealers from the biggest
by studies conducted by A.T. Kearney and the Ministry
automotive brands. Nowadays, apart from representing
of Economy. A used car consumer is not a direct target
distributors, one of our major aims is to strengthen
purchaser for a new car, but the saturation of the market
the internal automotive market. American brands are
with used vehicles is having a clear impact. Almost 90% of
predominant due to the proximity of the US, but there are
those who buy a new vehicle will sell it after three to five
approximately 40 brands and over 220 vehicle models in
years. The resale value of those cars is impacted heavily by
the market overall. In 2013, the domestic market broke the
the inundation of vehicles around nine years of age. Mexico
barrier of 1 million units sold, but this is a small amount for a
has no technical inspection for cars and its auto parts market
country of 118 million people, generating fierce competition.
lacks specifications, so used cars can circulate ad infinitum
Our estimates show that Mexico is at less than 60% of its
until they finally break down. Close to 250,000 new vehicle
vehicle sales potential. Therefore, we have to lobby the
sales per year are missed due to this phenomenon. AMDA
government to try and strengthen the internal market.
has been generating public awareness on key issues. For example, there is a false perception in Mexico that technical
Q: How have you improved dialogue with the government
inspections of vehicles only work in developed economies,
about internal market constraints?
due to the extra costs they generate for the owners. However,
A: I was tasked with this very responsibility when I started
countries like Brazil, Argentina, and Panama are successfully
working for AMDA. I quickly realized that we did not
developing stricter vehicular inspection. Mexico City only
have a solid proposal with which to approach the federal
has verification requirements for pollutants, but another
government, but rather a list of complaints without studies
eight different types of verification exist in other parts of
to back them up and no practical solutions. Most branches
the country. This is totally absurd since it is possible to verify
in the association were working independently so we had
mechanical conditions and emissions at the same cost.
to consolidate all areas to create a cohesive proposal. We
308
needed solid evidence to present to Congress, as it directly
Q: How can AMDA help relations between OEMs and
influences the life of the distribution chain. We now do
distributors to develop in an optimal way?
our own studies and collate them with the media before
A: We look at these relationships from a standardized base.
presenting them to the corresponding authorities. If you look
OEMs are fairly guarded, but we do know that OEMs and
at Mexico’s current conditions and consider the variables of
distributors share a common strategy for sales, customer
population size, demographics, and GDP per capita, Mexico
service, motivation, and management. We try to work on
should be selling at least 1.6 million to 1.7 million vehicles a
those joint areas and stay out of more specialized issues
year. However, the goal of 1.7 million is very similar to the
like branding and certification for mechanics. We work on
goals we had back in 2004, which means we have undergone
a triangular network in order to effectively communicate
a decade of stagnation. For every 1,000 people, we are only
between OEMs and distributors. In recent years, we have
selling 8 new vehicles, which is similar to 1981. We have
started and continued to implement successful programs
analysed the issue and reached several conclusions about
with Chrysler and Nissan in which they certify distributors.
why the market is stagnating. The first is the importation of
We are aiming to replicate the same system with other
used vehicles from the US. In October 2005, the importation
brands. This leads to significant savings for distributors in
of foreign used vehicles into Mexico became legal and
the long-term.
MULTI-BRAND DEALERSHIPS IMPROVING BUSINESS FOR ALL
Alberto López de Nava, President of Grupo Alden
Of all the stages on which
Alberto. Additionally Grupo Alden has become an important
the automotive industry’s
dealer for Audi and is responsible for 15% of its total sales in
battles have been waged,
Mexico. Becoming the most successful Audi dealership was
the distribution market has
not simply gained with a beautiful dealership exhibiting the
been among the fiercest.
vehicles, but also with a keen business sense. “In the past, we
“The domestic market has
had an issue with where to place our Audi dealership, so we
been stagnant for many
had a temporary tent with air conditioning put up in the State
years, but the number of
of Mexico. It certainly was not a typical dealership but we
dealerships
managed to sell more than any other established dealership,”
has
grown
from 900 to 1,800 in just a
Alberto recalls.
few years,” explains Alberto López de Nava, President of Grupo Alden. In the space of
“Managing 11 brands poses no challenge to Grupo Alden
30 years, Grupo Alden has amassed 32 dealerships across
as it adopts the best practices from each OEM and applies
11 brands, with the president attributing this success to the
them to its own business model,” says its Director General,
company’s capacity to transform according to the whims
Carlos Alberto López de Nava. He points out that this
of the industry. “In the 1980s, each player in the Mexican
change in processes began with the acquisition of the
distribution market focused exclusively on one OEM, relying
Toyota dealership. “After World War II, Toyota adopted its
solely upon it for its growth,” explains Alberto. He recalls
current lean manufacturing principles and believes in them
how he went against the grain by representing several
wholeheartedly. Upon securing a dealership for Toyota, we
brands. While some OEMs once viewed this as a conflict of
also had to apply these practices and we began to believe
loyalty, Alberto maintains that an open distribution network
in them as well.” According to Carlos Alberto, the principles
actually led to business improving for OEMs. “Ford was the
of lean manufacturing are first applied with the 5S system:
last one that held out and did not allow multi-franchises. As
sort, set in order, shine, standardization, and sustain.
a result, other OEMs were acquiring its best dealers.” Upon discovering this, Ford reconsidered its dealership practices
When
and Autofin, led by Juan Antonio Hernández, became
distribution business, it is crucial to standardize and
applying
lean
manufacturing
methods
to
a
the first outside dealer to obtain a Ford franchise. While
sustain all procedures. All of these procedures, ranging
expanding into other brands may be profitable for all parties
from sales to service, must be reevaluated and reviewed to
involved, Alberto stresses the importance of not mixing
obtain optimal efficiency levels. “Every person is allowed
profits across dealerships, given that each brand stands as
to challenge the process. This requires us to have a good
an independent profit center. “We do not allow our salesmen
managerial attitude because you have to be willing to
for one brand to deliver a car from another. If they have a
accept criticism,” Carlos Alberto admits. This open-minded
customer that wants another brand, they have to send him
approach is crucial during the collaboration process
to another franchise,” he adds. This variety has opened the
with OEMs to adapt vehicles to consumer needs. When
doors to new opportunities, especially in fleet services. For
Toyota first entered the Mexican market, six dealers were
example, Grupo Alden has created a multi-brand division
appointed to discuss the vehicles and market opportunities.
where it delivers fleets from all its main brands, including
Carlos Alberto recalls the experience: “We openly reported
2,400 vehicles from Nissan, 1,600 from Volkswagen, as well
the adaptations needed in the vehicles and after four
as vehicles from Ford, Toyota and Honda.
months, the vehicles had been perfected. This is the sort of collaboration we have with OEMs when sharing our views
Alberto says that breaking paradigms has made Grupo Alden
on the vehicles.” Alberto emphasizes a golden rule that
stand out from its competitors, especially in the appearance
states no manufacturer or dealer can receive or transfer a
of its dealerships. While traditional dealerships are built
faulty product. “When quality is in question, the assembly
horizontally with the showroom looking to the street, Grupo
line is stopped to fix it. This principle is transferrable to any
Alden’s Ford Condesa facility stands out by being a vertical
business,” he explains. “Toyota stops the assembly lines in
structure. “It has six stories, -1 is service reception, ground
its plants all over the world thousands of times, for maybe
level is parking, the first floor is Ford, the second floor is
five or ten seconds, but even such a short delay costs a
Lincoln, the third floor is service center, and the fourth floor
lot of money.” Grupo Alden not only has adopted the lean
contains offices. With its 11 productive service spaces, it has
manufacturing principles but embraces them. For Alberto,
become the epitome of efficiency. Ford now encourages
quality is constructed along the supply chain, and dealers
this sort of efficient model for its dealership network,” says
play an important role in maintaining it.
309
| VIEW FROM THE TOP
INTEGRATED SOLUTIONS SPELL SUCCESS FOR BRAND PURVEYORS J. ARTURO ZAPATA Executive President of Corporación Zapata Q: What are the main trends in the Mexican market, and
Styling has always been a very important feature,
how do you anticipate them?
particularly for the younger generation. However, the
A: The market has evolved significantly, particularly
latest marketing trend today is to engage the customer
as relating to large fleet customers. They are already
into feeling identified with a particular brand; it is almost
demanding
a
as if they belong to a particular brand. Therefore, most
collection of parts and services for them to put together.
companies are trying to communicate that their brand
When Corporación Zapata decided to provide integrated
stands for something that customers truly want to be part
solutions for its customers, we did not see this as clearly as
of. Some companies are doing this extraordinarily well in
we do today, although we did have a bit of foresight. What
Mexico, such as Mazda and Volkswagen. These are indeed
customers want today is a turnkey solution. It used to be
important drivers in today’s market. If a company can
common for companies to hire 150 different suppliers to
establish a solid reputation for quality, together with an
build a factory; today, people want to get a factory up and
image that the customers identify with, it will truly pay out
running in one stroke. That is how we see the market today
financially.
individualized
solutions
and
not
just
and we need to be prepared to fulfill that need. There has been consolidation in our industry, but there has also been
Q: How much of a brand’s success relies on the quality of
consolidation on the customer side. Serving customers is
the car by itself, as opposed to the skills and capabilities of
becoming more challenging and demanding; the market
the service support that people receive when something
is also becoming tighter and the customer expects more
goes wrong?
from us. Integrated solutions are an effective way to move
A: A little more than a decade ago, Ford Motor Company
forward and provide value added services that can make
did a very thorough market study in the US to better
a key difference.
understand customer’s brand loyalty. One incredible finding was that customers who had experienced a
Q: What are the main drivers of your value proposition in
problem with their car, and had then received great
the primary consumer market?
service at their preferred car dealership, became far
A: Back in the old days, having a better financing scheme
more loyal to the brand than those customers who never
was a key asset; but as everybody started offering similar
had a problem with their car in the first place. This was
financing options, it was no longer a differentiator.
truly an eye-opener for me as every time a customer
Financing will always be a critical element, but financing
has a problem, it creates an opportunity for us to build a
instruments will have to become more sophisticated and
relationship for a lifetime.
personalized. The format of leasing a car for three or four
310
years, then returning and replacing it for another one, has
Q: How do brands communicate directly with potential
become very successful in the US market. This format has
customers in Mexico?
also become very popular with fleet customers in Mexico
A: Brands still communicate with customers mostly by
– where one of our subsidiaries, Ariza de México, is the
advertising in traditional media, but they are relying on
country’s market leader in providing fleet management
it much less than before. Most brands have realized that
and leasing solutions. However, as consumer interest rates
communicating with customers in a timely and relevant way
in Mexico continue to approach US levels, pure leasing
can prove much more effective. For example, we do most of
will start becoming popular in the consumer market.
our own marketing and advertising through Autocosmos.
Warrantees are another element that remains important.
com. This webpage, founded in 2000, provides automobile
However, if first time owners are going to keep their car
owners with all the information that they need, before they
for only three to four years, extending the warrantee from
decide on which car to purchase. All of the information is
five to seven years might no longer be perceived as an
delivered in an impartial, timely and relevant way, including
important value added feature.
test drive feedback. It is also a terrific platform for those
of us who want to deliver a message or provide a useful
already car-sharing systems in which people who need a
perspective to these potential customers, just as they are
car for a certain amount of hours, pick it up at an agreed
considering which car or light truck to buy. Autocosmos.
location and then simply drop it off at another. Car models
com has now become the leading automotive website
and features could become less relevant in such a system.
in the eight largest Spanish speaking countries in Latin
On the other hand, I believe that technology will play a
America, including the US Hispanic market.
key role in making cars more personal to buyers, in the same way that customers identify themselves with their
Q: As cars improve in both their durability and
cellphones. My take is that cars will start doing much
performance, what will drive people to continue renewing
more of that, resulting in people wanting to change cars
their vehicles?
sooner, in order to take advantage of the new features
A: Some claim that having better cars will deter people
that technological advancement will make available, such
from renewing their cars frequently. I do not know if this will
as improved fuel consumption and security features; but
eventually happen, but what I do know is that car companies
undoubtedly there will be many other electronic features
have no other option than to continue improving vehicles.
that will help people enjoy their car even more. Obviously,
A car is one of the most expensive purchases people make,
we do not anticipate that current cars become obsolete,
and the decision can be a deeply personal one. Could cars
but those customers who can afford it, will want to buy a
lose this element and become a commodity strictly aimed
new car because of new technology which will add more
at transportation? It could certainly go that way. There are
enjoyment to the driving experience.
LOCAL CSR INITIATIVES ON THE RISE As
Social
to read and write. After the second grade, girls would quit
Responsibility (CSR) programs are becoming more prolific.
Mexico’s
economy
blooms,
Corporate
school and help their mothers at home. Today, not a single
As stated in its corporate mission statement, Corporación
girl leaves school before finishing the ninth grade. We have
Zapata seeks to have a positive impact in the community.
not gotten them to finish high school yet, but now parents
“I believe that, as part of our business, we need to help
would be outraged if their daughters did not finish ninth
build a community for those that do not necessarily have
grade,” says JAZ.
the opportunity to do so themselves. We are involved in many ways, in education to which we devote most of
Although these rural communities remain poor, their
our money, and also in healthcare,” comments J. Arturo
conditions have improved. According to a study carried
Zapata (JAZ), Executive President of Corporación Zapata.
out by the Ministry of Health, the communities’ health
For instance, the company has a program called Programa
standards are now equivalent to those of certain areas of
Niño oriented at helping 38,000 impoverished children in
in Mexico City and Guadalajara. JAZ emphasizes that the
the state of Hidalgo by covering their healthcare needs,
local dynamics have changed now that people are healthier
building schools, and helping in other areas as needed. JAZ
and both men and women receive an education, the results
says this program provides a good example of community
of which can be seen in the local economy. “People in the
building, as after 28 years running of Programa Niño,
community now have cars and there is even a bridge to
Corporación Zapata is now taking care of the children of
make the villages more accessible. Besides people enjoying
the people it first began to sponsor.
their pickup trucks, the overall well-being has improved in these areas,” says JAZ, explaining that previously, people
JAZ believes the most fascinating part about Programa
had to walk to work at the nearby factory. The factory has
Niño is the way it changed the dynamics of the
now had to buy land to construct a parking lot, which is a
communities. Once healthcare issues were covered,
reflection of the communities’ economic growth. “Having
Programa Niño started getting involved with the local
a car does give people satisfaction and exposure because
schools. The impact was most evident when one of the
they can go beyond their immediate environment and
schools Zapata is sponsoring came in fifth place of the
visiting distant places, gives them a different perspective
national school evaluation system. The improvement
on the world.” Corporación Zapata participates in many
of the local school system also had an impact on the
other social programs to fulfill its mission, but JAZ is
communities’ culture. “When we got there many years
particularly fond of the evident community building that
ago, there was a belief that women only needed to learn
Programa Niño continues to foster.
311
| VIEW FROM THE TOP
LEASING INCREASINGLY POPULAR FOR FLEET OWNERS OF ALL SIZES TJAHNY BERCX CEO of LeasePlan México Q: How has LeasePlan’s presence in Mexico evolved over
A: The primary trend is the need for better understanding
the past five years?
of a company’s fleet in terms of administration and control.
A: LeasePlan is the largest fleet and mobility service
The second main issue is that clients are asking how to
provider in the world, with over 6,500 employees
structurally reduce costs, and last but not least, they want to
worldwide. We service 32 countries with a fleet of 1.37
know how to manage the headache of the many regulations
million cars, representing total assets of US$26 billion.
they face here. A lot of companies buy the cars to form their
We have been present in Mexico for five years but only
own fleets. This represents a huge investment and is the
recently finished our startup phase. We now have 11,000
second highest cost for those companies after personnel.
units in Mexico and have been growing very quickly in this
However, with the fiscal reforms, more companies are
market, so much so that we are the fastest growing unit
becoming interested in Operational Leasing to reduce
within LeasePlan Group. Our business focus is offering fleet
their overhead costs. What transnational companies are
management and driver mobility services. By pre-financing
experiencing is that purchasing the vehicles is not the only
and taking all measurements to manage and control fleets,
cost. They must also account for ongoing maintenance
companies can benefit by utilizing that capital for other
and insurance costs, not even mentioning the residual
important investments and focus on their core business.
value risks. In Mexico, one of the biggest headaches for companies is fleet management. Managing the different
Q: What distinguishes LeasePlan’s product portfolio from
regulations about license plates and taxes of all the different
other fleet and mobility service providers?
states can be extremely complex, so they turn to service
A: We are the only leasing company worldwide that offers
providers like us to take care of it through programs like
Open Calculation. Open Calculation means reducing fleet
‘Gestoría’. LeasePlan can take care of its customers’ fleet
total cost of ownership (TCO) while companies obtain
management, even for those that do not necessarily lease
full and transparent insight into their fleet’s costs by only
our units. Fleet management is a huge endeavor requiring
paying for the actual fleet usage. The actual costs incurred
paperwork, constant interaction with the authorities, and
are reconciled to the budget; this means that companies
exacting knowledge of the federal and state regulations.
only pay for what they actually use. Secondly, the open book approach offers full insight into and full control of
Q: What are the peculiarities of the Mexican market and
the company’s fleet. A third important item is that there
how has LeasePlan adapted its products?
is no risk on residual value and maintenance. LeasePlan
A: In Mexico, a car is seen as an asset that is to be bought
takes all the risk. Finally within Mexico, we are the only
and kept. Instead of using a leasing company that offers
leasing company that also offers Gestoría services. Mexico
pre-financing and provides the opportunity to use the
has 32 states that have their own regulatory environment,
investment elsewhere, the companies would rather buy the
requirements regarding registration and de-registration
vehicle. After a certain time, companies sell the vehicles at
of cars, road tax, and environmental inspections. Within
an attractive rate to their employees, making it an additional
Gestoría, we also support our customers with police
employee benefit which almost 95% of employees accept.
statements and legal representation needed in case of
There is a huge part of the Mexican population that does
incidents such as accidents, lost documents, fines, and
not have a car, so when the opportunity to buy a cheap
vehicle repossession. Next to a series of products and our
car is presented, they take it. But over time, a shift is taking
solid financial position, it is our Open Calculation product
place, especially in times of crisis when companies need to
and Gestoría offering that really distinguishes us from
reduce overhead costs. Fleets are among the first areas to
other fleet providers.
be targeted, so the state of a market will lead to companies deciding whether to lease or purchase their fleets. We are
312
Q: What trends are you seeing for leasing demand in
now seeing more customers approaching us to achieve
Mexico?
cost savings, completely cutting out the practice of buying
| PROJECT SPOTLIGHT vehicles. Changing this mindset can represent millions of
PORSCHE PLANTS THE SEEDS FOR MEXICAN
savings. However, companies want to continue to offer
MARKET SUCCESS
their employees the benefit of purchasing the car, so we
The story of Porsche in Mexico began in the early
offer them the opportunity to buy the cars from us at a
1960s when foreign sports cars were first brought to
low price. We are able to do this as the businesses have
the country. Soon enough Porsche’s models became
already paid the difference in the residual value. When we
favorites in the Mexican market but for the next 30
create the solutions, we calculate the possible loss and
years, all its vehicles had to be imported as the OEM
include that within the price of the leasing. We are fully
had no dealerships here. Porsche finally established
transparent about this approach when we discuss options
its first Mexican dealership at the end of the 1990s, as
with businesses.
part of a push for growth in emerging markets, where improving purchasing power had given rise to a desire
Q: What are the added benefits and challenges of offering
for the most advanced sports cars. Moving to today,
an entire product and service range?
Porsche has 11 dealerships in the country, located in
A: LeasePlan is involved in the leasing process during the
the cities of Puebla, Cancun, Guadalajara, Leon, Merida,
whole life of the car. This starts with the pre-financing by
Monterrey, and Torreon, as well as four in Mexico City.
sourcing the money for companies to borrow at low interest rates. That is followed by the purchasing of the cars and the
As the most recent of these to open its doors in May 2014,
establishment of solid relationships with dealerships and
Porsche Center Santa Fe offers a complete experience
repair shops. It is important to develop these relationships
to its customers and visitors. Located in the Santa Fe
so as to obtain good price levels for components and
district of the capital, an important finance and business
services. We also provide insurance with good coverage
hub, the dealership has a distinctive architecture in
across the whole of Mexico, and training for the drivers.
which cars are displayed at an intersection between
Our most important services are centered on TCO. We do
indoors and outdoors. Passers-by can appreciate, or at
account management for the companies, which means we
least gawk enviously, at models such as the Cayenne,
show them the whole scope of their fleet management
the Boxster, the Cayman, and the 911 Carrera. However,
from license plates, vehicle damages, and money spent on
no model takes pride of place above the new Macan,
maintenance and components. After that, we offer advice
a model recently launched in Mexico and that is
on how to manage the costs. For example, if a company
currently under the spotlight in Porsche Center Santa
uses a certain brand of tires but is spending too much on
Fe’s exhibition area. This vehicle has an aluminum body
replacement, we offer an alternative brand which will see
that contributes to weight reduction and fuel efficiency,
the fleet functioning better while we can obtain discounts
both characteristics that Porsche has perfected over
from the new tire company. These sorts of services come
years of development. The Macan is available in three
under TCO management. Another important service is car
versions: Macan S, Macan S Diesel, and Macan Turbo.
selection, and we help companies to find the car or model
The first is equipped with a twin-turbo V6, 3l engine
that best suits their needs. If one of our customers uses a
that generates 340hp and features active all-wheel
certain brand but the vehicles are constantly taken to the
drive with electronically controlled multi-plate clutch.
workshop, when the time comes to renew the fleet, we point
The Macan Diesel S version is suitable for long distances
out the spending levels and offer an alternative that will
and has a V6 3l turbo diesel engine. The main model,
better meet their needs. When offering TCO management
the Macan Turbo, is equipped with a twin-turbo V6 3.6l
services, it is imperative to have full knowledge of the cars,
engine and can generate 400hp.
maintenance, car usage, and all the dealerships that are trying to sell the units. Sometimes a more expensive car
Prior to the opening of the Porsche Center Santa Fe in
brand will suit a company much better than a cheaper car.
2014, the company made its interest in Mexico quite clear
With all these variables included in our service portfolio,
throughout 2013 with the broadening of its product and
our data warehouse is huge. Everything that happens to
services portfolios. Its Mexican dealerships now offer
the cars is in our system. We have GPS services that can
Porsche Assistance, a service for roadside assistance
track the mileage, and customers also track the car to know
without mileage limit for five years. Additionally, it offers
if the proper routes are being followed. We remove all the
a ten-year guarantee against body corrosion, beyond
pains of fleet management. As a company with 1.37 million
normal maintenance. These efforts, coupled with the
cars, we have far more bargaining power and we can obtain
opening of two new dealerships and the launch of the
better deals on vehicles and components than a company
Macan in Mexico are all signs of the German luxury
that has 1,000 cars.
brand’s growing interest in the Mexican market.
313
STEADY MOMENTUM FOR FLEET MOBILITY SERVICES The boom in Mexico’s automotive industry has been a
has identified that companies want greater control and
blessing for the country’s fleet sector at a time when the
standardization of costs, processes, KPIs, and financial
global fleet management market is expected to grow from
products. “Currently, in Mexico and the rest of the world,
a value of US$10.91 billion in 2013 to US$30.45 billion by
the Volkswagen Group is investing heavily to develop
2018. In response, Volkswagen established its Fleet Mobility
a wider range of systems to suit the global needs of our
Services division (VWFMS) in 2012. The new company
customers. In Mexico, we are in constant communication
has identified opportunities to offer services to both large
with our global matrix to support customers. Additionally,
corporate fleet owners and the smaller SME segment. José
we have introduced alternative technologies such as
Vantolrá Ruiz, Manager of Distribution, Fleets and Direct
telematics that allow real-time monitoring of the fleet,
Sales of Volkswagen de México, explains that since the
although currently these solutions remain more accessible
company started, it has developed a management portfolio
to large corporate entities,” says Vantolrá.
of 12,000 vehicles in the country. “We have identified the customers that really need mobility solutions and the
Historically, fleet sectors worldwide have grown with
combination of our strong brand and financial division allows
increases in taxation levels as company owners have looked
us to provide an attractive service for them. Ordinarily, fleet
for ways to circumvent government taxation policies. This
management is mainly focused on large fleets, but we have
has led to the company car becoming a prevalent employee
also identified significant potential in the SME sector, which
benefit in many regions. In fact, almost 60% of new cars sold
requires support but currently has no major provider,” says
in Europe are for use as company cars. Following Mexico’s
Vantolrá.
Fiscal Reform, leasing will offer more favorable VAT conditions
“The role of technology is critical to manage and control a fleet, it is essential to have robust, flexible, and reliable systems to ensure performance monitoring of each component” José Vantolrá Ruiz, Manager of Distribution, Fleets and Direct Sales of VW de México
Volkswagen’s market knowledge allows VWFMS to provide
to fleet lessors that may well incentivize more leasing.
the entire range of fleet management services including
Vantolrá explains: “With the recent reforms on taxes, leasing
vehicle selection, accessories selection, financial and
has become the best option to acquire a fleet. Although
insurance plans, maintenance, warranty, and administration
the deductibles for leasing have decreased from MX$250
for the lifecycle of fleets. “Identifying the right vehicle and
(US$19) to MX$200 (US$15) a day, expenses associated with
having easy access to parts and maintenance is crucial,”
the vehicle, such as gasoline, maintenance, and insurance,
says Vantolrá. To this end, VWFMS has a dedicated
remain 100% deductible.” Vantolrá believes the reforms will
network of suppliers, certified repair shops, and pre-paid
encourage growth while attracting more competition to the
maintenance schemes in place. Financing is obviously an
market. “We visualize the incorporation of new players, either
essential support mechanism for fleet establishment, and
entering from abroad or emerging from within Mexico,” says
Vantolrá explains that the company’s financial division
Vantolrá. Essentially, VWFMS aims to remove troubles from
serves the leasing segment heavily, with over 70% of its
any companies expending a lot of time and effort to manage
financial portfolio being comprised of leasing customers.
a fleet that is an essential part but not a central component of their core business. VWFMS is seeking to stand out from the
The
314
and
number of competitors operating in the Mexican market by
technology continues to evolve and the importance
relationship
between
fleet
management
providing a number of core services. It handles negotiations
of being able to electronically monitor fleet and driver
with OEMs when buying a number of units for a given fleet,
performance is becoming crucial to understanding and
by handling the acquisition and disposal of fleet renewals, by
reducing lifecycle costs. “The role of technology in the
providing funding alternatives to match a company’s needs
fleet management process is critical to manage and
to its budget, by ensuring that the vehicles receive servicing
control a fleet, it is essential to have robust, flexible, and
on schedule, handling the administration of fines stemming
reliable systems to ensure performance monitoring of
from breaking the rules of the road, and ensuring drivers can
each component of the fleet,” says Vantolrá. VWFMS
benefit from an established personal support system.
FLEET MANAGEMENT COMPANIES BUILD TRUST Almost twenty years ago, two companies, both leaders
to fleets of any size and composition, Ariza provides
in their fields, began a partnership with one idea in
coverage throughout all of Mexico.
mind: to provide integrated fleet management and leasing solutions to meet the needs of hundreds of
“Along the way, we identified that one of our key
highly sophisticated companies operating in Mexico. The
customers’ concerns was achieving transparency in their
result of this partnership, between US based Automotive
most critical processes,” says Dávila. As a result, Ariza
Resources International (ARI) and Mexico’s Corporación
devoted significant resources to develop web-based
Zapata, was the creation of Ariza de México (Ariza), a
applications through which its customers can trace all
50/50 joint venture which, after 20 years, has become
of Ariza’s processes, and many of these in real time.
a key market player in Mexico. “Our strategy has been
Ariza has also unearthed opportunities in the extended
to provide integrated solutions that help decision-makers
use of data by providing customers with substantial
maximize the contribution of their fleet to the achievement
and meaningful information to help them make better
of each customers’ strategic goals, while minimizing the
decisions regarding every aspect of their fleet.
costs associated with it,” says Carmen Dávila, Director General of Ariza. “Back in those early years, the concept
One of Ariza’s key differentiators today is the very
of outsourcing in general, and fleet management in
thorough reports that it makes available to its customers,
particular, was not widely spread in Mexico. Therefore, we
many of them specifically tailored to their particular needs,
devoted a significant amount of time and effort to explain
with the objective of providing a foundation for continuous
the substantial benefits that could be obtained from an
improvement and timely decision making. “As our
integrated approach to managing fleets: whether it was
customers’ challenges have become ever more complex, so
a distribution fleet composed mainly of light and heavy
has our list of fleet management offerings. We are always
trucks, or a sales and executive fleet of consisting of cars,
alert, close to our customers, and listening constantly,
Ariza could always help customers drive costs down,
which enables us to be flexible, adapt, and create new
avoid an unnecessary head count, and strengthen control
services,” comments Dávila. “One clear example is the new
of their fleets.”
set of initiatives that we have designed to support our
“The
concept
of
outsourcing
in
general,
and
fleet
management in particular, was not widely spread in Mexico. Therefore, we devoted a lot of time and effort to explain their substantial benefits” Carmen Dávila, Director General of Ariza de México
Over the years, Ariza not only grew at an accelerated
customers’ ever more critical compliance and corporate
pace, but realized that as customers began to enjoy
governance practices. Among them, we have implemented
the benefits of this new approach to fleet management,
a whistleblower line known as Ariza’s Ethical Line, which is
they also started to recognize new areas of potential
operated by an autonomous third party, and supervised by
improvement related to their fleets. It is here where Ariza
our Board of Directors’ Audit Committee.” Other examples
has focused much of its attention over the past several
include advising its customers on changing government
years. “One particular capability that we have developed,
rules and regulations, tax efficient alternatives to direct
is the possibility of customizing our service platform to
ownership, fuel smart card solutions, and carbon footprint
address the particular and always evolving needs of each
measurements. In today’s ever more global environment,
customer,” says Dávila. Ariza’s fleet management solution
Ariza can also provide seamless global support through
embraces every single stage related to a fleet of vehicles.
ARI’s own infrastructure in Europe and a very extensive
That is, from the initial analysis and selection of the ideal
network in Asia, Australia, and Ariza’s own direct
vehicles, through each and every aspect of the life of
expansion into Latin America. “At Ariza we think that the
each individual vehicle, including purchase, delivery,
struggle between flexibility and control can be effectively
insurance,
regulations,
managed: we help our customers build as much flexibility
accident management and recovery, and finally the
as possible into their fleet management processes, while
vehicle’s disposal. As well as offering all these services
still maintaining sufficient control,” concludes Dávila.
maintenance,
all
taxes
and
315
| VIEW FROM THE TOP
FINANCING SOLUTIONS FOR OPTIMAL TCO TOBIAS WALDECK President and CEO of Daimler Financial Services México
Q: What financing solutions does Daimler Financial
A: We are focused on many different kinds of customers
Services offer worldwide and in Mexico?
and we know how to approach each of them. For trucks,
A: Daimler Financial Services offers a broad range of
tractors and vans, we provide services to owner operators
automotive financial services, including vehicle leasing and
who need between one and 20 vehicles, as well as to
financing packages, financing services for dealerships, fleet
companies that need a complete fleet of vehicles to
management, as well as insurance packages and banking
transport different products. For the passenger cars
services. Our products and services support the Daimler
segment, we talk to those looking for a luxury car, like
Group’s vehicle sales and seek to improve brand loyalty
Mercedes-Benz. There is also a special segment, known
among customers and dealers. We reached a landmark
as customers for new generation compact cars. These are
in 2013 when the number of vehicles around the world
usually young graduates that have started their careers
financed or leased by Daimler Financial Services topped 3
and want their first luxury compact car. They might be
million for the first time. There is a good reason as to why
looking for a Class A or CLA, or even our newest model,
our automotive financial services are in such high demand.
the cross-over GLA. We are able to offer them attractive
First, our financing makes it possible for customers to own
financing or leasing packages, according to their specific
their first vehicle bearing the three-pointed star, or get the
needs and credit profile. When a person arrives to one of
best TCO with a Mercedes-Benz bus or a Freightliner truck
our dealers’ agencies looking for a car, we have Finance
or tractor. In Mexico, about 60% of commercial vehicles
& Insurance agents ready to advise them about the best
were financed in 2013. Second, thanks to our leasing
financing option. In the passenger cars segment, we can
packages, drivers can trade their cars in for the newest
issue a credit pre-approval in around 30 minutes. For the
models on a regular basis. And finally, our insurance
vans segment, we have a three day fast-track approval,
solutions guarantee that our customers’ premiums are as
while for commercial vehicles, we require an average of
attractive as their vehicles are safe. On average, in Mexico
eight days since a more complex credit analysis is needed.
and around the world, we finance or lease four out of every ten Daimler vehicles delivered.
We have been in Mexico for 21 years, so we have learned about its market needs. We have changed along with the
316
Q: To what extent does Daimler Financial Services tailor
market over that time. Flexibility is the watchword of all our
its offerings for different customer profiles?
interaction with customers. Our tailor-made financing and
leasing plans respond to our customer’s needs. Some of
used vehicle, we offer them the finance package that fits
them, due to the way they manage their business or their
their needs. This way, we provide our customers with safer
finances, need a linear plan of installments. Some might
vehicles that are not as old as the imported vehicles, fewer
need an ascendant installment plan during their credit
maintenance costs and a better image for their company as
period, while others need a descending plan, grace periods
these units are less harmful to the environment.
or extraordinary installments, according to their financial structure or economic situation. To better understand the
Q: Defaulting on loans is a big concern for banks in Mexico.
local market better, we annually check our relation with
How does Daimler Financial Services view this problem?
customers through the Customer Satisfaction Index (CSI)
A: That has not become a big concern for us, as we know
carried out by a third party. This has turned up very positive
our customers. Knowing our customers allows us to
results since our CSI has been at around 95% for more than
adapt our financial offer to their specific needs, which has
five years on a row.
created loyalty to our integrated services. Proof of this is shown in our very first Mexican customer remaining our
Q: How do operating leases stack up as a financing tool
customer today. Auto Express Frontera Norte has been our
and what is the ideal customer profile for this service?
customer for 21 years. It has been transporting goods, and
A: Leasing allows us to provide maximum flexibility. Our
moving them between different Mexican states since 1974.
leasing offers allow customers to pay for the use of a vehicle
Today, it has a fleet of over 130 trucks, none of which are
rather than its purchase, which means they benefit from
older than 5 years.
low monthly rates and get incentives. Installments can be deductible and accounted for as a rental expense. At the
Q: How do you help raise awareness for the wider Daimler
end of the contract period, customers decide whether they
brand?
would like to switch to a new vehicle. This ensures that
A: All Daimler divisions know that long-term success
they can look forward to the newest models on a regular
requires not only fascinating automobiles and cost-efficient
basis, they do not incur big maintenance costs and they
commercial vehicles, but also first-class services and financial
do not need to provide a down payment. This kind of
solutions. That is why Daimler Financial Services provides
financial product is targeted to the person or company that
tailor-made financing and insurance services worldwide. In
understands the benefit of not “owning”, but “enjoying” the
total, we booked about 288,000 new leasing and financing
benefits of only using a vehicle during a period of time.
contracts in the first quarter of 2014, a 14% year-on-year increase. In Mexico, over the last 21 years, we have written
Q: How do you encourage owner-operators to opt for
more than 35,000 contracts. This country represents a
new financed vehicles over older and cheaper models
particularly strong truck and bus market, with 60% of our
imported from the US?
financial contracts being signed for commercial vehicles. With
A: We are aware of the events that shape the decision-
a portfolio of US$1.2 billion, our organization here in Mexico is
making of customers within the Mexican market. That is why
a strong contributor for Daimler within the Americas region.
we customize our financial offer accordingly. For example,
In the last 20 years, Daimler Financial Services Mexico has
when the customers’ economy allows them to look for a
financed more than 92,000 vehicles.
317
| VIEW FROM THE TOP
OUTSOURCING FLEET MANAGEMENT REDUCES TCO LEONARDO CORTINA RIVEROLL Managing Director Fleet Services of GE Capital Mexico Q: What role is GE Capital Fleet Services playing in GE’s
customer to identify areas of opportunity to reduce costs.
overall portfolio in the country?
During this process we make a full assessment of their fleet,
A: Our division has been growing consistently in Mexico
from the vehicle choices and the company policies to other
since we started here 20 years ago. We are now the
data that is important for the full analysis we make. For
biggest player in our sector in the country. Our profitability
example, it is very common for us to find that companies do
has been good and we greatly contribute to the financial
not take into consideration the cost of insurance, the cost
health of GE Capital Mexico. However, the country is still
of preventive maintenance, or the fuel efficiency at the time
learning about fleet management services. A few years
of making a decision on which vehicle to acquire. All these
ago, companies did not fully understand what a fleet
data points could have a big impact on the TCO. A company
management company could do for them; they relied on
might use for their distribution purposes vehicle A, but once
their own resources to handle their fleets. But now, they
you include all the costs of owning that vehicle, it might be
want to outsource the financing, the maintenance, and
better off with vehicle B. We put our knowledge, which is
services that fleets require to companies like us.
based on the millions of vehicles that we have data for, at the service of our customers.
Q: Once a company accepts the need for fleet management services, how do you convince them to rely on you?
Q: What is the range of profiles of your clients’ fleets?
A: Our promise is to reduce the total cost of ownership
A: Our customers range from having 30 vehicles to fleets
(TCO) of the fleet, so our discussions with clients revolve
of over 1,000. In terms of our priorities, we often target
around that. At first, our vehicle specialists work with the
companies with a lot of sales representatives as they
| VIEW FROM THE TOP
PERSONAL TOUCH TO COMMERCIAL AUTOMOTIVE FINANCING LUZ ELENA JURADO SOTO Managing Director of Volvo Financial Services Q: What are the main pillars of your portfolio of financial
Financial Services helps customers identify a full solution plan
services in Mexico?
because they prefer to work with captive finance companies
A: Volvo Financial Services is the financial services arm for
and avoid dealing with banks. The bus segment is a bit
the Volvo Group worldwide, offering financial services to its
different as 60-70% of the market is focused on corporate
dealers and customers. Volvo Financial Services has been
customers who do not need financing most of the time.
in Mexico for 15 years with finance products like floor plan
318
financing to the dealers and installment credits and leases to
Q: How do you customize your financial services for
the final customers. The financing needs and profile of each
customers with differing profiles and needs?
customer are different. In the truck segment, most customers
A: Volvo Financial Services needs to know the profile of
utilize our financing in order to purchase a truck. Volvo
our customer in order to design the right product for
need a lot of cars. Big companies are also very interesting
customers across Mexico. If the relationships with OEMs and
as there is more we can do for them on the consulting
dealerships are handled in the right way, they do not affect
side. For companies with smaller fleets, we also offer
our efficiency or our pricing. We have a dedicated team that
TCO analysis tools as well as our online capabilities that
reviews and monitors every single factor. Every three months,
enable them to see the cost performance of their fleet at
this team checks with every dealership how many cars were
any time. Naturally, we have consolidated our knowledge
delivered, which percentage of these were delayed, and
so we use the same infrastructure for customers with 30
why they were delayed. This constant review process allows
units or 1,000 units. In the case of customers with a larger
us to quickly identify and isolate problems. Ultimately, it is
fleet, we offer the option of a dedicated fleet management
our responsibility, and not the responsibility of the OEMs,
specialist. This person is in charge of periodically reviewing
to ensure that the dealers have the right customer service
the performance of the fleet with the customer and
attitude. OEMs leave it to us to select the right dealerships,
looking at areas of opportunity to keep improving fleet
we sign the service level agreements (SLA) and we train the
efficiency, which could be from a cost standpoint or from
dealers to best represent the brands involved.
a fleet availability stand point. In 2013 we launched a comprehensive online fleet management tool which gives
Q: In terms of financing, is leasing now seen as a viable
the fleet manager visibility to the performance at both the
alternative to purchasing?
fleet and vehicle level.
