Carlos Pardo García
Director General
Navistar
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View from the Top

Demand Grows Despite Unfavorable Exchange Rates

Thu, 09/01/2016 - 20:28

Q: How are Navistar’s new investments impacting the company’s performance in Mexico?
A: We recently announced the investment of the One Roof Ground Breaking site, where our suppliers will be able to establish their operations supporting the logistics chain. This will allow us to become more competitive. It represents an investment of almost US$100 million. Two suppliers have already started moving into the compound and we hope that in the next three years all our main suppliers will have moved to the site. Navistar is attracting production to the country as our plant in Escobedo becomes more important. Almost 52 percent of 2016’s production will be manufactured in Nuevo Leon. Our plant in Ohio is shifting part of their production so we will produce more trucks in Mexico. We expect this shift to expand Escobedo’s proportion of Navistar production to 60 percent.

Navistar has also developed a telemetrics tool called OnCommand Connect, which allows us to perform remote diagnostics procedures and to define action plans for solving any possible problem. It also maps the position of the truck at all times.

Q: How do Navistar vehicles contribute to the government’s efforts to generate a greener industry?
A: We have the facilities to manufacture almost any technological requirement the Mexican market might need. Although we are not troubled by the production of trucks with low carbon emissions, we are concerned about the market. Within environmental concerns, there is an underlying economic problem. To shift to producing new units with lower carbon emissions could increase the price of every unit by almost US$15,000. Truck manufacturers need to plan to support clients and soften the impact of the price increases. The whole country also needs to build greater infrastructure, including diesel stations for these kinds of trucks.

Authorities have not yet defined which emissions regulations our trucks must comply with but producing trucks with Euro VI emissions standards will create a more manageable economic impact. The vehicle’s performance 

generates savings that compensate for the increased unit price. Nevertheless, the government must provide green incentives to encourage the use of newer technologies. The market will not take this step to innovate off its own steam. The current fleet renovation program promoted by the government has positive aspects but it needs to increase the benefits it offers. The program would be more persuasive if it involved less paperwork for instance.

Q: What are Navistar’s expectations for new releases and expansion in Mexico?
A: Our strategy involves customer retention. Therefore, we provide them with all the possible tools and find ways to produce more economical spare parts as part of our added value services to our customers. Navistar has just launched a new vehicle in the US, the International HX. The truck will be available in Mexico at the end of 2017. We also will be launching our new heavy truck generation in the last quarter of 2016. Navistar launched three different vehicles in Mexico this year. Our class 6 truck is being positively received, gaining a 10.5 percent market share in nine months. We presented our first Integrated Bus in 2016, which is ready- to-use, and as part of our anniversary, in Mexico we are also launching the Lone Star , a top - class heavy truck.

There are obvious advantages of having production in Mexico, especially costs, but the current exchange rate is not an advantage. Since we buy most of our supplies in US dollars, we have had to absorb the dollar disparity since October 2015. Fortunately, in spite of exchange rate increases, our product demand has not decreased. We expect that the market will grow approximately 13 percent in 2016, meaning that by yearend the industry will have sold almost 35,600 units. We believe the increase in the demand can be explained by anticipated fleet renovation. Our International brand segment is growing around 9 percent every year, and we expect this trend to continue.