German Tire DNA in the Mexican Market

Q: What are the main opportunities for growth in Mexico for Continental?

A: Continental is recognized as a technologically driven tire company. Mexico is one of the most important countries for Continental, as is reflected by us having more than 10% of our total amount of employees here. Furthermore, all of the group’s product lines are present in Mexico, including OE and aftermarket. In 2012, Continental acquired Parker Group in Nuevo Leon, before buying Veyance in 2013. Nowadays Mexico is producing 3 million cars per year but in the next five years, this is expected to rise to 5 million cars, indicating more business opportunities for us. The strategy for Continental Mexico is to focus on the brand, expand our dealership network, and grow in the states where we are not so strong. We currently have 15% of the OE market in Mexico, which means that 15% of the cars produced in Mexico have Continental tires. We are leaders in rolling resistance for passenger vehicles, light trucks, and truck tires. Our current focus is to double down on our environmental responsibility but also on the expansion of knowledge through programs like Continental University, where we aim to develop skilled graduates for the automotive industry.

Our main opportunities for growth are with big fleets as they are more organized and have systems in place to measure savings. Owner-operators can also distinguish the difference between tires because they drive the vehicles and know how much gasoline they put in the tank. However, small or medium fleets are difficult to convince because they usually do not have control over such matters. It is difficult to show the cost per kilometer to a company that is unorganized. We have been working with Grupo ADO for ten years now and have about 45% of the total share of that fleet. Today, Grupo ADO is measuring not only the cost per kilometer or price but also the service level, which is a new element where we remain competitive. With OEMs, the real negotiation takes place in the country of origin, such as Germany or Japan. Nevertheless, we have direct contracts with Nissan, Volkswagen, and Ford. We are also pushing door-to-door sales by guaranteeing 36-hour delivery. We are open to all the OEMs in the world, and we have good relationships with them all, despite our focus on German technology. Naturally, we still work more frequently alongside German companies but we are aiming to increase our brand recognition so customers are aware of our price, quality, performance, security, and technology. Pirelli, for example, has a good image but we have more points of sale, which gives us more opportunities to educate potential customers. It is difficult to change OE tires when replacement shops are getting that work. It is even more difficult if customers are only looking to change one tire. However, when customers want to replace all their tires, this presents a good opportunity for our dealers. That is why we are opening up more dealerships, with the most recent ones opening in Nuevo Leon, Tamaulipas, Baja California, and Sonora.

Q: What role is Mexico playing in terms of R&D for Continental?

A: We are currently not developing technology in Mexico, although Continental Group just opened a R&D center in Guadalajara with 2,500 employees. This center will develop technology for the automotive group, not for tires. Three years ago, we launched our ContiTech line of rubber products with its plant in Morelia, as this niche market is particular for Mexico.

Q: How does Continental technology match up against the technology of its key competitors?

A: The US Environmental Protection Agency has a program called SmartWay Technology that tests and reviews the performance of vehicles. Continental has the most products certified by this program. All of the large international companies could potentially do this, but we are the only ones that have made the effort to accomplish this. We are providing 100% of the tires used by Penske, as it knows our quality and the money it can save through our technology, and we are working with Kenworth, Navistar and other big players, as well as with fleet operators, which are usually family-owned. We are also approaching big companies that own large fleets like FEMSA and Grupo Bimbo, for which we are now testing tires. Grupo Bimbo already has contracts with Bridgestone and Michelin but they have a very strong focus on the environment and have seen good results with our tires. Our tires are 10% cheaper when compared to Michelin. And depending on the segment, Bridgestone can be 20% higher or lower than us.

Q: What is the outlook for Continental Mexico for the coming years?

A: We had a very good second semester of 2013, in which we completed our first ContiTech plant. However, the Fiscal, Labor, and other reforms caused a deceleration of the economy. Mexico does not have a good railway system so 90% of products move by truck. If we do not see growth in this sector, it means that the economy is not growing. For 2014, we plan to grow 10% in passenger and light trucks, and 14% in heavy trucks. For the former we are on track, but we are still lagging behind in heavy trucks. We are knocking on doors, but companies are still organizing internally to absorb the extra costs of the reforms. We are making a huge effort to keep our prices competitive and to maintain quality