A: Leasing is growing as it makes sense for companies in terms of cashflow efficiency. When a new vehicle is sitting
Q: To what extent do you work directly with OEMs on the
in a dealership, it loses value. This does not happen when
specifics of the vehicles that will make up the fleets, as
a vehicle is leased, so it makes sense to lease in cashflow
opposed to relying on the dealerships?
terms. Leasing also provides an easy way to renew a fleet. If
A: It always entails a combination. The dealerships are
a company leases vehicles for 36 months, its fleet will be in a
ultimately responsible for delivering the cars to the
regular state of renewal. This removes problems associated
customers, so they play a pivotal role. We have agreements
with displacing its used cars or higher maintenance costs
with dealerships that outline how much time the delivery
that come in the later years of ownership. Leasing also
process will take across Mexico. In the Mexican market, the
allows companies to use their capital in their core business,
network of dealers makes our lives easier. They take care
by investing in core assets that will help them be more
of all the logistics needed to deliver cars from the plant to
efficient or increase their revenues.
each of them. We provide an assessment to guide them
a very close relationship with them. If a customer is facing
towards the best fit. We often receive clients who need
financial difficulties and they prefer to come to a friendly
financing but are not sure which financial product is best
agreement with us in order to avoid getting involved in a
for them. However, after assessing their personal financial
legal process, we work with the customer to determine a
situation, we are able to find the best solution for each
solution for this situation.
company.Some could need a grace period or maybe seasonal payments. We do try to tailor our services to
Q: Why should your clients choose new vehicles rather
each segment and each customer’s needs, and therefore
than cheaper, older vehicles imported from the US?
only sometimes launch a general plan. Volvo Financial
A: Transport companies know they need new equipment to
Services knows the transport market whereas banks
save on maintenance costs and this mentality has become
are not as knowledgeable about the specific needs and
wide-spread. Moreover, big companies demand that
requirements of the different market segments. With
operators do not have fleets older than ten years in order
banks, the credit approval process could take more than
to ensure on-time delivery. It is true that owner-operators
one week. With us, once the credit file is completed,
still do look to import used vehicles. In the long-term,
the approval process only takes from two to five days,
the gasoline subsidy will slowly be taken away, and the
depending on the size of the credit.
only way to avoid paying extremely high gasoline prices is to have a new model of vehicle that is more efficient.
Volvo Financial Services also has an advantage in that we
Moreover, the legal process for importation is lengthy and
know the customers, and in the majority of cases we have
expensive.
319
320
HIGH HOPES FOR NATIONWIDE FLEET RENEWAL The
bus
fleets
of
and
metropolitan the
true
the
streets.
exceeded
Eugenio Paci, President of the Automotive Industry Sector of CANACINTRA
microbus
Mexico
are
gain US$15,000 for every truck that is scrapped in VAT,”
of
Paci states. “Our data shows there are 150,000 trucks
have
to be renewed by the Ministry of Communications and
life
Transportation and over 300,000 across Mexico with local
area Many
expectancy
of
years
the
and
if it provided a fiscal incentive of US$30,000 it would
dinosaurs their
present a strong case to the Treasury. “We showed that
City’s
seven
license plates, so this represents a large revenue stream.”
most
recent models go back
A slow movement toward fleet renewal in major markets
to 1994 and still cruise
such as Mexico City and the State of Mexico is creating
freely every day. Eugenio
a snowball effect that has driven renewal in other states.
Paci, President of the Automotive Industry Sector of
CANACINTRA itself has begun similar schemes in other
CANACINTRA, views these buses as a perfect example of
states like Guanajuato, Aguascalientes, and Veracruz. The
the necessity for fleet renewal program. Positioned as the
chamber, on behalf of the automotive sector, has drafted
most influential industrial chamber in Mexico, with excellent
state financing incentives where the government, OEMs,
relations with the three levels of the Mexican government
body builders, and other suppliers all invest some money.
thanks to its 50,000 members across 13 industrial sectors,
“If Guanajuato invests MX$500 million (US$38 million) for
CANACINTRA is a pioneer in the fleet renewal scrapping
the renewal scrapping program and offers MX$100,000
program. “For the past 12 years we have worked hard in
(US$7,700) for each bus or truck, while automotive
lobbying and drafting new regulations and bills that will
companies and body builders jointly provide another
help drive the scrapping program and the renewal program.
MX$100,000, the fiscal incentive will reach MX$200,000.
This year there are high hopes they will pass,” states Paci.
Nobody will have an excuse not to renew their old vehicles. This scenario means 5,000 units can be renewed,” Paci
The program was first published in CANACINTRA’s Federal
explains. OEMs are also independently pushing for
Register in 2004 by former president Vicente Fox and ten
renovation. After lobbying for 25 months, Navistar finally
years later, 34,000 to 35,000 trucks were scrapped. “At
succeeded in renewing Veracruz’s scrapping program.
the beginning, we forecasted 10,000 trucks and buses per
Paci adds that although the government normally favors
year, so the overall rate of scrapping units has been quite
investing in more visible projects, providing optimum
low. This provided real impetus for major changes to be
public transport to citizens is far more beneficial. “The
made to the program,” Paci explains. This program offers
second biggest expense for a Mexican household is
motor carrier companies and single owner-operators fiscal
transport. The renewal of public transport fleets, although
incentives of approximately US$15,000 for each truck they
less flamboyant, garners more votes for political parties.”
scrap. With this incentive they can then visit CANACINTRA’s dealerships and use the Scrapping Certificate (official
The lack of norms has also opened the doors to companies
incentive document) as a down payment for a new truck.
that do not comply with regulations. Such unregulated
CANACINTRA agreed with the Treasury and the Ministry of
companies enter the market with their own brand but do
Communications and Transportation on a new program that
not have the secure backing of spare parts, upkeep, and
will target small carriers with between one to five trucks
maintenance service. To a certain extent their entry has
and single owner-operators. “With this refreshed program,
hindered the renewal of trucks and buses in Mexico City.
if they scrap two trucks they get a double fiscal incentive
Additionally, it has affected other links in the supply chain.
of US$30,000,” Paci details. “If an owner-operator of five
Brake companies are concerned by the entry of Asian
trucks scraps two, he will obtain US$30,000 that can be
brake parts that are sold for one-third of the regular price.
used either to pay for 30% of a down payment for a new
These unsavory experiences have left operators wanting
truck or make a 50% down payment for a five or six year
more quality assurances and price certainty. Paci is swift to
old used truck with better financial conditions,” he adds.
point out that CANACINTRA supports the entry of Asian
Paci admits that to a certain extent, the Treasury is taking
companies as long as they invest, comply with regulations,
a cautious approach to increasing the fiscal incentives,
and offer aftermarket support. While facing twists and turns
as it does not see it as a viable recoverable investment in
on the road, Paci is certain CANACINTRA will continue to be
the short term. To encourage this program, CANACINTRA
the flagship of change. “We will continue to support norms
worked alongside other associations like ANPACT, ANTP,
and fleet renewal. While it might seem like a large investment,
and CANACAR in compiling hard facts and numbers to
it will have a great impact on the lives of all Mexicans.”
321
CONSIDERATIONS DRIVING FLEET PURCHASING DECISIONS Logistics service providers play dual roles in the growth of
Estafeta’s product offering is located where the roles of
the industry. While being tightly connected to the supply
service providers and automotive clients intersect. “LTL
chain through the supply of distribution and logistics
is a new product tailored to the needs of the automotive
services, they are also prized customers for the OEMs,
industry and it entails the consolidation of cargo,” Becerril
amassing fleets that require regular renewal. “Estafeta is a
clarifies. “LTL is for urgent, next-day delivery of parts that
partner that is fully integrated across the industry’s entire
arrive either to a distributor, specialized workshop, or retail
logistics chain while having a fleet of over 2,500 vehicles
shop.” Becerril is keen to point out that this particular service
that is renewed every five years,” explains Ricardo Becerril,
is fully integrated in the supply chain from manufacturing to
National Director of Operations for Estafeta Mexicana.
the aftermarket. LTL involves the consolidation of shipments
As a fully Mexican company operating within a vast
of different sizes and characteristics into a single container
network, Estafeta has had to adapt to the internationalized
for a single destination. According to Becerril, other logistics
conditions of the Mexican market, starting with its fleets.
providers wait for trucks to be completely full before
“We have close ties with the OEMs, and we work alongside
sending them to their destination, while Estafeta’s trucks
them in the design process of our fleets,” explains Becerril.
depart regardless of whether they are at full capacity or
“We also have close ties with the body builders and main
not. This strategy would seem to translate to high fuel costs
suppliers of parts.” When choosing a new brand, Estafeta
and inefficient operations, but Estafeta points to the brand
has strict criteria that OEMs must comply with. “Principally,
variety within its fleet as enabling it to keep costs steady.
we verify that the producer has the flexibility to design
“We focus on several OEM brands: we have two brands for
our vehicles according to our specifications,” Becerril
trucks, two for box trucks, and two for vans.” Depending on
comments. “There must always be a lot of interaction and
the demand for a certain destination, the company defines
customer service. Spare parts are important to us because
the vehicular format to be utilized. “If there is sufficient
while we have our own certified workshops, we must have
quantity to fill up a truck hauling two trailers, it is sent. If
full coverage in order to ensure efficient operations.” OEMs
not, then a single carrier is chosen and so on,” Becerril tells.
benefit from close ties with fleet owners such as Estafeta,
Closely designing the routes and logistics not only increases
as they can trial products for the wider market. “We are
fuel and operational efficiency, but the characteristics of the
trying out natural gas units with Mercedes-Benz and we
fleet itself enable the company to offer accessible solutions
will measure their durability, maintenance, cost efficiency,
and flexibility in its product portfolio.
and performance,” states Becerril. The company continues to overcome hurdles in its growth
322
Flexibility is a critical component in Estafeta’s fleet purchasing
trajectory, as despite the adverse economic conditions of
and management strategies. “Estafeta’s cargo is based on
2013, it grew by 6% nationwide and by double digits in
volume and not weight, and our containers are specifically
certain regions. The new obstacle looming on the horizon is
designed to have the maximum volumetric capacity,”
the future restriction on double-articulated trucks. “The use
says Becerril. This means that more cargo can fit into one
of two trailers has some operational cost benefits,” Becerril
shipment and according to Becerril, this specification offers
admits. “Their prohibition would be a terrible blow for
30% more efficiency in capacity than any other vehicular
transportation and logistics companies.” He believes such a
format, enabling companies to save on fuel and mileage.
ban would also cause costs to go up exponentially and the
The Estafeta fleet has patented containers that have been
environment would suffer. “It will damage the sustainable
specifically designed for the company’s operations. “Our
practices of the company and of the entire supply chain,”
containers are not attached to the chassis, which means
he disputes. The ban is attributed to the lack of regulation
we can exchange containers that are full with empty ones
in the transportation sector. “The sector is unregulated. The
so there is no time wasted between deliveries,” Becerril
fault lies with informal companies that go beyond weight,
describes. “Conventional truck designs would need three
speed, and dimension limits. Even worse, their vehicles are
trucks, but our designs allow us to only need two.” To acquire
in terrible condition,” he opines. “However, Estafeta makes
these low-bed containers with special configurations, the
sure that when our units have travelled beyond 1 million km,
company must go directly to the body builders. While other
they are swiftly replaced with vehicles containing engines
companies are increasingly opting for leasing, Estafeta
that meet the latest norms dictated by the government.”
only leases 30% of its containers. “We maintain this small
Estafeta expects that, through its tailored product portfolio,
percentage because leasing companies do not have flexibility
it will grow by 11.5% in 2014, reaching net profits of US$33.8
in terms of container styles. Therefore, our policy continues
million. US$6 million would then immediately be re-allocated
to be direct acquisition,” Becerril maintains.
to the renovation and expansion of Estafeta’s fleet.
LUCRATIVE LEASING SEGMENT SOWS SEEDS FOR GROWTH
Juan Pablo Loperena, Director General of TIP México
The trucking segment has
a lessor, TIP must be able to provide immediate quotations
been growing steadily in
and be able to handle any customization requirements the
Mexico, and the owner
customer might have. “If a company works in distribution,
of
in
we might suggest a certain model due to fuel consumption
Latin America is reaping
or cost of operation. For commercial vehicles, Japanese
the
over
cars are one step beyond their competition as their total
10,000 trailers in operation
cost of ownership is lower than for other brands,” explains
nationwide.
México
Loperena. For this reason, TIP’s relationship with OEMs
started leasing trailers in
must extend well beyond the initial fleet purchase, while
1994 to major corporations
communication lines are maintained open at all times with
including
both OEMs and their dealerships.
the
largest
rewards,
fleet
with TIP
Walmart,
Kimberly-Clark, and Frito-Lay. The trailer business was so successful that TIP branched out to lease a wide range of
Despite the potential market for leasing, a lack of financing
vehicles from compact cars to tractors. When the company
is still considerably dampening the market. “70% or more of
was acquired by HNA in 2011, the decision was made to
vehicles are financed in the US and most of that financing
drive growth by expanding into vehicle leasing. This proved
comes through leasing. In the US, you can walk into a
to be a wise move since, following the implementation of
dealership and walk out with a car after having only paid
this strategy in 2012, the company has grown in size by
US$500,” comments Loperena. Despite the harder conditions
35%. TIP has steadily expanded its coverage beyond Mexico
for leasing in the Mexican market, TIP believes leasing can
City to Monterrey, Guadalajara, Leon, Puebla, and Veracruz,
act as a major growth avenue for companies expanding into
with new offices being opened in Yucatan in 2014, driven by
Mexico. “It is not easy for a company with 100 employees and
growing demand from the tourism segment.
US$10 million in revenue that suddenly becomes a Walmart supplier to invest in 15 tractors, 35 trailers, and 70 operators.
TIP’s Director General, Juan Pablo Loperena, explains that
However, such companies can grow through leasing
the company took the decision to differentiate itself from
solutions.” Leasing also offers greater financial protection
other major fleet owners by offering both short-term and
to the lessor than normal financing options. Loperena
long-term leasing. “A customer can lease a trailer from
explains that recovery times for leased cars are much shorter.
one day to seven years, and we provide maintenance and
“Typically, a bank will take 30 months to repossess a car, by
insurance services throughout these time periods,” says
which time the car has devalued considerably. We are very
Loperena. The company’s customer base used to be solely
careful about who we give credit and lease to. But for most
composed of carriers and private fleet owners, but today it
leasing companies like us, collection is straightforward and
is also targeting medium-sized companies with revenues of
delinquency rates are very low, below 1%.”
between US$375,000 and US$75 million, bringing their target customer base to a heady 75,000. Market figures support
Both of TIP’s trailer and automotive leasing businesses grew
TIP’s faith in the leasing industry, showing this segment to be
50% in 2013, up 15% from 2012, and in terms of new leases,
far more lucrative than the pure sales market. “Unfortunately,
the company expects the automotive segment to become
there are no official figures for trailers, but we have done our
as large as the trailer segment in 2014. By 2016, TIP aims
own research and established that around 8,000 trailers,
to be one of the top five leasing companies for cars in
both dry vans and reefers, are imported to Mexico every year,
Mexico. For now, as Loperena explains, the market is heavily
and around 1,000 more are made in the country,” explains
dominated by one player. “GE is a very large competitor, and
Loperena. “For light vehicles, the potential is much larger. Of
the rest of the market is far below it. However, the market
1.1 million units sold inside Mexico in 2013, 50% were sold with
is big enough for all of us, although services will be the key
a financial solution such as credit or leasing.” Of the 550,000
differentiator.” TIP expects its growth to be compounded by
units that were financed in some way, around half were
the leasing industry, growing at a double-digit pace for the
financed through pure leasing or sale and lease back options.
next four or five years. “As for trailers, customers have been
TIP has estimated that 250,000 units are purchased through
replacing their old fleets in recent years, and this should
a leasing solution in Mexico every year, which comprises the
continue through 2014 and beyond. Renewal is directly
market that the company is aiming to capture.
linked to national economic growth, as opposed to the car market. Many economic reports have pointed to the leasing
To provide customers with the right range of vehicle options,
industry being one of the sectors that will grow the most in
TIP maintains close relationships with its OEM providers. As
Mexico in the years ahead,” says Loperena.
323
| VEHICLE SPOTLIGHT: NAVISTAR PROSTAR Navistar’s ProStar is designed to be at the pinnacle of fuel
To further improve this model’s fuel efficiency, Navistar
efficiency in the heavy duty sector. Its 13-litre engine with
has opted for an optimized engine and transmission
selective catalytic reduction (SCR) technology and Eaton
communication system. This includes intelligent shifting
automated 10-speed transmission achieves an increase
and down speeding which allows the engine to operate at
of 5% in fuel economy over the competition, states the
lower revolutions per minute and use less fuel, all without
OEM. The automated transmission helps reduce the
sacrificing performance. The aerodynamic design and
discrepancy in driving styles between experienced and
components also contribute to fuel economy.
inexperienced drivers. Automated transmissions are gaining acceptance in the industry and already making
Navistar poured five years of research and development
up 30% of the market, with ProStar leading the way.
and an investment that exceeded US$300 million to
create the ProStar. With the driver’s comfort in mind, the
truck to overcome any driving condition. At the forefront
ProStar eliminates 90% of blind spots, increases front
of innovation, ProStar’s components are directly integrated
suspension stability by 33%, and offers an overall better
into the computer’s electrical system, allowing for a faster
driving experience, stated Navistar upon the truck’s launch.
diagnostic inside and outside the vehicle. It is no surprise that
Productivity is also high on the list as ProStar now offers a
the ProStar was named “truck of the year” by the American
higher capacity for storage and a reduction in weight of 45kg.
Truck Dealers Association (ATD) in 2014. ProStar has
Its Cummins ISX engine purrs at 450-500hp while encased
accomplished its mission as it is now positioned at the top of
in high-impact fibre optics and high quality plastic material
Mexico’s truck sales and has also been a bestseller in the US.
moldings, making it lighter and less likely to crash. Factory-
Mexico can take pride in being the country to manufacture
installed roll-stability and traction control allow the ProStar
the ProStar at Navistar’s Escobedo site.
| VIEW FROM THE TOP
IN-HOUSE FLEET MANAGEMENT ALLOWS FAR TIGHTER CONTROL JOSÉ ELÍAS RAMOS DEL MAZO Fleet Manager of Bonafont Q: How extensive is Bonafont’s fleet division?
Q: When choosing a heavy vehicle product line, have
A: The fleet division at Bonafont is responsible for the
your brand preferences been changing as more truck
maintenance, availability, and purchasing strategy for the
producers enter the Mexican market?
company’s fleet portfolio. We now have 2,000 home and
A: We first looked at the country’s major fleet operators
office delivery units and almost 900 units for traditional
to work out what vehicles had proved successful for them.
market delivery, which covers all small local shops. Our
We immediately saw that the most commonly used line
primary logistics division, which covers our deliveries to
was Freightliner, and we opted for that brand. Last year, we
big retailing chains such as Walmart, OXXO, and Comex, is
bought 52 units, all of which were Freightliner. However, one
supplied by third-party logistics (3PL) providers. Therefore,
element we have been searching for is a better price point.
we do not own a fleet for that segment of our operations.
Freightliner trucks are fantastic, but they are not cheap. That
Everything related to secondary distribution is dealt with in-
is why we decided to try Hino trucks, but we encountered
house but all the rest is outsourced, with the outsourced
problems sourcing spare parts for the trucks. Sterling has
segment making up roughly 30% of our distribution.
the same issues. Their trucks are strong and reliable, but you can spend a lot of time waiting for components. Bonafont’s
Q: What are the most common characteristics that drive
home delivery trucks are from Foton, a low-cost Chinese
your purchasing decisions?
brand. Each of these costs around US$30,000 on average,
A: Our most pressing concern is safety, and our fleets all have
but again, there is a problem with spare parts. For example,
ABS, air bags, and speed control. Our trucks are also installed
it can take up to two months to receive a transmission as
with GPS and other telematics. This allows us to monitor the
these parts are brought from China. We have also tried Isuzu
behavior of both the vehicle and the driver, enabling us to
trucks, which are reasonably priced and have a performance
constantly improve and safeguard our operations. We have a
similar to Hino trucks. The parts for Isuzu trucks are also
regional structure with different managers in each area who
easier to source. During our fleet renewal process in 2015,
are responsible for collecting and reading the data from the
90% of the fleet will still be made up of Freightliner units,
telematics. If they identify a problem with suspensions, for
but 10% could be made up of Isuzu trucks.
example, we will devise an action plan to solve that problem.
326
If an issue is a driver-related problem, then we can address
Q: How important is the TCO in terms of fleet purchasing
that directly. The analysis of this information is a crucial part
strategies in Mexico?
of improving our operations. We currently use the collected
A: TCO is Bonafont’s main KPI. We evaluate fleet performance
information by telematics for our own purposes, but in the
each month to constantly be aware of how much money is
future, it could be interesting to share this information. The
going into leasing, fuel, spare parts and so on. We are not
use of telematics is not that prevalent in Mexico yet, and we
the owners of the fleet, so we pay a leasing fee each month,
faced some challenges early on in finding the right suppliers.
which is a decision taken by the Danone Group. Every month,
We had some problems reading information from the units
we know exactly how much each fleet is costing us. As soon
and a number of suppliers were only able to read certain
as we see that one truck is costing more than another, we
truck models. For that reason, we worked with vendors to
start the process of phasing it out and implementing the
develop technology and create a common package that
change of that unit. The first financial contract we signed
could read the data from all units. Today, this allows us to
to lease vehicles was for six years, but because of better
read data from Hino, Freightliner, and Sterling, whose units
maintenance and care efforts, we now believe we can take on
we use. It has really helped us track fuel consumption and
a leasing cycle lasting up to nine years. We will be performing
driving patterns by allowing us to identify which routes
a renewal of our nine-year old fleet next year, representing
are more complicated and design our operational strategy
around 90 vehicles. This incorporates just the city trucks,
accordingly. Within the Danone Group, Bonafont is the only
but in 2016, we will consider the renewal of our nationwide
company using telematics as a control system for its fleets.
trucks, which will represent around 200 vehicles.
SMALL CARRIERS NEED GREATER DECISION-MAKING POWER
Elias Dip Ramé, National President of National Confederation of Mexican Carriers (CONATRAM)
Within the vast network of
This allows them to benefit from the same prices offered
the transportation sector,
to large fleet owners,” says Dip Ramé. This pushing for
a
often
favourable costs has been important, given the disparity
gets overlooked is that of
segment
that
that existed in the past. According to Dip Ramé, an OEM
single
owner-operators
might charge 5% interest to a big fleet company buying
and SMEs. For Elias Dip
50 trucks but hits owner-operators with an interest rate of
Ramé, National President
18%, putting them from buying new vehicles. He states that
of National Confederation
this differential treatment has had a major consequence:
of
the purchasing of obsolete trucks from the US has risen,
Mexican
(CONATRAM),
Carriers such
a
slowing down the domestic market. Beyond giving the
situation is incongruous,
same prices to all companies, CONATRAM is pushing for
bearing in mind the portion of the sector these micro-
equality in other areas. Access to financing for smaller
players make up. One of his priorities at CONATRAM is to
firms represents a serious challenge. OEMs have begun
make sure this under-represented crowd is better included
to provide financial services, but they are more reserved
in the industry’s decision-making. “This hive of SMEs
in offering credit to owner-operators that are seen as
and single owner-operators manages around 80% of the
less trustworthy. Therefore, CONATRAM believes that
national cargo, while the large transportation companies
a different level of financial support should come from
that claim all the attention manage just 20% of the cargo.”
the government and NAFINSA. “Congress must allocate
Some 10,000 companies operate within this segment and
a budget for the renovation of the vehicle park, and this
CONATRAM has kept itself busy helping them to evolve
should be a priority,” states Dip Ramé. “The government
to their greatest potential. This change in mentality
must take a more proactive role in financing developments
was needed for these small companies to survive in the
in the transportation segment.” Authorities have taken
competitive market. Dip Ramé says that CONATRAM’s
steps to implement scrapping programs, but CONATRAM
training model was based on innovations being made in
feels these could be improved. A petition of CONATRAM
the US, such as reducing lead times, warehousing, and
members has been given to the government, requesting
proper inventories. “The results were very effective. For
that units affected by scrapping programs should be given
example, ‘just-in-time’ services were unknown among
a value of US$19,040 and be considered as collateral for
owner-operators.
to
the purchase of new trucks. Dip Ramé says such a scheme
transport cargo from Monterrey to Mexico City, but after
would make it far easier for smaller companies to renew
the implementation of proper processes, it just takes a
their fleets, without feeling they were losing out financially.
couple of hours,” he adds. Demand from the automotive
CONATRAM is not alone in this fight, as ANPACT and
industry was another driver for change. Dip Ramé
CANAPAT have joined it in its fleet renewal mission, but
explains that the logistics needs of automotive companies
Dip Ramé says progress remains slow. “It is imperative
railroaded carriers into adopting specific strategies. “A
that the government becomes more agile in its decision-
leading supplier might give an 11-hour deadline to its
making. It is not just about renewing the vehicle park, as
transportation company of choice, regardless of its size. It
doing so would reduce pollution and improve healthcare,
is then up to the company to figure out how to achieve this
leading to millions in savings for the country.”
Previously,
it
took
three
days
service within the given time constraint.” The recently initiated Fiscal Reform is being viewed with For CONATRAM, the development of smaller carriers
wary eyes by the automotive and transportation sectors
depends on three main strategies: modernizing the vehicle
alike. “The manner in which it was approved by Congress
park, incorporating new technology into operations, and
has only increased stagnation for SMEs and single
personnel training. Among these, fleet renewal is already
owner-operators,” explains Dip Ramé. He predicts severe
a pressing topic in the heavy duty sector, which becomes
consequences as a result of Congress having approved the
a particularly challenging undertaking for smaller players.
reform without fully understanding the dynamics of the
To support companies in this process, CONATRAM has
market or the industry. “Ultimately, this reform benefits
established strong ties with the automotive industry
those that are already better off, but will push small, formal
in order to obtain favorable costs for fleet renewals.
companies back to being informal. There will now certainly
“CONATRAM is bigger than any large fleet company.
be small carrier companies that cease to exist. With its
This enables us to purchase a great number of units,
Fiscal Reform, the government has negatively impacted
which can be passed on to owner-operators and SMEs.
Mexico’s transportation sector,” he concludes.
327
| VIEW FROM THE TOP
THE BACKBONE OF MEXICO’S CONNECTIVITY GUSTAVO CÁRDENAS President of National Chamber of Passenger & Tourism Transportation (CANAPAT)
Q: What prompted the creation of the National Chamber
impact on the segment. The main issue is that we cannot pass
of Passenger & Tourism Transportation (CANAPAT) and
the impact of the new 16% VAT onto passengers, as the public
what are its main goals?
is not receiving an increase of 16% in its income. Therefore
A: CANAPAT was founded in 1989 but it used to be part of
CANAPAT’s members are trying to become more efficient in
the Chamber of Transport, which included both freight and
terms of technology and training in order to reduce costs.
passenger transport. Due to differences in operations, client
If the brunt of the cost is passed on to the passenger, then
base, and products, these two segments were then separated.
companies will lose clients. People will never stop moving,
CANAPAT was created as a result of this separation, in order
but they will migrate to another mode of transportation
to specifically tend to the needs of the passenger carrier
and might even opt for informal companies that use unsafe
segment in Mexico. CANAPAT’s objective is to represent
vehicles and do not pay VAT. The Fiscal Reform is almost
all formal companies that are dedicated to this segment,
counterproductive, given what the government wishes to
with the purpose of taking all their concerns and projects
achieve. To an extent, it will allow authorities to gain more
to the government. This chamber stands as a consulting
control over the market, but many people will opt for
board where the government can obtain information to
alternatives, which in turn will favor irregular companies.
determine which projects to develop in the sector. We cover approximately 600 companies, representing a vehicle park
Q: What strategies can be implemented to mitigate the
of close to 25,000 units. This quantity represents just over
impacts of the reforms?
95% of formal companies present in the sector in Mexico, as
A: The three main pillars to address are companies’
almost all established entities are part of CANAPAT.
operational
efficiency,
costs
reductions,
and
the
implementation of technology. Fuel efficiency is a priority, Q: In what ways has the passenger carrier segment been
as well as the availability of spare parts for the maintenance
developing?
of the units. While trends in the automotive industry
A: It is a fact that 97% of people in this country use the bus
are focusing on alternative forms of fuel, with regards to
as their preferred mode of transportation. This segment is
passenger carriers there is no fully developed technology
the spinal cord of transportation in Mexico and represents an
that can replace the current form of fuel. This is largely
intense and massive market compared to other countries that
because our segment handles medium to long distances
may see trains, cars, or planes in stronger positions. In recent
and natural gas is not a viable alternative for that right now
years, the Mexican market has been seeing more vehicles
due to the lack of infrastructure.
equipped with better technology. There are many companies that started out as SMEs but have now expanded in size.
Q: What strategies does CANAPAT implement to push for
100% of the companies affiliated to CANAPAT started out as
the formalization of informal companies?
owner-operators. Today, the strong competition that exists
A: An important factor to consider is that the informal
within the market has resulted in the introduction of many
market within the passenger carrier segment is double the
vehicle modifications that are designed to capture market
size of the formal market. This situation will never cease to
share. Buses in Mexico have a host of features including
exist, so CANAPAT must work with the government to let
but not limited to Wi-Fi, luxury reclining seats, individual
that particular market evolve. We share the same roots and
entertainment centers, and meals. The level of sophistication
origins as the informal market players, as we all began as
and maturity in this market is unique.
single owner-operators. The evolution began when single owner-operators formed groups that then became licensees
328
Q: What are the main priorities on CANAPAT’s agenda
and then societies. This is the only existing path that will carry
and how do these address the concerns of your members?
these companies from informality to professionalization. The
A: Our main priority is to help the industry adapt to the
government should offer incentives so that these informal
implications of the Fiscal Reform, as this has had a strong
companies discover being formal leads to better business.
| VIEW FROM THE TOP
DOMESTIC BUS BUILDER EYES INTERNATIONAL EXPANSION JAVIER BENITEZ NUĂ‘EZ Director General of AYCO Q: What has AYCO identified as the principal needs of
the type of service they want to provide. This is possible
Mexico’s domestic bus market?
because the sector is not regulated.
A: Mexico used to see bus sales of 9,000 or 10,000 units per year, but since the 2008 crisis, this has plummeted
Q: What requirements does AYCO have to meet in order
to just 5,000. Despite the economic situation recovering,
to do business with an OEM?
the cheaper units remain the most popular. In terms of
A: We have to comply with engineering requirements
the parts that are made here, almost all plants handle a
regarding how the body is coupled to the chassis. We need
Mexican version of the semi-forward control chassis, with
to prove our ability in the processes that validate when
part of the engine inside the unit and part of it outside.
a body is appropriately installed onto a chassis without
This chassis takes up 80% of the market share, ahead
damaging any component. Each OEM has a guide for the
of the flat front engine and the flat rear engine chassis.
bodybuilder with indications covering drilling, welding,
The quality of our bodies is related to technology, R&D,
and electrical systems. If we meet all these requirements,
investment, processes, and materials. Through testing and
they approve the installation of the body on our chassis.
analysis of durability and rollover, we have tried materials
Our plant has a pre-delivery inspection process that verifies
and just launched front semi-control and flat rear engine
if our chassis meets all needed engineering requirements.
body models for all brands. These units are lighter by a
We have even shipped units to Detroit to be submitted
tonne, when compared with previous versions. This means
for analysis of their product durability. This allowed us to
a more profitable unit, with greater fuel efficiency and less
determine that our chassis have a lifespan of 1.6 million km
wear on tires. These aspects are important to the business
without damaging the structural integrity of the body. Most
of a transportation company. Although these units are not
recently, in April, we took some units to Wisconsin to a lab
the cheapest in the market, they provide a good balance
where crash and rollover tests were performed. This means
between price and quality. Our clients also know that
we can guarantee that our bodies are safe.
delivery time is one of AYCO’s competitive advantages. If LIPU asks for 200 units in May to be ready before the next
Q: What new opportunities has the current automotive
school period, we can provide them. Many customers also
investment boom brought to AYCO?
demand an after-sales service so we provide that service
A: In the past, we had some applications for light interstate
to all clients, even when they do not ask for it. This strategy
transportation
has led us to have a market share of almost 60% with an
participate more actively in that segment, due to a lack
annual production volume of 3,000 units. This translates
of chassis. Now Mexican manufacturers have the ability to
to 15 units made per working day, which is no mean feat.
produce chassis with certain characteristics, providing the
but
no
opportunity
materialized
to
capacity, comfort, and power required for the interstate Q: How does the sophistication of the Mexican bus market
transportation
compare with other Latin America countries?
Mercedes-Benz, and Scania are all available, so we can
A: The Colombian market, for example, is very mature.
participate in this segment. The industry has changed and
In cities such as Bogota, buses are the only other means
AYCO has been invited to participate in other vehicle lines.
of transportation apart from cars. There is no subway as
There is a clear trend to modernize buses in Mexico and
the local geography does not allow it. Colombian public
make them similar to those seen in Europe or the US. For
transport is also very clear as colors are prominently
instance, we have built an integral low-entrance unit that
marked depending on the type of service the buses offer.
was developed by MAN with the support of CONACYT.
The Mexican market also tends to be mature, but only in
In 2015, we will participate more intensively in the light
certain ways. The specifications are clear here too but,
interstate sector, due to interest from several leading
in some cases, a carrier may change the specifications,
companies in offering complete vehicles for shorter
such as the color, lighting, or accessories, depending on
distance travel.
segment.
Chassis
from
Volkswagen,
329
| VIEW FROM THE TOP
ANTICIPATING PASSENGER TRENDS ROBERTO SALCEDO ROBLES Director General of IAMSA
Q: What have been IAMSA’s greatest contributions to the
across all segments. All OEMs have something distinctive
development of the Mexican automotive industry?
to offer. Beccar does not have an engineering department,
A: All purchases of the groups that make up IAMSA,
so it does not drive technological innovation, but it has
including our partners, make IAMSA the largest consumer
departments that cater to the needs of its customers. Irizar
of coaches and buses in Mexico. The production capacity
works in a similar way. On the other hand, when working
of all automakers in Mexico, including Volvo, Irizar, Dina,
with the most technologically advanced OEMs, like Volvo
Mercedes Benz, Beccar, and more, should be about 4,000
and Marcopolo, we can specify the characteristics we
buses annually. The companies that make up IAMSA buy
are looking for and they can offer technologies that are
700 units annually. We also support our companies in the
already available in other parts of the world.
financial aspect and obtain credit for partners to acquire buses. We seek to be at the forefront of technology in
Q: How do you encourage the balance of costs and fuel
terms of what the industry needs both nationally and
efficiency?
internationally. For example, when we made the decision
A: To keep prices low, we have to keep a stable occupancy
to acquire 2,000 Volvo buses, we gave the right incentive
rate by closely monitoring the developments in each
to Volvo in Sweden so it could set up its plant in Mexico.
sector. If we see that the demand is reduced, then we
Initially, Volvo Sweden did not believe in the potential of the
have to reduce our services. We must also take into
Mexican market but it now views its development in Mexico
account competition and demand for all of our routes,
as a reference. This is true for all the bus makers except
as these two variables determine the price we can offer
Mercedes-Benz, which is associated with Marcopolo, which
to maintain profitable occupancy rates. For a service
does its own development in Brazil. In terms of regulations,
where we compete with air travel, such as Mexico City to
IAMSA sees it as vital that when a new technology enters
Monterrey, we have 600 seats available per day, while the
Mexico, it complies with pollution and fuel efficiency
airline companies have 3,000. We have to offer something
regulations. However, the Mexican regulation for pollution
that none of our competitors offer, no matter which mode
is not very clear so we comply with European regulations.
of transport is involved. Our unique service on the Mexico
Most of our buses already meet the Euro V certification.
City to Monterrey route is overnight transportation, which means that users can use our luxury service buses as an
Q: How do you create relationships with OEMs that enable
alternative to hotel accomodation. Another example is
them to meet your needs?
the Mexico City-Queretaro route, which is used by many
A: We explain our needs to the OEMs and jointly develop
businessmen as Queretaro is close to Mexico City. They
products, especially regarding technology and the interior
prefer a mode of transportation that enables them to work
of the buses, aiming always for comfort and safety. When
on the road, which we can cater to.
buying buses from an OEM, the most important aspect is
330
technology and fuel efficiency. Our buses travel up to 3
Q: What strategies does IAMSA have in place to increase
million km before they are renewed. For a bus to reach
its market share?
those 3 million km, it must use around 1 million liters of
A: The bus market will continue to grow but our strategy
diesel. If you divide this over the ten-year lifespan of each
is to grow at the same rate as Mexico’s population growth.
bus, the bus consumes 100,000 liters per year. If you
We are now entering the aviation and rail segments. We
multiply this amount by the 9,000 buses we have, we
have been running VivaAerobus for seven years now,
consume around 900 million liters of diesel every year.
and we entered that segment because we knew how the
This must be kept in mind when deciding which bus to
market was evolving. It was a strategic move, we knew that
buy, as well as identifying what interests our customers
the market and the country were changing and that we
the most. We have acknowledged that safety, comfort,
had to adapt to that. For the same reason, we are now
and time are the features that clients care about the most
looking to enter the railway business.
INTERSTATE TRANSPORTATION IN HIGH DEMAND Bus passenger transportation in Mexico has thrived due
driven developments in terms of body weight, powertrain,
to the absence of a comprehensive railway system and
and compliance with environmental standards for buses.
the cost of air transport. For this reason, bus companies
“The OEMs bring technology and global compliance and
like Grupo ADO have expanded the range of services they
Grupo ADO provides bus configurations with the best
offer to customers, as explained by Juan Carlos Uriarte,
features for Mexico’s highways and byways, meeting the
Director General of Grupo ADO. “The company started
needs and demands of Mexican passengers,” says Ramírez.
out in interstate transport, but it has ventured into other
Once the configuration phase is completed, Grupo ADO uses
businesses by following the needs of its passengers. Most
buses for pilot programs and tests. For instance, new models
of these services began in a rudimentary form,” says
are tested in different markets and driven along different
Uriarte. An example of this is the company’s shipment
routes and under different climate conditions. This leads to
service, which began when some people entrusted
a monthly analysis to verify performance, fuel economy, tire
parcels to the company’s drivers, who delivered them to
wear, and other factors and faults that may arise. Only once
the destinations where they were headed. Its entrance
all pertinent improvements are made, can a unit become a
into tourism transportation and the creation of Autotur,
fulltime part of Grupo ADO’s fleet. When purchasing a unit,
Grupo ADO’s brand for that segment, began similarly.
Grupo ADO focuses on market requirements, environmental
Customers flocked to terminals to to board buses heading
compliance, performance, fuel efficiency, and components
toward tourist hotspots, and Grupo ADO identified a
as well as brand perception among passengers. However,
great opportunity. “We realized that there were mature
buses of major OEMs may only have small differences in such
markets showing little growth, and we had to look for
aspects, meaning that aftersales service and infrastructure
other alternatives for expansion,” comments Uriarte. After
take pride of place in defining a sale. “The differentiator now
the 1980s, the group began to carry out its expansion in
lies in the support companies provide and the flexibility in
an institutionalized and planned manner. It became active
their portfolio,” says Uriarte.
not only in tourism and parcel transport, but also in urban transport services by creating brands like Turibus and
To guarantee the comfort and safety of its passengers,
Metrobus, both of which serve Mexico City.
Grupo ADO performs preventive, corrective, and predictive maintenance activities. Preventative maintenance refers
With a national market share of between 20-30%, Grupo
to following the manufacturer’s indications in terms of
ADO primarily serves the southeast region, the Gulf of
maintenance and the replacement of components. Corrective
Mexico region, and a small strip in northern Tamaulipas. For
maintenance relates to the solving of daily wear and tear, and
destinations in these regions the company offers interstate
predictive maintenance consists of maintenance activities
transport services in all its different segments, such as
based on statistics and component durability. Knowing the
courier services, travel services, and urban transport. With
mileage obtained by each component enables Grupo Ado to
its vast knowledge of the market, it is understandable that
change these ahead of time and prevent their failure. “Every
Grupo ADO has been pushing the development of the
time a bus enters the terminal, it is scheduled for maintenance
automotive industry in Mexico. Grupo ADO has maintained
according to the mileage it has. We have indicators that tell
constant communication with OEMs established here, such
us if we are following preventive maintenance. One of the
as Mercedes-Benz, Scania, and Volvo, to such a degree that
most important indicators is the number of breakdowns
these turn to Grupo ADO for assistance in improving their
happening out on the road,” explains Ramírez. When such
products. “When companies launch a new model in the
a breakdown happens, the terminal receives a message and
segments we cater to, the best place to test it out is with
the workshop gets a call so that Grupo ADO’s team can begin
ADO,” proudly expresses Gerardo Ramírez, Maintenance
solving the problem. Once the issue is taken care of, Grupo
Director of Grupo ADO. “We provide the opportunity to
ADO seeks the root cause to establish corrective actions.
bring equipment from abroad and configure it to suit the characteristics of a company’s operations in Mexico. Grupo
Grupo ADO will continue to provide the services for
ADO staff members often make contributions by suggesting
which it is recognized in the market, but it is now
improvements to products from OEMs and auto parts
looking to venture more strongly into urban and tourist
companies.” Grupo ADO’s involvement in these processes
transportation. “We want to be seen as a mobility company
responds to the need among OEMs to quickly become
and more than just a carrier. This means looking to meet
familiar with the unique features of the Mexican market,
our customers’ requirements from their front door to their
roads, and people. Grupo ADO offers training, technology,
final destination, whether they are travelling for business
and strategic partnerships that, according to Ramírez, have
or leisure,” says Uriarte.
