Rafael Kisel
President
Volvo Buses Mexico
Ediltron Temporal
Ediltron Temporal
Director of Sales for Urban Buses and BRT
Volvo Buses Mexico
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View from the Top

Bus Maker Pushes for Increased Sustainability

Mon, 09/01/2014 - 11:38

Q: What does Volvo Buses’ market penetration look like in Mexico today?

RKR: In the intercity and coach market, we are focusing on the top-end segments rather than the medium and shortdistance segments. In terms of overall market penetration, we currently sit at just over 20%. In the city bus segments, we are specialized in Bus Rapid Transit (BRT) and in lowentry models. We believe that city segments will soon begin a transformation toward more eco-friendly fleet systems, which will be more beneficial for passengers, drivers, and the cities themselves. This will drive efficiency both in terms of energy and cost. In terms of BRT, the total market penetration is so low that our own participation does not say a great deal. Nonetheless, we are market leaders in terms of this technology. Eight BRT vehicles have been sold in Mexico so far this year and three of those have been our 7300 BRT model. We will deliver an additional 17 BRT units in the next year. Volumes are also still very low in the low entry segment, but all the deliveries that have been made have been from Volvo.

Q: Is Volvo Buses interested in entering the broader market in the city bus segment?

RKR: The market is dominated by conventional vehicles, which are generally higher sitting buses that feature the engine at the front. We do not participate in this segment as we do not believe that those models are the right solution for Mexico. Volvo is focused on providing the best products for each market, not just on increasing sales. That means providing vehicles that are safe, environmentally friendly, and featuring the right solutions for every user. Our buses are also designed to be usable for all members of the public, including those with mobility difficulties. We place our engines at the back of the buses rather than at the front, which provides greater comfort for the driver. We also remove steps for the entrance, which allows for better passenger flow. The current solutions in city transport are not what people deserve. This results in a situation where people that have access to a car are far likelier to use their car instead of public transport. Our proposal is to really create a much more efficient and user-friendly transport system than what exists today. Of course, Volvo does not have exclusive control over this, as operators and the government are also involved. Nonetheless, we really see a big market potential in the city bus segment, with major opportunities coming up. Until the electric vehicle trend grows, we will be able to offer eco-friendly diesel models. For the European market we only produce hybrids and no longer produce diesel, but the Mexican market is 20 to 30 years behind that.

ETG: We believe that by combining the transport technology being developed within Volvo with the city bus segment, we can offer better transport solutions to the market. The Mexican market has to recognize that the current way is not sustainable for the future. In Colombia, the market has changed and this country now uses back engine models. Although such buses may be US$10,000 more expensive, the cheaper models are three times more expensive in the long-term. A lot of consumers think about life cycle in terms of time but they really need to start thinking about it in terms of kilometers.

Q: The government and industry associations are in talks regarding the renewal of Mexico’s bus fleets, which would affect some 40,000 units. How involved is Volvo Buses in this discussion?

RKR: We are certainly putting considerable efforts into encouraging renewal, but also into advising on what we believe is the right way to renew. In our opinion, putting a bus body onto a truck chassis, which is the common model in Mexico, is not the right approach to public transportation solutions. Our proposal centers on better accessibility combined with electro-mobility. We see the future of inner city transportation being in hybrids or fully electric vehicles, not gas. Volvo is a pioneer in this field, and in Europe we have the largest fleets running with electromobility. We would like to see the government in Mexico understand that this is the right way forward. We are not against natural gas, but we do not see combusting gas within the bus itself as being the most efficient solution. The combustion can be carried out at an earlier stage in an electric factory facility and thereby utilized in a much more efficient way. Mexico has big reserves of natural gas and the government is very concerned about making use of these. The infrastructural costs to do so also represent a big expenditure and the government is currently focused on making CNG gas available in the north of Mexico, as that is where the reserves are. However, the entire country will require such infrastructural investment. This means the main infrastructural investments made toward hybrid technology will come from Volvo, lessening the financial burden being faced by the government. In industrialized countries, the common optimal vision for a city is that the downtown area should be 100% electric, the peripheries would have access to hybrid options, and long-distance areas would remain with diesel. In addition to all their other benefits, electric vehicles are extremely quiet, providing an extra bonus for inner cities. That is also more or less Volvo’s vision for the future.

