Diverse Product Portfolio to Maintain Market ShareMon, 09/01/2014 - 08:54
Q: Paccar (Kenworth’s owner) recently carried out an investment of US$400 million. How was it allocated, and how did this change your production focus?
A: Paccar invested US$400 million in developing new products that we have begun to manufacture in Mexico. This investment covered the design of the products, the technology, and all aspects related to validation and certification, as well as the manufacturing readiness. Since these products are completely new to the market, they have to undergo a series of validations. Paccar has three plants that build these products: two are in the US and one is located in Mexicali. The time process from the start of R&D to the validation of one of our products can range from four to five years. This is an extensive process, especially when compared to the validation process of a light vehicle.
Q: What main differences have you identified between the Mexican, Canadian, and American consumer markets?
A: It is fortunate that the Paccar brands have been in the Mexican market for a long time and enjoy a strong reputation for high quality, reliability, durability, and are supported by a strong aftermarket dealer network. On average, 60% of the tucks in Mexico are dedicated to double trailer applications with more than 65-tonne gross combined weight (GCW) rather than 36-tonne GCW in USA and Canada. During the product development stage, the needs of the Mexican customers are taken into consideration to provide adequate solutions. For example, the new product line includes the modernization of the vehicles’ look, technology, serviceability, and comfort. The diagnostic processes are very meaningful for the end customer as they spend more than 80% of the time behind the steering wheel. Little things mean a lot to them, so we ask ourselves the right questions. How can we make the engine oil easier to check? Is the hood too heavy when being lifted? How can it be made lighter so it can be lifted with one arm? All these questions are taken into account when designing the trucks. One of our unique features involves the clutch pedal. Normally, it takes a 35-pound effort to engage and disengage the clutch. To reduce this effort, we hydraulically assisted it, giving our new models 50% less stress on the clutch pedal.
Q: The Mexican market is affected by used trucks coming from the US. In what ways are you trying to solve this problem?
A: We are very concerned with this influx of used vehicles. In November 2013, the amount of imported trucks amounted to 65% of Mexico’s monthly production. If nothing is done, the amount of imports will equal the level of production. This is an unfair treatment for our entire industry and the Mexican government has to take urgent action. We are pushing for regulations that would ensure any imported trucks are of the right quality and age. The internal market is beginning to feel the pinch. Those that buy new trucks are not interested in the imported ones, but the prices of used trucks have dropped. The import of used trucks has devalued the entire used trade market. Customers used to trade three trucks to buy a new one, now they need five or six.
Q: To what extent do you consider your conservative nature to be an advantage?
A: In Mexico, we have held more than 50% of the market share in the 54 years we have been present here. People know the Kenworth brand as a standard for quality. When customers see a really new product, they will ask about the aftermarket support, how well prepared we are to support these new models, and where they can be taken to be serviced. All these factors weigh heavily on the mind of the customer. Newer brands coming into Mexico have to deal with this aftermarket challenge, but we have the advantage here. Competition is getting tougher every day and more products are available in the market but we are setting a new standard of quality and innovation with our new products.
Q: In what ways are you continuing to improve your aftermarket service alongside the new vehicles that are being launched?
A: Another new product that was recently launched in Mexico is the new Paccar MX-13 engine. This engine was launched in the US three years ago but we are now releasing the Mexican version which has different emissions levels. In Mexico, we are required to comply with EPA 2004, This engine represented a new challenge to us. Currently we have 130 service points, which is one of the largest networks in Mexico for any brand. Over the next three years, we will be doubling our service capabilities, including certified technicians and physical locations where customers can take their vehicles. The first phase of this plan is in process. We have around 200 technicians trained to support the new engines and trucks, while another 100 technicians were trained during the first quarter of 2014. All the spare parts are available at every dealership and our distribution center in San Luis Potosi. Launching a new product entails many factors so we have made sure that the customer support is there throughout the whole process.
Q: Why does Paccar’s engine for Mexico differ from the US version in terms of its EPA requirements?
A: This was a technical decision. For Paccar to apply lower or higher emission requirements to its technology, there needs to be the right level of sulfur content in fuel for the engine to operate correctly and obtain the desired emissions level. We can bring more complex technologies to the Mexican market, but these will not provide the expected results and the components may be damaged by the quality of Mexican fuel. Mexico does not have the right fuel to meet higher EPA requirements. There is a plan to improve the quality of fuel in Mexico but for the moment, the government cannot impose higher standards. The oil industry does not have sufficient volume capacity to support this type of fuel, but we hope that the Energy Reform will result in increasing investment in refineries so they can produce the right kind of fuel at the required volumes. With these new rules in place, customers will have a certain timeframe to comply with the new legislation. All new trucks will be designed to comply with the emissions levels and older models will continue to operate with the new fuel in older engines. Paccar has played its part in the evolution of emission requirements in Mexico. In 2004, Mexico moved to comply with EPA 98 and switched to EPA 04 in 2007. There has been progress but in that time, the US has raced ahead.
Q: How are you helping to bring hybrid technology to the Mexican market?
A: Hybrid technology is fairly new to the Kenworth product line. We began with a hybrid electric and diesel combination, which is widely used in Coca-Cola’s fleet in the US. In Mexico, we have about a dozen trucks using this technology. It is not cheap and we need government incentives in order to promote it. Unfortunately, hybrid technology is not really being embraced in Mexico. Kenworth is also a leader in natural gas trucks. Part of the production for these types of vehicles is taking place in Mexico but all are exported to the US. Five to six of these trucks are built each day at our Mexican plant. This technology is aimed for shorter distances, so the autonomy of hybrid trucks poses a challenge as they need to carry large volumes of gas. We are seeking ways to allow trucks to go beyond their current range of 80 to 100km without needing to refuel. Currently, these natural gas trucks are ideal for urban use. Mexico City would be very suited to receiving them due to its pollution problems, and this technology will be coming to Mexico very soon.
Q: What strategies do you have in place to capture new markets and what areas of opportunities have you identified?
A: Our market share of 54% is considerable, and we will be able to gain additional market share in the future. The new products we are releasing are a statement that Kenworth continues to be ahead in terms of product and technology. We are aiming to secure more market share through these new products but it is not our main concern. We have been leaders in the tractor business for a long time and we are now diversifying our portfolio for heavy duty trucks. In the future, we want to become leaders in Class 7 trucks and smaller trucks as well.