331
MAKING THE FORMAL CHOICE THE RIGHT CHOICE In the 1930s, at a time when
“It has become commonplace that during the fleet renewal
ground transportation was
process, informal companies would end up with our used
already well underway in
units by buying them indirectly. However, this year we
the US, Mexico had little
sold some units back to Mercedes-Benz while others were
infrastructure
recycled and modified to be used in other sectors,” he says.
even
to
pave the roads needed
César Enríquez Morán, Marketing Director of Grupo Estrella Blanca
for this budding sector.
Despite its penchant for Mercedes-Benz, Enríquez Morán
“Back
sector
admits that all the OEMs are very competitive and provide
was unregulated and it
excellent quality. This high competitiveness of OEMs has
was common to modify
made it challenging for transportation companies to
then,
the
vehicles, such as the Ford
provide a differentiated service. Estrella Blanca finds its
T, by dismantling the back and placing wooden beams that
differentiation in customer service and amenities, although
were used as seats for passengers,” says César Enríquez
Enríquez Morán explains that its strategy is focused on a
Morán, Marketing Director of Grupo Estrella Blanca. The
combination of safety, technology, and choosing the right
company moved with the times, evolving from being a
partners. “Cameras and alarm systems are now being
single route operator in 1940 to a group that operates over
incorporated into the buses as has been done in some
10,000 routes and moves over 30 million people per year
countries in Europe,” comments Enríquez Morán. “It is now
after 74 years in the Mexican market. At the beginning, the
possible to determine if the operator is distracted or tired as
transportation sector was ruled by concessions from the
well as to measure speed, routes, and fuel consumption in
government offering the exclusive use of specific routes
order to increase the performance of our units.” The recent
to a single company. However, the concession system was
challenges faced by ground transportation companies, such
terminated in the late 1980s, leaving free competition as
as Fiscal Reform and the constant increase of fuel prices,
the new model to follow in the ground transportation
have incentivized the sector to search for alternatives to
market. “Upon the opening of the market, no rules or
increase productivity and profitability. Estrella Blanca has
regulations were set. No one could have predicted that
modified its logistics strategy by creating a new service
price wars would take place and that informal companies
called Futura Mix, where half of the passengers pay
would enter the market,” comments Enríquez Morán. “We
premium prices, receiving the benefits of a higher class
are concerned by these informal companies, since they do
service, while the other half pay economy prices. This
not renew their fleets, their operators are untrained, and
concept has enabled it to increase occupation factors in
their old vehicles cause road accidents,” he adds.
buses, increasing profitability during low demand seasons. The landscape of the ground transportation market was
332
In order to stay ahead of the race against informality,
irrevocably changed by the new Fiscal Reform. In the past,
Estrella Blanca considers that the regular renewal of
inter-city transportation was exempt from taxes, as it was
vehicles and a formal approach to their business offer real
part of the national ‘small contributors’ scheme, so each
benefits to its passengers, including defined bus stations
part of the group reported its individual earnings. Now
that establish security protocols and trained operators
these companies must pay 16% VAT and can no longer
that undergo regular drug testing to guarantee the
be denominated as small contributors. As a result, some
safety of its passengers. “We are Mercedes-Benz’s main
players have been able to buy up the market presence
customers. In 2014 so far, we have bought approximately
of smaller ventures. This has led to the traditional image
250 new units that include individual televisions, internet,
of the owner-operator beginning to slowly disappear
and comfortable seating,” says Enríquez Morán. Estrella
from the ground transportation sector, although owner-
Blanca works together with Mercedes-Benz, as the
operators continue to have a big presence in the cargo
latter has offered timely access to spare parts. While the
transportation segment. “Personally, I believe that the
transportation leader has its own workshops, every spare
government only thought of increasing tax collection,
part and component comes from OEMs. The group’s
but it did not take into consideration the impact it would
most sought-after components are windows and tires,
have on the ground transportation companies,” states
as these are easily worn down due to the conditions of
Enríquez Morán. “The increase in ticket prices due to the
Mexico’s roads and highways. Another important quality
VAT imposed by the Fiscal Reform has seen Estrella Blanca
that Estrella Blanca found in Mercedes-Benz was the high
and other companies lose competitiveness in long routes
technology used in its units, granting it a competitive edge
since air transportation has become a viable alternative for
while keeping CO2 emissions at the lowest possible level.
some passengers.”
NATURAL GAS OPPORTUNITIES FOR MEXICAN FLEETS Neomexicana de GNC is established as the leading provider
A new opportunity for CNG distribution is emerging in the
of off-pipeline natural gas solutions in Latin America.
Mexican transportation market. Given Mexico’s huge fuel
Having mainly been focused on clients in the heavy
consumption, even if just a tiny portion is converted into
industrial segment, it is now moving into other sectors like
natural gas, the market would prove immense,” explains
commercial, residential, and automotive. As a joint venture
Allier. The company is ready to provide CNG as fuel but
between the Brazilian firm NEOgás and Mexico’s Grupo
sees one major obstacle standing in its way. There are not
Diavaz, Neomexicana takes care of the entire delivery
enough gas stations providing CNG because there is not
process of compressed natural gas (CNG). It was the first
enough demand for the moment. Neomexicana will provide
company to get a permit from SENER to work with CNG in
a dedicated service to corporate customers, offering CNG
Mexico and was the first worldwide to obtain an ISO 9001
stations dedicated to servicing their fleets. This program
certification for CNG operations. The opportunities offered
will primarily be aimed at major organizations that own
by the automotive sector based on the potential of natural
their own fleets of commercial vehicles, such as Grupo
gas vehicles, as well as the expansion of CNG for industrial
Bimbo and Grupo ADO. Allier sees these as more than able
clients lacking access to the natural gas pipeline network,
to afford the investment needed to pay for Neomexicana’s
are two pillars upon which Neomexicana is basing its
services, and he predicts they will be convinced by the 25-
expectations for future growth in Mexico.
30% fuel reduction costs associated with switching to CNG.
“CNG distribution is emerging in the Mexican transportation market. Given Mexico’s huge fuel consumption, even if a tiny portion is converted into natural gas, the market would prove immense” Alejandro Allier, General Manager of Neomexicana de GNC
NEOgás’ focus on the Mexican market was proven last
The US is currently seeing a major trend among big
year when, after raising US$20 million from the IFC, it
fleet owners that are changing their fleets to natural
announced that between 40-60% of these funds would be
gas. In Mexico, Allier says interest in converting fleets
allocated to Neomexicana. According to Alejandro Allier,
to CNG is beginning to grow. For example, Walmart
General Manager of Neomexicana, Mexico’s many industrial
is undergoing tests to convert part of its fleet to CNG
opportunities make it a natural step to invest in the country.
which will bring advantages in terms of fuel autonomy,
Neomexicana is clear on where its opportunities lie in
reduction of maintenance costs, and security, while also
the automotive industry. “Companies like Ford, Mazda,
contributing to sustainability performance. To continue
or Nissan place their production near an existing gas
building up the appeal of CNG, Neomexicana knows that
pipeline,” he says. “It is unrealistic to provide CNG to a
it has to enter into alliances with engine manufacturers.
manufacturing cluster that has easy access to a natural gas
“The issue at the moment is that engines that run on
pipeline.” However, CNG can offer a temporary solution until
natural gas are not fully available in the Mexican market,”
a natural gas pipeline is built. Allier understands that the
explains Allier. The company is in talks with engine
natural gas business has the facility to be mobile so that
companies to seek an agreement: engine companies
if a pipeline extends to some of its clientele, the company
will increase the presence of natural gas engines in
can then move its units to another location. To incorporate
the market while Neomexicana will invest more in its
this into its business, the company already has a diversified
dedicated service scheme to accommodate the growing
business strategy and highly efficient technical procedures.
presence of CNG-fueled fleets. An important advantage
Allier is aware that it will face competition since it would be
for natural gas is its price, and Neomexicana took the
impossible for just one company to cater to the country’s
stability of natural gas prices in comparison with other
entire potential CNG demand for industrial customers. “The
fuels into consideration when creating its current 15-
length of the road network is 15 times the size of the natural
year operating plan. Although the company does not
gas pipeline network, which has a total length of 9,500km.
have an operating automotive project for Mexico, Allier
Even all the new pipeline infrastructure that will be built
expects that by the end of 2014, Neomexicana will have
over the next years will not be enough to supply natural gas
a couple of projects in this sector and aims to become
to the whole of Mexico,” he explains.
the Mexican market leader.
333
334
While Mexico’s domestic vehicle market struggles to reach its potential, the aftermarket segment is thriving. A combination of an aging car park and an increased trend for renewal has created plenty of opportunity for savvy aftermarket companies. Extreme price pressures caused by easy access to cheap Asian parts, as well as an historic problem with parts piracy, have created an aggressive and dynamic environment. Many companies did not see the double-digit growth they had predicted in 2013 due to profit erosion caused by investments demanded in marketing and advertising processes, as well as general administration. As major US retailers enter the market Mexico’s traditional refaccionarios are being forced to innovate or perish. Cataloguing, branding, and product development are all crucial in the race to attract and retain customers. Inventory reduction has become an invaluable tool in reducing costs while some retailers have shifted to not stocking inventory at all, warehouse capacity and logistics management are also playing a crucial role.
This chapter will look at the strengths and challenges presented by an inundation of aftermarket companies and brands to Mexico’s automotive sector. As competition increases an amalgam of well established and new market entrants provide a diverse perspective on the different strategies being implemented to capture market share. The changing market dynamics as increasingly sophisticated vehicle owners demand both quality and competitive prices are discussed, as well as efforts to educate consumers nationwide on the connection between the quality of aftermarket parts and safety.
AFTERMARKET
12
336
CHAPTER 12: AFTERMARKET 338
VIEW FROM THE TOP: Competitive Aftermarket Drives Creativity
339
VIEW FROM THE TOP: Top Ten Global Supplier Absorbs Market Share
340
VIEW FROM THE TOP: Drive, Sell, and Retain: Winning in the Aftermarket
341
Pushing Cost-Benefit Ratio in Price-Sensitive Market
342
Mindful Timing Selection Trumps Premature Entry
343
Quality Battles Piracy in Aftermarket War
344
VIEW FROM THE TOP: Formalizing a High-Tech Aftermarket Presence
345
VIEW FROM THE TOP: Component Numbers Rise as Technology Advances
346
Family-Run Supplier with Heavy Duty Presence
347
VIEW FROM THE TOP: Aftermarket Investment Produces Dividends for All
349
Auto Parts Dealer Transitions to Manufacturing
350
Trans-Atlantic Partnership Makes In-Roads into Mexico
351
Identifying Supply Chain Pyramid Base Lifts Summit
352
Complex Filter Variations for Targeted Solutions
353
Roadblocks Remain to Aftermarket Entry
354
VIEW FROM THE TOP: Reducing Friction through Fusion
355
Building the Components of Success
356
Intervention Needed to Tackle Used Tire Misuse
358
Bringing Korean Ultra-High Performance Tires to Mexico
359
Certifying Workshops to Raise Quality Levels
360
Reducing Repair Durations One Spray at a Time
361
Aftermarket Success: From Sandpaper to Abrasives
337
| VIEW FROM THE TOP
COMPETITIVE AFTERMARKET DRIVES CREATIVITY MIGUEL ÁNGEL GARCÍA President of ARIDRA Q: What role is ARIDRA playing in the development of
with this movement, some companies opted for another
the aftermarket sector, and what are the main trends you
growth strategy which did not involve sacrificing their
have identified?
margins. Their strategy entailed warehouse management,
A: Having been founded almost 70 years ago, ARIDRA is
logistics, and efficiency. Inventory reduction has become
the oldest association in the automotive industry. One of its
a continuous trend, and some companies are relying on
distinguishing factors is that it has a wide variety of members
24-hour turnaround business from the manufacturers to
across distributors, retailers, manufacturers, importers, and
offer an express service themselves. Many retail shops now
agencies. This gives us a good understanding of what is
have no inventory. When a customer arrives, the retailer
happening in the market, as well as the opportunities and
only has to pick up the phone and ask for the components.
challenges our members face. We then share the information
Some businesses can ship in as little as 20 minutes.
with our members so they can also plan ahead. ARIDRA’s
338
focus is mainly on the aftermarket since companies in the
Vehicle owners are also becoming more demanding; they
OE segment are part of INA. Overall, the aftermarket sector
are looking for better products at a lower price. As a result of
is evolving drastically and becoming more aggressive. 2013-
the rising purchasing power in Mexico, we are seeing more
2014 has been a positive period for the aftermarket sector,
products in the entry and mid-price range levels. While most
although it did not always proceed as expected. There was
companies invest in their premium brands, they are now
slight top line growth but some erosion in profit due to
selling less premium units and experiencing sales increases
many companies’ investment in sales processes, including
at the mid and entry levels. The typical profile of a company
marketing, advertisement, and general administrative areas.
is a manufacturer that distributes its own products and has
The aftermarket is also becoming more demanding, as
its own brand. To change the consumer’s mentality, it is
companies need better tools, technology, inventory, quality,
important to reinforce the brand image, and offer workshops
and added value services. An important challenge for all
and training. The consumer market must be re-educated or
the players in the aftermarket sector is to be efficient in
we will begin to see more products in white boxes where the
cataloguing, branding, and product development.
difference will be defined only by the price.
Q: What have been the most recent sources of profit
Q: How does ARIDRA help Mexican-owned companies
erosion?
become more competitive?
A: Many companies had very aggressive business plans for
A: A few Mexican-owned companies are members of
2013, and were expecting double-digit growth but this did
ARIDRA, like DAI and Grupo Gonher. One of the peculiarities
not happen due to two factors. The first was a lack of cash
of these Mexican companies is that they are focused on
caused by difficulties in the collection of payments from
one particular component and segment of the vehicle. The
customers, which in turn created mounting pressure to sell
challenge for the automotive industry is to develop local
even more products that the companies had to buy from
Tier 2 and 3 companies. When OE manufacturers cannot
the manufacturers. A tight, competitive environment was
obtain their products here, they search outside of Mexico,
created throughout the entire sector. Since sales were at
but Mexican companies can fill this gap in the market.
an unexpected level, companies began to lose ground, and
This will be the next step for the automotive industry and
as a result, they had to reduce prices or give discounts.
should be a priority on the government’s agenda. Mexican
Surprisingly, this had nothing to do with competitiveness, as
suppliers have to realize that the aftermarket sector offers
the market itself had gone soft and resulted in a slim growth
opportunities them. One of the advantages that SMEs gain
of 2%. There are only two ways of achieving double-digit
from being members of ARIDRA is that they can gain access
growth: taking advantage of market growth or grabbing
to information. Networking is also important since it gives
market share from other players. The best way to grab
companies the chance to get together, update each other,
market share is to reduce prices and offer discounts. Faced
and discuss market trends.
| VIEW FROM THE TOP
TOP TEN GLOBAL SUPPLIER ABSORBING MARKET SHARE GERARDO VARELA Director General of ZF Services Mexico Q: ZF Group is almost one century old. What role have
Q: How does ZF Services actively communicate its
emerging markets come to play in the group’s global
commitment to superior quality?
strategy over that time?
A: Superior quality means combining superior design
A: ZF Group is going to celebrate its first century in 2015
and functionality at a reasonable cost for our customers.
and we have expanded steadily throughout our history. ZF
This is combined with a proven service capability and the
is a global leader in driveline and chassis technology with
capacity to timely attend to the needs of any OE customer
122 production companies in 26 countries. As the eighth-
or end user. This is essential as our OE customers and end
largest supplier of OEMs worldwide, in 2013, the Group
users are demanding high technology products with a
achieved sales of about €16.8 billion with approximately
reliable service readiness. We rely on ZF’s own divisions as
72,600 employees. In order to continue to be successful
our main suppliers to ensure a standard level of OE quality,
with innovative products, ZF annually invests about 5%
as they are supplied by a supplier base developed for the
of its sales in R&D. This amount reached €836 million in
European markets and backed up local presences. Local
2013. Our global expansion strategy has been successfully
and regional suppliers become subject to evaluations
implemented
under the same quality standards and values.
worldwide,
largely
because
we
chose
partners who already had a strong global presence. ZF Group came to Mexico at the end of the 1990s after
Q: How is your Mexican logistical strategy evolving as the
making two acquisitions, a clutch company named Borg
market develops?
& Beck and Aralmex that produces shock absorbers. Over
A: Market needs are constantly changing. With the latest
the past decade, we introduced the manufacturing of
developments in areas such as IT, our responses to
transmission, steering, and suspension parts here in order
customers need to be optimized. We are adapting our
to expand our local product portfolio. Originally every
logistics strategy to properly serve our current distribution
single Mexican company was independent, working on its
network as well as new retail chains, such as AutoZone,
own with its aftersales partners. But the group decided
NAPA, and O’Reilly, which are growing faster than other
that all aftermarket products should be handled by one
distribution channels. E-tailing is another example of new
company, leading to ZF Services entering Mexico in 2007.
channels rising up with different requirements that also need to be covered. The world is becoming smaller in terms
Q: What are your main priorities in the Mexican market?
of distribution, so our export sales must be accompanied
A: ZF Group in Mexico has been focused on delivering
by a new logistics strategy to deliver customers’ orders
real customer satisfaction for its regional OEM customers
overseas faster. This can be done by incorporating supply
such as Mercedes-Benz, BMW, Volkswagen, Volvo, Nissan,
chain management techniques such as drop shipping.
GM, and Ford. This has been achieved in two ways. We introduced high technology and quality at competitive cost
Q: What expansion plans do you have in Mexico?
levels and lead times across our different components and
A: All of ZF’s Mexican plants are growing due to the new
service concepts, and we introduced new product lines to
OEM plants coming into the central part of the country.
offer a one-stop shop strategy for aftermarket customers.
Our shock absorber plant ended 2013 with a record sales
ZF Group implements this strategy globally and Mexico is
volume of 16.7 million units. It is on target to deliver 20
no exception. In Mexico, ZF Services has a market share
million units in 2015 and 30 million in 2025 based on the
of over 50% for its shock absorber line under the BOGE
OEM orders we have been awarded. Our aftermarket
brand and has the second-largest brand for clutches. We
sector is growing based on brand positioning and the
are now introducing a line of steering and suspension
introduction of new product lines, such as steering and
parts under the Lemförder brand, as well as continuously
suspension parts for passenger cars and commercial
variable transmission (CVT) components for repairing and
vehicles, and transmission parts for agricultural and off-
remanufacturing under the ZF Parts brand.
road vehicles.
339
| VIEW FROM THE TOP
DRIVE, SELL, AND RETAIN: WINNING IN THE AFTERMARKET DAVID YANES Director of Client Services of Ford Aftermarket Q: How is the auto parts sector in Mexico adapting to the
promotions to convince customers to go to a Ford service
introduction of new technologies?
shop instead of an independent shop.
A: The auto parts sector has had to acclimatize to the rise of technology in both components and vehicles. As part
Q: How important are delivery lead times to this strategy?
of our vehicles portfolio, we offer technology that has
A: We are very focused on ensuring that the parts are
been branded as MyFord Touch and MyLincoln Touch.
delivered to the dealership on time. We also measure our
We also need to take care of the infrastructure to service
performance in terms of the parts the dealer ordered and
that technology, which involves training sales personnel,
how many parts we were able to deliver. Sometimes there
as well as service shop personnel, to ensure that they are
are exceptions, such as when we do not have the parts
familiar with the new technology from the moment they are
available, but these are called back-orders and represent
exposed to our new vehicles. The sophistication of the auto
only a small percentage. If we do not have the part, we see
parts sector is reflected in the parts we supply, although
where it is available in Ford’s global supply chain and then
we continue to supply old parts like condensers since there
we use airfreight to bring it here, after which the part goes
are still old vehicles in operation that need them. There
directly from the depot to the dealer. Airfreight is used in
is an interesting mix in the Mexican market as it contains
order to speed up the delivery so that we continue to uphold
both very old vehicles and new vehicles that contain all the
our vision of delivering on time to the dealer. We deliver
latest technology. To be competitive within the aftermarket
parts within 24 hours around the country with the exception
sector, we have to be proactive. Vehicles are becoming
of the Yucatan and Baja California peninsulas. Our outbound
more complex and technicians have to be trained every
deliveries are based on trucks for stock orders, although air
day. When we find an opportunity to improve customer
freight is used for emergencies and back-orders regardless
experience, we seize it. The average vehicle age in Mexico
where the dealer is. Railroad is applicable for inbound but
is around 12-13 years which is something to bear in mind as
not for outbound. This is because we have the responsibility
we need to be smarter in attracting customers in that range.
to deliver the part on time to the dealer.
In the aftermarket sector, we are providing service for vehicles up to seven years old. The reason we stop above
Q: What is Ford Aftermarket’s capacity to supply SKUs
that vehicle age is because we are trying to attract specific
and what parts are primarily replaced in a vehicle?
customers into our service shops. We are not focusing on
A: Ford Aftermarket has the capacity to supply approximately
servicing older vehicles because those customers are more
350,000 different SKUs for the Ford and Lincoln vehicles
likely to pursue cheap, low-quality repairs.
that are in operation in the country. However, 3,500 SKUs make up over 80% of our sales because not all parts will be
340
Q: How do you differentiate yourself from other OEMs in
replaced in the vehicle. It is difficult to say what the ideal
terms of the distribution network?
percentage of SKUs is, because you never know what will
A: Time, product quality, and close ties to the customer are
break in a car. Therefore, what you have to do is be prepared
qualities that differentiate Ford from other OEMs in terms
with the parts and be ready to deliver to the dealer when
of its distribution network. Our focus is on developing long-
needed. The aim is to sell the part and solve the customer’s
term relationships with customers. We have an aftersales
problem. We have thousands of parts that we are able
strategy that has three key elements: drive, sell, and retain,
to distribute to the aftermarket, but at the end of the day,
and based on our key performance matrix, this strategy
there is only a small group of parts driving the revenue. This
has been successful. We have been increasing the number
is why managing lean inventories plays a role in helping to
of transactions passing through Ford’s service shops and
simplify the administration of the supply chain. We need
this is also impacting the retention rates. We have been
to understand which parts are driving the demand, how
able to attract older vehicles that had not been returning
many are needed, and where, in order to ensure the timely
to the shops in previous years, as a result of different
distribution of parts in every dealership within the country.
PUSHING COST-BENEFIT RATIO IN PRICE SENSITIVE MARKET “Dayco Products knows the importance of developing
application, as owners often opt for cheaper parts which
markets such as Mexico. We started operations in this
will only last for a few months,” says García Roldán. Dayco
country 15 years ago, but right now we are at our prime.
will relocate its aftermarket operations to a brand new
In fact, I would say we are really starting to do business,”
facility in the State of Mexico that will allow for increased
says Roberto García Roldán, Director of Dayco Products
productivity and the integration of warehousing and
Mexico (Dayco). The company is the market leader in
distribution operations. The company has the ambition
Mexico for tensioners and pulleys and is in second place
of covering the whole of Mexico, selling its products in
for automotive belts. “We are the best option considering
every state. It is therefore looking for distributors with
a cost-benefit ratio. Our company has excellent products,
outstanding selling practices.
being an OE supplier for several light and heavy duty brands, such as Mercedes-Benz, BMW, and Chrysler. In
García Roldán states that the relationship with distributors
Mexico, we are also an OE supplier for Chrysler, Nissan,
in Mexico can be difficult as there seems to be a natural
and GM,” says García Roldán. However, the company is still
resistance against new ways to sell. For example,
reliant on imports from plants in the US, Europe, and South
distributors’ profiles vary from state to state and
America to sell its products in Mexico. To better manage its
customers in Guerrero and Chiapas demand traditional
coverage, globally and regionally, the company is divided
counter service, which the company must maintain in
into two key businesses: aftermarket and OE. The company
these markets. However, in more sophisticated places
has acquired Metavation, an American manufacturer with
like Guadalajara and Monterrey, Dayco has distributors
a plant for crankshaft damper pulleys located in San Luis
with electronic catalogues. Dayco is trying to focus on
Potosi, for its Dayco Products OE Division. García Roldán
passing on better information about products to improve
says this acquisition was a way to leverage the company’s
its electronic tools, including apps, websites, and printed
presence and growth in the automotive market in Mexico.
catalogs, which people in Mexico still request. “Maybe in
“It is our first acquisition in Mexico and is intended to help
ten years, these customers will be aligned with electronic
us get started in the OE business,” says García Roldán.
tools, but they are not at the moment,” comments García Roldán. The company is also developing applications to
“The problem with ‘chocolate’
improve its communication with customers. One of these
cars is owners often opt for
and Dayco is currently working on rolling out a version for
marketing tools consists of an application for smartphones,
cheaper parts which will only last
the Mexican market.
for a few months”
Dayco is a supplier for AutoZone in the US, the second
Roberto García Roldán, Director of Dayco Products Mexico (Dayco)
largest retailer of aftermarket automotive parts and accessories in this country. García Roldán explains that his company only supplies to AutoZone in the US as it works
The Mexican aftermarket has traditionally been dominated
under different conditions in Mexico. However, efforts are
by Asian products and García Roldán acknowledges that
being made to work in a similar way in Mexico and foster
it is difficult to compete with such products, given the
collaboration between both companies. “AutoZone Mexico
price-sensitive nature of the market. “The aftermarket
is independent from its US parent company in terms of
segment in Mexico is not as large as the one in the US,
decision-making. The idea is to align the strategy for the US
although the import patterns are very similar. Traditionally,
with its Mexican operations. This way we can sell the same
aftermarket companies had agreements with OEMs to sell
brand to reduce costs and participate in the local market
parts only through their car dealers for a couple of years.
with AutoZone. We can take advantage of production in
Dayco already covers plenty of such brands, since only a
the US in order to supply in Mexico,” says García Roldán.
few OEMs remain outside Mexico.” However, a problem
He adds that Dayco wants to sell AutoZone’s brand instead
has now arisen as it has become more complicated for a
of its own, as it is better for its distribution network and
company like Dayco to cover all brands in the domestic
for local production. Cataloguing will remain a key part
market. In some parts of Mexico, ‘chocolate’ cars provide
of Dayco’s sales strategy toward AutoZone as product
really good clients for aftermarket services because these
categories in Mexico are different from the US. García
cars need repairs and new parts. “The ‘chocolate’ business
Roldán’s company has all the applications for the Mexican
is good for all the aftermarket companies, but not for car
market and great coverage of chocolate cars in the US,
dealers. The problem with ‘chocolate’ cars is found in the
covering 99% of this market.
341
MINDFUL TIMING SELECTION TRUMPS PREMATURE ENTRY The huge investments coming from both Asian and European
lines and support GMB’s expansion in South America as
OEMs in Mexico have made its aftermarket opportunities
well as existing sales in the US and Canada. Two areas
evident to even the most casual of observers. But spotting
that GMB only recently entered will be part of its Mexican
them is only half the battle, as seizing them at the right time
growth strategy: hard bearings and fuel pumps. “We have
is also crucial. “We may perhaps be a little bit late in fully
electrical component experience making water pumps for
committing to Mexico,” says Rodrigo Ajates, the former Sales
major Asian OEMs and installing these in hybrid cars. We
and Marketing Director of GMB North America. A regular
are now expanding on that expertise by starting to make
feature in workshops and garages in the US, GMB has sold its
fuel pumps. These will be part of our new product lines
water pumps, suspension parts, and pan clutches in Mexico
that we are counting on to make our product offering more
for 40 years. Ajates explains its tardy decision to build a
attractive in markets like Mexico,” states Ajates. Knowing
plant here was a result of the company’s careful timing for
the importance that Latin America as a whole could come
when to jump on the Mexican bandwagon. He reasons that
to play in its worldwide sales, Ajates explains that GMB has
GMB waited until it was sure Mexico could play a major role
already hired Spanish-speaking sales and technical service
in its worldwide supply chain, making it logical to invest
teams, backed up with a Spanish-language website. Aware
significantly in the country. “GMB’s analysis of the Mexican
of the importance of personal relations in Mexico, Ajates
market led us to realize that the aftermarket sector is slowly
adds that GMB is busy creating a carefully crafted network
becoming more professional, but that a faster evolution
of distributors and sales points. “It is not just about having
would be needed as the market changes. With 33,000
the right product with the right coverage at the right time,
family-run auto parts shops in Mexico, big US companies
it is also about having the right partners,” explains Ajates.
entering the market threaten to drive them out of business.
As part of this network, GMB established warehouses and
They will soon have to adapt or disappear, given how quickly
offices in Mexico despite the proximity of its facilities in Los
the market is changing,” Ajates warns.
Angeles. “Proximity is also essential for developing a strong relationship with the seller and final user. GMB has a strong
Now that GMB has taken the decision to fully enter Mexico,
series of technical seminars that we use to grow close to our
the next step will be to establish a top-notch factory in
distributors, and which allows us to get feedback on how to
the next few years that can manufacture needed product
improve the products and services we offer in each market.”
Stronger. Together. You’re building more than just vehicles.
You’re building your company’s future. Which is why you need experts who live and breathe the automotive business, just like you. That means Timken.
Stronger. By Design. 342
© 2013 The Timken Company. Timken® is a registered trademark of The Timken Company.
Timken engineers apply their know-how to improve the reliability and performance of machinery in diverse markets worldwide. The company designs, makes and markets mechanical components, including bearings, gears, chain and related mechanical power transmission products and services.
QUALITY BATTLES PIRACY IN AFTERMARKET WAR High quality automotive spare parts suppliers have become
Countering this cultural habit is not an easy task and the
attractive targets for counterfeiters and brand pirates.
company has increased its number of people in the field
Within the tight, competitive environment of the entire
to educate installers and repairmen. “We are also working
sector, aftermarket suppliers battle for market share and
with governmental entities to increase education about
at the same time prepare for more aggressive measures
why changing brake pads is part of ordinary road safety,”
in protecting their intellectual property. Brake Parts Inc.
comments López. While various sectors of the automotive
(BPI), a supplier focusing on friction components including
industry suffer under the ongoing wave of imported
brake pads, is ready to tackle this rising wave of piracy.
vehicles, BPI sees it as a source of opportunity. “Some of
Vicente López Guisa, Director General of Brake Parts Inc.
our customers, especially in the north of the country, are
Mexico, explains that after being bought by Affinia in 2012,
specialized in these types of vehicles,” he adds. However,
the company is now focusing on the domestic market.
López stresses that while these vehicles may be part of
“We can produce whatever parts are needed and export
the company’s customer base, this is not its main growth
them around the world, however, 75% of our production
strategy. “Mexico should no longer be allowed to import
is for the local market and 25% is for export.” As it zeroes
older cars that can be bought here for US$1,000 and do
in on the domestic market, Brake Parts Inc. has inevitably
not follow the safety standards we uphold,” states López.
entered the fray against piracy.
After careful studies, BPI discovered that the consumer market is not littered with users purchasing only pirated
As BPI’s business strategy centers on Mexico, it detects
products, as thanks to their growing purchasing power,
the peculiarities that make this market a unique business
many consumers are now looking for high quality
environment. According to López, one of the biggest
products
cultural characteristics that sow the seeds of piracy is the
wisdom in Mexico says that only installers go to shops to
lack of prevention. “Brakes are a key element in a car that
buy replacement parts, but our own research found that
should be seen as a form of prevention, and it is cheaper to
a lot of Mexican vehicle owners buy replacement parts
replace brake pads with our parts than fill a gas tank in a
directly and then have them installed.” López attributes
compact car,” says López, who is baffled as to why people
this change to a lack of trust in garages, since going to the
are putting their lives at risk by buying a cheaper alternative
dealers directly cost more money but provides customers
for such a price. “When you see taxi drivers changing the
with a warranty and a sense of security. “Consumers are
brake pads on one side of the car and not the other so
smart and this lack of trust is leading them to buy their
they can use them up to the nub, and ignoring OEM safety
own parts and ensure that the repair is done as they want
guidelines, it becomes a cultural matter,” López remarks.
it to be,” he adds.
at
competitive
prices.
“The
conventional
“Other automotive markets strictly enforce regulations when it comes to quality, but anyone can claim compliance with
As BPI continues to protect its intellectual property and
regulations and write any guarantees on their products in
educate the consumer market, López stresses that it has
Mexico. Our brands comply with international safety tests,
other priorities as well to follow the evolution of technology
but there are cheaper brands out there that choose to ignore
and performance standards and apply them to its products.
such compliance. Those cheaper brands fallaciously claim to
“Usually, brake pads are semi-metallic or ceramic, although
be using the same technology as we do,” he explains. For
carbon ceramic is used for high-performance vehicles.
López, the counterfeiters are becoming more devious in their
In 2014, we will launch a new formulation, LM3, which is
practices. “We have found some products that were just put
based on proprietary technology,” announces López. This
in a box with a fake brand name and with no information as
new technology will last longer, run more silently, collect
to the place of origin or the importer.” Pirate products claim
dust, and make braking distances shorter. As the company
to be made in the US or Canada when they are actually
embraces innovations in other automotive markets, these
made in Asia, but their outrageously low prices have allowed
will surely arrive to Mexican shores in time, helping it
them to capture a fair chunk of the market. Faced with this
successfully compete against its pirate adversaries. For
prospect, some might say that if the market favors such
now, the company is dedicated to serving the aftermarket,
brands, then suppliers should head in that direction. However,
but López does not rule out the possibility of entering
López disagrees wholeheartedly, saying that “to do so, we
other segments. While it is evaluating these opportunities,
would have to sacrifice the safety of drivers and passengers.
BPI is continuing its expansion into other markets, like
BPI stands by its quality, which shows in the fact that our
Europe. For López, the two manufacturing sites in Mexico
American Brake Lock brand is the market leader in the
shall serve as pillars upon which this ambitious expansion
aftermarket. 90% of installers know the brand and prefer it.”
phase can rest.
343
| VIEW FROM THE TOP
FORMALIZING A HIGHTECH AFTERMARKET PRESENCE CARLOS GÓMEZ General Manager of DENSO Mexico Q: What has been DENSO’s strategy to develop its
of vehicles. However, we are continuing to look at important
aftermarket business in Mexico?
national distributors that can give us a broader presence.
A: Although DENSO historically has had a strong presence
There are different profiles of UIOs in various regions of
as an automotive parts manufacturer in Mexico, the decision
Mexico, and any aftermarket company entering Mexico really
to formalize our presence as an aftermarket supplier
needs to understand these differences. For example, the
was driven mainly by the sheer evolution of the vehicle
border region is much like the US market. Therefore, products
population in this country. DENSO is a global supplier to
for that region need to have more of a US offering approach,
all major manufacturers in the world, so a large percentage
while also including options for the traditional Mexican UIO.
of units in operation (UIOs) in the country already had our parts. However, this number has really increased in the
Q: What trends are currently driving demand in the
last 15 years. The market had been evolving to include
aftermarket segment?
more and more light and heavy duty UIOs with DENSO
A: The most important trend in terms of the demand for
components, which established our aftermarket brand.
specific components is the increasing prevalence of new technology in both light and heavy duty vehicles. That
Q: How are you aiming to further consolidate your
trend has caused a shift away from a traditional demand
presence and expand your market share?
for lower technology products to a demand for higher
A: In looking at the most effective way to consolidate our
technology components for increasingly complex cars
presence, we established the importance of developing a
and trucks. Although DENSO has excellent technology in
strong distribution footprint for the Mexican market. Being
regular maintenance products, like spark plugs and filters,
a relatively new aftermarket brand in Mexico, we have the
we are particularly strong in the development and supply
unique opportunity to build an aftermarket distribution
of repair components. These can provide the best service
network that provides us national coverage but is
solutions for vehicles with systems that can only perform
consciously selective in nature. The network is now growing
efficiently and reliably by having the best OE technology
as we seek to work with distributors who value the quality,
components, such as the ones that DENSO supplies.
technology, and future opportunities of our brand in this market. An important aspect of our strategy is to enter the
Q: To what extent is DENSO innovating its business
market with as complete a product portfolio as possible. This
processes to stay ahead of the competition?
means being able to provide a complete range of traditional
A: We have realized that increasing technology in the
maintenance products and repair components for both light
automotive industry has also led to increasing expectations
and heavy duty vehicles, as well as specialized systems such
being placed on suppliers. This holds true whether for a
as those for diesel vehicles and air conditioning systems for
vehicle manufacturer or for a technician that has to provide
transit and interstate buses. DENSO differentiates itself
the right service solution to the vehicle owner. Recognizing
as an automotive components and systems supplier that
that, we are providing comprehensive technical training
significantly invests in continuous R&D as this consistently
programs for the customer sales organizations and deeper
improves the reliability and durability of our products.
technical training for technicians responsible for diagnosis and repair. We have to work with customers when we are
344
Q: On what criteria have you been building up your
dealing with complex equipment that requires a particular
distributor base?
new application, as is the case for bus air conditioning
A: Given that the vehicle population that requires DENSO
systems. In such circumstances, we have to work with
products is present nationwide, we need to ensure that
our customers to conduct detailed, specific application
our distributor base can achieve national coverage. As we
processes for the particular chassis and body of each type of
grow our distribution network, we have naturally achieved
vehicle, as well as conducting field testing to ensure the best
a presence in those areas that have the largest population
fitting and performance of our products on the road.
| VIEW FROM THE TOP
COMPONENT NUMBERS RISE AS TECHNOLOGY ADVANCES MIGUEL ÁNGEL GARCÍA Director General of Federal-Mogul de México Q: What are your most successful products in the Mexican
support we provide. An important factor is that we provide
aftermarket?
a full range of products. We do not just concentrate on
A: We have been the market leader for years in several
the top few products; we offer a solution for the entire car
product segments, including spark plugs, chassis, and
market. Quality and service are a given for us, although
suspensions. We have also been very successful in wheel-
pricing is always a challenge. We have developed a
ends, namely the mold bearings and seals. Apart from that,
competitive pricing strategy in many cases, as having
we have been gaining a lot of market share in the friction
manufacturing locations in Mexico gives us that opportunity.
side. Brake pads have been one of our absolute successes
These manufacturing locations make our pricing strategy
over the last three years.
for products manufactured in Mexico more competitive. The challenge becomes larger with products coming from
Q: Cars are built to last a lot longer nowadays. Where do
overseas, but the market recognizes that as well. There is
you draw the line in terms of continuously improving the
a big difference in market recognition between products
quality of parts to keep the aftermarket going?
coming from the US or Europe as compared to China.
A: We certainly see that as a dilemma. On top of that, OEMs constantly require us to come up with more
Q: Federal-Mogul has been making changes to its logistics
innovative products, materials, and solutions. Such strong
and distribution processes. How have these changes been
products obviously reduce aftermarket opportunities.
manifested in the company’s operations?
We have seen this in product lines such as spark plugs
A: A major improvement we made is Federal-Mogul’s
and engine bearings, but that is the way the industry is
distribution center in Tlalnepantla, State of Mexico. It is
growing now. One new aspect we are seeing is that new
really focused on the aftermarket, which means that all
vehicles incorporating new technologies require better
the products Federal-Mogul makes globally are gathered
performances from their components. This implies that the
there. This required a more robust system to manage all the
aftermarket products have to comply with these quality
logistics resulting from increased SKUs due to the amount
standards. We have seen six-year-old vehicles in need of
of products, brands, and applications being stored. We
chassis components, despite still being relatively new. This
recently installed a new warehouse management system
does not just concern the chassis. Engines now include
that gives us the flexibility, speed, and productivity to
many new technologies, but these require greater numbers
respond to the needs of the market.
of new components, which increases the chance of components breaking down. This can happen with engines
Q: Imported used vehicles from the US need a lot of
that are on the road for less than a year, depending on how
replacement parts and maintenance but take away OE
cars are being driven and how careful their drivers are. To
opportunities. How big a concern is this for you?
conclude, components are indeed getting better, but as
A: It is difficult for Federal-Mogul to differentiate between
there are more of them, a large aftermarket opportunity
these two demands as both markets are very important to
remains. Fortunately, we are able to take advantage of
us. Last year, around 400,000 used vehicles were imported,
both sides of the industry: OE and aftermarket.
which is a lot compared to total domestic sales. That is obviously great for the aftermarket, especially for firms
Q: You compete with rivals on many different aspects
selling oil, belts, water pumps, and other parts that typically
such as price, quality, and service. How do you distinguish
experience a lot of wear and tear during a vehicle’s life. At
yourself from other companies in the market?
the same time, we are affecting the long-term quality of
A: Our aftermarket customers recognize when they are
Mexico’s auto market. To deal with this, Federal-Mogul is
dealing with an OE supplier, and our superior quality makes
focusing on vehicles ranging from being brand new to 15
up for the higher cost of our products. That quality creates
years old. We have limited coverage for the imported cars
confidence, along with the performance, warrantees, and
from the US as they do not represent a long-term business.
