Innovation and Brand Image Ensure Continued Success in MexicoMon, 09/01/2014 - 10:15
Q: Mercedes-Benz had its strongest year in 2013, with 1.46 million vehicles sold worldwide. What role did Mexico play in this growth and how has its position evolved in your global operations?
A: 2013 was a very successful year for Mercedes-Benz. Our sales in Mexico increased by more than 20%, very few countries can boast such figures, but we still have room for improvement here. The premium segment is still a small part of the total market, but it will continue to grow due to the stability of the Mexican economy. In terms of premium brand sales, Mercedes-Benz is not number one yet. However, our latest generation of compact cars, the A, B, CLA, and GLA classes, has been released in Mexico and will claim the number one spot in three to four years. Our image is fairly young in Mexico as we have only been here for 20 years, as opposed to 120 years in some other countries. Despite being a young brand, studies show we are the top premium brand choice for quality, technology, and security.
Q: How do Mexican customers stand out in their design and performance preferences?
A: Mexican customers are similar to US customers as they tend to prefer SUVs with powerful engines and a strong performance. This distinguishes them from European consumers who tend toward compact and hatchback cars. Petrol prices continue to increase, but this is not a deciding factor in the purchase of a vehicle so far, as people still want large cars with powerful engines. Our most popular model in Mexico is the C-Class, which is a medium-size, luxury sedan. Right now, our consumer segment continues to be that with the highest purchasing power, but our strategy is to branch out to other segments through our new generation of compact vehicles.
Q: How much space is there for other segments and how do you continue to create new demand in the market?
A: We have three main strategies to successfully expand into new market segments. The first is to reach new potential customer through diversification of products. We are bringing in the A and CLA classes as well as the GLA, which is our compact SUV. These new products are particularly targeting young adults and women. Secondly, we offer competitive prices, which will open up the potential market even more. Finally, we rely on our finance company. Mercedes-Benz Financial Services finances 40% of our sales but this will probably increase in the future. The car market is constantly evolving and there will always be needs to address. We already created new segments with our M-Class and CLS-Class. We even generated unforeseen market needs with the Smart car. Previous Smart models only had two doors but the new generation of the Smart car will have four. We see a huge market that will allow us to grow in the Mexican compact segment.
Q: What challenges do you face as a late entrant in the compact cars segment?
A: Being the first in a certain segment does grant us the gift of time, as we saw with the Smart and the CLS. But entering a segment does not depend on how late or early you do so, we just have to bring better designs and innovations than our competition. Mercedes-Benz has always been a pioneer, we are the OEM that invests the most in R&D by far. We created the first diesel car, we designed the ABS, and we are the owners of a Formula 1 team. This shows just how far ahead we are in terms of innovation.
Q: What are the possibilities of manufacturing a luxury car in Mexico?
A: Mexico is producing over 3 million cars due to its good cost competitiveness, a strong labor force and solid logistics. It would be beneficial for the image of Mexico to produce premium cars. Mercedes-Benz mainly produces in Germany, with plants in Hungary and Tuscaloosa, Alabama. Our market in China continues to increase, and we hope to sell 500,000 cars there by 2020. India is gaining potential and we are already leaders in Japan. The automotive market in Europe will remain stagnant in the coming years. We are very competitive in the US market and we do want to open a factory in Mexico, after also considering the US and Brazil as potential locations. It will all depend on the incentives we receive from the government, as Mercedes-Benz already has the infrastructure, the labor force, logistics, and prices. The final decision will be taken in late 2014.
Q: How do you promote Mexico as the ideal destination for investment to your HQ in Germany?
A: One of the great advantages Mexico has is the existing automotive industry and the number of cars being produced here. The supply chain is robust and there is a good labor force with low salaries. The number of FTAs is another plus: producing cars in Mexico would allow us to export them to more than 70 countries. These are the main points that make Mexico a potential candidate for manufacturing. It is clear that we need another plant in the NAFTA region, which represents 25% of our sales right now. This region will not increase like Asia but it will definitely grow more than Europe, and we want it to represent 30% of total sales for Mercedes-Benz.
Q: How do you source your suppliers and are Mexican suppliers as competent as those from places like Japan and Germany?
A: We have a very good supplier market and we do not have any problems with the international and national companies based here. In terms of innovation, the relationship with suppliers is getting closer and some of the evolutions are made in the supply chain and not in the OEM. We work very closely with exclusive suppliers, and one of the main advantages of being our exclusive supplier is that we are the only brand that can afford to make a lot of investment in R&D. At the early stages innovations can be very costly and there are brands that cannot afford this. We are always striving to be a step ahead in the market and our vision is always directed to the future.
Q: As a company that invests heavily in R&D, what are the challenges of transitioning from a prototype to the actual application of a product into the market and the vehicle?
A: We are not always successful in the application of innovations, since they are sometimes deemed to be unimportant or irrelevant when compared to other products. We continue to be leaders in Europe, Japan, and the US. The consumers always want innovations and we have unique qualities that allow us to offer the best technology. For example, our security items have really taken prominence in the market. Our BAS Plus emergency brake assist was a unique innovation developed by our own engineers. We have over 6,000 engineers in R&D working on a wide spectrum of trends from autonomous driving and comforts to sustainability and security.
We will always aim to build the best car for every segment. Making a car lighter does not mean it is weak or unsafe, and we make sure that our cars include all the security items available. The only obstacle is that certain security innovations can only be produced in larger cars as the technology cannot be transferred to a smaller vehicle. For example, the BAS Plus cannot be incorporated into a Smart as this particular technology costs more than the vehicle itself. But a Smart can have the Tridion Safety Cell which makes the car as safe as the D-Class. A particularity of Mercedes-Benz is that our engineers work across the whole spectrum of our vehicles: they are involved in the R&D for the Smart as well as the A-Class, S-Class, and SLS. It is not the size of the car that makes it strong but the technology it carries within.
Q: As innovations like autonomous cars continue to advance, a concern is that the enjoyment of driving will diminish. How reticent are customers to innovations that might impact the driving experience?
A: People were cautious when cars changed from manual to automatic, but it was accepted in the end. A car is there for transportation purposes. When on a plane, people want to arrive to their destination but they do not seek to fly the plane. Autonomous driving is a technology that will come with time and which will enjoy a smooth transition. In Mexico, a car is not only a necessity but also a status symbol. This is not an idle belief, people want to go to the best restaurant and also want to have the best car. We are seeing a trend in Europe where young people no longer want to drive because it means paying taxes and petrol, so they walk, cycle, or use public transport instead. This is not the case for Mexico. Young people like powerful cars as a symbol of independence and status.
Q: What are your expectations for 2014 in Mexico?
A: We trust in the Mexican market because it has great potential, not only in general terms but in the premium segment as well. We hope the government will promote the industry and develop Mexico’s high potential in the premium segment. There is a good future for MercedesBenz in Mexico.