Engine Market Leader Eyes Larger Market ShareMon, 09/01/2014 - 08:54
Q: How did Cummins reach its strong position in the Mexican market?
A: Cummins’ growth story in Mexico began in the 1950s when it began importing parts and providing services in the country. In the 1960s, we supplied engines to DINA, which was the only public company producing buses and trucks in Mexico. In the late 1980s, the government sold DINA to the private sector, and Cummins purchased a 50% share in DINA. The border opened up not long after that and the industry grew massively as a result. Today, Cummins employs close to 6,000 people in Mexico across its manufacturing plants, aftermarket services and corporate headquarters. The domestic Mexican market represents US$950 million for Cummins, and we export about US$1.2 billion of products to different Cummins plants around the world. We also buy about US$700 million worth of goods from Mexican suppliers, half of which are used at our plants here and the other half are exported. Of the US$700 million we source in Mexico, about half covers gears, electrical harnesses, sensors, castings, and forgings.
Q: Where are you focusing your product offering in 2014?
A: Eight out of ten trucks in Mexico use Cummins engines. In the mid-range trucks segment, for Class 5 to 7 trucks, we hold about 38% of the market. In the urban bus segment, we have 15% of the market but we expect that to reach 30% in the next few years. We are currently introducing our 2.8 and 3.8 liter engines to the light duty truck segment that consists of Class 3, 4, and 5 trucks. We have sold close to 3,000 engines to that segment in the last two years, and we see this increasing to 2,000 engines a year. The plant making the Chrysler RAM truck in Saltillo produces 600 trucks a day with our engine for the US and Canadian markets. In terms of manufacturing in Mexico, we focus mainly on components for fuel systems, crankshafts, cylinder heads, alternators, and filters. We make more than 850,000 filters a week in our filter plant while also remanufacturing 250 engines per day for global demand. The automotive boom brought in a lot of competition from companies like Caterpillar, Detroit Diesel, and Volvo, but the fact that we are still market leaders, while the majority of our customers produce their own engines, shows how much we have to offer. We have seen OEM customers switch to use their own engines and then return to us. We have the most developed distribution network for parts and for services in the region, which allows us to be ahead in terms of repair times and availability of parts and technicians.
Q: How do you approach your aftermarket offerings?
A: Some customers like to have their own repair shops, especially big fleets and bus companies. They do not tend to go to distributors for repairs, while other customers use third party repair companies. Some OEMs want to keep close control over their technology and control the repair business, but customers are increasingly demanding engines that they can fix themselves without the involvement of the OEM. We train technicians to repair our engines, and only 10% of engines are serviced by the pure Cummins network, 50% are serviced by OEMs, and the rest by third party technicians or customer shops.
Q: What role is technology development playing in your growth ambitions?
A: We are consistently bringing new technology to the market. Since Mexican emission regulations are behind those in the US, we are using 2007 regulation engines but we would like to start using EPA 2010 or Euro IV engines. The main issue is that low sulfur diesel is currently available only in a few cities, which is enough to cover 30% of demand. The government is saying it will import more to reach 50% but it is waiting on private sector investment. To support this, we will make our Euro V engine available at the end of 2014. Natural gas engines are also an option, but the infrastructure is still developing. Mexico City has 17 points where you can get natural gas, so the capability is there. We have implemented a project with a fleet of 50 natural gas buses in Guadalajara, and another with 20 buses in Mexico City.
Mexico probably has the capacity to participate in R&D for components but I do not see it becoming a major center for full-scale R&D. Large companies are building global capability networks where different sites around the world participate in different aspects of the design and work together 24/7. Mexico can be part of such a design network but will not do it on its own. The engineers here are still lacking knowledge, so their skills need to be improved first.