345
FAMILY-RUN SUPPLIER WITH HEAVY DUTY PRESENCE SYDA has been providing high-quality automotive products
is currently at 40% of our plant’s capacity, which means we
to the automotive industry since the 1980s, first as an
still have plenty of room to grow. We aim to be at 60% by
importer and then as a manufacturer. “We used to import all
the end of 2014 or early 2015, before reaching 90% by the
our materials as the available quality in Mexico was not that
end of next year,” states Elías Prieto. “The first stage of this
good at the time. Our contributions have been to first control
growth is to approach the purchasing departments of OEMs
what is being imported, ensuring the quality of the materials,
and top suppliers to offer them quality products, service, and
and then manufacturing the product here,” explains Jorge
counseling.” After that, the company approaches the design
Elías García, President of SYDA. The company imported
department to which it provides information about SYDA’s
finished products, such as clamps used in the motors, but
product portfolio. SYDA is actually in touch with OEMs
detected the possibility of providing complete products in
even before they enter the Mexican market to create brand
Mexico while making them in the country. SYDA is part of
presence and ensure that these new entrants know where to
Industrias Elías, a family business run by Elías García and his
find a quality supplier for the aftermarket.
brother, who is in charge of DAI. But while DAI is focused on light equipment, SYDA, is focused on heavy duty equipment,
The fact that SYDA is centered on the aftermarket sees its
especially in the production of constant-velocity (CV) joints
managers concerned about the new vehicles coming into
and hoses used in a wide range of trucks. Viridiana Elías
the market. When new models are rolled out here, SYDA
Prieto, Director General of SYDA and daughter of Elías
gathers information and begins working on products that
García, explains that the partnership with DAI has allowed
it anticipates will be needed in the next two years. “As we
both companies to focus on the needs of their respective
are focused on the aftermarket, we have to look to the
segments of the Mexican market. They teamed up to
future needs of those new vehicles. We are being proactive
work on the development of a complete line of CV joints.
and preparing our warehouse to be able to provide these
This gave SYDA the manufacturing expertise it needed to
products the moment they are needed,” explains Elías García.
make products for itself and for DAI, as well as distributors
“Our production right now is geared toward vehicles made
and OEMs. The latter category are firmly in Elías García’s
between 1995 and 2000. However, this market segment
crosshairs as he sets his sights on the opportunities to be
will decrease in importance as the proportions of vehicles
created by new plants coming to Mexico and by Mexican
made in 2005 and afterwards is getting higher. We will
firms going abroad. For example, Mexican truck manufacturer
keep providing service to older vehicles, current vehicles,
DINA is growing in Central and South America, with SYDA
and new models,” states Elías García. The company stocks
being one of its trusted suppliers. Another customer whose
three months’ worth of product inventory to be prepared for
expansion has been good for SYDA, is Grupo ADO that uses
any situation. “We can be a warehouse for our clients and
SYDA equipment in its maintenance workshops.
distribute the products when they are needed, from one day
“In the heavy duty segment, quality plays an important role since people are willing to pay more for a product that will guarantee the best performance of the vehicle” Elías García, President of SYDA
346
In 2013, SYDA reported 30% growth, which Elías Prieto
to another,” explains Elías Prieto. Steady growth has been
attributes to the company’s market approach. “A key to our
translated into a diverse product portfolio. Among its latest
success has been our focus on heavy duty together with the
innovations, SYDA is now offering silicon hoses that are
high-quality products we offer. In the heavy duty segment,
compatible with the clamps the company has been providing
quality plays an important role since people are willing to pay
to the market for almost 30 years. SYDA has also worked
more for a product that will guarantee the best performance
closely with a Mexican company to launch a new line of water
of the vehicle. The quality of our products is the reason
pumps. These developments are not only aimed at driving
why we have been in the market for 15 years and continue
growth, but also at better positioning the company’s brand
to grow,” explains Elías García. “It is what has positioned us
name. The company may have a solid reputation among its
apart from other competitors.” As the automotive industry is
clients but father and daughter alike understand the need for
growing in Mexico, SYDA will have to keep up. “Production
the SYDA brand to gain more exposure.
| VIEW FROM THE TOP
AFTERMARKET INVESTMENT PRODUCES DIVIDENDS FOR ALL SALVADOR ELĂ?AS GARCĂ?A Director General of DAI Q: What measures is DAI taking to increase exports and
several models, which implies a wide and varied need for
diversify its markets?
parts. Therefore, we have focused on a single product line
A: We are a Mexican company that has come to export to
covering transmissions, motor supports, and buffers. We
many South American countries like Colombia, Ecuador,
now have to convince people that quality products are
Venezuela, Peru, and Chile. In the future, we hope to start
an investment. If someone buys a vehicle for MX$150,000
exporting to Europe, particularly to countries such as
(US$11,500), they need to take care of that investment. The
Denmark, Germany, Spain, and the UK. We manufacture
same thing is true for someone who buys a car for twice
components that have rubber and metal parts with the
that amount, so we have to educate the entire market.
exception of wheels. We do not manufacture for all brands,
We do this through mechanic schools. Mechanics usually
but instead we focus on what the market demands. We
graduate from technical schools or automotive engineering
import what we do not manufacture, but those imports
schools, so they know that paying for quality is worth it.
must adhere to our quality requirements or we do not
There is no doubt that people will continue to buy cheap
accept them. At the moment, our group of companies has
products, but if a person buys only based on price, they will
over 38,000m2 of facilities where we process rubber, and
become victims of their own cost-cutting. We are leaders
we have four Banbury machines capable of producing 50
in the market because we sell quality products. If we did
tonnes of rubber a day that we sell to other companies. We
not, we would be on par with all companies selling cheap
have automotive stampings, workshops, and laboratories
products bought from around the world. Our parts have a
that have been ISO certified.
warranty and the mechanics recognize the value of that.
Q: How do you optimize your distribution network to
Q: What advances in technology has DAI taken advantage
provide the best products and services to your clients?
of with the growth of the automotive industry?
A: We are innovating in terms of the sales points for our
A: We want to continue innovating and strengthening our
products. We are training our personnel to familiarize them
image within the market. Throughout all of Mexico, we
with our products, to transmit their advantages, and to
have led a publicity campaign drawing attention to DAI
successfully sell them. We also offer courses and conferences
as being synonymous with quality, comfort, and economy.
for our sales people and we have alliances with institutions
We believe that to retain a position in the market, we need
like CONALEP and IPN where we show students how our
to show our brand and our quality. It is just as important to
machinery works and the quality of our goods. The courses
manufacture quality products as it is to carry out a good
we offer in telemarketing, counter-sales, and wholesales
marketing campaign. We have a presence of 66% in the
are completely free and are conducted nationwide. We
market and our plan is to increase that in all aspects. We
also employ graduates from mechanical schools who
have also developed a new packaging system called DAI-
have knowledge of aftermarket practices. They in turn
Pack. Our parts are placed inside a new plastic container
offer technical conferences to mechanics and workshops
and packaged in normal boxes. These plastic containers
representing this sector of the automotive industry.
are hermetically sealed, protecting the parts from adverse weather conditions, and creating added value for our
Q: How challenging is it to find a balance between quality
customers. The components are engraved with our logo
and cost in a market driven by price pressure?
to prevent piracy. We have found that some workshops
A: Mexico is seeing an increasing demand for quality
have sold fake products with our boxes and we have taken
goods. A vehicle has become the second most important
legal action to curb this. We respect our market and our
asset acquisition for a family, so if quality parts are not
distributors and stand behind our agreements 100%. We
used to maintain it, unnecessary expenditure is incurred.
also have new designs that we want to implement through
Our purpose is to consider quality above all things. More
our new plant that opened in early 2014, for which we
than 40 vehicle brands are being sold in Mexico, each with
have bought new machinery for plastic injection.
347
AUTO PARTS DEALER TRANSITIONS TO MANUFACTURING “Back in 1988, many American automotive suppliers were
NWO. This led to the opening of Aguascalientes Industrial
not very interested in selling their products in Mexico,” says
Autopartes, a manufacturer established in Aguascalientes,
Herman Borda, President of Herko. “They did not see the
a state that is part of the Bajio automotive hub. This
Mexican market as an opportunity and were not confident
success quelled the fears of other companies, leading
about the conditions in the country. This gave Herko an
them to follow the model and enter Mexico in partnership
opportunity.” Borda’s company identified characteristics
with Herko. With its logistics and partnerships in place,
of the Mexican market that could quickly benefit it. “We
Herko’s goal is to keep growing and start manufacturing.
saw that Mexico had major potential for manufacturing
With its joint venture allies interested in bringing their
auto parts. We began representing offshore companies
manufacturing lines to the country, the only thing still to
in the country and selling components in Mexico as there
be sorted out is the manufacturing cost in Mexico. “The
was a big demand that was not being serviced. In order
Mexican market was long dominated by Chinese products
to fulfill those needs, we had to look for manufacturing
sold at low prices, but now Mexico is becoming very
facilities not only in the US but also in Brazil, Europe, and
competitive. As Asian countries are experiencing rising
Asia. The first step for us, after sourcing the components,
manufacturing costs, companies are seeking other sites
was representing manufacturing facilities in Mexico,” says
to establish their production. It also helps that the quality
Borda. Once the company evolved from only having a
of Mexican manufacturing is very high. While everybody
commercial operation to developing its own products,
decided to go to China and buy cheap products to later
it opened offices to better serve its Mexican consumers.
commercialize them with their own brand, we decided
As one of the main distributors in the automotive sector
to concentrate on just one manufacturer. For each of our
for OEMs and the aftermarket, Herko now operates on
products, we have one supplier, one technology, and one
five continents. It is divided in divisions that specialize in
solution so our customers always get the same quality in
various vehicle systems. Its first division, focused on fuel
our boxes. Products that are manufactured by our partners
pumps, continues to provide products for OEMs and the
comply with all the quality standards required by high-tech
aftermarket. The Ride America brand distributes hydraulic
companies,” explains Borda.
clutches, prefilled units, complete hydraulic systems, and brake parts, Herlux specializes in ignition systems, ignition
As the Mexican automotive sector grows, Herko is aware
coils, controls modules, and spark plug wire set, while Herko
that companies need to offer added value to their
Emission Systems provides oxygen sensors, TPS, IAC valves,
customers. For Herko, that added value is its knowledge of
temperature sensors, and crankshaft and camshaft sensors.
the country and the market, elements that Borda says put his company ahead of its competitors. “Most companies
Building up such a varied product portfolio put Herko
that come to Mexico have their own price lists and catalog,
in a strong position, but getting all these products to
but these do not always match with the Mexican reality.
its customers required specializing in a new dimension:
The names of the cars change, the models change, and
warehousing. Since Herko did not have this specialty
the most important thing is to adapt the products and
in-house, it looked for the right acquisition. Acquiring
tropicalize the business plan to the situation in each
warehousing company Alfa (Almacen Latinoamericano de
country. We make our own Mexican catalog and pursue an
Fábricas Automotrices) allowed Herko to add two levels to
independent program. As a result, Herko’s sales have been
its logistics network: big importers as well as second-tier
growing at an average of 40% per year, and the company
distributors that could move smaller quantities of products.
is being aggressive with new developments to cater to
Once the company was selling its parts through Alfa, Herko
all the different types of cars that Mexico is importing
approached the manufacturing companies that it was
or manufacturing,” expands Borda. With Magneti Marelli,
representing to convince them to establish their operation
Bocar, Grupo Suma, and Air Team among its customers,
in Mexico through a joint venture process. At first, Herko’s
Herko has gone from a components distribution company
partners were concerned about the situation in Mexico, not
to a parts assembler. It is now aiming to become a
just about the violence but also about a potential lack of
manufacturer in the future. To do so, Herko plans on
economic security for their investments. “We offered to
integrating more parts made in Mexico into its catalog
invest jointly in opening facilities in Mexico since Herko
and reduce its dependence on offshore operations. “Our
already knew the market, the behavior of its customers, and
main competitor is China and as long as prices keep rising,
how to manage a company within the Mexican framework,”
our business model will become more successful. We are
explains Borda. The first company to agree on a joint venture
betting on Mexico becoming the most important supplier
with Herko was a ball bearing manufacturer in Brazil called
of automotive parts in the world,” concludes Borda.
349
TRANS-ATLANTIC PARTNERSHIP MAKES IN-ROADS INTO MEXICO “Partnerships are the future of the automotive industry as the
equal balance between aftermarket and OEMs and create
right collaborations will evidently make companies stronger,”
business for both companies,” Khanduja explains. Once
states Alejandro Sandoval, Director General of Sandoval.
news of the alliance hit the market, the first reaction both
As automotive competition heightens in Mexico, alliances
companies obtained regarding this alliance was curiosity.
enable companies to offer better quality products at fairer
“Customers asked what products we provided and looked
prices. This is the vision that spurred the creation of a most
to ensure the highest quality,” adds Sandoval. According to
unexpected alliance: Mansons, a rubber parts supplier nestled
Khanduja, sales by experience became the best idea. “We
in the heart of Mumbai, India, and Mexico’s Sandoval, which
tell customers to try out our products such as parts for
provides springs for suspensions. While most partnerships
suspensions and see if they work properly,” Khanduja tells.
in the Mexican industry are sought out in North America,
“We do not need to go around bragging about whom we
Mansons’ Director, Gautam Khanduja, says that he saw links
supply to, by namedropping OEMs or brands.”
that resonated between the two cultures. “India and Mexico are similar as countries and cultures, their people have similar
Business alliances provide latecomers like Mansons the
thought processes, and face similar governmental issues and
chance to adapt far more quickly to the quirks of the local
policies.” He even attributes the ease of the collaboration
industry. Khanduja admits that in the past, Mansons was not
to common approaches to logistics and fleet culture. “Fleet
ready to step into Mexico’s market, as 60% of its revenues
structure is also fragmented, since it is largely driven by
came from Europe with only a small percentage coming from
single owner-operators.” In terms of logistics, scheduling the
the Americas. “Entering Mexico required careful planning. We
movement of cargo can be challenging with distances and
had to ready a special team to cater to the Latin American
infrastructure being major sources of concern. “Mexico and
market as Mexico was a primary country we wanted to be
India have similar working mechanisms even in how products
established in.” Given this successful entry, Mexico is now
are used and abused. Overloading in trucks is a rampant
seen as Mansons’ gateway to Latin America. “It has given us
problem in India, as it is in Mexico.” Sandoval reflects this
access to acceptance in smaller countries and it will play a
same belief, saying, “At the end of the day we handle business
pivotal role in taking our products to the rest of the region,”
basically the same. We find areas where we can converge.”
says Khanduja. The adaptation period to Mexico turned up some curious discoveries. “One thing we knew was that most
This alliance proved to be symbiotic in nature given that
vehicles in Mexico are American. But the further south you
both companies are leading suppliers in the heavy duty
go in the continent, the more you begin to see European
industry. Both have complementing product portfolios
brands appear,” Khanduja points out. Therefore, once the
since where Sandoval’s expertise revolves around springs
first objectives of establishing the brand and sales force
and clamps for suspension of all types of vehicles, Mansons
in Mexico are fulfilled, the partnership will exploit available
focuses on an array of components like suspensions, axles,
opportunities through such discoveries. “We can do many
and anti-vibration devices. For Sandoval, the alliance was
things, even open manufacturing facilities in Mexico or India.
based on Mansons’ good quality and reasonable pricing.
It all comes down to how much we can take advantage of
“Mansons is known worldwide as a manufacturer. It sells its
this alliance,” Sandoval explains.
products to many OEMs and Tier 1s, and it has knowledge
350
of exportations,” Sandoval explains. As for Mansons, its
This unusual alliance has raised some eyebrows as it
decision was based on Sandoval’s simple distribution
goes against the conventional industry practices, where
model. “When choosing partners around the world, we
European or American brands tend to be perceived as being
base our decisions largely on the potential partner’s
strongest. “It is true that a German auto parts manufacturer
historical data, its strength as a domestic player, and its
may have the reputation and the quality, but it may not have
ability to carry our product out into the market,” Khanduja
the right pricing for Mexico,” explains Sandoval. Khanduja
describes. With 50 years of experience in India, Mansons
adds that as low-cost manufacturers, both Sandoval and
is well aware of the importance of such a strong domestic
Mansons have faced the same problems. “Customers ask us
presence. “Sandoval is driven to deliver better products
why we did not partner up with a German company. As I
to the Mexican market and, with 60 years under its belt,
mentioned, our partners’ domestic experience is vital to us.”
we chose it as a partner,” Khanduja adds. In terms of
Both men agree that this alliance was not one about Mexico
identifying opportunities, Mansons focuses on two areas:
and India, but about two companies with complementary
OEM and aftermarket. According to Khanduja, the Mexican
products and business strategies. As the world shrinks and
aftermarket sector is fragmented, leaving a wide market
price wars in the automotive industry continue, alliances
share open to independent players. “Our idea is to form an
and synergies offer great potential to both parties.
IDENTIFYING SUPPLY CHAIN PYRAMID BASE LIFTS SUMMIT Norbert Director
Schweitzer, General
of
EuroImportadora,
parts of the vehicle.
has
spotted many peculiarities
Apart from being a reliable distributor for the bus segment,
in the Mexican market. A
EuroImportadora is also looking to diversify its market. The
key one is the significance
first strategy is to supply maintenance contracts, which are
of the bus segment as
used heavily in Europe and provide a full lease service for
a
limited
which customers pay a fixed amount for three to five years
transportation
before beginning to pay for spare parts by the kilometer.
result
alternative
Norbert Schweitzer, Director General of EuroImportadora
components requires constant oversight across different
options.
of
the
“Every
brand
So, if a bus drives 10,000km a month in its first year, the
that comes to Mexico has
company will pay between US$0.28-0.33 a kilometer for
to learn about the market. The most important thing is to
a maintenance contract. The price includes not only parts,
understand the market by listening to people about what is
but also the use of mechanics and labor force, meaning that
going on in the industry. Being a leader elsewhere or having
the companies do not have to take care of anything apart
a well-known brand does not guarantee success in Mexico.
from paying for the maintenance. The concept was brought
Products for this market need to be specialized and meet
to Mexico by Scania, which brought it from Brazil, where
local requirements,” explains Schweitzer. “Mexico has many
maintenance contracts have been used in the bus market for
different types of customers but they are all looking for good
15 years. Schweitzer explains that these types of contracts
service, good products, and solutions to their problems.”
are very interesting once companies are clear about the real costs being incurred. EuroImportadora will be offering
EuroImportadora
solutions
maintenance contracts in Mexico by the end of 2014, with
for commercial vehicles in Latin America, including spare
offers
integral
aftermarket
Schweitzer saying that “our clients want to have a good
parts for transmissions, engines, brakes, and clutches. It
service at a fixed cost, allowing them to plan ahead. Our
specializes in buses and trucks of European brands such as
customers’ business is to transport people; they do not want
Mercedes-Benz, MAN, Scania, and Volvo. Schweitzer states
to have to repair their buses themselves. For the moment,
that the company is not only focused on being a spare parts
they do so since they do not have a choice, but we provide
distributor, but also on providing additional services to its
a choice that takes this off their hands and costs them less
customers. “We also test parts and follow-up on the parts
money, so they are naturally interested,” states Schweitzer.
we have sold. After all, a little mistake in the manufacturing of a product can result in damage to a bus.” Should such
The second diversification strategy is the branding of
a situation arise, EuroImportadora has elected to guarantee
the commercial side of EuroImportadora: Bus Express,
payment of the damaged spare part for associated labor
a bus parts company targeting small and medium-sized
costs, which it believes sets it apart from its competition.
customers. The company has already opened shops in
“There are many elements that can be analyzed in order to
Mexico City, Guadalajara, and Puebla, soon to be joined by
ensure better performance and consumption. That is what
outlets in Cancun and Monterrey. “There is a lot of work to do
we do, providing our clients with far more than just selling
first because we have to know which products will be needed
a part,” says Schweitzer. Aware that quality is needed at
for every site. To do so, we have to identify which buses are
every link of the supply chain, EuroImportadora ensures that
used in each site so we can place the spare parts where they
its suppliers also meet the requisite standards. Schweitzer
fit the best,” states Schweitzer, who personally analyzed the
explains that he worked out a complicated network of
cities to help Bus Express have the right information to get its
suppliers, tracking who supplied which parts to which OEMs.
inventory and logistics strategies up and running. The division
Once he established who the likes of Volvo, Scania, and MAN
is quite clear. Bus Express targets customers with between
trusted at which tier of the supply chain, EuroImportadora
one and 450 units, whilst EuroImportadora takes care of
knew who to approach. “We try to find the end of the chain,
the bigger customers to which it sells parts directly. “This
which is not always easy, but once we find them it is easy
double exposure benefits EuroImportadora at a time when
to approach them. Once we have the products, we start
the increasing cost of buses along with new tax regulations
testing them and we can quickly assess which ones can
in Mexico means companies need to maximize their services.
hold their own in the marketplace and be the fast movers,”
Our experience in terms of finding where the market is going
explains Schweitzer. Given the range of spare parts that
and what products are needed will help EuroImportadora as
EuroImportadora provides across Latin America, this
it seeks to grow beyond Mexico and enter Panama, Ecuador,
supervision of the supply chain and ferreting out of the right
and Colombia,” says Schweitzer.
351
COMPLEX FILTER VARIATIONS FOR TARGETED SOLUTIONS Filtration systems are needed by a vast range of industries,
but when the customer starts experiencing the benefits of
but automotive is such a dominant client that Donaldson
our new filtration technology, they readily adopt it,” says
Company, the leading global provider of filtration systems,
Cardenas.
has divided its operations into two main groups: the industrials segment, and the engine segment, which OEM
The PowerCore G2 is not the only technology where
and aftermarket clients. “It is not just about selling a filter,
Donaldson has sought to adapt. “When our OEM partners
it is about understanding customers’ business needs. That
are designing a vehicle that will present space constraints,
is why we do not talk about the filter market but about the
an aspect such as the filters may not be foremost in their
automotive market, the oil and gas market, and the mining
minds. We work collaboratively with them to see how
market,” states Nathan Malek, Donaldson’s Marketing
we can continue to develop technologies that will allow
Director. To best cover all eventualities, the company
our filters to fit better but still provide the airflow that
is primarily focused on air filtration but also provides a
engines require to operate properly,” states Cardenas. Such
strong line of equipment for hydronic applications and
specifications provided by leading automotive customers
engine liquids.
are the key drivers of the technologies Donaldson invests
“The big difference between the aftermarket and OEM sector is that you only have a few minutes to convince the former why they should pay more for a Donaldson product” Nathan Malek, Marketing Director of Donaldson
352
The engine segment of its operations has seen Donaldson
in. “Donaldson has a lot of these cutting-edge technologies.
forge long-term relationships with OEMs, sometimes dating
We are the ones inventing them within our own corporate
back 30 to 40 years. Being vertically integrated, Donaldson
technology group,” specifies Malek. While this does lead to
ensures each of its departments are in touch with OEMs, so
a higher price point for Donaldson products, the company
that technology, design, and engineering are all incorporated
reasons that the higher engineering and design elements
in the specific applications automotive customers need.
create extra value. “However, the big difference between
“We need to understand what is going to be used and what
the aftermarket and OEM sector is that you only have a few
the constraints are,” says Franklin Cardenas, Vice President,
minutes to convince the former why they should pay more
Global Engine Aftermarket of Donaldson. For example, US
for a Donaldson product. It is about crafting a story that
automotive companies have a greater concern about engine
resonates with our customers,” explains Malek. Given the
cleanliness and have high specifications for fuel systems,
time restraint, quality and confidence in a brand become
requiring cleaner fuels that do not block the injectors. In
the most important features a product can have. “We go to
response, Donaldson provides products and technologies
the market with a well-recognized brand and a very well-
that allow OEMs to offer better protection to the injectors,
defined marketing structure which ensures that people
meaning that users will be able to operate vehicles without
understand what Donaldson stands for, no matter where
having to replace the injectors as frequently. Working
we are,” explains Cardenas. Part of Donaldson’s initiative
closely with OEMs has enabled Donaldson to identify major
to reach out to the market is to have the right coverage
market trends. One such trend that is driving product design
in terms of distributors. “We have about 4,500 distributors
is the deeper integration and connectivity of components.
around the world, and we keep expanding that network.
An example of this in Donaldson’s portfolio is its PowerCore
We need to make sure that we have the right coverage in
G2 Filtration Technology, which brings together several
every region of the world. We have about 14,000 or 15,000
advantages for OEMs. Lightweight with no metal parts,
active part numbers and any given region will have 5000
it incorporates Donaldson’s proprietary straight-through
SKUs in their price lists. We obviously have very different
airflow technique, and uses the latest in filtration advances.
price offerings in the US, Mexico, Brazil, and Europe,” says
This helps to reduce the weight of the vehicle and ensures
Cardenas. This strategy seems to be working out so far,
fewer maintenance requirements. “As with many new
since in 2013, the aftermarket sector accounted for 37% of
technologies, this can at first be daunting for the customer
Donaldson’s total sales, as part of an Engine segment that
as its features are different from those of traditional filters,
brought in 61.7% of the company’s revenue.
ROADBLOCKS REMAIN TO AFTERMARKET ENTRY Two aspects of the Mexican car park, its aging components
adds. Dorman Products’ plan for Mexico will seek to play
and a desire for renewal, make it a prime target for aftermarket
to the company’s strengths to avoid certain difficulties
companies. Founded in the US, Dorman Products spotted this
associated with entering the market. The company is
Mexican potential a decade ago. “Looking at the Mexican car
concentrating on its main lines and systems including parts
park, we realized that our existing portfolio meant we could
for engines, breaks, HVAC systems, electronic components,
sell 60% of our products and applications within Mexico
and chassis. At first, it will also supply headlights, taillights,
immediately,” says Victor Hugo Uribe, Sales Manager of
and door handles, as well as remanufactured electrical
Mexico and South America of Dorman Products. Nevertheless,
products. Dorman Products is looking to the Bajio region
Dorman Products is still considering how to best tackle the
to establish its facilities, while being aware that with
Mexican market and formalize its presence here beyond
80% of the cars produced in the region being exported,
sales. For the moment, it is identifying precise opportunities
aftermarket growth there is restricted. Uribe estimates
where OEMs are lacking in aftermarket capacity. This analysis
that it will take two years for Dorman Products to establish
leads Uribe to state that problems found in the Mexican OE
a firm presence in Mexico, over which time it will establish
aftermarket lie in price, speed, and service. “OE products are
a warehouse, install category management, and adapt to
not perfect, price pressure is extreme in the current market
the culture of Mexican distributors. “Traditional Mexican
and this can impact quality. When buying OE parts in Mexico,
distributors go through a product range line by line, they
customers usually do not get the level of service that the
do not really seek to invest in new products, but they
aftermarket requires,” states Uribe. This is where Dorman
know they need new lines in order to stay competitive.
Products plans on gaining market share, given a logistical
In their mind, they know that they can return products at
strategy that makes its parts readily available. Uribe adds that
the end of the year if necessary,” adds Uribe. Despite such
Dorman Products is also able to match or beat the quality of
cultural differences, Dorman Products knows supporting
OE products that it identifies as weak.
the retailers and mechanics it supplies is paramount. In the
“When buying OE parts in Mexico, customers usually do not get the level of service that the aftermarket requires” Victor Hugo Uribe, Sales Manager of Mexico and South America of Dorman Products
According to Uribe, the map of the aftermarket in Mexico
US, it developed its own courses to train mechanics, both
will be transformed over the next decade. “The aftermarket
directly and through video tutorials. The company also has
here is closed and very traditional, dominated by few
its full catalog available online and sends out new product
companies and focused on cheap parts. It is composed of a
announcements every four months to keep retailers
few Mexican companies with decades of experience in the
informed. Although Dorman is seeking to implement these
market and some American giants.” As a mature company
strategies in Mexico, Uribe is aware of the challenging
with 100 product lines and 100,000 SKUs, Dorman
characteristics of this market. “The US market has come
Products feels it has all the tools to fully enter the Mexican
a long way over the last thirty years, but it has remained
market. Before that happens, Uribe would prefer to see
at a standstill in Mexico. Mechanics and retailers are still
more investments being made to render the aftermarket
not very familiar with using websites. Physical catalogs are
more attractive by being more focused on technology and
still used in 90% of cases,” he explains. Uribe still believes
quality. “Traditional Mexican companies risk being wiped
that Mexico is developing an excellent environment for
out if they are not able to understand the significance of
the automotive industry but just has to overcome the final
new competition and new practices,” explains Uribe. One
aftermarket roadblocks. “Fighting in a price-driven market
such example will be the implementation of electronic
is not attractive from a profit perspective. This is a difficult
systems for ordering and tracking processes over the
market to make money in. We have to spend a lot of time
next three to four years. “Electronic systems can be used
building up our brand, or trade under another brand name.
to monitor the sales process and track potential losses
A quality regulation process that restricts the importation
and opportunities much more closely. This should be of
of low-quality products would go a long way toward
paramount importance to any aftermarket company,” he
making this easier,” explains Uribe.
353
| VIEW FROM THE TOP
REDUCING FRICTION THROUGH FUSION JUAN MANUEL MANJARREZ Marketing Director of Bardahl de México
Q: Bardahl is very well-known across Mexico, but what
a technology that prevents friction between metals and
new opportunities have you identified here of late?
has proven successful in extending the lifespan of the
A: Bardahl started out as an additive producer, so it has
engine, due to including Bardahl 1.
largely focused its efforts on protecting its leadership in additives for oil and gas, brake fluids, and coolants.
Q: Beyond R&D, how is Bardahl planning to increase its
In terms of increasing our presence in the automotive
presence in the lubricant market?
industry, we are always looking for ways to improve our
A: Bardahl built its brand equity with the animated
distribution, the service we give to our clients, and to
Carrazo Character, which was launched in the 1970s.
continue being the best option for the consumers that buy
Carrazo was so influential in raising the brand’s image that
our products. Bardahl’s priority lies in offering bestselling
it remains familiar to a lot of our consumers today. We are
products as part of a very solid portfolio in Mexico before
counting on that base to help the Fus1on lubricant launch
moving further afield. However, we also have the Motron
grab consumer attention and successfully penetrate the
brand that is focused on Central American markets.
market.
Q: Bardahl has one of the most complete R&D centers in
Q: What are the main priorities on Bardahl’s 2014 agenda
Latin America. What are the main technical innovations
and what are the main long-term ambitions you are
being researched at the moment?
pursuing?
A: R&D is extremely important for Bardahl and we are
A: The launch of our Fus1on lubricant, in order for us to
strongly committed to innovation. In our lab, we carry
continue as one of the main players in the automotive fluids
out many experiments and tests on automotive fluids to
category, is very important. We are focused on showing
evaluate their quality and performance, but we also count
our clients and consumers the benefits of this product to
on our suppliers’ research since they help us to understand
quickly consolidate it and become part of the repertoire
the market and technology trends, and support us in
that every store must have. Every innovation always starts
upgrading our products to offer new solutions for cars.
from the inside with our employees, and moves outward
We recently launched a new product called Fus1on, which
until it reaches the end user. With products like Fus1on,
is making waves in the oil segment since it incorporates
we want to transmit the message that Bardahl will always
our most successful additive called Bardahl 1. Fus1on has
be an important part of the automotive industry.
BUILDING THE COMPONENTS OF SUCCESS After 33 years in the industry, Cadena Automotriz has
supply a wide variety of products with diverse quality levels.
witnessed how the aftermarket has changed. In the past,
“It comes down to finding the right manufacturers. The
most products were imported from the US. Eventually the
products that are available in China and Taiwan are varied;
market opened and some products came from China and
if you find a product in a price range that goes from US$3
even Taiwan. “30 years ago, there were very few importers
to US$10 then many dealers in the Mexican market prefer
but now more and more are coming in,” says Arturo Cadena,
the US$3 products because these are cheap, but what they
Director General of Cadena Automotriz. The changes in
do not realize is that those products are not a long-term
the aftermarket have forced companies to specialize. In
economic alternative to quality,” explains Cadena. “We are
the case of Cadena Automotriz, the company specialized
focused on finding competitive products that offer the best
in automatic transmissions, which requires many specific
cost-benefit ratio and that are an investment. There must
components. Although the OEMs are in charge of assembling
be awareness on the consumer’s side about purchasing
transmissions, they acquire components from external
value-driven components instead of the cheapest product.
suppliers. “No one in the industry manufactures a transmission
We provide our customers with the necessary information
itself,” explains Cadena, which is why it is important for the
to make the decision, but they have the final say when it
company to find the right suppliers for each part. Cadena
comes to choosing a cheap product or a quality one,” says
Automotriz is a distributor in the aftermarket, catering to
Cadena.
the same manufacturers that work with OEMs. Therefore, a transmission that needs to be repaired will require only a few
Since automatic transmission is a niche market, Cadena
products among those that Cadena Automotriz offers in the
Automotriz has a competitive advantage. “In a city like
aftermarket. The brands that Cadena Automotriz distributes
San Luis Potosi, there might be 50 specialized engine or
include names such as Transtec, which manufactures
suspension workshops but only four or five are specialized
transmission kits and power steering kits; Alto, an American
in transmission. In a bigger city, like Guadalajara, there
company specialized in manufacturing friction and steel
are probably seven to ten specialized workshops. These
plates as well as bands, filters, modulators, and seals; Filtran,
workshops usually have a spare parts section that supplies
the global leader in filtration systems; Rostra Precision
the shop,” says Cadena. Cadena Automotriz sells to these
Control, the largest manufacturer of cruise controls and
sections and ships to customers across the whole country.
transmission products in the automotive aftermarket; and
As the automotive industry in Mexico keeps growing,
powertrain solutions leader BorgWarner.
Cadena Automotriz has to look for new strategies to
“We are focused on finding competitive products that offer the best cost-benefit ratio. There must be awareness on the consumer’s side about purchasing value-driven components instead of the cheapest product” Arturo Cadena, Director General of Cadena Automotriz
Cadena Automotriz keeps a product portfolio that is
keep up with the needs of the market. The first approach
constantly upgraded to cover the market’s needs. “Parts
consists of expanding the range of products included in
change, new patterns emerge, and new parts come so we
its transmission oil cataloge. In 2006, the company began
should seek to have the best product selection and the best
selling transmission oil and lubricants as a response to
suppliers,” explains Cadena. He visits the manufacturing
client demand. Right now, Cadena Automotriz works with
plants of each supplier his company works with, whether
a company in the US and distributes not only transmission
these are located in the US, China, or Taiwan, in order to
oils, lubricants, and additives, but also gasoline engine
oversee the products’ manufacturing process as part of a
oil, diesel engine oil, hydraulic oil, and industrial oil. The
quality control mechanism. He also pays attention to the
next step in the company’s growth strategy is to open
customers these factories sell to. “If they have customers
new retail shops. San Luis Potosi is already home to one
in the US, it speaks of high-quality products since the
of these shops and the company is planning a second
standards in this country are very rigid,” explains Cadena.
one. However, the most important step for the growth
Although Asian suppliers are sometimes believed to have
of Cadena Automotriz will be the launching of its own
low-quality merchandise, Cadena has found that they
suspension brand in the coming year.
355
INTERVENTION NEEDED TO TACKLE USED TIRE MISUSE The global tire market is expected to see a yearly rise of
production and distribution. “Insofar as distribution, the
4.3% over the next three years, reaching 2.9 billion units by
profit margin has diminished by 50% in the last ten years.
2017, according to data from the Freedonia Group. Although
If distributors think that selling tires is going to be enough
this rise will be led predominantly by developing countries
to run a business, they are wrong. They need to evolve
in the Asia-Pacific region, demand will also increase in
from being basic tire shops into service centers. A service
Europe and Northern America. The US will continue to be
center can sell spare parts ranging from suspension and
the world’s second largest market for tires, accounting for
brake systems to ancillary services, with the ideal profit
13% of global demand by 2017. Despite certain limitations
equilibrium being 50% tires sales and 50% spare parts and
to growth within its internal market, Mexico’s proximity to
ancillary services.” The final pillar for the association is to
the US places its tire industry in a strong position. Mexico
act as a facilitator between the government, the private
has a developed OEM and replacement tire market, as well
sector, and all relevant associations. “The most informed
as strong demand in the heavy vehicles segment due to
people are the ones that make the best decisions, and
the high prevalence of trucks and buses on the country’s
therefore we aim to keep the industry well-informed of
roads. The Mexican tire market is dominated by global
relevant events as they happen,” says Castillo Arteaga.
industry giants and five companies have production sites based in the country: Pirelli, Bridgestone, Continental,
Unsurprisingly, challenges in the tire segment mirror those in
Cooper, and JK Tornel.
the wider vehicle segment, with Castillo Arteaga explaining
“The trucking sector has a major shortage of tires, leading to an amparo for the importation of about 1 million tires with the aim of providing raw materials for the rubber industry” Raúl Castillo Arteaga, President of Andellac
356
Andellac is the Mexican association of tire distributors,
that the illegal importation of used tires into Mexico presents
established over four decades ago and tasked with
a major hurdle. “The trucking sector has a major shortage
coordinating and communicating the development needs
of tires, leading to an amparo for the importation of about 1
of the sector. The association’s 3,000 members include
million tires with the aim of providing raw materials for the
all major tire producers, along with key players from the
rubber industry,” says Castillo Arteaga. However, according
country’s distribution network. Andellac’s President Raúl
to Andellac’s research, these tires are actually directly being
Castillo Arteaga, elucidating the recent dynamics of the
re-used on cars, creating a detrimental effect on market
local tire industry, explains that, “The automotive market
share, road safety, and the environment. “Tires are not
has changed radically in all sectors, but the tire sector
renewable and while a new tire will last about four years,
in particular has seen exponential evolution. In 2012, 33
a used imported tire will only last three to four months.
million replacement tires were sold in Mexico, reflecting an
What we are essentially doing is accumulating waste in
8 million net increase in just eight years. However, in that
our country. There is also a lack of regulation regarding the
same timeframe, the increase in tire sales to OEMs only
informal selling of tires, and while there are laws surrounding
went from 17.5 million to 20 million.”
this they are not enforced effectively,” he explains.
The association is working on three major pillars to
One way of tackling this is to renew second-hand tires for use
drive growth in Mexico’s tire industry. Its first aim is to
in the general car market. The federal government recently
help business owners who need help to adapt to new
commissioned a proposal on the potential uses for used
technology, improve their understanding of the operation
tires from the National Rubber Council, which sought out
of new complex machinery, implement sound business
the opinions of Andellac and SEMARNAT. Castillo Arteaga
strategies, engage in thorough environmental practices,
explains that “we have proposed that a used tire in good
and practice efficient inventory management. Secondly,
condition can undergo specific processes to be renewed
the association is working to establish business networks
completely and resold for general use. With the technology
that will connect suppliers and distributors. Castillo
that is now available, a used tire re-upholstered on time is as
Arteaga points out that big differences exist between tire
safe as a new tire.” Tire manufacturers have indeed invested
billions of dollars into research and established that a tire
Rubber’s natural resistance presents a challenge, however, as
can be renewed up to six times. According to Andellac’s
machines able to cut and compact it are very expensive. For
data, Mexico currently has an index of 0.75 when it comes
this reason, Andellac believes that a government incentive is
to renewed tires, meaning that only 75% of tires produced in
needed to encourage investment. However, the government
Mexico are renewed. “To put this into perspective, the US has
agency responsible for this maintains that there cannot be
an index of 1.5, while countries in Europe have an average of
an economic incentive for an industry that does not actually
2.5. Even Latin American countries like Brazil have an index
yet exist. Andellac is therefore petitioning Congress for the
close to 2.0,” explains Castillo Arteaga. In his opinion, rubber
rubber re-use industry to be included as an official sector
should be re-used in the same way as PET and aluminum. “If
with the Treasury, enabling the association to then petition
we can find other uses for the rubber, used tires can go from
for an incentive. “The Calderón administration wanted to levy
being a nuisance to a lucrative business opportunity.” Rubber
tax on every tire sold for re-use, which would actually act as
can be compacted and used for road safety barriers, a use
a disincentive for the sector. Fortunately, our proposal has
that has already been adopted in a number of countries.
been received with enthusiasm by the current administration
Another possibility is to follow Europe’s example, where
and we are confident that we will see progress,” says
tire rubber is often mixed with concrete to create a specific
Castillo Arteaga. To support this aim, the association is also
kind of tarmac. “Rubber can also be used as a temperature
launching a large campaign in collaboration with the public
insulator, while overall tire waste is very useful for renewable
and private sectors to educate consumers on the negative
projects because it protects against moisture and many
impact of black market tires and to encourage purchases
other elements,” says Castillo Arteaga.
through authorized sales agents.