ETG: The thermal efficiency in a combustion engine is around 49%, but in an electrical plant that uses a compound cycle, this figure is almost 90%. By having the combustion in a power plant with the same amount of energy that you would use to move one CNG bus, you can produce enough energy to move two hybrid buses. A lot of energy is needed to move a CNG bus because of the weight of the people onboard that need to be transported. With hybrids, however, the brake energy is used to move the vehicle so there is a huge difference in the energy expenditure. The new hybrid plug-in technology allows for the reduction of fuel consumption by 70%.

Q: What factors led to the market share drop for Volvo Buses in the coach segment?

RKR: The coach segment in Mexico is very stable and limited, sitting at around 1,500 vehicles per year. We were the market leaders from 2000 to 2012, at which point we experienced a small drop. Our market share was always about 40%, but then dropped to 28%. One reason for this was the effect of the constitutional reforms implemented by the government, of which the secondary laws came out this year. The introduction of the new VAT regulations has resulted in extra cost burdens for our customers. Some have dealt with the extra costs by passing them on to their passengers, and others have absorbed the costs themselves. Neither solution has been optimal, because the ones that passed on the cost have lost passengers and the ones that have absorbed them have reduced cash flow. That has created a situation where our customers are delaying purchasing decisions. The second reason for the drop in our market share is the entry of newcomers into the market. There is a limited amount of major fleet purchasers in Mexico, and in any situation in which newcomers enter the market there is reduced opportunity. Any change in a purchasing decision can considerably affect market shares. We are in the process of renovating our portfolio and we launched two new products last year, namely the 9700 Grand, which is a long-distance coach, and the 8300 S, which is a short distance suburban type of coach. We sold 300 9700 Grand models last year and these were very well received by the market. ADO received more than 200 and centered all of its marketing efforts around our product. We sold almost 90 of the 8300 S in the first year and we expect the same this year. With the launch of these two new products, we increased our market share to 33%. We launched the 7300 BRT in 2014 and we will continue renovating for that segment. However, we do not see the coach segment growing heavily in Mexico, where more than 95% of people already travel by bus. Low cost airline routes are increasing and the government is also discussing the possibility of establishing three railway routes around the country. That could impact the coach segment, but for the most part we expect the market to stay the same. Our main way to capture a larger market share is to remain close to our customers and offer them excellent service and financial solutions. We have an ambitious target to grow our dealership network as we want to be number two in terms of dealerships by 2016 with more than 60 points of contact between dealerships, spare parts outlets, and service points. We are executing that plan and we have already opened two new points this year. We will open 11 additional points in 2014, closing the year with 49 dealers. Despite this expansion, we are more focused on helping our current dealers to grow in their regions rather than adding new dealers. The aim of this is to be very close to the customer and to be very perseverant in our philosophy, which is to offer excellent quality and safety combined with offering high levels of productivity for our customers. We want our customers to run successful businesses using our buses. We believe that we offer very good life cycle costs, and when customers see the overall costs associated with owning one of our buses they often opt for our buses over our competitors.

Q: Has brand perception been influenced by the market share drop?

RKR: On the coach side, there is no doubt about the brand perception of Volvo in Mexico. However, it is interesting that in the last brand survey we conducted, the company scored high in the city bus segment, in which we have a very small niche orientated presence. That segment represents less than 5% of our total volume and we have a 2-3% market share within it, yet the Volvo came up number two in the survey. That is because of Volvo’s perception as a very advanced and state-of-the art transport systems provider. Insurgentes in Mexico City is one of the most densely utilized roads in the world, so our buses gain very heavy exposure on that road.