Combination of German Leadership with Mexican Touch

Q: How has Daimler Trucks’ investment and growth strategy in Mexico evolved during the current automotive boom?

A: All our brands are present in Mexico, including our cars, buses, and vans, but our truck division is the biggest business unit here. This covers our Mercedes-Benz, Freightliner, Smart, and Sprinter brands. We also have Daimler Financial Services, which finances all our business arms. Daimler has made a continuous commitment to this market for over 40 years and we continue to grow and invest here. The truck division is the biggest because you need trucks too move things in Mexico. The railroads are limited. To build up rail infrastructure would take a long time, meaning that trucks will remain the main solution. As for truck production, Mexico is a logical spot for production as part of NAFTA. Daimler has invested a lot in its two plants for truck production in Saltillo and Santiago Tianguistenco. The Saltillo plant in 2009 represented an investment of over US$300 million, while the Santiago plant was updated in 2013 at a cost of US$45 million. Our plants are responsible for 52% of the production of commercial vehicles in Mexico and we are responsible for 58% of Mexico’s exportation of commercial vehicles. From a pure sales perspective, the trucks business unit is the biggest given the volume of trucks we move here. We are the second biggest player in the market for Class 4 to Class 8 trucks. In other NAFTA markets, we are number one and we aspire to undisputed market leadership here as well. The Class 8 tractor is the fastest growing market segment in Mexico right now and our Cascadia truck is the most advanced such model in North America. This truck is perfect for the Mexican usage profile and for the country’s landscape. Based on the Detroit DD15 engine, we are offering a variation for this market that was launched last November at ExpoTransporte in Guadalajara. Mexico has now the newest product line-up, with the newest engines and the most advanced technology available for fuel efficiency.

Q: What is your strategy to attain this position in Mexico, when the likes of Volvo or Kenworth are increasing their investments here?

A: The market will decide who is the leader. We have redefined our strategy to become absolutely clientfocused and we have built up this strategy around four pillars. The first concerns our product portfolio as the requirements of our clients are constantly changing. We have focused on providing the most fuel-efficient products on the market, which helps to bring the cost of transportation down for our customers. We are the proven efficiency leaders in the US and Canadian markets, and we have the most advanced products in the Mexican market as well. This is one of the pillars we are going to build our market leadership on although the customer will decide that. The second part of the strategy is our dealer network of 90 distributors that covers the whole country. We have a very active dealer network but there is always room for improvement. Daimler has German DNA in its veins so ease of doing business is our third pillar. Germans are pretty good at defining processes, rules, and regulations but we want to make sure we are the easiest company to do business with. That is why it is a nice combination to be a German company with a lot of American influence, given the US pragmatism in how to do business. We will really put everything the company does under the X-ray to define only what is good for the customer. This will be done across our supply chain, both upstream and downstream, leaving no stone unturned. You need people to do all this, which is the fourth pillar of our strategy. To become the undisputed market leader in Mexico, we need to be the most attractive company to work for. We have a strategy defined to specifically address this.

Q: How are you facing up the competitive challenge posed by used trucks being imported from the US?

A: One of the biggest problems Mexico is facing is uncontrolled importation of used vehicles from the US. The federal and state governments have to step in to curb this. Almost half a million used trucks are being driven around Mexico, 149,300 trucks are between one and ten years old 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 years old. A vehicle population older than 21 years, especially in commercial transport, is not good for the environment, road safety, or fuel efficiency, while it is also hindering economic growth. There are only two countries which have no limits on importing vehicles: Mexico and Nigeria. The OEMs need to come together to deal with this but more importantly, the country needs enforced standards. If it is so easy to buy old trucks, why are companies still buying new trucks at a substantially higher cost? This is because Mexico has very professional transportation companies. The fleets of companies like FEMSA or Grupo Bimbo are impressive, as compared to what we can find in the US, Argentina, or Brazil. These companies look at total cost of ownership and 15 year old trucks are no longer efficient. The technological advantages that new trucks bring can raise their operating efficiency.

Q: How does Daimler Financial Services encourage the purchasing of new vehicles through financing?

A: This is one of our key advantages, we have a very competitive financing arm. This is part of our ease of doing business pillar, we are a one-stop shop as we can provide a full line of vehicles from Class 4 to Class 8 and offer financing. This is a key point for us.

Q: How does the fact that your trucks are being manufactured in Mexico rather than Germany or the US influence the perception of your brands in Mexico?

A: When I took up this position in September 2013, we were the biggest producer and exporter of commercial vehicles but we were in second place in the market. The first question I asked was why this was the case. We want to be clear about the fact that we are a Mexican company. Our plant in Santiago Tianguistenco has been there as long as Daimler Mexico has existed. It provides a lot of work for the local population and has won the Daimler President’s Award for Quality six out of seven times on a global level. All our plants are tied into the global Truck Operating System (TOS), we produce in Mexico according to our 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 components we need to provide ourselves, such as our own transmissions, axles, and engines. Ultimately, the customer will decide what the best choice of product will be. We can only show that the most fuel-efficient truck right now is the Cascadia combined with the DD15 engine. To build the best truck, the best suppliers are needed so it is a constant process of seeing what is out there and integrating it. As for hiring new talent, we offer internships through links to all the big universities in Mexico. I personally visit universities to talk about Daimler with students, and we have talent programs across the country that open the Daimler door to them. We also have programs within our Santiago and Saltillo plants, were senior engineers mentor younger team members. The engineers we hire are very capable, we have no problem sending Mexican engineers to work in the US or Germany. The quality produced by universities is up to par internationally.

Q: What potential do you see for inter-modal transportation as opposed to just transportation by trucks?

A: Inter-modal is the way to go but it is limited here in Mexico. Truck and rail are a perfect combination, Daimler uses rail to send equipment to some of its plants, but Mexico has limited rail capacity. The US still has an inferior rail network when compared to Europe but over the last decade, it has built up several advantages on the rail side. All this will come to Mexico, but tunnels and bridges are needed for this to happen. Mexico has the potential to see economic growth above and beyond what it has seen in the last couple of years. However, rail does not have the capacity to be the backbone of this growth in the next five years but trucks can. This is why there will be substantial growth in the truck segment in the future.