357
BRINGING KOREAN ULTRA-HIGH PERFORMANCE TIRES TO MEXICO The value of the Mexican tire market is expected to hit
department and regular follow-ups on the performance of
US$8 billion by 2018. The catalysts of this growth are the
Hankook tires. “This means that if the tires are suffering from
rise of vehicle manufacturing and ownership in the country.
irregular wear and tear, we can identify the cause and report
Attractive investment conditions have sparked fierce
on these to fleet owners and maintenance managers.” Choi
competition among the biggest tire companies, and while
mantains that in most cases, people believe the tire is at
Continental, Bridgestone, Cooper Tire, and JK Tornel battle
fault while a tire malfunction is often due to external factors.
for the biggest share, other tire companies like Hankook
“Based on our aftermarket service, we can guarantee a
have begun to carve a niche of their own. “Hankook has
long lifespan for our products,” he adds. “One out of ten
had a presence in the Mexican market since the 1990s by
vehicles worldwide carries our brand and we want to
importing products straight from Korea,” explains Inho
become the first choice for clients when a tire replacement
Choi, Director General of Hankook Tires de México. “We
has to be made.” This ambition has spurred the creation and
consolidated our presence in 2011 by becoming a Mexican
expansion of the company’s distribution network around
company. By so doing, we are now able to give direct
the world. “Expanding our presence through this network
service to our distributors and facilitate the purchasing of
gives us more access to the end user and leads to a more
products,” he adds. With this consolidated presence having
established presence within the Mexican market.” However,
led to a market share of 3.3%, the company has set its sights
Hankook stands out from its competitors in that it does not
on increasing its participation to 8% in five years. “Hankook
have production capabilities in Mexico. To make up for this,
is currently in seventh position but our objective is to soon
it pours its resources into distribution. “A new plant will be
be among the five main tire brands in Mexico,” Choi states.
constructed in the US and will begin operations in 2016. It
In order to fulfill its ambition, the company has drawn up a
will be in charge of supplying 80% of the North American
careful strategy involving several stages, from improving its
market.” While Choi admits that Hankook has no short-
product portfolio to expanding distribution network.
term manufacturing plans for Mexico, a distribution center
“Tires are the second most important expense for a fleet so we take advantage of this by offering cost-effective and fuel efficient tires to fleet owners” Inho Choi, Director General of Hankook Tires de México
Prior to rolling out this strategy, the company has identified
was inaugurated in Queretaro in July 2013 to serve as the
which sectors of the industry it is to focus on. “In Mexico,
main distribution point for Mexico. Prior to this center, the
we do not have strong relations with the OEMs so we will
company’s logistics strategy was to supply directly from
focus on the aftermarket,” Choi explains. “In addition,
South Korea and China to the distributors. “Hankook offers
Mexico has one of the world’s largest bus and truck
its distributors a product that attracts a niche market and
fleets, which will drive demand for tires.” The company
strengthens their product portfolio in different regions of
is now proceeding to adapt its product offering to these
Mexico,” Choi explains. “Although we do not have exclusive
segments. Its products are commercialized in three main
distributors, there are shops that are 100% identified with
sectors: cars, vans, and light and heavy trucks. Within this
our brand.”
varied product portfolio, Hankook’s focus is on ultra-high performance tires, ranging from 35-50 inches and 16-24
A company can easily identify the status of its distribution
inch rims. The company also has tires for vans, ranging
network but it is far harder to understand the decision
from urban to all-terrain, while offering specially designed
making process of an end-user. In response, the company
tires for heavy duty fleets and owner-operators. “Tires
has developed aggressive marketing campaigns to ensure
are the second most important expense for a fleet so we
that it remains at the forefront of customers’ minds. “In order
take advantage of this by offering cost-effective and fuel
to increase our client base and presence in the aftermarket,
efficient tires to fleet owners,” states Choi.
we need to reinforce our sales team and sales points in order to be closer to end users.” The company has increased its
358
Choi stresses the importance of strengthening interaction
presence through different marketing mediums, including
with customers by having a capable technical assistance
TV, magazines, and radio in order to raise its profile.
CERTIFYING WORKSHOPS TO RAISE QUALITY LEVELS Capacity building and the continued acquisition of knowledge
offered by the CNT has become its most important program
are crucial to any industry, but are even more so for sectors
as established companies with ISO or QS certifications
in which most workers are self-taught. Furthermore, given
will traditionally seek partners with certifications. Beyond
the demanding nature of automotive companies when it
this, CNT is also responsible for maintaining contact
comes to quality, the certification of workers at all levels
between OEMs and public companies with certified service
is of paramount importance. CNT (National Workshop
businesses. An example of this is the links it has forged with
Confederation) represents the automotive workshop and
PEMEX and CFE who rely on CNT to find qualified personnel
repair industry. It brings together nearly 72,000 people in
to support their vast fleets. CNT also works with fleet
Mexico and in certain Latin American countries, making it the
managers who request the support of the confederation to
largest trade organization in the region. CNT began as a way
work with its network of certified workshops. Today, correct
to support a segment of the industry made up of businesses
business practices also must include a strong sustainability
in which most staff are self-taught, given a lack of access
focus, leading CNT to create the National Program for the
to specialized schools and sufficient technical information.
Support of the Environment. Through this program, it
“Our mission is to convey the point of view and experience of
provides over 150 courses a year to raise awareness within
auto parts installers to the automotive industry at large. We
workshops of the importance of protecting the environment
also support new workshops by sharing a vision that allows
and safeguarding national environmental standards. Once
them to consolidate in the market as solid companies,” says
they have successfully passed, CNT provides workshops
Rudi Esquivel, President of CNT. To train up its members,
with a stamp as evidence that they have an environmentally
the confederation provides access to various programs,
responsible focus.
among which its labor certification program is seen as the most important. CNT’s links to the government has led to
CNT has established synergies with auto parts companies
the development of more than 30 laws and regulations in
and aftermarket companies with the intention of providing
automotive repair standards. These have served to attract
direct support through training and labor certification.
strong players, such as AutoZone, within its ranks as well as
CNT works with leading brands, which in collaboration
independent workshops and official automotive mechanic
with the confederation train thousands of mechanics
schools. “Within the aftermarket industry, training does not
through local update meetings. These meetings represent
exist for the most part. The main vision for mechanics is
a new drive for CNT, and its 68 delegations nationwide
to do business in the short-term with little to no long-term
regularly
vision, and this keeps shops and businesses from growing. In
known as Automotive Technical Update Meetings. CNT
Mexico, most automotive shops businesses are SMEs. There
also works with 48 universities across the country, of
are more than 300,000 nationwide, but the lack of business
which polytechnic universities are prized for their training
training and future planning means 60% of new repair
of most of Mexico’s automotive engineers. CNT provides
shops disappear after a year,” explains Esquivel. Currently,
additional support including training, technical education,
CNT operates from the fees paid by the manufacturers and
and labor certification to prepare graduates for the labor
affiliates as well as a contribution made by the government
market. “Graduates often cannot work in the automotive
for labor certification. Beyond this, in order to curb the trend
industry without receiving additional training. Many of the
of mechanics swiftly shutting up shop, CNT has allocated
university programs were designed 50 years ago but, as
a special fund to provide computers, software, and other
a result, graduates enter the market without the technical
benefits to its members.
capacity needed to do their jobs,” explains Esquivel. In
organize
professional
development
events,
addition to collaboration with universities, CNT established As the government is in charge of the formal vocational
the
training sector through schools such as CECATI, CNT focuses
mechanical, automotive, and mechatronic engineers can
on updating the knowledge that exists in the workshops. The
update their knowledge in the area of automotive diagnosis
confederation helps to form business-focused environments
and repair. Automotive shops, rectifiers, locksmiths, and
within the workshops, with small shops being strengthened
other professionals engaged in automotive repair also
by providing them a vision for the future. Since its inception
attend to update their skills and contacts. CNT seeks to
13 years ago, CNT has already helped to professionalize
consolidate its programs internationally and wants to
100,000 SMEs but it does not intend to stop there. “Mexico
replicate Expo Mecánico Automotriz Pachuca in Peru,
has around 1.15 million people working in the automotive
Argentina, and Colombia. “We want to take our crusade to
repair sector across more than 280,000 automotive repair
other automotive sites and bring our quality levels to other
shops that we can serve,” says Esquivel. The certification
countries,” concludes Esquivel.
Expo
Mecánico
Automotriz
Pachuca
in
which
359
REDUCING REPAIR DURATIONS ONE SPRAY AT A TIME The vehicle refinishes and repair industry in Mexico has
says Patiño. Offering training is another way in which the
historically been provided for by a wealth of small informal
company is attempting to effect direct change, with Patiño
outlets, which is changing as global suppliers are offering
explaining that “Sherwin-Williams has different sources of
better access to the latest in painting materials and application
training, including a fully equipped training center at our
technology
Automotive
corporate headquarters in Mexico City. We train customers
Finishes Division is one such provider and the company is
nationwide.
Sherwin-Williams’
in the processes needed to utilize our products correctly,
using its global focus to deliver innovative products to Mexico
as well as color matching. Furthermore, we have a training
that help improve performance and reduce cycle times.
van that is unique in the market. This enables us to bring a
Today the company has the largest distribution network in
mobile training center to small body shops and teach these
Mexico in terms of automotive products, with more than
companies how to use new technologies and products.
1,500 distributors nationwide. Sherwin-Williams’ Director
These companies are open to using new technology, but
of Marketing for the Automotive Finishes Division, Arturo
they are not usually being shown how to use it directly.” A
Patiño, explains how the company has been attempting to
big part of the market is made up of under-trained workers
innovate. “We are looking to deliver products that reduce
that do not have facilities or set practices in place and have
repair times. A couple of years ago, we released the HPC-15
very little concept of safety. Therefore, Sherwin-Williams
Clear Coating, which dries in 15 minutes. There is no other
has a strong focus on encouraging the use of safety
product like it in the market right now.” This innovative paint
equipment in order to foster a safety mindset, which can
line does not require a spray booth for application or another
be seen in the training offering.
heat source for curing. Removing the requirement to place the vehicle in an oven to dry the paint saves both time and
The smaller body shop segment makes up the bulk of
money, reducing the overall cost of the repair. “We have also
the Mexican market, and Patiño explains that the level of
developed our High-Productivity Process line, which allows
competition is a challenge. “The technology being used by
the customer to perform a small repair in 40 minutes from
this segment is not new and it is easy for small providers
primer to clear coat finish. This helps to increase productivity
to enter the market. This is why we are focusing heavily on
at the body shops. We are also focused on using waterborne
the mid-sized segment. Larger body shops really need to
greener products,” says Patiño.
speed up processes so it makes economic sense to use our products.” According to Patiño, the higher end body shops
When it comes to the smaller body shops, access to new
and mid-tier multi-brand body shops that are affiliated with
technology is not the only barrier as the costs involved with
insurance companies are seeing particular growth and are
upgrading material lines are also often prohibitive. Patiño
rapidly adopting better technology. He explains that these
explains that while the higher technology finishing lines are
are opting for higher end technology although they do not
indeed more expensive, the reality is that only 7% of the
necessarily have the higher end equipment and facilities
repair cost comes from the paint. “Energy costs are a big
installed yet. For such companies, Sherwin-Williams claims
part. When you reduce energy expenses through the use
to be able to reduce the overall cost of repairs by 15-20%
of such products, you are actually saving money. The cost-
through improved processes. “Helping clients to reduce
benefit ratio is very attractive,” says Patiño. That being said,
associated ancillary costs, such as labor and energy expenses,
many of the small body shops are focused on using lower
is a valuable contribution. If we are only focused on reducing
priced products to immediately save money. The reality is
product cost, then we would be restricted. Focusing on these
that a small body shop servicing three cars a week does
savings with high-end body shops is helping us increase
not have the same time pressure as one that works on 100
our market share, as well as building business with the bus
cars a week. Customers going to such shops are also often
manufacturers,” explains Patiño.
unwilling to pay higher prices solely because better painting technology was used.
When it comes to technology development, Patiño does not rule out Mexico as a source of innovation. “Last year, we
360
Professionalizing the smaller body shops is one way to
won the bid for the manufacturing of a new type of paint
encourage greater uptake of modern painting technology
for the Mexico City subway. This required a specific type of
and the company is taking steps to this end. “For smaller-
product, which was developed in Mexico. As a company,
sized workshops, we are innovating products, such as
we are looking to have more global products, and these do
flexible primers that are more affordable and include higher
not necessarily have to be produced in the US. Products
technology, which are the sorts of products that help
produced globally can be utilized in other markets and we
smaller body shops to become more professionalized,”
are focusing on that development worldwide.”
| VIEW FROM THE TOP
AFTERMARKET SUCCESS: FROM SANDPAPER TO ABRASIVES JUAN MANUEL DE LA CONCHA Industry Business Director of 3M Mexico Q: What key products in 3M’s portfolio have made a
on repair system processes that revolve around polishing
marked difference in the development of the automotive
and sanding to improve finishes. Mexican consumers are
industry?
constantly seeking higher quality at the right price, so 3M’s
A: 3M has deeply contributed to the development of
products are focused on providing a better performance
the automotive industry by continuously introducing
and a better cost-benefit ratio.
innovative products that are adapted to specific market needs and requirements. We have been involved in the
Q: What are the distinguishing factors of the Mexican
Mexican automotive industry since our arrival here
aftermarket sector?
67 years ago. Over that time, we have established a
A: Unlike the US, where there is a strong do-it-yourself
strong presence in the aftermarket and we are a well-
culture due to labor being more expensive, it is common to
recognized brand within the auto repair segment. We
pay for car maintenance in Mexico. Mexicans request that
also have experience in creating products used for
services be done for them which changes the range and
painting and finishing details of cars. One of our first
types of products we distribute. 3M has no shops, but we
products was sandpaper, which has been one of the key
have a very strong and important network of distributors,
inputs related to automotive metalwork. We currently
giving us one of the most significant presences for
have sandpapers made with different grains that have a
aftermarket distribution in Mexico. The distribution
range of applications, from metallic parts to retouching
chain also has national distributing master locations,
of the painting process. Another well-known product is
which typically supply to paint shops. This is vital as our
masking tape, developed specifically for automotive use,
aftermarket business model is focused on paint shops.
which enables workers to paint a car while producing
These locations sell our products to small shops, as almost
clean lines with no mix between layers or colors. One of
every car in need of repair will require paint. However, 3M
our star product lines is the Trizact™ abrasive line, used
can also give direct attention to highly productive shops.
to correct flaws that occur during the painting process without needing to repaint the entire car. All these are
Larger retailers of aftermarket automotive parts and
crucial processes for the OEMs and workshops, and we
accessories are coming to Mexico. Big chains are
continuously strive to improve them.
important players as they add value to the market and demand good quality products. For example, in
Q: What trends have you identified in the aftermarket
these big chains, 3M sells its Meguiar™ brand that is
sector, and how does 3M adapt its products to the
well-respected in the car fan segment. Customers are
requirements of the consumer market?
migrating to shops with a better presence. In order
A: It is well-known that Mexico plans on producing over
to maintain a client’s interest, shops have evolved to
4 million cars a year over the next five years. As a result,
become cleaner and better designed, which helps grab
production capacity will grow and as the number of
the customer’s attention and trust. 3M is a reference of
vehicles increases, our opportunities within the aftermarket
quality that can complement this evolution in big and
will expand as well. Our targets are any shops focused on
small repair shops alike. We divide the market into two
auto repair and painting, ranging from large OEM shops to
clear segments that we can attack: the commercial
small, independent ones. The market is always demanding
and repair segments. The commercial segment is more
more quality in the processes of these shops. This is
focused on shops which provide parts like car fans,
motivated by insurance companies that are the main
since these provide routine maintenance to vehicles.
drivers of high-performance paint in repair shops, as they
The repair segment is concentrated on those shops that
are in charge of repairing a client’s car after an accident.
cater to vehicles that have been involved in accidents.
We provide these shops with aftermarket products that
Our distribution network offers specific products to
help them improve productivity, speed, and lower costs
each of these two segments.
361
Mexico is the world’s 13th largest economy in nominal terms, is positioned 2nd in Latin America, and is one of the fastest growing economies among developing countries. Both its maquiladora program and NAFTA participation are evidence of the country’s long tradition of welcoming foreign trade and business opportunities. Beyond its unalterably optimum geographic position, the country has many attractive qualities for potential investors including its labor force, natural resources, strong will to reform obstructions to growth and political stability. Of course, no emerging economy investment is without risk and Mexico continues to contend with its own unique set of challenges. The sweeping reforms taking place are beginning to impact various levels of business operations and whilst they are for the most part welcome, some are causing concern. Many of the ingredients for success exist for investors betting on Mexico, but both a deep understanding of the market and a clear development strategy are essential for success.
This chapter will examine the key factors to consider when doing business in Mexico. We will look at the state of play from a regulatory and taxation perspective, providing useful insights from industry experts. By giving a complete overview of both the investment opportunities and the challenges faced, this chapter will provide an interesting read for those unfamiliar with the Mexican automotive industry and the general business environment, being beneficial to both international and local players.
DOING BUSINESS IN MEXICO
13
364
CHAPTER 13: DOING BUSINESS IN MEXICO 366
Proper Policies for a Thriving Industry
368
VIEW FROM THE TOP: Fallout of Recent Reforms on the Maquiladora Sector
370
Fiscal Law Shakes the Manufacturing Sector
370
Export Quotas Hamper Auto Exports to Latin America
371
Impact of Tax Reforms on Automotive Investment
372
Industrial Parks Part of New Business Landscape
373
VIEW FROM THE TOP: Industrial Real Estate to Suit the Automotive Sector
374
VIEW FROM THE TOP: Pro-Active Mind-Set Needed to Cater to Automotive Projects
375
VIEW FROM THE TOP: Local Real Estate Capacity for National Leadership
376
Shelter Programs Provides Soft Landing for Newcomers
376
SME Suppliers Need Business Development Help to Survive
379
Advantages Remain at the US-Mexico Border
380
VIEW FROM THE TOP: Global Leader Shores up Mexican Automotive Pyramid
381
VIEW FROM THE TOP: Shelter and Real Estate Services in Chihuahua and Beyond
382
VIEW FROM THE TOP: Mix of Engineering and Consulting Services for Automotive Projects
383
VIEW FROM THE TOP: Automotive Drives Industrial Real Estate Demand
385
Foreign Companies Need to Pick Right Shelter Model
386
VIEW FROM THE TOP: Looking Out for Mexico’s Intellectual Property Rights
386
VIEW FROM THE TOP: Mexican Stock Exchange Keen on Starting Automotive Listings
388
Shaping Human Capital to Suit Automotive Needs
389
Fostering French Investment in Mexico
390
Trade Shows Good Marketing for Auto Firms
391
OEMs Need Right Studies to Understand Mexican Market
365
PROPER POLICIES FOR A THRIVING INDUSTRY Looking
back
the
who need to participate, then the situation is going to
the
change.” He does warn that if action is allowed to be
automotive
taken outside the realm of public policy, then organized
becomes
crime will gain control over the situation, as in the case
evident that its success
of discarded American automobiles that have come here
can be attributed to an
through the black market. “An affordable car could also
early start. “If we put the
provide an alternative to combat illegal imports. I am sure
pieces
there
international OEMs would love to have a car that sold like
has been an evolution in
bread here while simultaneously suppressing the number
the automotive industry
of clunkers hitting Mexican roads. It is a daunting issue, but
that
development Mexican industry,
Miguel Jáuregui, Founding Partner at Jáuregui y Del Valle
at of
it
together,
happen
a feasible one too,” Jáuregui notes. This would obviously
overnight. It started over 40 years ago,” comments Miguel
did
not
require an interested manufacturer, although Jáuregui
Jáuregui, Founding Partner at Jáuregui y Del Valle. He
opposed the idea of founding a parastatal company like
highlights the long-established presence of companies
Dina and says such a car should be made with private and
like Delphi and Volkswagen, and the joint venture between
foreign investment but produced in Mexico. He points out
Chrysler and Automex as factors that shaped the national
that this has been tried before, as Grupo Salinas flirted
automotive industry. “Mexico was a large vehicle importer,
with the idea of building cars in partnership with a Chinese
which became evident when the country was flooded
company. This initiative failed due to high costs and a
with American Cadillacs during former president Miguel
lack of interest from Chinese manufacturers. Jáuregui
Alemán’s administration. If we follow history, it becomes
praises how Volkswagen eventually filled a gap that had
clear that there was a need to establish an industry. Its
lasted decades, giving people access to a locally-made
current track record shows an industry designed to grow
vehicle. In contrast, he mentions the Chevrolet Spark as
and increase productivity, quality, and innovation; and it is
an example of a car that is not filling a much needed gap
already proving itself.”
in the market. According to Jáuregui, the Spark could be a popular car for the masses, yet it is in the MX$135,000-
Jáuregui notes that public policy has been engaged
150,000 (US$10,400-11,500) price range. This is a
in enhancing the automotive sector’s presence in the
problem as a car costing more than MX$100,000 is not
Mexican economy over the past decade. The signing of
an affordable option for most Mexicans, as the Beetle was
NAFTA twenty years ago had a favorable impact, nudging
back in the day. Yet, OEMs are not selling anything below
Mexico firmly on a path of free trade, which caught the
this price.
attention of OEMs worldwide. The entrance of large
366
companies from Japan, Germany, and other nations over
Jáuregui believes that the right public policies, such
the last ten years has also had an enormous impact. For
as bringing in subsidies or financing assistance, could
Jáuregui, this demonstrates that a tangible evolution will
mitigate this situation, and he poses the question of
continue to take place as the Mexican automotive industry
how a solid domestic market in the absence of enough
matures to become a real global player. However, he points
available capital. Many in the regularized economy do
out an area of concern. The sustainability of the Mexican
not have enough money to buy a car after they cover
market will depend on the availability of financing. “For
their expenses. A second-hand car would be viable, but
the moment, the Mexican market has a lack of access to
the proper second-hand car market is dwarfed by illegal
financing and has not shown the need for a domestic OEM.
imports. This brings about the option of introducing
However, as Mexico evolves, its strength in manufacturing,
attractive financing models, which could be an effective
design, technology, and capital could allow for such a
policy to boost the sector while haltering the importation
creation. A Mexican OEM would be welcomed if it made
of used cars. This alternative would pull Mexicans from
quality, safe cars at the right price for the right type of
the informal economy into the formal economy through
consumer,” Jáuregui explains. “But instead, the Mexican
the incentive of buying a car. “People would be able to
market is harming itself by importing used cars from the
buy a proper car and the price of entry is to become a
US. This is a failure in the rule of law, and has benefited
formal citizen, that changes the whole scenario through
organized crime.” An alternative Jáuregui proposes is a
public policy. This angle is of great importance because it
scrapping program, a government-funded initiative to
lures people into regularity,” shares Jáuregui, adding that
replace old vehicles for new ones. “If Mexico implements
the right policy governing this aspect of the automotive
a scrapping program that is affordable for the people
industry could be a major turning point.
On the manufacturing side, there is competition between
that, despite their advantageous proximity to the US,
state governments as not all states are home to an
are avoided by companies coming to Mexico. Mexico is
OEM, or have a large automotive industry presence in
working on restoring the rule of law nationwide, but has
general. Jáuregui notes that a lot of state governments
not achieved it yet.”
offer land as an investment incentive but fail to provide the necessary urbanization levels needed for companies
Beyond these concerns, Jáuregui says it is common for his
to access and use the land. “This comes down to a
clients to ask about Mexico’s fiscal framework, importation
federalization of public policy, combined with local rule
quotas, distribution networks, and financing schemes.
of law, to establish compliance with verified obligations
“Even though some companies ask what to do in case of
at all levels of government. In other words, attracting
extortion, they tend to underestimate the extent to which
newcomers
requires
politics play a large part in the automotive industry,” says
the creation of a legal framework that is accessible,
Jáuregui. “For instance, a change in administration could
understandable, and applicable nationwide. In Mexico,
alter the way in which a company is taxed. These things
legislators create many cross-purpose laws and many
are impossible to predict, but they happen. The most
regulations that remain unknown and unfollowed. A
effective way to protect yourself from this is to adhere to
system’s success lies in its simplicity. For instance, if
best practices and demand that the government should
we had a simpler tax system, people would pay taxes.
respect your practices.” He adds that in these cases,
Similarly, people would adhere to a simpler automotive
entities like AMIA and a distributor network following the
promotion program.” Jáuregui believes that coordination
same best practices could help a company overcome such
needs to take place at the federal level to enable the
challenges. He also exhorts companies to verify their land
creation of support infrastructure for the application
rights, particularly in places where the rule of law is weak,
of the law and regulations for inspections. “This should
and to ensure they have clear and well-defined agreements
be done in conjunction with the reforms that are on the
for utilities like power.
to
the
automotive
industry
way. If it is done right, the implementation will be easy as this is not a constitutional change but simply a market
“Companies
adjustment.”
counseling, and to have staff that have foresight and
looking
to
enter
Mexico
need
good
dedication to indentify possible obstacles. The problem According to Jáuregui, the success of states such as
is that sometimes project developers, construction
Guanajuato, Chihuahua, and Sonora comes from the fact
companies, and permit obtainers do things that are
that they did not compete against federal regulations
beyond their remit by cutting corners,” notes Jáuregui.
but followed and enforced them. “These states created
The issue is prevalent in many industries but he believes
an environment of legal protection for companies that
the situation to be more delicate in the automotive
wished to establish themselves there. By this, I mean
industry given the explosion in the amount of factories
they enforced the law, which makes companies want to
that are currently at various stages of development.
invest in these states as the land use conditions are clear,
Regardless of the possible obstacles, Jáuregui believes
the roads are safe, and there are good public services.”
the automotive industry has benefited from mostly
Jáuregui says that a secure rule of law is the answer
positive policies. “I think the appropriate policies have
to attracting companies that can boost the economy,
been well-applied over all, unlocking possibilities for the
as opposed to an environment where businesses are
automotive industry. Otherwise, the Mexican automotive
harassed and threatened. “This is the case for some states
sector would not have reached this level.”
JDV_Revista_FINAL.pdf
1
18/07/14
17:12
367
| VIEW FROM THE TOP
FALLOUT OF RECENT REFORMS ON THE MAQUILADORA SECTOR MANUEL PADRÓN-CASTILLO Partner at Baker & McKenzie Q: Which role does the maquiladora industry play in the
establishing a value-added production chain in Mexico,
development of the automotive industry in Mexico?
and so created rules to allow some of the production to
A: The automotive and maquiladora industries in Mexico
remain in the country. This triggered concerns from tax
are inextricably linked. The growth of the auto parts
authorities, but the need for economic growth was held
industry in Mexico has to a large extent been a result of
to be more important. It was envisioned as possible for
the maquiladora program itself, and the largest portion
maquiladoras to keep 100% of production within Mexico in
of the value of manufacturing exports comes from
order to enable them to supply the growing OEM base. But
maquiladoras. OEMs in Mexico did not grow as a result of
the recent changes seem to show that the tax authority is
the maquiladora industry, although some OEMs are now
once again dictating the state of play. The tax authority
looking at the maquiladora and IMMEX program with
does not want maquiladoras to keep their production
interest. In fact, most major OEM companies have secured
in Mexico and continue enjoying the same benefits they
IMMEX registration just in case they need to use it.
used to enjoy. Those benefits are far removed from how they were originally conceived and maquiladoras are
Q: How heavily have the recent reforms affected
increasingly being pushed into becoming regular taxpayers.
maquiladoras?
This is leading to a lower level of competitiveness for
A: The reforms have heavily impacted the maquiladora
Mexico, especially as other countries are implementing tax
industry and have not been viewed positively in the eyes of
incentives that could attract investors away from Mexico.
traditional investors. Companies are very concerned and are looking for mechanisms to improve the situation. It seems
Q: What are the biggest risks for maquiladora companies
that we are going back in time to when the industry was
operating in Mexico at the moment?
more heavily regulated, while we are seeing the removal
A: There are two different definitions of what a maquiladora
of certain basic premises that enshrined the maquiladora
is. One is for trade purposes, namely to govern import and
industry. By eliminating presidential incentives for the
export activities, and the other is for tax purposes. This is
income tax of maquiladoras and creating value added tax
an important distinction. If a company fails to properly
(VAT) on temporary importation, the Fiscal Reform has a
comply with taxation guidelines, the parent company is at
tremendous impact on cost and on the management of
risk of being legally held to have a permanent establishment
company operations. Even though there are programs to
in Mexico for tax purposes. The Mexican government could
avoid the disbursement of VAT on temporary importations
then consider the parent company to be an unregistered
by maquiladoras, the process to get the needed quality
taxpayer in Mexico, and no company wants to be in that
certifications to qualify for these is complex and difficult
situation. Companies therefore have to be increasingly
to maintain in the long run. The industry has not settled
mindful of the structure of their business and the way in which
for the current conditions and discussions will continue
they are conducting business in Mexico. Situations outside
surrounding these reforms. The situation cannot get any
of a maquiladora’s control can also easily come about. For
worse, so any revisions can only be positive.
example, a maquiladora’s asset-holding related company might be acquired by an external company, triggering a
368
Q: The maquiladora industry has been subject to change
permanent establishment when a maquiladora uses assets
and evolution throughout its history. How is this different?
that were owned by a Mexican related party. Such a situation
A: In the early days, all their production had to be exported
is now negatively regulated, and the punishment for such
outside of Mexico. What often happened was that a
an action will scare investors away. There is no question
producer in Mexico would make goods needed inside the
that regulation is needed, but the concern is that the
country, so these had to be shipped across the border and
current regulations go too far. They are targeting a growing
then shipped back in again to comply with regulations.
tendency for maquiladoras to participate in the Mexican
However, the Ministry of Economy saw the necessity of
market, and companies were not ready for the changes
when they happened. Many of the conditions are impossible
A: OEMs play an important part regarding the complexity
to meet for a lot of companies. For the time being, most
of operations for the auto parts sector. Regulations mean
companies are absorbing the additional costs. Mexico
that OEMs and maquiladoras benefit from being able to
has good treaties in place to avoid double taxation, and if
conduct virtual importations and exportations under the
structured correctly, international firms can re-claim taxes
maquiladora scheme. However, many OEMs dislike the
paid in Mexico in another jurisdiction. A lot of companies
virtual importation and exportation approach, preferring
simply will not have the cash to pay the 16% VAT payable on
to have domestic sales with the use of transfer certificates.
temporary importation, and will therefore have to acquire
That can complicate business for the maquiladoras,
additional financing to cover the cost. There are around
because they need to export 100% of their Mexico
6,000 IMMEX registrations, and the Treasury has predicted
production in order to maintain permanent establishment
that at least half of those will not get the VAT disbursements
exemption for the parent company. The transfer certificates
exemption certification, meaning those companies will have
require domestic sales, which creates an imbalance. Some
to pay VAT. This is a negative sign as it increases the cost of
OEMs do accept virtual importations, but the ones that
doing business in Mexico.
do not are creating a situation where maquiladoras need to use a sister company to virtually import the goods and
Q: How easy is it to obtain an IMMEX registration and how
then sell the goods domestically to the OEM. This creates
quickly can it be lost?
an unnecessary middleman, and the market could operate
A: Getting IMMEX registration is not difficult. A company
better if more OEMs agreed to accept virtual importations.
just needs to have a legal vehicle in Mexico and a facility, along with evidence of the type of business activity
Q: What other issues should the manufacturing industry in
being conducted. In theory, losing the IMMEX regulation
Mexico be mindful of as the sector develops?
is also fairly easy as a company only has to breach one
A: A major issue that requires consideration by the sector is
of many requirements dictated by the customs program.
international anti-trust regulation, which will undoubtedly
In reality, we have seen that the Ministry of Economy is
be enforced more heavily in Mexico in the future. A lot of
not hunting IMMEX-registered businesses for cancellation.
Mexican-produced parts are being exported globally and
Problems are addressed during audits, and the Ministry of
all industry players should play close attention to what
Economy appears to be doing its best to foster growth in
is happening in the rest of the world regarding anti-trust
maquiladora operations. Companies should expect strict
regulation enforcement. Companies should be expecting
enforcement of rules and regulations, but they should not
the government to ramp up inspections, enforcement, and
fear having their registrations cancelled.
prosecutions in the near future. Recalls are another area of concern. The issue is one of basic consumer rights, as some
Q: How positive have the amendments to the customs
of the parts currently subject to recalls may well have been
regulations been, and do you foresee any major changes
made in Mexico. As the country increases production, this
following the recent announcement of a second review
will become more of an issue.
stage? A: Customs transactions have been modernized by the
Q: What does the future hold for the automotive sector
recent regulatory changes, but what the legislation really
in Mexico?
achieved was to legally reflect what was already happening
A: This is an interesting time for the industry. The impact of
in the Mexican customs world. Eliminating the need for a
the regulations is not yet being fully felt as the government
second inspection and requiring electronic notifications
has allowed a two-year adjustment period. Therefore, we
were both very positive changes. Delaying tactics by
do not expect major changes in the industry over the next
importers in customs procedures were also reduced,
year. In the long-term, a suitable situation for both the
making the system fairer and more efficient. There was
government and the industry has to be reached. Mexico’s
perhaps an excessive enforcement in terms of the fines
maquiladora industry is being looked to for inspiration
imposed, and the government is going to review one or
by other countries, and they will take advantage of any
two aspects of the legislation, but I do not think any radical
reduction in the attractiveness of Mexico’s automotive
changes will be announced.
industry by emulating what we have done in the past. Mexico should be picking up a lot of the production opportunities
Q: What role do OEMs play in creating an optimal
that are arising as a result of the growth of the North
environment for their auto part providers, and how is this
American industry and the reduction in competitiveness of
impacting the uptake of the maquiladora scheme by auto
traditional Asian manufacturing hubs. We should be doing
parts companies coming here?
whatever we can to foster growth, not hinder it.
369
FISCAL LAW SHAKES THE MANUFACTURING SECTOR In November 2006, the federal government issued
The 2013 Fiscal Reform brought about changes that
the Decree for the Promotion of the Manufacturing,
affect maquiladoras and entities operating under the
Maquiladora, and Exportation Services Industry (IMMEX) to
IMMEX scheme. For instance, the Reform eliminates VAT
strengthen the competiveness of the Mexican exportation
exemptions for companies operating under the IMMEX
sector. IMMEX’s main objective was to promote exports
program, and companies in the automotive industry
and enable Mexican companies to access international
manufacturing vehicles or auto parts on the temporary
markets, in addition to fostering the modernization of
import of goods. In addition, VAT will be homogenized
manufacturing infrastructure by bringing in specialized
throughout Mexico, which means this tax will increase
technology and enabling the transfer of knowledge to the
from 11% to 16% in border states. This will surely have
domestic industry. According to the Ministry of Economy,
an effect on the regional economies and its impact
IMMEX grants title holders the possibility of temporarily
on imports and exports is yet to be seen. A report by
importing required goods for industrial processes destined
Baker McKenzie indicates that these fiscal changes
to the manufacturing, transformation, or repair of foreign
will increase both costs and uncertainty by altering
merchandise that has been brought to Mexico for later
supply chains in the Mexican manufacturing sector,
exportation. This program’s most attractive feature is that
and commercial relationships with the US might be
it spares companies from paying taxes, such as VAT, the
disturbed. The modified Law on the Value Added Tax
general importation tax, or compensatory fees, on goods
mentions that importers who can prove adequate control
that are temporarily imported into Mexico. The decree is
of their operation can obtain a certificate that will entitle
meant to lower logistical and administrative costs, while
them to a credit of 100% of VAT. Changes in the law that
speeding up bureaucratic procedures in order to increase
regulates VAT will result in a considerable deviation from
fiscal capacity in an environment that both attracts and
the fiscal and commercial policies that Mexico has so far
retains investments in Mexico. Many US companies
implemented in order to remove operational barriers
benefited from the duty-free basis and low labor costs
in cross-border operations involving manufacturing
provided by the IMMEX scheme. The enterprises that
and exports. These policies have revolved around the
participate in these programs are responsible for 85% of
IMMEX and the automotive fiscal deposit, which allowed
Mexico’s manufacturing exports, with automotive products
manufacturers to hold VAT payments until their products
chief among these.
were in the Mexican market.
EXPORT QUOTAS HAMPER AUTO EXPORTS TO LATIN AMERICA Brazil remains Mexico’s third largest export market after the
ACE 55, which also includes Argentina, Paraguay, and
US and Canada despite a 22.9% drop in exports between
Uruguay, was amended to set automotive export quotas
2012 and 2013, indicative of a general declining trend seen
for Mexico after an exponential rise in Mexican exports to
over the last couple of years. This is in stark contrast to
Brazil and a drop in Brazil’s own market. Pursuant to the
the 421% increase seen in exports to Brazil between 2007
amended agreement, Mexico agreed to curb exports to
and 2011. The drop in exports came about as the result of
Brazil over a three-year period. The quota restrictions apply
a 2012 agreement between Brazil and Mexico that capped
to both countries with the intention that steps toward free
auto exports to the South American giant under a three-
trade will resume once again in 2015. As long as the quotas
year quota system after the nation’s auto trade deficit with
are in place, any exports over the quota levels will not be
Mexico tripled to $1.55 billion in 2011.
exempt from the countries’ bilateral preferential tariff rates. The agreement also saw Mexico vow to increase
370
The agreement was entered into in spite of the
Latin American auto parts imports to 40% from the former
establishment
Economic
level of 30%. Despite the negative impact on local exports
Complementarity Agreement, which established rules for
to South America, decision-makers in Mexico accepted the
gradually deregulating automotive trade and reducing
short-term consequences of the agreement in the hope of
tariff payments between Mexico and Brazil in order to
enjoying free access to the Brazilian market in the long-
move the two Latin American giants closer to a bilateral
term. OEMs producing cars in Mexico are standing ready
free trade relationship.
to seize this new opportunity.
in
2003
of
ACE
55,
the
IMPACT OF TAX REFORMS ON AUTOMOTIVE INVESTMENT The main concerns of the automotive industry with Mexico’s
to obtain certification, they will face cash flow issues because
tax reforms lie in two main areas. Most manufacturing
they will have to pay the VAT and then ask for a refund.
industries in Mexico work using the IMMEX export program.
These approved changes affect the IMMEX and any entity
In the past, such maquiladoras were entitled to tax benefits,
using a bonded warehouse to import goods on a temporary
which had been supported by past administrations, but
basis that will be incorporated into the manufacturing
these disappeared on January 1, 2014. The other issue is
process. “KPMG hopes the rules and justifications will be
connected to VAT. Automotive entities import goods on a
simple and easy to comply with, and that the Mexican tax
temporary basis and through the supply chain they transfer
authorities recognize why clear rules are needed in order for
the goods from one entity to the next. This is done without
automotive companies to continue operating competitively
triggering VAT, under the understanding that the goods are
in Mexico. However, for the moment, there is no suggestion
imported temporarily and will be exported abroad, either
that maquiladoras will lose out to production moving back to
directly or indirectly. However, with the recently approved
the US. Indeed, some investment may have been suspended
proposal, the temporary import of goods will be taxable
as companies wait for the final rules to be established,” says
for value added purposes. There are only three options
Mario Hernández, Tax Partner at KPMG. If the tax regimen
for deferrals to this process. The first will be to obtain a
is not resolved, companies will not necessarily move away
certification from the government as, when obtained, it will
but there will be less and less projects entering Mexico.
allow them to import goods on a temporary basis. They
Because other countries are establishing similar regimens
will trigger the VAT tax but will also entitle companies to a
like Costa Rica, Guatemala and Honduras, companies will
credit equal to the tax. This is the best option available to
move projects over there. After all, US entities are looking
companies and they will have one year after the publishing
to have their suppliers closer to the final destination of the
of the rules to obtain this certification. The second option
goods and Central America is a good place to be if taxation
would be to put up a bond and warranty for the tax to be
in Mexico is unresolved. Mexico is looking to increase foreign
triggered. Naturally, this option could be costly and could
investment, generate more cash and jobs. Central states like
potentially end up being a financial nightmare. The third
Queretaro and Guanajuato are key to these goals, due to the
option would be to pay and request a refund from the
strength of the automotive and aerospace industries. “The
Mexican tax authorities, but this could take months or even
reality is that the tax reforms threaten to affect the strength
years in some cases. Ultimately, if these entities are not able
of such industries,” says Hernández.
In accordance with the terms of the agreement, yearly
within the quota. “The designation is based on how well
quota levels have been applied, with OEMs allocated
the OEM used its space in the past. OEMs have to have
portions of the allowance based on criteria set by the
an historic relationship with the agreement. New OEMs
Ministry of Economy. The details of the quota allowances
can enter it but they have to meet specific investment
for the period from March 2014 to March 2015 declared
conditions,” explains Orendain.
that export levels would be set at US$190 million, to be divided between Ford, Chrysler, GM, Honda,
Industry experts doubt whether a true free trade
and
amount
relationship will soon exist between Mexico and Brazil,
Volkswagen.
US$71.55
was allocated for Nissan
million
of
this
and North Pole Star as new
bearing in mind Mexico’s close ties with the US market
entrants. The remaining $118.4 million of the quota was
and Brazil’s protectionist approach to trade. Brazil has
to be allocated between Ford, Chrysler, GM, Honda, and
a complex relationship with the US, and Mexico is not a
Volkswagen. María Verónica Orendain de Los Santos,
key-trading partner for the South American mammoth,
Director General of the Directorate of Heavy Industries
meaning that the two countries’ commercial interests are
and High Technology, explains how the quota levels
not all that closely aligned. Nonetheless, with reports from
were established, saying, “When designing the quota we
Brazil of excess production in the over-inflated domestic
incorporated the interests of the automotive industry. It is
automotive production sector, the stagnation of bilateral
a complex process that ensures two things: that the quota
trade with Mexico is hardly a positive outcome. Brazil’s bet
is used to its full potential and that the local industry
on demand from the Argentina market has fallen short,
follows an ordered process in order to achieve that goal.”
and when the quota restrictions with Mexico end next year,
According to Orendain de los Santos, no OEMs receive
the country may well look more favorably on unfettered
preferential treatment when being designated a place
automotive trade with Mexico.
371
INDUSTRIAL PARKS PART OF NEW BUSINESS LANDSCAPE The creation of the export-oriented maquiladora program in
“Years ago, we tried to incorporate R&D into the parks
1964 served as the catalyst for the continuing development
and transform them from industrial into technological
of industrial infrastructure in the northern regions of Mexico.
parks by ourselves but we swiftly realized we needed
As more foreign companies began to dot the manufacturing
the support from the government to have a chance of
landscape, a need arose to construct industrial parks that
success.” Faced with the need for increased collaboration,
could house these maquiladora companies. The Mexican
AMPIP now creates synergies between companies and
Association of Industrial Parks (AMPIP) traces its roots
even industries, achieved by grouping firms together to
to this boom and was created to represent industrial real
help them share their knowledge and knowhow. This has
estate developers in Mexico, but for its President Rodolfo
seen AMPIP create links across industries. “For example,
Balmaceda, the maquiladora program was not the only game
a British company named Bodycote was a supplier of
changer. “The signing of FTAs changed the dynamics of the
thermal processing services for GM in the automotive
industry. Traditionally in the border regions, technology
industry. We noticed that its services were also relevant
and innovation trickled down from the US, but with open
to the aerospace industry, so we helped the company
borders and opportunities piling up, their development
establish ties with Safran,” he adds.
grew exponentially across Mexico.”
AMPIP has developed the flexibility to take on new roles
“Technology and innovation trickled down from the US, but with open borders and opportunities piling up, their development grew exponentially across Mexico” Rodolfo Balmaceda, President of AMPIP
“When describing a Mexican industrial park, the image
as needed. For example, Balmaceda describes that
conveyed is normally of a private land with a group of
“AMPIP did not only want to represent developers and
buildings that provide utility services,” explains Balmaceda.
industrial parks but the rest of the variables connected
The most striking characteristic that distinguishes Mexican
to them.” To do so, AMPIP also began working on the
parks from the rest is that they are almost entirely being
infrastructure supporting the parks. “The new national
developed by the private sector, an aspect that has not
infrastructure program is very ambitious and AMPIP has
put off the automotive companies. Balmaceda attributes
a definite role to play within it,” Balmaceda comments. In
the scarce involvement of the government to the lack
the past, Mexico’s transport connectivity ran mostly on a
of necessary knowhow to build them. “The money the
north-south axis due to strong commercial ties with the
government invested on the development of its own
US. Later on, a need arose to connect ports on the Pacific
industrial parks ended up being wasted, so they left
Coast with those on the Atlantic, leading to highways and
the development to the hands of the private sector,” he
railroads crisscrossing the country. Since it is essential for
explains. This has put Mexico’s industrial park proposals
industrial parks to be built close to existing infrastructure,
for industries like automotive and aerospace on a different
AMPIP’s role has been to help improve the efficiency of
footing than those in other countries. “In China, for
said infrastructure. “We look beyond our parks in order to
example, the government has invested in transforming
see how we can improve the efficiency of the entire supply
industrial parks into industrial areas containing universities,
chain, for automotive and beyond,” he adds.
R&D centers, office buildings and even housing,” he says.
372
To match this worldwide development, the priorities of
Besides the national infrastructure program, a new study
industrial parks are now being governed by a triple helix of
financed by the Inter-American Development Bank,
education, private and public sectors. This translates into
called National Logistics Platform, found that Mexico
private companies building and providing the parks, the
had 85 major logistics hubs. Out of those, 10 will receive
government attracting companies through incentives, and
strong investments from the government to improve their
universities providing a steady supply of well-trained labor.
infrastructure. “We are working alongside this program to
“By understanding all of this, AMPIP is an integral part of
make sure that it all comes together with the ultimate goal
this new triple helix era where added value is the name of
of helping improve the flow of goods within Mexico,” says
the game,” Balmaceda notes.
Balmaceda.
| VIEW FROM THE TOP
INDUSTRIAL REAL ESTATE TO SUIT THE AUTOMOTIVE SECTOR LORENZO BERHO CORONA President and CEO of Corporación Inmobiliaria Vesta Q: What have been the major milestones in Vesta’s growth
the tenant end up leaving the building. The third concept we
over the last 15 years, including its IPO in 2012?
have developed is a park-to-suit, which is concentrated on
A: In our first plan of action, we set out in what regions and
setting up parks dedicated to a single industry.
sectors we wanted to operate, including our commitment to corporate governance. Our original portfolio in 1998 was
The automotive sector represents 22% of our portfolio.
50,000m . In 1999, we then obtained our first loan from GE
Nissan invited us to bid for a Douki Seisan Park (DSP) in
Financial for US$9 million. In 2000, when Vicente Fox won
Aguascalientes last year, which presented a new opportunity
the presidential election, the perception of Mexico as a true
for us. We discovered that Nissan was looking for a company
democracy rose considerably. In 2004, the largest pension
that could work with a competitive budget, had the right
fund in the world at the time, CalPERS, was allowed to invest
experience, and already had the funds in place. Since Nissan
outside of the US for the first time, and it was approved to
Mexicana produces more cars in Mexico than the company
invest in Mexico as part of the NAFTA region. At that time,
does in the US and Japan, the local supply base is essential
CalPERS purchased 49% of our company, an investment of
and timely delivery is absolutely imperative. After showing
US$50 million, to be deployed over five years. All of that
Nissan that we had the right systems, project managers,
equity was actually deployed in 18 months. We bought
and auditors in place, we signed a definitive agreement for
two large distribution centers for Nestlé, which is now our
the development of this supplier park in close proximity to
largest client. However, we then experienced a deadlock
Nissan’s automotive plant.
2
with CalPERS as it did not want to invest anymore at that time, so we bought out its share. The partnership with
In the history of the world, it has been very rare to see
CalPERS was very good for both sides as we both gained
so many players from one industry entering a country at
a lot of experience. Afterwards, three other investors came
the same time. Now, rarely a week goes by without news
on board and we grew consistently from then on. We were
about an OEM with investment plans for Mexico. However,
one of 22 developers that were chosen to bid for the first
the reality is that those big OEMs are very self-sufficient
aerospace cluster in Queretaro, which we won. Even though
in terms of establishing their presence here, so the real
we did not have the US$100 million needed to invest in that
opportunities for us are in the supply chain.
project, we ended up entering into a joint venture with GE. In 2012, we needed to look for more equity, which is why
Q: Why did you decide to focus on the Bajio region?
we went for the IPO. That was a great success, as we raised
A: Firstly, it is necessary to point out that Vesta has done
US$200 million from institutional investors. Vesta’s success
many things differently to its competitors. We decided
is a real representation of Mexico’s strength as a logistical
to go public, while most of our competitors use the Fibra
and industrial investment hub. In June 2013, we did a follow-
REIT concept. Many companies have taken the approach
up listing which raised close to US$200 million.
of keeping the management separate from the general operations of the company, but we decided to integrate
Q: What significance does the automotive industry hold
these activities in order to align interests between employees
for VESTA in terms of its investment strategy?
and shareholders, which has been very well-received. Many
A: We liaise with the government to establish where multi-
competitors entered the retail and commercial fields,
tenant buildings are needed. These can host one to five
but we have decided to remain in our niche as industrial
companies based on their specific needs, we do not build
developers. This different approach has also been applied
units without knowing that there will be tenants to occupy
to our geographical focus. We decided to concentrate on
them. This makes up one-third of our business. The other part
the central region early on, even though all the activity
consists of build to suit units that can be built to the exacting
was still in the border region at the time. Staying strong in
specifications of the client. For such developments, it is
central Mexico gave us many advantages, and 70% of our
crucial that they can be used for alternative purposes should
portfolio is now in Mexico City and the Bajio region.
373
| VIEW FROM THE TOP
PRO-ACTIVE MIND-SET NEEDED TO CATER TO AUTOMOTIVE PROJECTS JAIME MARTÍNEZ Business Development Director of ERM Q: What role does the automotive industry play in ERM’s
A: Our services are divided into two main areas: permitting
growth strategy?
and environmental impact assessments. The latter is mainly
A: ERM changed its strategy four years ago, when it decided
focused on new projects, but we have ongoing projects
its three key growth sectors would be oil and gas, power, and
with Pirelli and Honda. We help companies to secure
mining. We have an additional sector, MCP, which incorporates
environmental approval for their new manufacturing sites.
the manufacturing and chemical industries. Automotive is
We also offer compliance and assurance services, which
included within this sector. While the manufacturing segment
entails carrying out audits to verify companies’ compliance
is important for ERM, it has not received the attention it is
level in their operations and management systems. We help
due. Our focus for growth has, in recent years, been on the
automotive companies get their manufacturing operations
three key sectors, but over the last year, ERM became fully
running with all the permits, and later help them properly
aware that MCP should not be lightly cast aside.
manage the environmental aspects. We sometimes carry out site investigation services, which see us visit sites at which
Q: As ERM renews its focus on the MCP sector, what
companies are experiencing contamination issues to help
opportunities do you see within the automotive industry?
decontaminate.
A: The automotive industry in Mexico is booming so we are preparing to increase our participation within it.
Q: How have environmental impact assessments helped
We are currently developing a strategy that will target
the automotive industry establish sustainable practices?
key areas of opportunity in the industry. This process
A: Our environmental impact assessments for automotive
begins by recognizing the formidable performance of the
companies focus on water and waste management. Water is
manufacturing industry in the long history of Mexico. We
a crucial resource for the industry and automotive companies
have provided our traditional services to that sector for many
usually deal with it before establishing operations. If a company
years but we now see new aspects that we want to exploit.
uses water intensively in its operations, the first element we
Therefore, the next step is to learn the inside workings of
check is whether the chosen location has a secure availability
the automotive industry, including understanding trends,
of water. If several locations are under consideration, we
innovation, and technologies. ERM’s focus is on sustainable
carry out an initial assessment of them all to identify the area
practices so we will naturally turn our sights to electric
presenting the lowest risk of water shortages. This service is
cars. But although these are proving to be an interesting
incredibly important in the Bajio since the region is known for
development, the market will continue to be dominated
having water shortage issues. We are also helping companies
by cars running on fossil fuels. This is not just the reality of
improve their water consumption efficiency. However, it
the Mexican market but worldwide. The slow development
will be difficult to fully apply this service as the automotive
of sustainable and environmentally friendly cars suggests
industry works at a different pace. The moment companies
that it is simply a façade to improve brand image, so the
identify a problem, they swiftly solve it without the input of
adoption of sustainable practices must lie elsewhere. The
third parties. The automotive industry runs on a “first come,
paradigm will not change, with mobility and fuel efficiency
first served” basis and has unique concepts of production
remaining in the spotlight. The US has a program similar to
where speed is paramount. Companies respond to that by
EcoBici but using smart cars instead of bicycles. This level
adopting production and waste management strategies that
of innovation seems to be way ahead of the capabilities
stand out from other industries. This unique mindset is the
of the Mexican industry. There is a clear gap between the
reason why the industry has such an important influence
industry’s current priorities and what it will look like in a
on quality standards. It is a pioneer in implementing quality
decade or so.
systems because of its needs and the speed at which it has to develop. To some extent, the automotive industry runs by
374
Q: Which of ERM’s traditional services are aimed at the
itself, which can serve as an explanation as to why our service
automotive industry?
portfolio is so focused.
| VIEW FROM THE TOP
LOCAL REAL ESTATE CAPACITY FOR NATIONAL LEADERSHIP SALOMÓN NOBLE Director General & CEO of Intermex Q: How did Intermex start offering shelter and industrial
Spec buildings are sometimes used by Tier 2 suppliers,
real estate services?
although these usually need build to suit solutions, but they
A: Intermex’s shareholders came together in 1971 when
really find their mark among Tier 3 suppliers.
they saw the advent of the maquiladora industry. Given the number of companies coming to Chihhuahua, they saw a
The automotive investment boom in the Bajio has led to
demand for industrial real estate. But that was just a small
a very interesting phenomenon. Investments by so many
portion of the problem. How would these companies get
OEMs there have led to a glut of build to suit buildings being
their materials, equipment and people? How would they get
constructed for Tier 1 suppliers. Most real estate developers
their finished goods across the border? That gave birth to
construct industrial buildings with the aim of renting them
the shelter program. This joint vision came as a consequence
to different companies over the years. This is much more
of international companies relocating line manufacturing to
difficult with build to suit projects, as these are designed
Chihuahua. Intermex started as a local Chihuahua company
for continuous manufacturing processes and are tailored to
but the growth of the automotive sector saw our customers
the needs of one particular industry or commodity. Finally,
ask us for buildings in Guadalajara, the Bajio and Durango.
we have a sale and leaseback strategy, wherein we buy
That drove us to expand beyond the state boundaries and
buildings to lease back to tenants. We handle few such
become an important national player. At the national and
transactions but they can come about for different reasons.
local level, real estate providers can help customers in several areas. The most important of these is site selection, where
Q: Which role does the availability of public infrastructure
a location is found that meets a customer’s set of variables
play in site selection?
like labor and infrastructure. Furthermore, the clusterization
A: Deploying public infrastructure or services is incredibly
process in Mexico, driven by OEMs, has also had a major
expensive, it costs US$700 to build one meter of rail. The
impact on the site selection choices of suppliers.
number one criteria when choosing land is whether it has access to the right infrastructure and services. For example,
Q: What advantages does Intermex offer that help it to
a site has to have access to a four-lane road, not only for
win bids?
transportation but also for curb appeal. Customers like to
A: Intermex wins bids due to the range of services it can
have exposure so that people passing by can know where
offer its customers. One such advantage is our industrial
their facilities are. However, this is not always possible, so
land bank. There is plenty of land in Mexico but little of
we do sometimes have to build more transmission lines,
it has access to public services. A factory needs to have
develop a septic system or even drill wells for water.
reliable access to power, water, and telecommunications
Another huge challenge we face everywhere in Mexico is
infrastructure such as fiber optics. For a company like
buying land from indigenous communities. Knowing how
Intermex to be successful, it must have a good industrial
to negotiate with these communities and acquire land is a
land bank with access to such services. Having a varied
specialty in and of itself.
land bank also helps to work on projects that have specific needs, requiring a built-to-suit environment. The built-
Q: How much potential does Intermex see in the real
to-suit option exists for those projects that cannot find a
estate market for smaller buildings?
building with the right characteristics. Intermex has become
A: Intermex pushes a concept known as the multi-tenant
a master at catering to such specific needs, particularly for
building. We design such buildings to get the economy of
Tier 1 suppliers who often have particular requirements.
scale advantages of a larger building but with a flexible
This brings us to the next category of products, inventory
space that can be sub-divided into modules that tender to
buildings or speculative buildings. This process involves
smaller companies. A building of 11,148m2 can be divided
speculation as we build the facilities ahead of time, for
into four modules of 2,787m2, or ten modules of 1,114m2, or
customers who need to get production started at once.
be rented out to just one tenant.
375
SHELTER PROGRAM PROVIDES SOFT LANDING FOR NEWCOMERS By Salomón Noble - The shelter business model can
hiring of personnel, the duty-free import of raw materials
be of great help to international automotive companies
and equipment, taking custody of these once imported,
looking to source manufacturing services in Mexico.
the manufacturing and export of products, the purchasing
Prior to their arrival, a shelter program can greatly affect
of MRO and other services from Mexican suppliers,
their decision-making on how to successfully deploy and
and ensuring compliance with all Mexican legal and
operate a manufacturing project. There have traditionally
environmental permits and regulations.
been two typical runways available for an automotive corporation when looking to land such a project: directly
The second is the provision of a portfolio of services,
through a wholly owned foreign subsidiary or WOFS; or
designed to avoid the costly mistakes and unnecessary
indirectly through an already established domestic contract
delays often associated with the inevitable learning curve of
manufacturer or subcontractor. Considering the advantages
a company operating away from its native environment and
and disadvantages of these options, the shelter business
in a country with a different culture, legal framework and
model presents a new optimized alternative, which stands in
compliance requirements. As such, the services portfolio
between the WOFS and the contract manufacturer. On one
allows the company to focus completely on the transfer of
hand, it optimizes the inherent risks of the first, while making
technology and manufacturing operations, while Intermex
up for the latter’s lack of control.
can take charge of all non-core manufacturing support services. These include HR, such as recruiting and retaining
The Shelter Model of Service, as offered by Intermex,
qualified personnel or relocating expatriate personnel,
effectively addresses all of a company’s requirements
international commerce and logistics, such as freight
throughout the different phases of a project’s life cycle.
and import-export optimization, and administrative and
This ranges from the site selection assessment to the
accounting, including the optimization of duties and taxes
deployment and start-up and throughout its successful
if a Mexican subsidiary or WOFS is created. One of the final
operation. This model accomplishes risk minimization and
two advantages is an experienced management team that
grants control over production and quality, through four
provides daily consulting on site selection, deployment
key strategic elements. The first of these is that Intermex’s
and start-up, and day-to-day operations of the projects.
shelter company, as a wholly owned subsidiary, is duly
The last benefit is a pass-through mechanism that allows
incorporated and registered under the IMMEX program.
for the invoicing of all expenses incurred by the shelter
The shelter company is assigned to a client corporation
company, under the specific direction and supervision of
to act on its behalf for its operations in Mexico, minimizing
the client corporation, for the manufacturing and import/
its risk while providing a true soft landing for the project.
export of its merchandise and finished goods. These pass-
This means that the client corporation faces no exposure
through expenses will always be previously authorized by
in Mexico as the shelter company takes charge of the
the client corporation.
SME SUPPLIERS NEED BUSINESS DEVELOPMENT HELP TO SURVIVE
376
“Smaller Tier 2 and 3 companies coming to Mexico often
strategy, that is very specific to their situation. “The Mexican
face challenges regarding the right business administration
automotive market is not focused on sophistication but on
in this new market, due to a lack of internal structure,”
labor costs and the quality of the products manufactured
says Jaime Rico Palacios, Director of CE Consulting
in the country. Therefore, companies and family businesses
Mexico. A consulting firm that assists clients with business
evolve without a sustainable long-term growth plan,”
management,
CE
says Rico Palacios. Yet, the professionalization of these
Consulting feels it could help small suppliers professionalize
accounting
and
judicial
matters,
companies could make Mexico even more attractive to the
in administrative matters and business development. CE
automotive industry. In consequence, more international
Consulting has a long history of targeting SMEs in a range
players could be motivated to open R&D centers in
of industries, providing them with insight from teams
the country, as opposed to seeing the country only as
specialized in one specific sector. Palacios explains that this
a destination for manufacturing and assembly plants.
allows automotive SMEs in Mexico to receive advice about
“When companies have a project to develop, such as an
tax benefits, industry trends, or even the right growth
automated production line to sell to OEMs, we can provide
These
four
services
are
blended
together
into
a
office expenses, a facility’s NNN (triple net of property
comprehensive cost model that is provided to the
taxes, insurance and non-structural maintenance), CAM
management team of any client corporation. With 40 years
(common areas maintenance), the consumption of
of experience facilitating the successful establishment
utilities, security and cleaning. These expenses are paid
and operation of international corporations in Mexico
for on a pass-through basis. The logistics expenses track
through its shelter, logistics and real estate services,
functions across a range of areas: the port of ingress/
Intermex’s cost model is a budgeting tool comprised of six
egress for the raw materials and finished goods; the
building blocks designed to project a client corporation’s
method of transport, including truck, air and ocean
total cost in absolute US dollars and per direct labor
freight; the number of round/single trips; transfers at the
paid hour, on a perfect attendance basis, to obtain a
border, where applicable; and US and Mexican customs
projected warp rate. The cost model does not include in
broker fees. These expenses are managed by the shelter
its scope the cost of raw materials, equipment, equipment
company to obtain a cost-effective solution for the client
depreciation, and expatriate costs, nor international
corporation’s merchandise import/export requirements.
freight, as these are specific to each corporation and are
The industrial real estate offerings available to the client
supplied from their country of origin. The building blocks
corporation range from available inventory buildings to
for the cost model are divided across labor cost detail
build to suit options. These can be acquired on a buy
(salaries and benefits), personnel-related costs (cafeteria,
or lease basis, within an industrial park or on stand-
transportation, medicines, uniforms), facilities operations
alone premises. Usually, the lease of an inventory
expenses (supplies, utilities, property tax, maintenance),
building, whether a brand new spec that requires fit-
logistical costs (in-bound and out-bound, customs brokers
up tenant improvements or an empty building that had
fees, transfers), building rent (cost per square foot), and
previously been used before by another tenant and
Intermex’s shelter fee by direct labor tranches. The cost
thus more equipped, is the preferred way to go. Should
model also allows the client corporation to gain a detailed
the client corporation’s processes require peculiar bay
review or drill down of each building block as follows.
size geometries or amenities neither available nor costeffective to implement in existing buildings, the build to
Firstly, labor is the cornerstone of the analysis, as
suit option would then be the way to proceed.
it covers the availability of qualified personnel that match the project’s requirements, the KPI’s of turnover,
Finally, the shelter fee is the compensation Intermex would
absenteeism and cost. Beyond labor, some market-
receive for the rendering of its services. It includes the
driven benefits vary depending on the city selected for
cost of the onsite employees as provided by the shelter
the project. These include the cafeteria service, public
agreement; the management and supervision of a group of
transportation routes, uniforms, and company events,
experts with many years of experience in the business areas
among others. Further cost elements are required for
of human resources, international commerce and logistics,
compliance with the law, such as the offering of medical
environmental, accounting and taxes, and compliance with
service and medicines for projects deploying more
the overall Mexican legal framework.
than 100 employees in Mexico. For facilities’ operations expenses, a cost approximation is provided that details
Salomón Noble, Director General & CEO of Intermex
them with a business plan for their production capacity
them to change their internal operations. In Rico Palacios’
increase over five to ten years. We can professionalize
experience, they usually agree to the changes once the
them through financial development opportunities set up
benefits and added value are made clear to them. After
by government institutions. CE Consulting helps these
basic services are taken care of, including fiscal, labor and
companies to change their general mindset, open new
legal matters, SMEs become more open to specialized
avenues of business, and plan for the future,” states Rico
services, such as HR consulting and marketing. Later still,
Palacios.
they may become interested in topics such as sustainable growth and social responsibility, which SMEs often
The first approach between CE Consulting and SMEs
dismiss as unimportant. This is where SMEs benefit from
is done step-by-step, without the SMEs feeling that
CE Consulting’s service model. “The users pay only for
they are being rushed into services they do not fully
the use of the resources that they require, whether basic
understand. Rico Palacios says that the first step in the
or specialized. Most SMEs do not have the money or staff
professionalization of these companies usually addresses
to support a specialized department, so we charge them
their administration, especially concerning legal and
by the hour, through an established contract, or for a
business processes. As most SMEs in Mexico are directly
fixed tariff for a set number of services over an agreed
run by their owners, it is sometimes difficult to convince
timeframe,” reveals Rico Palacios.
377
378
ADVANTAGES REMAIN AT THE US-MEXICO BORDER Alan Russell, CEO of the Tecma Group of Companies
and security when granting a score. The latter is of great
(Tecma), says an opportunity appeared when Tecma noticed
value because companies want some assurances that
that American OEMs like Ford began asking suppliers to
their operations will be safe,” he explains. The problem is
move abroad, to places like Canada and Mexico, and OEM
that decision-makers are not in Mexico and do not visit
suppliers began duly shifting their assembly operations.
the country enough, according to Russell. “Therefore, they
Russell recounts that many Tier 1 companies were struggling
base their decisions only what is published in the media.”
with figuring out how to move offshore. They came to the Mexican border, where Tecma had a contract manufacturing
The northern part of Mexico has traditionally been the
business. Working with Tier 1 companies that supply OEMs
country’s manufacturing hub. But as both national and
in the US has given Tecma plenty of knowledge on the
international media began the coverage of the violence in
logistical advantages of the US-Mexico border. Nowadays,
this region, many companies in the area have struggled to
the costs of manufacturing in Mexico and China are at a
stay afloat while the automotive sector is being pushed to
competitive level. International oil prices are increasing,
Central Mexico. The governments of the northern states
thus making offshore transportation more expensive. With
of Chihuahua, Coahuila, Nuevo Leon, Sinaloa, Sonora, and
this in mind, Chinese manufacturers are no longer seen as
Tamaulipas have been forced to find strategies to not only
the first choice and the Mexican market has become more
keep companies in the area running but also to attract new
attractive, especially for those companies that are looking to
investment. “The governments in the central part of the
serve the North American industry. Security is still an issue
country are doing an amazing job in seizing the moment
that the Mexican government needs to address, particularly
for their advantage, but the governments in the north
because it is of great concern for companies interested in
are living a different reality,” explains Russell. Debate still
entering the country.
rages as to which region now better suits the interests of
“The governments in the central part of the country are doing an amazing job in seizing the moment for their advantage, but the governments in the north are living a different reality” Alan Russell, CEO of the Tecma Group of Companies (Tecma)
The Bajio region in Mexico is blooming with OEMs and
the maquiladora sector, the Bajio or the northern states.
manufacturers opening plants in the area. However, Russell
“Logistics and transportation costs cannot justify the
believes it makes more sense to keep the manufacturing
location of maquiladoras on their own. This is a decision
companies next to the US border since most of them are
based on security issues and perceptions,” Russell asserts.
going to export a big percentage of their products to the
For him, the decision should be based on each company’s
North American market. In fact, Russell claims most of the
needs and its specific plans. “If a company is supplying to
European companies coming to Mexico are continuing to
Volkswagen, then the logical place to be is in the central
set up their bases in border states in order to serve the
states in order to keep logistics and transportation costs
North American market. Under this logic, it is no surprise
low. But if you are supplying to Detroit or Canada, then it is
that Tecma has offices in both Ciudad Juarez and El Paso,
hard to financially justify this location.”
Texas. However, Russell says his company is suited to work anywhere in Mexico. “We can put together a team
The northern states are developing programs to attract
and move it anywhere to provide our services elsewhere.
investment from the automotive industry into the area.
I do not have a geographical preference, but I do not
The government of Chihuahua, for example, is looking to
understand the logic of building a plant in the Bajio if 95%
have an OEM in the state, since it is well-known for the
of the merchandise is going to be shipped back to the
manufacturing of auto parts. Additionally, the state has
US.” Russell believes companies are aiming for the central
been investing in education programs to develop a skilled,
states because of misleading information regarding safety.
well-trained labor force. “If the decision depended on me,
“People making business decisions rate areas, according
putting my factory near the border would also allow me
to what is happening, but also based on what they hear in
to take advantage of a larger talent pool. The border can
the media. They take into consideration education, labor,
become an asset in various ways,” concludes Russell.
379
| VIEW FROM THE TOP
GLOBAL LEADER SHORES UP MEXICAN AUTOMOTIVE PYRAMID KAZUYOSHI HIGUCHI President of Sumitomo Corporation México Q: How has Sumitomo positioned itself in the Mexican
A: In 1985, we gained our first automotive venture in
market?
Mexico when Ford Motor Company decided to open a
A: The industries we operate in are determined by
new plant in Hermosillo. Sumitomo joined Ford’s task
marketplace demand. We fulfill requests from our customers
force with the setup of a new plant and the local supply
to search for raw materials, analyze marketability, introduce
chain. Then in 1990, when Nissan announced its plant in
new products, and determine future demands. We can
Aguascalientes, Sumitomo supported Nissan to set up its
also help customers develop local partnerships and assist
local supply chain. After this Nissan venture, we worked
with their introduction into countries they are not familiar
for Volkswagen and GM on several projects in the country.
with. Sumitomo Corporation always looks for synergies
During this time, we determined that there was a need
and ways to strengthen value chains in all its sectors. We
for a suitable supplier for stamping and the assembling
export local products to Japan and other countries when
of closure panels. As such, we approached Hirotec in
a demand exists such as mineral resources and foodstuffs,
Japan to invest in Mexico in collaboration with Sumitomo
while we also provide services that include logistics, credit
in order to support GM’s operations. Since then, we have
and finance. Sumitomo Corporation de México was fully
invested in manufacturing for small to medium-sized
founded in 1971, after first being established as a liaison
stamping parts including chassis parts, iron-cast brake
office in 1954. We now count with 24 companies in
discs/drums, aluminum die casted parts, steel sheet slit/
Mexico, of which 16 are in the automotive sector, which is
blank operations, a window regulator assembly, PCB
our number one industry here. The automotive sector in
assembly, ceramic products, and engine components.
Mexico is well-developed, but we are trying to anticipate
Finally, we have invested in a vehicle assembly plant
changes to the manufacturing industry surrounding it by
with Mazda in Salamanca. The automotive industry is
working with well-suited strategic partners.
like an hour glass with the OEM in the center and an upstream and downstream. We still do not have much in
We have almost completed a supply chain pyramid in the
the downstream, but we do have a subsidiary company,
automotive sector. Its base is formed by the supply of
TBC Mexico, which is a distributor of replacement tires.
raw materials and moves up to Tier 2, Tier 1, and finally
In other countries, we have distribution, dealerships,
to OEM vehicle assembly. The weakest link is the Tier
retail financing, insurance and auto leasing. Perhaps the
2 section, which must have sophisticated production
next target for us to study will be how to expand our
technology to maintain quality. This is very difficult to
downstream investment in Mexico.
find in Mexican companies due to limited expertise and resources. An option would be for Japanese companies
Q: How do you see Mexican suppliers developing?
to become Tier 2 suppliers that support the Mexican Tier
A: When we entered into our initial project with Ford,
1 segment. However, Sumitomo’s main investments up
many local Mexican companies were present in the market.
to now have been in the Tier 1 companies. This is largely
However, soon after that, American Tier 1s began buying
due to the Honda and Mazda investments in 2011, which
up Mexican companies as they aimed to become global
pulled more than 100 Japanese supplier companies into
suppliers. Now, we are left with a small number of Mexican
the country at both the Tier 1 and 2 levels. One reason
Tier 1s so for local companies, entering this business now
why Japanese companies are so successful is that they
is very difficult. The current major Mexican Tier 1s have
have good customers that pull them along when they
investments in the US, China, India and Europe and will
enter new markets.
continue to grow. Meanwhile, local small and mediumsized Tier 1s will have to enter into alliances with foreign
380
Q: What have been your main automotive investments,
companies to survive. They can also learn how to do
and to what extent is Sumitomo involved in the entire
business with Japanese OEMs in Mexico in order to
supply chain process?
strengthen their capability.
| VIEW FROM THE TOP
SHELTER AND REAL ESTATE SERVICES IN CHIHUAHUA AND BEYOND CONRADO ROLÓN Chief Operating Officer of American Industries Group Q: How has the evolution of your real estate and shelter
have done a lot of work in Mexico together. Its business
services taken place, expanding from Chihuahua to across
prospects here are on the up as the company has started
Mexico?
a joint venture with Mazda for a vehicle production facility
A: Real estate and shelter are our two core businesses, and
in Salamanca, Guanajuato. The company is now looking for
allow us to cater to clients in a wide range of industries. At
a space next to Mazda’s plant and we are helping them
the moment, we are providing buildings that are chosen
with that.
according to the specific needs of our approximately 50 customers in a variety of sectors. The shelter program is
Q: Do you think the requirements of the automotive industry
generally less dependent on local variations, so we provide
will change as Mexican manufacturing, engineering and
a similar range of services to all clients seeking shelter.
design capacity becomes more advanced?
As for our geographical expansion, American Industries
A: We have the goal of taking people from the universities
started in Chihuahua but we soon saw opportunities in
and getting them inside the plants. We tell universities
places such as Monterrey. The rise of the Bajio region
what companies expect from graduates. We try to create
as an investment destination led us to create American
synergies with universities and technical centers to ensure
Industries de Occidente, located in Guadalajara, Jalisco. At
that graduates have the skills and knowledge required by
this time, automotive customers are a major component
the industry. It is not easy to change academic plans within
of our client list, and we have clients in Ciudad Juarez,
universities, but students need industry experience. They
Chihuahua,
will learn things in the design lab or on the factory floor of
Monterrey,
Querétaro
and
Guadalajara.
Focusing on Chihuahua and the Bajio allows us to remain
an OEM that they will never pick up the classroom.
close to our clients, and they know we can handle special requirements if they need to establish another plant
Q: How does American Industries Group tailor its service
close to OEMs in these areas. We are currently working
packages to the needs of its customers?
to move one supplier nearer the new Honda and Nissan
A: We make tailored packages for every company that
plants in the Bajio. American Industries Group sees itself
comes our way. We allow our clients to focus on doing
as a facilitator and places particular emphasis on having
what they do best, while we take care of the rest. We
good relationships based on trust with the local people.
have clients that sign for 36 months and keep renewing
At the moment, around 30% of our revenue comes from
their contracts with us, while other customers decide
the automotive industry and 70% comes from the rest,
to go it alone once they have learned what we do. Our
especially aerospace.
shelter program is offering 37 services to customers, which are ranging from big names to small Tier 2 companies.
Q: What are your priorities for catering to the automotive
We facilitate everything for the companies to establish
industry?
themselves here, and we keep abreast of all that is going
A: We are working closely to keep drumming up business
on in the market. With this information, we can approach
with large companies such as Honda or Mazda. As Mexico
possible customers and offer them what they need.
continues to develop, OEMs will come here with a longer
Chihuahua might seem to be in the middle of nowhere but
list of requirements, and American Industries Group is
it is a very good location to be based, as it offers easy
ready to meet their needs. We have set ourselves the goal
access to both coasts of the US. We hold three seminars
of finding five new automotive customers over the next
per year, often in Chicago, where we can talk to companies
year, using our understanding of the higher requirements
about the benefits of bringing business to Chihuahua.
that the automotive industry presents, as compared to
Naturally, one of their major concerns is security. It is one
aerospace for example. From our existing customer base,
of the first questions that people ask as they are afraid
Sumitomo is an example of a successful automotive client.
of what they hear about Ciudad Juarez, so we invite
This Japanese giant has been with us since 1985 and we
specialists and authorities to talk them through it.
381
| VIEW FROM THE TOP
MIX OF ENGINEERING AND CONSULTING SERVICES FOR AUTOMOTIVE PROJECTS CARLO ORSENIGO Mexico Country Manager of CH2M HILL Q: What are the main services that CH2M HILL provides
Q: Is your Mexican workforce sufficiently qualified to
to its clients planning on implementing an automotive
tackle all of CH2M HILL’s capabilities?
project in Mexico?
A: We have been working for a number of years to reach the
A: Many clients are accustomed to spending a lot towards
level of talent we have today, and we are very happy with our
the end of a project and not so much at the beginning,
people. The only real problem is the availability of resources
when it should be the other way around. The conceptual
in the longer term. The problem today is not finding the
and basic design stage offers the greatest potential to
right people, but training them and keeping them. We have
save costs, and it is extremely important when you start
400 engineers that are capable of working on 3D modeling
development and procurement to already have very well-
and due diligence. It is only natural that our competitors
defined plans in place. The update and adjustment of
entering Mexico will want to take those employees from
certain definitions is very expensive. We can get involved
us. This means that we have to create a sort of defensive
with pre-design services, including site selection and due
barrier by paying our employees the right way and creating
diligence, which are not traditionally associated with the
a culture of pride in working for CH2M HILL. That requires
engineering industry. Essentially, we integrate consulting
a big effort at all levels of the company. The market will not
type work with our project services. We are consultants,
be able to provide the skillsets that our people have in the
engineers, and constructors, incorporating only the best
required volume, and that is why we need to nurture our
parts of each. We can assist with the engineering aspects,
own resources. We expect a personnel shortage in the next
construction services, environmental issues, and we
couple of years, so we want to prepare for that.
can take charge of program management for the whole portfolio, which is what we are doing for the expansion of
Q: Which areas do you see being the most interesting
the Panama Canal.
investment destinations over the coming years? A: The Bajio area is obviously receiving a lot of investment.
382
Q: To what extent does having a developed presence
The border area will always be very active, although recent
locally give CH2M HILL an extra edge?
legislative changes, such as the Fiscal Reform, have slowed
We have been active in the automotive sector since we
down the pace in that area. The security issue is one aspect
came to Mexico, and that presence is now evolving. Our
that is preventing investment in certain areas, and that really
volume is increasing as our industrial activities in this area
needs to be addressed in order to see optimized countrywide
are gathering steam. A few years ago, industry players
development. The area around Lazaro Cardenas is an
were mainly sourcing suppliers that were lower down the
example of this. Lazaro Cardenas is the largest port in the
chain within Mexico, but there is now a stronger push to
country so it makes no sense that it is not already more
try and source more sophisticated capabilities locally.
significant from an industrial perspective. Until these issues
The automotive industry has really changed scale in
are addressed, the areas that are able to provide security
Mexico in recent years. We have worked on a number of
will continue to receive the bulk of investment. Processes
very interesting projects, such as the recent production
also need to be improved. Permitting, for example, has to
and design of an OEM plant in Celaya. There is often
become a more straightforward process. We should not
a perception that it does not really matter where your
be seeing major international companies choosing one
resources are in today’s globalized world. That is not
location over another based on a factor as simple as the
really true, however, as local capacity is very important.
ease of getting the right permits, but that is still happening.
We are lucky in that we have the best of both worlds
Doing business has to be straightforward and the rules of
because we have the support of a highly developed
the game need to be much clearer. State laws and federal
global network and a strong local base. We have been
laws often clash, which needs to be ironed out. Security
in Mexico for 20 years, which is what gives us deep local
and regulation issues should no longer be deciding factors
market knowledge.
for investment.
| VIEW FROM THE TOP
AUTOMOTIVE DRIVES INDUSTRIAL REAL ESTATE DEMAND LEFT: Eduardo GßÊmez Sarre, CEO of LaSalle Investment Management Mexico RIGHT: Manuel Zapata, Vice President of Research & Strategy of LaSalle Investment Management Mexico
Q: What opportunities are being created for LaSalle by
take just three months to develop an industrial building.
real estate demand within the automotive segment?
However, for office space the cycle is considerably longer.
EGS: Mexico is a very important growth market and we are
In those cases it might be best to build to suit and have
seeing a lot of interest from institutional investors in the
tenants agreed off plan. The same goes for retail spaces and
automotive market. While this is not our biggest market by any
housing units surrounding industrial hubs.
means, it is certainly a market with substantial opportunities. There is a lot of interest in Mexico as a regional platform and
Q: How do you know when it is the right time to enter a
the multi-billion dollar investments by OEMs are now trickling
particular area?
down to the supplier parks. To increase our presence in the
MZ: Understanding the market is a dual process for
automotive sector, we are trying to partner with industrial
LaSalle. We conduct research, which identifies the larger
regions, landowners, and developers around the country.
trends and indicators. At the same time we analyze the real
We are generally very positive about opportunities in the
estate sector, including rent trends, supply and demand
automotive sector as the industry is centered on long-term
cycles, and the sustainability of growth. We also have asset
investments. We try to focus on areas that are likely to have
managers and acquisition officers on the ground managing
high demand and low vacancy rates, and strong investments
our current investments. They have a good perspective in
in the automotive sector can generate these dynamics. Right
terms of which parts of Mexico are developing because
now, we are most heavily exposed around the border area
of infrastructural or general investment trends. They have
because historically that has been the area that has attracted
access to the micro-data and ultimately are the ones that
the most investment. The automotive push towards the
will inherit the asset. To gain the most accurate picture,
central region has been happening more recently.
a combination of the macro and micro perspectives is needed. If you look at the industrial markets in Mexico,
Q: How quickly are you seeing a rise in activity connected
most of them are already very well developed. When it
to the automotive segment?
comes to the newly developing central region of Mexico,
EGS: Automotive investment is impacting development plans
our data relating to historic rents and the capital markets
to a higher degree now, since big companies like Vesta are
allows us to form a fairly accurate picture.
undertaking major projects. Investment by major OEMs also create long-term stability. They are not going to disappear
Q: Did the economic crisis shift your investment portfolio
overnight, whereas a logistics center can move with relative
focus significantly?
ease. This means that being close to a production hub can
EGS: We have broad exposure in terms of location and
provide more stability. When an OEM invests, rental change
markets, which has protected us. Some areas have seen
takes time, although the demand for space increases steadily.
challenges, such as Ciudad Juarez which was hit both by the economic crisis and its security perception. Industrial tenants
Q: Does LaSalle tend to opt for build to suit or spec
did not leave because of the security situation, but some
buildings for the most part?
did because of the economic crisis in the US. The security
MZ: For the most part, we prefer build to suit buildings
perception then made it more challenging for new tenants to
because they remove a lot of the uncertainty. However, in
come in. It is challenging for companies to justify establishing
some fast-growing markets such as the Bajio region, waiting
a presence to their international headquarters in an area
too long may result in a lost opportunity. In those markets,
that has received a lot of negative press attention. Such
it makes more sense for us to have spec buildings because
factors have really played a bigger role instead of industries
whoever has the right building available at the right time will
just shutting down completely. In fact, during the economic
get the tenant. The decision also depends on the intended
crisis, there was a concern from investors that LaSalle was
use of the space. The cycle of industrial development is not
overexposed to the automotive segment. Two years after the
long if the infrastructure is in place on the land as it can
crisis, the sector was booming in Mexico.
383
384
FOREIGN COMPANIES NEED TO PICK RIGHT SHELTER MODEL Entering the Mexican market through an industrial
This work with incoming Mexican companies has given
shelter is a well-established model, having lasted from
Entrada a bird’s eye view of the Mexican market. It
the early days of the maquiladoras to the present day.
has found that companies are now moving beyond a
But according to Douglas Donahue, Vice President of
focus only on cost and cheap labor that long colored
Business Development for Entrada Group (Entrada),
perceptions in Mexico. “Our clients are starting to look
taking advantage of a shelter starts by deciding which
for a better and more diversified portfolio of services, as
shelter models should be utilized. Entrada offers both
sophisticated manufacturing operations are becoming
on-site and offshore manufacturing models that enable
a priority. This level of sophistication requires highly
a company to manufacture in Mexico while operating
skilled technicians and executives. The second trend is
within both the US and Mexican legal frameworks. While
the influx of German and Japanese clients to the Mexican
its core business has traditionally involved the on-site
market, who bring different mentalities with them.
model, due to it being the preferred choice of most foreign
Unlike North American companies who have no problem
companies setting up here, the offshore option is growing
turning over control of an operation and localizing it,
in popularity. Both models can also work for SMEs seeking
Japanese and Europeans largely prefer to keep control,”
to create scale. “A shelter company can provide a higher
explains Donahue.
“Our clients are starting to look for a better and more diversified
portfolio
of
services,
as
sophisticated
manufacturing operations are becoming a priority” Douglas Donahue, Vice President of Business Development for Entrada Group (Entrada)
level of expertise than a small company could provide on
Donahue is also seeing an evolution in a major reality
its own. This is critical within the automotive industry in
of the Mexican automotive market. “A lot of our clients
which a lot of smaller Tier 1 and 2 companies are pushed
do initially come to Mexico because they are asked to
toward Mexico for a number of reasons. Whether they
do so by OEMs, but they come to see this country as a
are here to grow, to find clients, or to cut costs, they will
real opportunity. Once they are here and start winning
have to compete against larger companies,” explains
contracts, their interest in this market grows,” says
Donahue. Enter Entrada with three services at its disposal:
Donahue. This evolution has actually led Entrada to offer
HR, financial, and import-export. Donahue says the HR
a new service. A lot of OEMs require Mexican invoicing
department may be the most important within Entrada’s
but this can be complicated for Tier 1 and 2 companies
operations as it means companies can delegate the hiring
to offer, leading Entrada to create an invoice service for
of all personal within the shelter. 14 of Entrada’s clients
them. “Being able to invoice in Mexico is becoming a
currently entrust it with this, requiring it to demonstrate
growing need. Doing so will allow a company to multiply
a complete understanding of each corporate culture. Sal
its sales in Mexico with both international and domestic
Martínez, Entrada’s Director of Operations, explains that
companies.” As proven by its invoicing service, Entrada
the group has invested the most time and effort into its HR
has kept reinvesting time and money into its systems to
department over the last three years. The import-export
improve its flexibility, adapt to the methods of each of its
department is seen as an attractive feature for Entrada’s
clients, and seamlessly broaden their services as needed.
customers,
requires
Entrada’s strategic location of Fresnillo, Zacatecas, will
companies to carefully document and track all products
continue to serve as Entrada’s hub to offer its clients
that enter and leave the country. In Donahue’s experience,
the opportunity to reduce and control their direct and
this can mean a 100-strong company can need four full-
indirect labor costs while putting them at the center of
time staff devoted to keeping registers up to date. To make
growth of the Mexican automotive industry. With two
up for this, Entrada provides documentation services to
new clients in Queretaro and three more across the rest
track imports and exports in order to ensure compliance.
of the Bajio, the central region is anchoring Entrada’s
“Our experience also means we are able to negotiate
planned expansion. Donahue is predicting 33% growth
better terms for customers through economies of scale
for Entrada in 2014, accompanied by a move from 300
that impact transaction costs,” says Donahue.
to 400 employees.
since
the
Mexican
government
385
| VIEW FROM THE TOP
LOOKING OUT FOR MEXICO’S INTELLECTUAL PROPERTY RIGHTS ROBERTO AROCHI Partner at Arochi, Marroquín & Lindner Q: Which role does intellectual property, patent, and
A: The latest IP law came into effect in 1994, which is relatively
trademark protection play in the automotive industry, and
old considering the technological developments over the
in the activities of your law firm?
last decade. However, we have very good international
A: Each industry is trying to promote a culture of protecting
treaties which came into being in 2011. Prior to 2011, trying
intellectual property (IP). Even Mexican companies that
to ally a combination of national and international laws in
were once accused of piracy now seek to protect their IP.
Mexico was very difficult. Today, national and international
The automotive industry, especially around Nuevo Leon,
laws are better, but adding a strong public policy would
has seen an increase in Mexican companies purchasing or
clear up any other loopholes. An ongoing concern is that
building plants elsewhere in the world, which makes it very
there is no public policy to enforce these rights. Mexico
important for them to protect their IP. In the last five years,
has various bodies working on this, such as the Mexican
our firm has grown by more than 60% and OEMs have
Institute of Intellectual Property (IMPI), but there have been
strengthened our client list. We already do a lot of work for
no tangible results from these organisms. Mexico lacks the
big OEMs and suppliers like Nissan, BMW, Ford, GM, Fiat,
will to truly fight piracy. In 2013, Mexican customs seized 32
Land Rover, Metalsa, and Beccar. With companies like Land
containers. For a country that imports 4 million containers
Rover that do not have manufacturing or research activities
a year, that number is insignificant. Mexico has to convince
in Mexico, we work on trademarks and enforcement.
its global commercial partners that it is serious about protecting intellectual property rights. We must take every
Q: What is the state of current IP laws in Mexico?
case that is presented to the Attorney General’s Office very
| VIEW FROM THE TOP
MEXICAN STOCK EXCHANGE KEEN ON STARTING AUTOMOTIVE LISTINGS PEDRO ZORRILLA Deputy Director General of Corporate Services and Institutional Relations of the Mexican Stock Exchange
386
Q: How much of a priority is the automotive sector for the
listed conglomerates that have some automotive activities,
Mexican Stock Exchange?
mainly in the auto parts sector. The automotive sector has
A: The Mexican Stock Exchange (BMV) has several under-
gained dynamism and representation in the domestic debt
represented sectors. The biggest absence is the oil and
market. We are seeing the rise of direct issuers devoted to
energy sector. Fortunately, the IPO of IEnova was successful,
the automotive industry, namely the financial companies of
and the Energy Reform will open new opportunities for
OEMs that are becoming very active funding their activities
companies developing in these sectors to use the BMV
in the debt market. The fact that financial service companies
as a means of finance and to diversify capital and debt
of OEMs are becoming active participants in the debt market
sources. Another sector that is under-represented is the
is a very positive sign. We would welcome these issuers or
financial sector, although this has changed since Santander
the local operations of OEMs listing in the equity market.
listed its Mexican subsidiary in 2012. We do have a few
However, automakers are huge international companies,
seriously and ensure each one is heard out until the end.
Mexico’s, which has helped patents grow here. A current
Foreign and national companies alike would benefit greatly
trend in the automotive industry is that patents are no
from a solid public policy on IP, enforced both in the courts
longer used for the cars themselves but for technologies that
and by wider authorities.
improve a vehicle’s capacity, technology and services.
Q: Are these problems mainly due to a lack of regulation
Q: How has this evolution impacted your law firm?
or enforcement?
A: We get new cases daily regarding patents, trademarks
A: We have enough tools to fight piracy in this country. There
and know-how. This has seen us start a real expansion. We
is always room for improvement in the law but without the
are going to start growing in Europe with offices in Madrid,
right attitude to enforcement, this means nothing. Most of
Valencia, and Bilbao. This will allow us to help our clients
the IP problems we face are linked to the fact that the courts
in Europe, especially given the large number of Spanish
and judges are not always capable of understanding highly
companies we work with. Brands need to be more proactive
technical cases. A good public policy would eliminate these
about their IP protection. By doing so, they could save a lot
barriers. It all comes down to attitude as anyone can educate
of money in litigation. A change in mentality is required so
themselves about IP law, but this needs to be complemented
companies understand that it is far better to put on a seat
with a willingness to enforce it and not look the other way.
belt before an accident occurs. We give regular seminars where we explain that if a company is planning to expand in
Q: How do you view the patent culture in Mexico?
Mexico, protecting their IP should be their top priority.
A: Foreign entities are filing 16,000 patents a year in Mexico while Mexicans are only filing 1,500. This is an incredible
Q: How do you differentiate yourself from other law firms?
imbalance, although we are still number two in Latin America.
A: We have a better knowhow of the Mexican market than
The current regional leader, Brazil, is not too far ahead of us.
many international law firms. We currently handle 20%
In the past, patents were more commonly used in the US and
of all IPR cases in Mexico. Not many companies provide
to a lesser degree in Canada, while they were non-existent in
the variety of services that we do, so word of mouth has
Mexico. However, in recent years, certain industries such as
spread quickly about our firm. Our goal for the near future
the automotive sector, have seen a growth in patents across
is to continue growing in patents, and exploiting niches to
North America. Moreover, Canadian IP laws are worse than
continue growing in Europe, especially Spain.
mostly already listed in their home markets. In today’s world,
A: Our relationship with auto makers and their financial
it is less necessary to do multiple listings. Nevertheless, a
companies is recent. These ties have been strengthened as
listing with BMV would definitely add a lot of value to the
financial issuances have grown importantly over the last five
companies themselves.
years. The stock exchange’s Securities Market Certificates were created in 2001, designed to be a very flexible and
Q: How have you been working with OEM financial
efficient instrument for accessing the debt market. This
services companies?
flexibility facilitates individual issues, as well as issuance
A: The Stock Exchange works more to provide financial
programs by companies. The certificates allow a company
services and instruments to fund the activities of OEM’s
to make several issuances under a single program, accessing
financing arms. These companies know the market for
the market when the company needs the financial resources,
automotive financing and have been growing rapidly.
and determining the specifics of the issuance as to its
They have been filling a gap as banks were not previously
maturity, interest rate, amortization schedule, and reference
giving full coverage to this type of financing, although their
currency. The certificates are also efficient as they are easier
success has begun to have an influence on the banks auto-
and less expensive to manage legally. Today, most of the
loans activity. The BMV helps by creating an open and deep
issuances in bonds and in the debt market are structured
market for these participants to fund their activities here.
by these certificates. The Securities Market Certificates have been a very successful instrument for fulfilling the needs of
Q: How has the relationship between the BMV and
companies, and for structured financing in the Mexican debt
automotive financial services companies been affected by
market. The automotive sector has been among the prime
Certificados Bursátiles (Securities Market Certificates)?
beneficiaries of this instrument.
387
SHAPING HUMAN CAPITAL TO SUIT AUTOMOTIVE NEEDS
Patricia Helbig, Client Partner at Korn Ferry
The automotive industry
have time for that. Even the most successful OEMs and top
is going full speed ahead
suppliers do not know how to carry out the development
thanks not only to the
programs.” This is where Korn Ferry steps in by helping
machines running it but
them develop programs based on the Princeton model of
to the hands operating
70:20:10. In this model, the individual develops according to
them as well. This industry
the following ratio: 70% work experience, 20% mentoring,
has
over
and 10% workshops. The company’s Leadership and Talent
600,000 direct jobs, and
consulting area has different offerings in line with this,
employment is expected
ranging from succession plans, high performance potential
to grow by 4% in 2014. As
identifiers, the implementation of effective teams, and
generated
the demand for a capable
strategic alignment. As more importance is placed on HR,
and skilled workforce rises, automotive companies are
the company has seen growth in this service as it represents
starting to recognize the importance of HR strategies
40% of its business with the automotive sector.
to stay ahead of the competition. Patricia Helbig, Client Partner at Korn Ferry, the world’s largest executive firm and
The implementation of development programs comes with
talent consultant, has identified the trends of the industry
challenges of its own, one of these being cultural alignment.
when sourcing its human capital. According to Helbig,
Multinational companies have different values and work
companies recognize that candidates for top managerial
ethics than those of Mexican origin, which means that
positions must fulfill both the technical competencies
aligning the business vision with the right candidate can be
of the job profile and various soft skills. These skills are
difficult. “Another challenge lies in extremely experienced
evident in high performance employees, who Helbig
people that have been formed by their previous company.
describes as functional and technical managerial experts,
As they enter a new company, they have to transform
good developers of subordinates, difficult to replace, and
their mindset and adopt new priorities and production
able to work independently with little to no supervision.
systems,” Helbig observes. “We help companies identify
“The biggest issue in the industry is the high turnover
who to keep and develop and to seek out high potential
rate. Since there is so much demand, people are staying
employees,” Helbig points out. For Helbig, a high potential
in one job for less than three years,” Helbig explains. The
person is restless, self-aware, a risk taker and innovative.
motive behind this changing of jobs is that people strain
“29% of high performance employees turn out to be high
to achieve higher salaries and positions. For Helbig, this
potentials too and high potentials make up 93% of high
transition does not provide people with the opportunity
performers,” she adds.
to obtain the profound experience needed to climb the corporate ladder. Already established companies fear
As Mexico sets its sights on higher technology and complex
the entry of new players will lead to a wave of migrating
manufacturing, the demand for specialized people will rise.
talents. “To a certain extent, people are obtaining better
Helbig predicts that as this transition occurs, transnational
positions that are not necessarily deserved due to a human
companies will have to fill technical expert positions with
capital shortage,” notes Helbig.
expatriates for the first couple of years, to be substituted by local people later on who will be developed into those
388
Korn Ferry strongly suggests that its clients should not
positions. “However, this depends on the culture of the
take the approach of offering higher remuneration to
company. Japanese companies are going to be more
competitors’ employees as this is not good for the job
cautious in these situations than European ones,” she adds.
market or for the companies. “The automotive industry
“Sourcing specialized workers will be hard at the beginning
is normally a lower compensator at the general and
but it will be facilitated by the alignment of the industry with
lower management levels,” Helbig comments. Rather
universities.” Helbig clarifies that while this transition will be
than focusing on offering higher salaries to competitors’
slow, it will by no means lessen Mexico’s competitive edge,
employees, the implementation of development programs
since companies are not looking to have expatriates in the
can ensure retention. Employees are more likely to stay in
long term but more skilled locals. “This is because when
a company if they feel they have a promising future. “In
they source local managers, they normally pay lower wages
a satisfaction evaluation, over 54% of employees placed
than expatriated counterparts,” she explains. As Helbig
career development as a top priority in their professional
expands, “All CEOs now recognize that human capital is the
lives,” she states. “Meanwhile, 48% of managers do not
most important factor in reaching their goals, since talent
know how to create development plans or believe they
strategy makes it possible to execute a business strategy.”
FOSTERING FRENCH INVESTMENT IN MEXICO
Alfred Rodríguez, President of the French Mexican Chamber of Commerce and Industry
With a presence of 130
like Nissan and Ford and only 15% of its sales are still with
years
occupying
Faurecia. The chamber also has an incubator aimed at
the position as the first
helping SMEs in their start up phases, one of 17 it has set up.
binational
of
Nevertheless, Rodríguez points out that a more proactive
commerce in Mexico, the
and reactive approach should be taken in the investment
French Mexican Chamber
process. “Companies carrying out these studies to gain
of Commerce and Industry
knowledge about the trends and markets soon learn that
highlights the importance
Mexico is the obvious choice,” he adds.
and
chamber
of French investment in Mexico’s industrial growth.
“In
“French
the
past,
France
was
directing
its
investment
in
toward Brazil. The result was not satisfactory for some
Mexico creates 100,000 direct jobs. Automotive companies
companies because of Brazil’s protectionist economy,”
such as Faurecia create 9,000 jobs, and Valeo generates
explains Rodríguez. “Mexico’s open economy and its
between 6,000 and 7,000 positions,” comments the
ambition to become a top economic power have drawn
President of the French Mexican Chamber of Commerce
more FDI in recent years, especially French capital,” he
and Industry, Alfred Rodríguez. “I am optimistic that this
tells. Investment from France is focused on added value
investment will become stronger since 90% of the biggest
projects. “France does not seek cheap labor in Mexico
French corporations are already in Mexico,” he adds.
because other countries can serve that purpose. In Mexico
According to Rodríguez, the chamber serves as a window
the focus is on technology and innovation. While those
into the development of key industries like pharmaceutical,
100,000 jobs might not seem enough, the vast majority of
energy, aerospace, and automotive. Its strong international
them are added value jobs.” Other industries have a head
network of 118 chambers spreads across 80 countries
start. In pharmaceutical, Sanofi has its only Latin American
and offers companies the unique opportunity to branch
vaccine plant in Mexico, and French aerospace companies
out into other markets. “We have 30 chambers in the
are demanding more qualified workers. The automotive
NAFTA region alone, and it was recently decided that all
industry is no exception, evidenced by Faurecia deciding
should work in unison. This means we will help automotive
to establish an R&D center in Mexico. “Of the designers
companies not only establish commercial ties in Mexico
in the center, 15 are foreigners because the company
but also in Canada and the US. The synergies we offer on
could not find local engineers that fit the profile it
a Mexican and global scale help spread technology and
needed,” states Rodríguez. He attributes the lack of local
knowledge,” he notes.
engineers to Mexico’s education system, which is oriented
investment
toward manufacturing rather than design. According to “Macroeconomists around the world believe Mexico’s
Rodríguez, most FDI focuses on the country’s ability to
new image is setting the country on a new path as a
assemble rather than design, thus further steps must be
manufacturing hub. Therefore we expect more investment
taken to promote innovation. “This year, President Enrique
from French automotive companies to come in,” states
Peña Nieto and President François Hollande signed
Rodríguez. While there are no French OEMs directly
42 agreements in various fields, from healthcare and
manufacturing in Mexico, Renault has some manufacturing
aerospace to energy and education,” comments Rodríguez.
activity in Aguascalientes due to its alliance with Nissan.
The education agreement targets the modernization of
“There might not be a Mexican OEM but many around the
the system so graduates can leave university with a design
world are established here, and French OEMs should take
oriented education. To foster the transfer of knowledge,
advantage of this trend.” There are already large French Tier
UNAM will have a study center at Sorbonne University
1 suppliers based in Mexico like Valeo, Faurecia, and Plastics
in France. Rodríguez points out that companies will
Omnium, and some already have a strong manufacturing
invest more in the establishment of R&D centers if there
presence. “The French automotive industry in Mexico is
are enough experienced engineers able to carry out
strongly based in the Tier 1 segment, but we have recently
the complex processes they require. A country cannot
noticed an increasing interest of SMEs wishing to establish
develop technology without the integration of industry
in Mexico,” Rodríguez comments. The large Tier 1 companies
and education, and in more developed industrial countries,
have a magnetic pull that attracts small suppliers to Mexico.
such relationships are very strong. “Technology will enable
For example, Mecaplast, a plastic injection company,
Mexico’s macroeconomic factors to grow. Developed
established itself in Puebla to supply to Faurecia. Thanks
countries are the owners of their own technologies and
to Mexico’s open market conditions, it now supplies OEMs
Mexico should join their ranks,” he concludes.
389
TRADE SHOWS GOOD MARKETING FOR AUTO FIRMS For
industries
automotive
associated with exhibitions can therefore exclude some SMEs, but nonetheless, Navarro says that E.J. Krause
trade
allows companies to tailor participation according to their
shown
marketing budget size. For example, the smallest space at
be
Expo Manufactura of 9m2 can go for between US$3,500
particularly beneficial as
and US$3,700. As a rule of thumb, this represents 50%
tools for procurement and
of the total investment required to exhibit. For some
marketing strategies. E.J.
SMEs, this still represents a large investment, but Navarro
Krause, a global company
contends that is is virtually impossible to find other
organizing
events
marketing media offerings that provide the same exposure
manufacturing, shows
have
themselves
José Navarro, Director General of E.J. Krause de México
like and
to
40
worldwide, has identified
for that price level. “An added value that many exhibitors
in recent years an interest in emerging markets such as
do not take full advantage of is the presence of related
Mexico for the staging of trade exhibitions. “The idea is to
business and specific media. These media outlets seek
create a marketplace that can provide all the required help
information about the industry and can give companies
to companies and our events can help improve business
additional exposure.”
models and provide solutions to specific industry problems,” says José Navarro, Director General of E.J. Krause de
E.J. Krause compiles analysis of all its events held to
México. Trade shows are naturally a chance to discover
evaluate the return on investment, including key metrics
the latest trends and developments within the automotive
such as deals done, contacts obtained, and press coverage
industry. For example, E.J. Krause’s Expo Manufactura has
generated. Since trade shows represent a strong investment
been present in the northern part of Mexico for 18 years
commitment from automotive companies, Navarro points
and has acted as a diary of the industry’s advances over
out the importance of working alongside exhibitors
that time. Navarro states that Expo Manufactura has
to clearly identify goals and assist them in effectively
seen a marked shift in demand in recent editions, with
reaching their targeted market. He argues that trade shows
visitors from the manufacturing segment looking for more
are clearly beneficial for the procurement strategies of
specialized machinery to cater to new processes. Another
automotive firms. Clients can test out the products or get
interesting development has been the rise of IT-related
a demonstration of how they work, increasing the chances
technology that assists manufacturing processes. “For
of a sales order. Navarro says that the targeted clientele of
example, automotive engineers have turned their attention
auto parts manufacturers is why products are displayed so
to more automation and robotics, and trade shows reflect
openly. “Experts like automotive engineers are not satisfied
that change,” says Navarro. The entry of more transnational
with seeing a product on a pamphlet or online. They want
companies into the Mexican automotive industry has also
to physically evaluate it.” Having the product present
been reflected in the exhibitions. According to Navarro, at
offers companies the chance to evaluate quality, time of
least 40% of companies attending E.J. Krause events come
manufacturing, and even the place of origin. These are
from overseas. The financial crisis also changed the expo
important factors when considering purchasing expensive
game somewhat. Prior to the 2008 meltdown, Navarro
new machinery, as a company has to be certain the
says Mexico was the sixth most popular country for trade
equipment is the best choice for its production line. New
shows. “Other countries like China were seen as more
machinery can represent a hefty six-figure investment, so
important for certain events, but with Mexico’s positive
it is no surprise that strategies should vary from company
performance of late, there has been a far larger spotlight
to company. “A large automotive firm will see more people
on us,” he explains. He adds that trade shows in Mexico
involved in the decision-making process, whereas in a
now benefit from the country’s efforts to shift its previous
smaller firm, it is likely that the CEO will weigh heavily on
reputation as a low-cost manufacturer. “Trade shows help
the purchasing decision,” states Navarro. His team visits
companies understand and penetrate unknown markets,
manufacturing plants and speaks to engineers to identify
and offer them the opportunity to reach potential buyers,
the types of machinery they are looking for and obtain in-
create synergies, meet specialised media, and forge
depth information on product acquisition strategies. “The
alliances.
automotive industry sees companies from all over the world offering the same kinds of equipment. Expos like ours cut
390
When compared to other comparable outlets, trade shows
through the fog, allowing companies to stand out and
can seem a lot more expensive as they demand travelling,
promote their brands face-to-face with potential customers
product transfer, and booth development. The high costs
that will make educated comparisons before purchasing.”
OEMS NEED RIGHT STUDIES TO UNDERSTAND MEXICAN MARKET When entering an emerging economy like Mexico,
While there is a public National Registration Source in
having access to the right information is one of the most
the US that allows the company to contact customers for
important weapons companies need to fully understand
each type of vehicle, Mexico has no control over that type
the market. J.D. Power provides just such information for
of information. “In emerging markets, we have to find the
the automotive sector by surveying millions of customers
customers in the street and convince them to spend a few
and businesses worldwide in order to understand market
minutes to give us their feedback. We have to be careful on
expectations regarding new products and services. J.D.
how research projects are conducted as it is not only our
Power carefully investigates which type of study will
reputation on the line, but also that of the companies we
resonate in each automotive market. Some of its most in-
are evaluating,” explains Slind. For Gerardo Gómez Gálvez,
demand studies are the Sale Satisfaction Index (SSI) and
Director General of J.D. Power de México, the research
the Vehicle Owner Satisfaction Study (VOSS). Darren Slind,
industry in Mexico is improving its methodologies. “We
Regional Practice Leader for Canada and Latin America of
are introducing different approaches and we are aiming to
J.D. Power, explains the research methods used to craft
have more surveys in order to provide more feedback to the
relevant surveys. “The SSI is conducted in a number of
OEMs and the final customers,” comments Gómez Gálvez.
markets, including Mexico, and is a reflection of how the
“In order to provide a better service, OEMs and dealers in
Mexican consumer feels about the search, purchase, and
Mexico need to be aware of what the customers are looking
delivery experience when buying a new vehicle. This
for in their vehicles and of the constraints they are facing in
benchmark study, which sees us chart performance across
financing, insuring, and maintaining their cars.”
the entire industry, is used to learn which brands are seeing the best performance and which are meeting the
The results of the studies conducted by J.D. Power have
expectations of new vehicle buyers. On the other hand, the
spotted needs of vehicle buyers over time. The most
VOSS includes an assessment on how the consumer feels
important finding is that while vehicle quality has improved
about the quality of the vehicle after a period of between
significantly in the last 15 years, customers’ definition of
one and three years of ownership. The VOSS used to only
quality has also changed. As vehicles come equipped with
be focused on the vehicle, but it now includes service
more technology, customers have turned their attention
experience as customers are increasingly evaluating the
away from actual defects toward tougher issues, such as the
ability of a dealership to look after them.” The results of
ease of use of on-board technology. Slind explains that if a
the 2013 VOSS, which evaluates vehicle ownership of 2011
customer is not comfortable with the operation of some of
and 2012 models across 5,500 owners, showed that new
the technologies installed, they will become highly frustrated.
vehicle buyers in Mexico look for reliability, durability,
In consequence, a customer might well voice a poor opinion
and purchase price when buying a car. However, high
of a perfectly functional vehicle when the problem is that
insurance costs and increases in fuel prices remain the
the user does not understand how to operate it. OEMs and
paramount concerns. Regarding the ranking for models,
dealerships now have to educate their customers on how
Nissan received three awards from J.D. Power for owner
to use added technology and gadgets, such as navigation
satisfaction and places itself as the OEM that won the
systems and Bluetooth, that are migrating to lower segment
most awards of 2013. Honda, Ford, and BMW received two
vehicles. “This changes the definition of quality and how
model awards, while Mercedes-Benz, Renault and Dodge
dealers have to respond to it. We are in a transition period
received one each.
in which no one has the perfect answer yet. What J.D
“The Mexican market will become mature once it fully understands and values the importance of surveys like those carried out by J.D. Power” Darren Slind, Regional Practice Leader for Canada and Latin America of J.D. Power
When it comes to settling in emerging markets like Mexico,
Power can do is help dealers and OEMs fulfill customers’
J.D. Power faces methodological challenges. According
expectations,” adds Slind. “The Mexican market will become
to Slind, one of the main differences between mature and
mature once it fully understands and values the importance
emerging markets lies in the ways to access customers.
of surveys like those carried out by J.D. Power.”
391
392
Fueled by the long term plans that many OEMs have publicly announced, as well as the large investments made in recent years, the automotive industry is poised to race towards record growth in 2014. Investment levels in Mexico are predicted to amount to US$3 billion annually over the coming years and as operations in new OEMs plants get up and running, positive ripple effects will be felt both economically and socially. The government is promising public programs and fiscal incentives to foster development of both international investors and local SMEs, and open discussions surrounding the reform process continue in order to create an optimal operating environment to stimulate growth. The next step for Mexico will be to sustain this growing industry by transitioning to high-tech production and development. To support this, the public, private, and academic sectors are shaping human capital design, focusing on targeted capabilities to fuel the high demands of the industry.
This chapter will close the book with a perspective on the industry for the coming year and beyond. A broader discussion regarding the context of Mexico within the global arena in regards to the automotive industry will also take place, and key players will give their opinions on the future of the Mexican automotive industry.
FUTURE OUTLOOK
14
Environmental Resources Management is a leading global provider of environmental, health, safety, risk, social consulting services and sustainability related services. We have more than 5,000 people in over 40 countries and territories working out of more than 150 offices. ERM is committed to providing a service that is consistent, professional and of the highest quality to create value for our clients. With over 30 years in the business, ERM has a comprehensive understanding of the automotive industry and its EHS needs. We have seen issues grow increasingly complex, from simply meeting environmental regulations in the 1980s, to the addition of eco-labeling and eco-efficiency, lifecycle assessments and voluntary agreements in the 1990s. Since the turn of the 21st century, we have witnessed the advent of Corporate Social Responsibility, stakeholder power, investor ratings, reporting guidelines and product stewardship. The sustainable development agenda is a key driver for the industry.
Our key services are the following:
• EHS Compliance, Auditing and Reporting • Health & Safety Services • Environmental Management Systems • Environmental Impact Assessment and Permitting • M& A Advisory Services • Strategic and Regulatory Advice (Product Stewardship) • Communications and External Relations Support • Site Investigation and Remediation • Environmental Management Information Systems • Water/wastewater – contingency planning MEXICO CITY t.: +52 55 5000 2500 erm.mexico@erm.com
www.erm.com
The world’s leading sustainability consultancy
394
CHAPTER 14: FUTURE OUTLOOK 396
VIEW FROM THE TOP: Regulations for Competitiveness
398
VIEW FROM THE TOP: Framework for Formalization Must Continue Momentum
399
VIEW FROM THE TOP: Supplier Development Key Priority
400
Latin American Trade Issues Edge Nearer to Resolution
401
VIEW FROM THE TOP: Public Private Collaboration Needed to Adapt Workforce
402
Industry Experts’ Future Outlook
403
Forecast of Light Vehicle Production during 2014-2019
395
| VIEW FROM THE TOP
REGULATIONS FOR COMPETITIVENESS ROCÍO RUIZ CHÁVEZ Undersecretary of Competitiveness and Standardization of the Ministry of Economy
Q: What is the Ministry of Economy’s main strategy to
A number of actions are being applied by the federal
support growth within Mexico’s automotive industry?
government to promote the automotive industry, as well
A: Our current strategy emanates from the National
as to develop and strengthen the domestic market.
Development Plan, which was announced by President Enrique Peña Nieto last year. One of the main anchors of
Q: What steps are being taken to address the impact of
this strategy, in the automotive sector and other important
used cars being imported into Mexico from the US?
areas, focuses on the active promotion of competitiveness.
A: The used cars that flow from the US into Mexico impact
In recent years, the Ministry of Economy has played an
internal prices and safety conditions. This is a crucial
important role in this topic but this administration is taking
economic issue for the Mexican industry, a regulation topic
a more active role than ever. The Ministry of Economy, the
for the government, and one of the principal topics for the
World Economic Forum, and the World Bank have been
Business Advisory Council. A possible solution is to improve
working on measuring and identifying high impact actions
regulatory cooperation between the US and Mexico in
that will strengthen competitiveness in Mexico. This year,
order to better control financial, safety, and security risks,
two new consulting bodies have also been created to
and to promote commercial and investment flows across
link and coordinate actions between the government and
the border. With this in mind, the US and Mexico have been
businesses: the Business Advisory Council for Economic
working together since 2010 on an initiative known as the
Growth and the National Committee for Productivity.
High Level Regulatory Cooperation Council (HLRCC).
Our priorities are aligned with the development of
Q: What can be done to increase FDI flows into Mexico,
the Special Program for Democratizing Productivity,
and what role can the automotive industry play here?
which has four central aims: to promote the efficiency
A: During 2013, Mexico received a record of US$35.2 billion
of production through actions that stimulate reliability,
in FDI, which was 178% higher than in 2012 of which the
including increased access to credit and efficient use of
Grupo Modelo buyout by Anheuser-Busch InBev accounted
the land; to improve the country’s business environment
for US$13.2 billion. Mexico has been attracting increasing
through better conditions for economic competition, legal
foreign investment interest following President Peña Nieto’s
certainty, investment in strategic sectors, and a simpler
proposed reforms in areas such as telecommunications,
tax system; to increase productivity within firms through
energy, banking, and tax legislation. These FDI flows to
investment in human capital, innovation processes, and
Mexico are expected to remain buoyant in the coming years
technological development; and to boost the productivity
as legal overhauls, especially in areas such as energy and
of all regions and sectors though the development of
telecommunications, start to be implemented. The impact
infrastructure and projects which address regional needs.
of the automotive industry on the country’s economic growth is clear. The most important automobile producers
396
Q: What measures are being implemented to address
are China, the US, Japan, Germany, South Korea, India,
barriers for growth in the domestic automotive market?
Brazil, Mexico, Spain, and France. Mexico ranked eighth
A: Over the last decade, the automotive industry has moved
among the principal global producers for the second
from vehicle assembly processes at low value added levels
consecutive year, above countries such as Spain, France,
to producing more technologically sophisticated models
Russia, the UK, and Belgium. Mexico is now the world’s
focused on the global market. The top five OEMs in Mexico
fourth largest exporter of vehicles, the fifth largest exporter
have eight centers of engineering, development, and
of auto parts, and 89 of the world’s top 100 auto parts firms
design in the country. The competitiveness of the Mexican
operate in Mexico. Automotive production accounted for
labor force, competitive production costs, and logistical
2.64% of total GDP and 21.6% of manufacturing GDP, and
advantages ensure a strong supply of vehicles not only
represented 15% of total FDI. Automotive industry exports
to international markets but also to the domestic market.
represent 27% of total national exports, and the automotive
industry employs almost 700,000 people. The activities
and environmental standards, while acknowledging that
of foreign OEMs in Mexico have stimulated the country’s
regulation can sometimes impose significant burdens and
economy, and it has become one of the most important
costs. The HLRCC created a working plan to identify areas
and productive value chains. The renowned quality of
of mutual interest for cooperation to facilitate intra-North
Mexican automotive manufacturing has enabled several
American commerce and to enhance the competitiveness
assemblers to choose Mexico as the unique manufacturing
of North American producers in key export markets. This
platform for their markets. Many models sold around the
will place a special emphasis on SMEs, while enhancing our
world are produced exclusively in Mexican plants, such
collective ability to achieve goals. The work plan identifies
as the Ford Fusion, the Lincoln MKZ, and the Volkswagen
areas of mutual interest for cooperation and has outlined
Beetle. In November 2013, Nissan opened a US$2 billion
sectorial initiatives in seven key areas, including food safety,
assembly plant, and other manufacturers, such as Audi,
e-certification for plants and plant products, trucking
Honda, and Mazda are following suit with billion dollar
safety, nanomaterials, e-health, oil and gas, and conformity
investments. Finally, Global Insight Forecast expressed
assessment.
that in 2016, Mexico could produce more than 3.7 million vehicles, representing a 28.5% increase from 2012.
Q: How is the Ministry prepared to deal with pressure on infrastructure that will arise as automotive production
Q: What direction should regulation take in order to
levels increase and internal sales grow?
promote competitiveness?
A: In order to promote industrial development in Mexico,
A: High entry barriers limit competition and foster
the regulation of railway services is going to change. The
abuse, usually through high prices and poor quality
specific objective is to stimulate competitiveness among
of goods or services. On the contrary, low barriers
concession holders of railway routes in order to reduce
usually discipline markets and benefit consumers by
transportation fees, improve the trade of goods and
forcing companies to innovate, invest, and be more
services, and promote investment. The National System
productive. A competition reform goes far beyond the
of Logistics Platforms (SNPL) is comprised of 85 strategic
prosecution of monopolistic practices and should refer
nodes, within which several logistics activities will occur
primarily to the elimination of all those unjustified or
with specific advantages. To achieve this, there will be a
unreasonable barriers that could favor dominance or
comprehensive analysis of the production and consumption
private interests. For example, the constitutional reform
of different goods and services. In terms of the automotive
in telecommunications and competition is extremely
industry, the production and distribution input of auto
positive in the sense that it allows free participation of
parts and vehicles in the most important clusters in the
foreign investment in telecommunications and satellites,
country has already been taken into consideration. As a
formerly capped at 49%, and up to a 49% participation
result, the SNPL has three main development zones that
in broadcasting, which was previously reserved only for
specifically target logistical infrastructure for automotive
Mexicans or companies with a foreigner exclusion clause.
industry. Hermosillo, Silao, and El Salto have all shown
The Mexican government has the responsibility to create
great potential.
conditions conducive to productivity. In our case, even the Constitution provides that national development should
Q: What contribution will the Mexican manufacturing
be guided by competitiveness. Consequently, the legal
industry make to the country’s economic growth over the
overhaul of telecommunication and competition will allow
coming decade?
us to monitor regulatory barriers that generate excessive
A: Mexico’s manufacturing sector is one of the most
transaction costs, discourage formality, impede trade or
competitive in the world. According to Deloitte’s Global
investment, and inhibit competition.
Manufacturing Competitiveness Index Report, this sector will be among the top 15 worldwide for the next five years
In May 2010, the presidents of the US and Mexico gave the
at least. Therefore, it is very important that the secondary
newly created HLRCC a mandate to increase economic
laws, following the recent approval of reforms in areas
growth for both nations. This means lowering costs
such as energy and finance, are promptly implemented
for citizens, businesses, producers, governments, and
to ensure that both the manufacturing and other sectors
consumers; increasing trade in goods and services across
can begin to profit from the outcomes of the changes in
borders; and creating a greater focus on health, safety,
legislation. Mexico aspires to become a source of advanced
and environment concerns through more regulatory
manufacturing and global services with the highest quality.
transparency and coordination. Mexico and the US rely
We aim to transition from the ‘Made in Mexico’ label to a
on regulation to maintain a high level of health, safety,
‘Designed and Engineered in Mexico’ label.
397
| VIEW FROM THE TOP
FRAMEWORK FOR FORMALIZATION MUST CONTINUE MOMENTUM JUAN PABLO CASTAÑÓN National President of Coparmex Q: How does Coparmex view the impact of the reforms on
Q: How is Coparmex ensuring that the industries
the Mexican economy?
supporting the Mexican economy get a steady supply of
A: The reforms have seen Mexico take a step forward in
skilled labor?
education, telecommunications and energy. Mexico is
A: We are implementing a dual training model along with
the fourteenth largest economy in the world, but despite
the Ministry of Education, the Ministry of Labor and the
being one of the most open economies, it still suffers from
Ministry of Economy. This model allows students to learn in
significant lags. Mexico has FTAs with 45 countries, but
the classroom and in industry. We are starting with a pilot
some of its rules are still unclear and do not correspond
program but we want to focus on giving young people
with the spirit of the reforms. These reforms are only
access to clusters, such as those that exist for automotive and
the first generation of reforms that the country needs
aerospace. Mexico must meet the challenge of having more
in order to move forward. We have to strengthen them
homegrown engineers and technicians. In the business culture
with secondary legislation while adding transparency
of today, many of the investments made by entrepreneurs are
laws, accountability, the administration of justice, and the
directed toward the service industry rather than generating
strengthening of institutions to provide Mexico with the
technology. We have to push technological development in
necessary security to become more attractive for foreign
the country and the way to do so is by creating a cultural shift
investment. The fiscal framework must also continue to be
in the way research in Mexico is rewarded.
improved, especially as the new tax law does not favor the formalization of the economy. 60% of Mexico’s economy
Q: How can Coparmex at a national level strengthen the
is informal, and this can reach up to 70% in some states.
role of clusters at the state level?
We need a fiscal framework that encourages investment
A: We are convinced that the economic progress of
and formalization. Statistics concerning the formalization
a nation cannot be achieved through general public
of the economy show that the presence of more formal
decision-making. It must be focused by region and by
enterprises leads to less poverty and more economic
clusters and specialties. We are trying to convince the
success. In Nuevo Leon, where formalization rates are
federal government to address nine clusters, targeted
high, extreme poverty affects only 2.5% of the population,
at bringing SMEs into value chains alongside large
but in Chiapas, which has a large informal economy,
companies. These clusters concern the automotive, mining,
extreme poverty hits up to 35% of its population.
tourism, electronics, and aerospace sectors among others. We need to generate value chains in each cluster and
398
Q: How will the Energy Reform affect energy-hungry
technology transfer agreements to drive further growth in
sectors like automotive?
these industries. This leads to a triple-helix model in which
A: We need to convert the Mexican industry to natural
we need to incorporate academia and research centers.
gas, which involves interesting competitive challenges.
Coparmex must also create opportunities for strategic
Coparmex is looking to help create the infrastructure
partnerships with entrepreneurs from other countries to
needed for natural gas to be imported from the US at
venture into these clusters. The role of Coparmex is to drive
lower prices. The government has said that the Energy
regional development, cluster by cluster. Mexican states
Reform could lower the cost of electricity in Mexico by
compete for OEMs to set up shop in their territory. Once
25%, but it needs to go further than this. If we can harness
an OEM is established, there must be synergies between
Mexico’s thermoelectric and hydro resources, a new
certain states to generate Tier 2 or Tier 3 suppliers that can
generation of Mexican companies could be created. This
provide parts for several manufacturing plants. Therefore,
could be achieved through a series of strategic alliances
we are targeting SMEs who can turn their capacity toward
with foreign companies. Without this joint cooperation,
the automotive industry. These companies could well form
the development may take too long as Mexico is lacking
strategic alliances with small foreign businesses that are
in technology.
facing barriers to entry Mexico.
| VIEW FROM THE TOP
SUPPLIER DEVELOPMENT KEY PRIORITY LEFT: Albrecht zu Ysenburg, Audit Partner at KPMG RIGHT: Oscar Silva Eguibar, Director Advisory at KPMG
Q: Do you view the Mexican automotive industry supply
Q: What challenges do you see in accessing human capital
chain as becoming progressively more sophisticated?
for the automotive industry?
OSE: In Mexico, Tier 1 suppliers are well-established with
OSE: In the future, there will be additional pressure for
good links to manufacturers, but the Tier 2 suppliers are
sourcing human capital. There is a good level of availability
not in the same position and a lot of components are still
in the Bajio area for common labor as there are many people
being imported. As more plants come here and the industry
that can be trained. These workers are regarded as high-
evolves, that will need to improve. From the perspective
quality labor, which is one of the reasons why manufacturers
of the Mexican government, it does not make sense for all
are beginning to bring their luxury vehicles to Mexico. We
these goods to be imported from other countries when
were used to being a compact and sub-compact market, but
they could be manufactured here and create jobs. For
we are starting to see more sophisticated vehicles. However,
international trade purposes, the OEMs need a certain
this becomes more difficult at the higher skill levels, such as
percentage of Mexican content in order to benefit from
engineering and plant production managers. We are seeing
incentives, which is why some companies want to bring
some companies having to import their managers from
more production into Mexico. With the entry of new OEMs,
abroad, which will become an issue in the near future.
the pressure to develop the supply chain is increasing. AY: Germany has a system called the Dual Educational AY: From a production point of view, it is better if local
System where students work and go to university at the
sourcing increases since this decreases the risks associated
same time. Some German companies are trying to implement
with foreign currency exposure, quality control, and
something similar with universities in Puebla and Queretaro.
logistical time. Most Tier 1, 2 and 3 suppliers are international
These are two manufacturing hubs which have received a lot
companies, and there is still little Mexican investment in
of German investment. If this works, a typical engineer could
the automotive industry, with a few exceptions. This has to
study and work in an automotive company at the same time.
change but the reason why there is no Mexican investment going into the automotive industry remains unclear. It is
Q: How sophisticated are dealerships in terms of customer
difficult to pinpoint the exact barriers, whether this is due to
service to drive car sales?
a lack of interest or experience in the automotive industry.
AY: Dealers still think their business lies in selling cars, but
Another risk is that entering the automotive sector requires a
in countries like the US, money is found in servicing. While
high initial investment.
that is beginning to be understood by dealers, OEMs are struggling to increase control over that side of the business.
Q: Do OEMs tend to prefer bringing in their own suppliers
A client that needs servicing might not go back to a Mexican
or to develop the local supply chain?
dealership after their first experience, assuming that the
OSE: Japanese manufacturers are more concerned with
service is bad. This represents a loss for OEMs and dealers
bringing their own Japanese suppliers because it is faster and
alike. A new trend that has arisen globally is multi-brand
easier for them to do so. If a company is already established
dealerships and this has yet to happen here in Mexico.
somewhere else, replicating the process here is just a matter of copy and paste. But as the government continues to realize
OSE: Dealership networks are evolving and this change
the increasing importance of the automotive industry, it will
is mostly driven by OEMs, as they are putting customer
drive the local supply chain and create proper programs to
relationship programs in place. These changes are evolving
make Mexican suppliers more competitive. The government
at a good pace in Mexico, but not as fast as in other
already has an automotive program for OEMs but there are
countries. In fact, Mexico is pretty far behind but we have
no established incentives for suppliers. It remains easier for
to remember that most dealers here are family-owned
companies to bring in their own suppliers than to develop a
businesses. These are becoming more sophisticated, and
Mexican supplier base with no experience.
customer experience will become more important to them.
399
LATIN AMERICAN TRADE ISSUES EDGE NEARER TO RESOLUTION By Eliel Amaya - Although world trade has been increasing
The most important challenge is to unify Latin America
over the last decades, for Latin American countries this
as an economic block in a way that will see the region
commercial development seems to have been moving in
able to face more important challenges in the worldwide
slow motion due to a number of factors holding back the
context. Acting as a commercial block would also allow for
sustainable development of trade in the region. Statistical
the development of stronger national economies. As such,
data shows that most of the trade of Latin American
boosting trade within Latin America should include regional
countries is related to natural resources, including minerals
actions that allow countries to jointly face other commercial
and agricultural goods. Furthermore, the majority of such
conglomerates. This should be implemented in opposition
goods is shipped to China and Europe. Such a combination
to prioritizing trade with another Latin America country
generates a high dependency on limited resources and
presenting similar products for exports. This would reduce
highlights a lack of ability to diversify export markets.
the need for international commerce, and no competitive
China’s trade with Latin American countries has grown
advantage would be exploited. During the following
tenfold over the last decade, as China has been shoring
years, the conformation of larger economic regions will be
up a long-term source of commodities. The trade of goods
straightened by free trade agreements and the modification
like copper or mineral fuels is highly lucrative, but it does
of bilateral agreements beyond their original scope, such as
not help to enhance a sustainable trade by developing
the Trans-Pacific Partnership and the Pacific Alliance.
other industries. Brazil, Mexico, and Chile have a more complex combination of economic sectors, due to their
Adjustments to existing agreements will have a bearing
manufacturing industries, but some of the key challenges
on the key players of the region. Such is the case of Brazil
to enhance trade are common to all of Latin America.
and Mexico. For example, the ACE 55 for the automotive
Among the various factors to be considered are the slow
sector between both countries was adjusted after a sudden
economic growth of developed nations, a lack of legal
imposition of import quotas in Brazil for Mexican vehicles in
certainty and adequate infrastructure, the high cost of
2012. Such quotas were imposed after Brazil saw its trade
financing, government bureaucracy, lack of appropriate
deficit with Mexico increase, due to a growth of Mexican
investments, intellectual property rights (IPR) protection,
exports exceeding 40% in 2011. A similar situation resulted
local economic policies, and high cost for obtaining energy,
in the agreement between Argentina and Mexico, once
among others. In order to overcome these restraints, a
again due to escalation in the commercial deficit because
number of actions must be taken to increase investment
of an increase in Mexican vehicle export. The result, besides
and productivity.
commercial limitations being imposed from 2012 to 2014, was a change in the investment flow. Automakers as Mazda
Despite the great differences that exist between the
modified their expansion plans in Mexico, cancelling exports
economies of Latin America, the region has common
to Brazil and increasing their current capacity directly in
aspects that need to be reinforced to provide economic
that country. Others adopted another approach, investing
stability and legal certainty to create confidence among
in a joint venture production to increase their offer in the
investors. Nowadays, productivity and economic growth
Brazilian market, as was the case of Toyota.
are limited, mainly because of insufficient and ineffective public investment. For example, a lack of investment in
International commerce represents an opportunity when
infrastructure has kept energy and logistical costs high,
countries with different economic profiles combine. In
creating a negative factor for the revenues of any investor.
the case of Latin America, too many similarities between
Another example is the lack of proper investment in
countries’ trade portfolios lead to fewer opportunities. One
education in order to develop qualified personnel that may
long-discussed way of resolving this would be to create
enroll in new industries. This should have been especially
more partnerships with the US, as the largest economy in
focused on creating an environment that enhances the
the hemisphere. The ensuing economic gains for any Latin
manufacturing of added value goods, thus reducing the
American country would allow it to attract investment and
dependency on natural resources. The agenda for structural
secure a broader and steadier export market. For many
reforms should also include legal certainty for investors,
Latin American countries, this would also be an opportunity
including effective IPR protection, and better access to
to expand arrangements such as the Caribbean Basin
affordable financing mechanisms. Thus, political stability
Initiative (CBI), the Generalized System of Preferences
would lend a specific weight to investor’s decisions, while
(GSP), or the Andean Trade Preference Act (ATPA).
the national agenda would ideally include the continuity of government programs, investment, and taxes.
400
Eliel Amaya, Senior Manager of PwC
| VIEW FROM THE TOP
PUBLIC PRIVATE COLLABORATION NEEDED TO ADAPT WORKFORCE LUIS LOZANO Mexico Automotive Leader at PricewaterhouseCoopers (PwC) Q: What steps need to be taken to facilitate the shift from
A: This is the biggest issue currently facing the Mexican
low-tech to high-tech manufacturing in Mexico?
automotive sector. The US has to send its old cars
A: In the next two to three years, Mexico will move from
somewhere. Given the US culture of owning a car for only
being the eighth automotive production country in the world
a few years before replacing it, millions of cars are being
to being sixth. We are constructing more plants, which will
replaced every year. Mexico does not behave in this way
easily take our production from 3 million vehicles a year to
as people keep their cars much longer. However, new
4 million. Companies are very careful about where they put
vehicle prices in Mexico have been increasing over the last
their production bases. Japan has had a lot of issues so its
five years. It is not logical for many people here to invest
companies are transferring production outside Asia while
in a new car, so they buy used cars instead. The border
Europe has very high costs when compared to Mexico. To
will never be closed to this trade, NAFTA even says that
capitalize on this, public and private entities should work
the US will export more cars to Mexico, so this situation is
together to reduce the time being spent on training people.
likely to worsen. The US authorities will not regulate this
Many Mexican engineers are going to work for OEMs and are
by forbidding cars over a decade old to be sent here. The
being sent for training in Germany and Japan. As a result,
problem severely affects dealerships in Mexico as many of
the efficiency and quality of Mexican products is superior
them cannot sell more than 100 cars a month. Toyota has
to those made in Brazil. Ford’s plant in Hermosillo is one of
reduced its number of dealers already and the American
the brand’s top five plants worldwide and Nissan’s plant in
OEMs are following suit. We have considered many
Aguascalientes was its first outside Japan. We have seen that
financial alternatives to fix this, but we are so close to the
companies are not just investing here because it is a low-cost
US that it is very difficult to end these imports.
country, but also because of the manufacturing quality and the technical skills found here. Universities will realize they
Q: How is PwC’s automotive group adapting to the
need to adapt, as the rise in production will depend on the
changes that are taking place in the country’s automotive
country’s capacity to support this development.
industry? A: PwC works as one firm, Mexico does not stand alone.
Q: Concerns about rising labor costs in China are
We bring talent from wherever we have it to resolve issues
giving Mexico the opportunity to recover some of the
in Mexico. First, we work in clusters so PwC Mexico is part
manufacturing it had lost. What concrete steps need to
of the Western cluster, which means it can easily access
be taken for that to happen?
anyone from PwC in the US. If we participate in a project
A: Several factors will allow Mexico to recoup some of the
with a certain OEM, we work with the PwC firm where the
investment that was going to China. For one, China has
OEM’s headquarters are located. We set up a coordination
seen rising salaries and costs which will benefit Mexico,
team that takes the lead in relations with the client. This
and following the new laws that have been approved, the
team will be comprised of staff from several specialties,
Mexican government will have the resources to invest and
such as audit, tax and consulting. The firm in the country
increase economic activity in the automotive sector. Last
from where the investment is coming is in charge of
year, we suffered from many issues due to a dragged out
this coordination process. We also follow very strict
political process concerning the passing of various reforms.
independent regulations. If I want to work with a German
Now that that is settled, over the next two to three years,
client, the person in charge of the account in Germany
money needs to be invested to boost production capacity.
will help me to create the proposal for Mexico, to ensure
Mexico will not just do this in the automotive sector, but
we maintain the quality of service the client expects. The
also in aerospace, infrastructure and construction.
Germany office is leading Volkswagen, Mercedes-Benz, Daimler and BMW. The Detroit office is leading GM, Ford
Q: How can Mexico break the cycle of imported cars from
and Chrysler while the Tokyo office is leading Toyota. It all
the US and allow production to reach its full potential?
depends on where the OEM is located.
401
| INDUSTRY EXPERTS’ FUTURE OUTLOOK
“
Mexico’s automotive industry trade surplus gives a sense of the success of the industry and is testament
”
to the real value added contribution we are making to operators in the country. The potential for Mexico to scale up in the value chain is now one of the most important future considerations.
Eduardo Solís, Executive President of AMIA
“
OEMs know how to build a car but they do not know how to build an air bag, to cool an engine, or design a brake or exhaust system. The real technology of the components is in the auto parts sector. Today, Mexico is becoming a destination for engineering centers when 10 years ago we were not even on the map. It is really important that the industry focuses on R&D growth because that is key to improving the local market.
”
Oscar Albín, Executive President of INA
“
All new engines come from the US and Europe, and since the country is only producing 138,000 vehicles, it is difficult to justify building an engine plant. We have to work on promoting suppliers and aid their integration in the global supply chain. The yearly production projection of 300,000 vehicles will see more integration of Mexican suppliers, but without engine plants, the country will not be able to break the 50% locally sourced supply barrier.
”
Miguel Elizalde Lizárraga, Executive President of ANPACT
“
Alongside industry associations, we have created specific norms to ensure that scrap vehicles do not enter the country. These norms will enforce inspections of imported vehicles to make sure they
”
are in good condition and meet pollution standards. We are also working alongside NAFINSA and commercial banks on financing schemes to promote the sales of new vehicles.
José Rogelio Garza, Undersecretary of Economy, Industry, and Commerce
“
The next 15-20 years will see a changing marketplace and there is a concern about excess-capacity globally. The notion of “peak car” reflects that some markets have already maxed out and may enter a new stage in mentality of vehicle demand. This impacts where Mexico is going to be, and while it will remain competitive, the industry as we know it may change. Mexico is becoming highly globalized and this trend will continue.
”
Guido Vildozo, Manager of Latin America Sales Forecast Light Vehicles of IHS
“
We are working together with our competitors and local government officials to discuss the proliferation of electric mobility. We are all sure that this will be a reality in the Mexican market, albeit that it will start small. We are already making plans to bring the i-brand to Mexico because we believe that if there is any city that is suitable for this it is Mexico City.
”
Hernando Carvajal, Marketing Director of BMW
402
FORECAST OF LIGHT VEHICLE PRODUCTION DURING 2014-2019 The production levels of the top ten OEMs in Mexico look
the market in 2015 production will be moved entirely from
set to increase steadily until the end of the decade with no
Mexico to Poland, where units for the European market are
major changes in current positioning. With BMW, Nissan
made. The move will add volume to the European market
Infiniti, and Mercedes-Benz not due to begin production
production, which is in decline, and free up Chrysler in
until 2017-2019, no new entrants will change the present
Mexico to produce more vehicles for the North American
state of play before then. Audi will begin production at its
market. Chrysler will increase its production in Mexico by
new Puebla plant in 2016 and expects to double production
almost 200,000 vehicles by the end of the decade.
levels there by the end of the decade, positioning it as the ninth largest in-country producer.
Asian OEMs Honda, Mazda, and Toyota will all escalate outlay steadily in Mexico over the rest of the decade, with
Japanese OEM Nissan will continue to top the market,
production levels increasing 100,000-150,000, displaying
churning out leading models including the March, of which
a similar pattern to German producer Volkswagen. US
it produces one vehicle every minute at its mammoth and
elder Ford will actually decrease production levels steadily
expanding plant in Aguascalientes. Despite producing
over the next four years, due to the removal of its pickup
the majority of its vehicles for export, Nissan also sells
production from its plant in Escobedo to Ohio. The
the most cars in the country, producing the Tsuru solely
relocation of the production of its medium duty F-650 and
for sale to the Mexican market. In 2017, production of the
F-750 lines to Ohio is aimed at rescuing operations at that
OEM’s premium Infiniti line will be added in partnership
plant following the cessation of production of the Econoline,
with Mercedes-Benz. US giant General Motors produces
which currently takes place there. Growth will once again be
the second most cars in Mexico and will continue to ramp
seen at the end of the decade for Ford Mexico, however,
up production levels, although major recent investments
according to its predicted production levels.
will focus on transmission production, adding a stamping press unit, and the rolling out of the GM OnStar service
When it comes to internal market dominance in 2013 the
throughout the country. While Nissan will increase
catalogue of the top ten brands is dominated by three
production by almost 300,000 units, GM will produce just
OEMs. GM’s Chevrolet takes up two positions, with its
over 100,000 additional units by the close of the decade.
Aveo model the most purchased car in the country and the Spark coming it at number six. A whopping five Nissan
Fiat is expected to steadily drop output of its Fiat 500
units dominate the list; the Versa, Tsuru, Sentra, Tiida, and
model in Mexico, which it currently produces for the
Chassis Largo models. The Volkswagen Jetta Clásico and
Americas and China, bringing its Mexico production to zero
Nuevo Jetta take up the remaining two spaces on the list,
by 2017. When the next generation version Fiat 500 hits
coming in at second and fifth place respectively.
FORECAST OF PRODUCTION OF LIGHT VEHICLES IN MEXICO 2014-2019 (UNITS) OEM
2014
2015
2016
2017
2018
2019
Nissan
643,686
683,770
762,841
884,158
922,294
939,069
GM
670,988
670,185
621,438
760,621
786,997
781,662
Volkswagen
537,840
554,204
603,346
617,047
611,667
649,607
Chrysler
375,373
417,947
586,641
544,818
562,147
555,425
Ford
471,551
456,968
432,410
355,867
442,292
530,676
Honda
170,722
251,950
279,427
322,326
321,022
318,748
Mazda
89,696
178,972
200,129
253,245
257,192
236,283
Toyota
54,682
71,557
154,723
160,235
168,589
164,398
Audi
0
0
72,503
131,270
155,300
149,837
Fiat
90,160
67,014
24,366
0
0
0
3,104,698
3,352,567
3,737,824
4,029,587
4,227,500
4,325,705
Total
Source: AMIA
403
INDEX A-C
INDEX C-E
3M 196, 361
CE Consulting 376
A&P Solutions 177
CeDIAM 206
Ahresty 145
Celay 138
Air Design 168
CH2M HILL 382
Aisin 232
Chihuahua Automotive Cluster 218
Akebono Brakes 250
Chrysler 6, 16, 65, 97, 102, 149, 162, 165, 166, 194, 207, 226,
AMDA 9, 187, 308
233, 261, 267, 371
American Axle 247
CIMA 207
American Coach 91
CLAUT 228, 230
American Industries Group 381
CNT 113, 359
AMIA 6, 9, 10, 14, 32, 132, 158, 187, 274, 367
Comau 149
AMPIP 372
CONACYT 90, 132, 176, 181, 186, 203, 207, 211, 219, 227, 259,
AMT 198
265
ANPACT 9, 20, 64, 187, 321, 327
CONATRAM 11, 327
Andellac 9, 356
Continental 112, 266, 283, 358
Arbomex 159, 166
Cooper Tire 358
Arochi, Marroquín & Lindner 386
Coparmex 398
Argo Grupo 266
Corporacíon Inmobiliaria Vesta 373
ARIDRA 338
Corporacíon Zapata 174, 310, 311, 315
Ariza 175, 315
Cummins 65, 200, 201, 266
A.T. Kearney 17, 187, 308
Dachser 287
Atlas Copco 133
Daewoo Bus 91
Audi 7, 14, 143, 162, 191, 194, 223, 249, 274, 397, 403
DAI 347
Autoliv 102, 143, 239
Dayco 341
Automotive Resources International 175, 315
Daimler 8, 26, 85, 143, 148, 162, 178, 189, 261, 316
Autonomous University of San Luis Potosi (UASLP) 210
Daimler Buses 84
AutoZone 339, 341, 359
Daimler Financial Services 75, 316
Ayco 89, 90, 329
Daimler Trucks 74, 166, 280
Baker & McKenzie 368
Dana 158
Bardahl 172, 354
Deloitte 23, 37
BASF 122
Delphi 189, 219, 221
Bata Industrials 152
Denso 344
Beccar 82
DESEC 216
Benteler 283
Detroit Diesel 166
BMW 7, 14, 26, 44, 59, 100, 102, 126, 143, 148, 162, 188, 191,
DHL Supply Chain 276
192, 233, 261, 264, 391, 403
Dina 65, 367
Bonafont 326
Disma Metalmecánica 153
BorgWarner 117
Don Miguel Transportes 292
BOS Automotive 125
Donaldson 352
Bosch 8, 10, 98, 158, 223, 233
Dorman Products 353
Brake Parts Inc 343
DTR 222
Bridgestone 110, 358
Eisenmann 148
Cadena Automotriz 355
E.J. Krause 390
CAMEXA 26
Entrada Group 251
CANACINTRA 89, 321
Epicor 190
CANAPAT 194, 292, 328
ERM 136, 374
Carrocerias Diamante 89
Ernst & Young 188
Case New Holland 261
Estafeta 269, 274, 322, 385
Caterpillar 65, 229
Euroimportadora 351
INDEX E-H
INDEX H-L
Euromex 236
HELLA 24, 124, 192
Factoria 222
Hellmann 143, 283
Faurecia 246, 389
Hendrickson 127
Federal-Mogul 97, 158, 283, 345
Herko 349
FedEx 269
HEXPOL Compounding 151
FEMSA 89, 112, 293
Hino 77, 82, 179
Ferromex 275, 291, 294, 296, 301, 303
Honda 6, 57, 59, 133, 145, 147, 150, 232, 240, 247, 249, 250,
Ferrosur 299
261, 267, 309, 371, 391, 397, 403
Ferrovalle 299
Honeywell 239
Fiat 149, 162, 189, 249, 403
Hoy No Circula 174
Ficosa 193
Hyundai 15, 24, 52, 88, 230, 238, 239
Flextronics 163
Hyundai Translead 239
Ford 6, 34, 59, 101, 102, 112, 126, 132, 133, 158, 162, 165, 189,
Hyundai Truck & Bus 89, 179
194, 207, 208, 216, 230, 233, 234, 267, 274, 277, 302, 309,
IAMSA 79, 330
340, 371, 391
IHS 16, 236
Ford Aftermarket 340
INA 8, 9, 24, 96, 158, 187
Freightliner 74, 78, 226, 230, 280, 292, 316
INADEM 11, 158, 219, 229, 259, 265
French Mexican Chamber of Commerce and Industry 389
Inalfa Roof Systems 249
FUMEC 169, 203
Intermex 375, 376
Gates 112
IPICYT 207, 210
GE Capital Services 318
IPN 90
Geely 189
Irizar 79, 195
GEFCO 282
Isuzu 76, 179
General Motors 6, 32, 59, 126, 133, 165, 188, 207, 233, 241,
ITESM 181, 206, 207, 208, 219, 220, 233
249, 261, 262, 264, 371, 403
JATCO 145, 206, 256
Gestamp 126, 163
Jรกuregui y Del Valle 366
Getrag 247
Jaguar Land Rover 46, 194
GMB 342
J.B. Hunt 268
GKN Driveline 116, 132, 144, 247
J.D. Power 391
Globextools 237
JK Tornel 358
Goodyear 108
John Deere 177
Grupo ADO 79, 86, 112, 331
Johnson Controls 143, 158, 283
Grupo Alden 309
Kansas City Southern 264, 275, 291, 294, 298, 301, 303
Grupo ALFA 230
Kasai 132, 147
Grupo Bimbo 89, 112, 293
Katcon 176, 209, 231
Grupo Bocar 100, 159, 283, 292
Kenworth 66, 68, 112, 238, 292
Grupo Copachisa 221
Kia 24, 143, 230
Grupo Estrella Blanca 79, 332
Koide 251, 253
Grupo Flecha Amarilla 79, 195
Korn Ferry 388
Grupo Gonher 181
KPMG 200, 371, 399
Grupo KUO 100, 159, 258
Kronen 180
Grupo Quimmco 178
Kuehne + Nagel 268, 278
Grupo Salinas 32, 159
LANXESS 123, 197
Grupo Toluca 79, 113
LaSalle Investment Management 383
Guanajuato Automotive Cluster 246
Lear 158
Guanajuato Inland Port 246, 248, 274
LeasePlan 188, 312
Guantes Vargas 167
Leoni 225, 236
Hankook Tires 358
Lemon Analyzers 146
Harley-Davidson 113
Linamar 166
INDEX L-P
INDEX P-S
LIPU 329
Parker Hannifin 121
Macimex 159, 207
Parque Tres Naciones 268
Mack Trucks 73
PEMEX 264
Maersk Line 302
Peugeot 37, 168, 189, 261
Magna Steyr 170, 236
Pirelli 109, 112, 205
Mahr 233
Philips 24, 135
MAN Truck & Bus 82, 88, 90, 104, 195
PIIT 209, 229
Mansons 350
PIT2 208
Mann+Hummel 147, 283
Porsche 123, 172, 313
Marcopolo 85, 89, 232, 330
Port of Altamira 264, 274, 296, 301
Mastretta 169, 172
Port of Manzanillo 275, 297
Maxion Wheels 267
Port of Lazaro Cardenas 274, 302, 303
Mazda 8, 54, 59, 143, 145, 147, 168, 221, 222, 240, 247, 250,
Port of Veracruz 264, 274, 300
267, 397, 403
PricewaterhouseCoopers 8, 11, 400, 401
McLaren 250
Primera Plus 79
Mercedes-Benz 7, 14, 26, 42, 82, 89, 126, 179, 233, 316, 329,
Queretaro Automotive Cluster 260
391, 403
Quintanilla 113
Meritor 178
Raloy Lubricantes 180
Metalistik 163
Refaccionaria Rogelio 163
Metalsa 11, 211, 231
Renault 50, 162, 168, 389, 391
Mexican Stock Exchange 386
Renishaw 199
Michelin 112
Riggers Group 142
Millennium Industrial Park 266
RTP 89
Ministry of Communications and Transportation (SCT) 91,
Sandoval 350
301
SANLUIS Rassini 159, 160
Ministry of Economy 10, 27, 169, 186, 187, 231, 259, 261, 308,
SAP 191
368, 371, 396
Scania 78, 82, 195, 329 Schneider Electric 209
Ministry
of
Environment
and
Natural
Resources
Schnellecke 285
(SEMARNAT) 64
Sea Cargo 298
Ministry of Labor 261
SEAT 168
Mitsubishi 168
Secretary of Economic Development of Aguascalientes
Mold-Tech 132, 147
254
MPE 132, 144
Secretary of Economic Development of Coahuila 226
Multimatic 170
Secretary of Economic Development of San Luis Potosi
NAFINSA 11, 17, 64, 132
264
National Polytechnic Institute (IPN) 248, 347
Secretary of Economy of Baja California 238
Navistar 70, 82, 89, 108, 179, 230, 292, 324
Secretary of Economy of Chihuahua 216
Nemak 11, 100, 159, 162, 230
Secretary of Economy of Guanajuato 240
Neomexicana 333
Secretary of Economy of Sonora 236
Nippon Steel Corporation 231
Seeds Linking Group 288
Nissan 7, 11, 14, 26, 52, 59, 102, 108, 112, 114, 133, 145, 163, 203,
Seglo 286
221, 250, 254, 256, 261, 302, 309, 389, 403
Senator International 288
Novacapre 179
Sherwin-Williams 360
O’Donnell 143
Siemens 208
O’Reilly 339
Sisamex 178, 231
Osram 24, 136, 192
SKD Automotive 239
Otscon 250
SKF 139
Paccar 66, 68, 200
Skylab 204
INDEX S-Z
Subaru 58 Sumitomo Corporation 236, 380 SYDA 346 Tachi-S 107, 134 Tecma 224, 377 Tenigal 231 Terminal Intermodal de Queretaro 291 Ternium 221, 231 Tesla 177, 194 ThyssenKrupp 239, 283 Timken de México 120 TI Automotive 266 TIP México 323 Tool & Dye 265 Toyota 11, 59, 133, 143, 148, 189, 192, 238, 239, 309, 403 TREMEC 159, 164, 165, 258 Tristone 223 TRW 103, 132, 147, 208, 221, 260 Tsol 284 TUM 269 UNAM 90, 194 Undersecretary of Economic Development of Nuevo Leon 228 Undersecretary of Economic Development of Queretaro 258 Union Pacific 217, 275, 294 United Logistics Services 284 University of Nuevo Leon 233 University of San Luis Potosi 207 UPS 143, 290 Utility Trailers 293 Valeo 211 Visteon 219, 220, 221, 222 Volkswagen 7, 38, 39, 40, 82, 102, 105, 108, 112, 123, 126, 133, 148, 152, 162, 167, 177, 189, 233, 249, 261, 302, 309, 329, 403 Volkswagen Fleet Mobility Services 314 Volvo 49, 65, 261, 330, 389 Volvo Buses 86, 140, 195, 330 Volvo Financial Services 318 Volvo Group Trucks 73, 202 VUHL 158, 168, 169, 170, 172 Watlow Electric 146 World Trade Center 268 Yazaki 236 Yusa Autopartes 150, 251, 253 ZF Sachs 132, 339 ZF Services 339
STATE INDEX
Aguascalientes 7, 11, 25, 52, 107, 134, 143, 145, 151, 163, 187, 204, 238, 244, 254, 256, 257, 298, 321, 349, 373, 403 Baja California 25, 68, 113, 238, 239, 298 Chihuahua 25, 34, 146, 152, 208, 216, 218, 219, 220, 221, 222, 225, 267, 292, 298, 367, 375, 376, 381 Coahuila 25, 117, 226, 227, 229, 230, 249, 278, 379 Guanajuato 7, 9, 25, 97, 111, 116, 124, 142, 145, 150, 174, 187, 205, 221, 244, 246, 248, 249, 250, 259, 274, 287, 301, 321, 367, 371, 381 Hidalgo 25, 91, 177, 299, 311 Mexico City 25, 45, 47, 53, 65, 67, 84, 87, 89, 90, 141, 160, 170, 172, 174, 200, 229, 261, 277, 278, 288, 290, 298, 308, 313, 321, 327, 330, 360 Michoacan 159, 174, 303, Nuevo Leon 25, 111, 112, 209, 228, 230, 232, 233, 288, 292, 298, 379 Puebla 8, 9, 23, 25, 26, 38, 39, 40, 97, 105, 142, 143, 148 Queretaro 9. 25, 37, 104, 142, 143, 146, 147, 151, 160, 165, 178, 187, 189, 221, 244, 247, 258, 260, 268, 283, 291, 293, 298, 303, 330, 358, 371, 385, 399 San Luis Potosi 7, 23, 26, 67, 78, 89, 100, 143, 196, 207, 210, 244, 245, 250, 262, 264, 266, 268, 274, 289, 291, 298, 301, 303 Sinaloa 25, 146, 379 Sonora 25, 113, 146, 225, 236, 367, 379 State of Mexico 25, 89, 97, 141, 149, 233, 261, 309, 321 Tamaulipas 113, 122, 249, 331, 379 Veracruz 70, 96, 249, 264, 274, 277, 288, 296, 299, 300, 302, 321 Zacatecas 25, 134, 145, 150, 204, 251, 253, 385
ADVERTISING INDEX
4 Bosch
204
CIMA
12-13
214
Globextools
22 Mazda
220
Grupo Copachisa
30
BMW
224
Leoni
36
Goodyear
242
COFOCE
48
Volvo
252
State of Zacatecas
56 Arbomex
264
Argo Industrial Group
62 Scania
272
Ferromex
73
Cummins
279
Euroimportadora
80-81
Beccar
306
Ariza
94
PricewaterhouseCoopers
316-317 Neomexicana
106
Tachi-S
320
Grupo Automotor Alden
111 Peugeot
336
ZF Sachs
120-121
Federal-Mogul
342
The Timken Company
130
Deloitte
348 AutoZone
134
Tachi-S
354
SYDA
144
Ahresty
357
Knadian
156
Ayco
364 Intermex
164
Guantes Vargas
367
Jáuregui y Del Valle
184
Expo INA
378
Expo Manufactura
192
Ficosa
384
Rujac
198
Renishaw
394
ERM
LeasePlan
CREDITS
EDITOR-IN-CHIEF: Jeroen Posma
MARKETING DIRECTOR: Laurens Schöningh
SENIOR EDITOR: Chris Dalby
DESIGN DIRECTOR: Vanessa Rocha
SENIOR EDITOR: Johanna Cronin
WEB DEVELOPMENT: Arturo Madrazo
EDITOR & INDUSTRY ANALYST: Michelle Adams EDITOR: Wallace Porter INDUSTRY ANALYST: Montserrat Rodríguez PUBLICATION COORDINATOR: Nayelli Ayala PUBLICATION COORDINATOR: Iwona Knap COLLABORATOR: Matt Kendall COLLABORATOR: Pieter Speksnijder CIRCULATION & EVENTS MANAGER: Ana Cristina Garantón
PRINTED BY Artes Gráficas Panorama, Avena 629, Col. Granjas México, C.P. 08400 México D.F. T.: (52) 55 5649 7080
PHOTO CREDITS
2
Volkswagen México
74
Daimler Trucks Mexico
9
Augustín Ríos
75
Daimler Trucks Mexico
10 NEC
76
Isuzu Motors de México
15 NEC
77
Hino Motor Sales de México
16 NEC
78 NEC
17
82 Beccar
AT Kearney
21 ANPACT
83 Beccar
23 Deloitte
85 NEC
24 NEC
86
Volvo Buses Mexico
32 NEC
88
MAN Truck & Bus Mexico
33
General Motors México
89 NEC
34
Ford Mexico
90 Beccar
38
Volkswagen México
91 NEC
39
Volkswagen México
92 Daimler
40-41
Volkswagen México
96 NEC
42 NEC
97 NEC
43 Mercedes-Benz
98
44
99 Bosch
BMW Mexico
Bosch México
47 Jaguar
100
BMW Mexico
50 NEC
101
Ford Mexico
52
Nissan Mexicana
102 NEC
54
Mazda México Sales and Commercial Operations
104
MAN Truck & Bus Mexico
57
Honda Mexico
105
Volkswagen México
60 IAMSA
107
Tachi-S Mexico
64 ANPACT
108
Goodyear Mexico
65 Cummins
109
Pirelli México
66
Paccar Mexico
110 NEC
67
Paccar Mexico
112
Continental Mexico
68
Paccar Mexico
114-115
Nissan Mexicana
70
Navistar México
116 NEC
PHOTO CREDITS
117
Borgwarner Inc.
163 NEC
120
The Timken Company Mexico
165 NEC
122
BASF Mexicana
166 NEC
123
Lanxess North America
167 NEC
124
Hella North & South America
168
Air Design
126 NEC
169 VUHL
127
170-171 VUHL
Hendrickson Mexicana
128 Eisenmann
173 NEC
133
Atlas Copco Mexico
175
134
Tachi-S Mexico
176 Katcon
135
Philips México
177
136
Osram Mexico
178 NEC
Corporación Zapata A&P Solutions
138 NEC
179 NEC
140-141
180 NEC
Volvo Buses Mexico
142 NEC
181 NEC
145 Ahresty
182 Daimler
146 NEC
186 NEC
147
188 LeasePlan
Mold Tech
148 NEC
189
Delphi México
149 NEC
191
SAP México
150 NEC
193 NEC
151
Hexpol Compounding Mexico
196 NEC
152
Bata Industrials
198 AMT
153 Disma
199 NEC
154 VUHL
202
158 NEC
203 FUMEC
159 AMIA
204 NEC
160
SANLUIS Rassini North America
206 ITESM
161
SANLUIS Rassini North America
207 NEC
162 Nemak
Volvo Group Trucks México
208 NEC
PHOTO CREDITS
209 NEC
260 NEC
210 NEC
262-263 General Motors México
212
Ford Mexico
264
216
Secretary of Economy, Chihuahua
Potosi
Secretary of Economic Development, San Luis
218 NEC
266 NEC
220 NEC
267 NEC
221 NEC
269 NEC
225 Leoni
270
226
Secretary of Economic Development, Coahuila
274 NEC
228
Secretary of Economic Development, Nuevo
276 NEC
Kuehne + Nagel
Leon
277
DHL Supply Chain Mexico
230 CLAUT
278
Kuehne + Nagel Mexico
232
Aisin Mexicana
280-281 Daimler Trucks Mexico
233
Mahr Mexico
282 NEC
234-235 Ford Motor Company
283 NEC
236
284 ULS
Secretary of Economy, Sonora
237 Globextools
286 NEC
238
Secretary of Economy, Baja California
289 NEC
240
Guanajuato Inland Port
290 NEC
244 NEC
291
246 NEC
292 NEC
246
294
Union Pacific Mexico
248 IPN
297
Grupo México
249
298
Kansas City Southern de México
250 NEC
300
API Veracruz
251
Secretary of Economy, Zacatecas
301
API Altamira
254
Secretary of Economy, Aguascalientes
302 NEC
Guanajuato Inland Port Inalfa Roof Systems
Terminal Intermodal de Queretaro
256 JMEX
304
258 NEC
308 AMDA
259
310
Secretary of Economic Development, Queretaro
Ariza de México Corporación Zapata
PHOTO CREDITS
312
LeasePlan Mexico
357
Bridgestone de México
314
Volkswagen de Mexico
358
Hankook Tire de México
315 NEC
361 NEC
316
Daimler Financial Services México
362 NEC
318
GE Capital Mexico
366 NEC
318 NEC
368
321 NEC
372 Vesta
323
373 Vesta
TIP de México
Baker & McKenzie
324-325 Navistar México
374 ERM
326 NEC
375 NEC
327 CONATRAM
379 NEC
328 CANAPAT
380 NEC
329 AYCO
381
330 NEC
382 CH2M HILL
332 NEC
383 NEC
333 Neomexicana
385 NEC
334
386
The Timken Company Mexico
American Industries
Arochi, Marroquin & Lindner
338 NEC
387 NEC
339
ZF Services Mexico
388
340
Ford de Mexico
389 NEC
344
DENSO Sales Mexico
Korn Ferry
390
E.J. Krause
345 NEC
391
J.D. Power
346 NEC
392 Daimler
347 NEC
396
351 Euroimportadora
398 Coparmex
352 Donaldson
399 KPMG
353 NEC
401 PwC
354 NEC
411 Volvo
355 NEC
413
356 NEC
Ministry of Economy
Ariza de México