Mexico Becoming Leader for NAFTA Truck Production

Q: What is your strategy to increase your market share in the NAFTA region?

A: The US and Canada are clearly our biggest markets. We lost some market share in the US last year, which affected production, and we mitigated that with the closing of our plant in Garland, Texas, and shifting production to Escobedo. In terms of improving our market share, we have specific strategies for each market segment and different goals per market as they are completely different. For the heavy truck industry, we want to grow our market share from 22% to 35% in the next couple of years. Most of our efforts will go towards that, as this is the market that is set to grow the most in the years to come. The medium service vehicle segment is beginning to shrink worldwide, as customers refocus toward light trucks or heavy trucks. In Mexico, we still have good business with municipalities for medium trucks, but heavy trucks will outpace them. We will invest and grow very aggressively in that market in the next five years. Our plan for 2014 is to sell around 11,000 units in Mexico. We will see 15% growth in our current business, and we can count on the new product, the CityStar, that we launched in late 2013. The CityStar can be either a Class 3 or a Class 5 truck, and we know it will prove to be a hit. .

Q: Is the Mexican domestic market a priority for Navistar or are you seeking to use the country more for its manufacturing potential?

A: As a partner in NAFTA, Mexico has seen aggressive growth over the last ten years. The quality of manufacturing in Mexico is good, and skilled labor is available at a cheap rate. It therefore makes sense to develop important manufacturing sources in Mexico to export to North America and the rest of the world. Over the last few decades, Mexico has been developing free trade agreements with a lot of countries to become an important manufacturing and logistical hub. Mexico is now one of the world’s key logistical spots, ready to receive or send goods from Asia, the Americas, or Europe. Navistar saw the opportunity to establish a manufacturing facility with strong labor quality in Mexico, as well as the chance to incorporate Mexico’s localization strengths into our global strategy. Right now, our Escobedo plant is the most important plant for Navistar worldwide, as it produces almost half of all of Navistar’s trucks, and is still growing. It produced around 45,000 trucks in 2012 and topped 50,000 in 2013. It is located in Monterrey so as to be close to the US border, thus facilitating exports, but it is also close to the ports of Veracruz and Tampico, through which almost all our exports pass to Latin America and Africa. When we closed our Garland plant in Texas, we brought the production of commercial vehicles to Escobedo while our military business stayed at our plant in Ohio. We have not abandoned the US market as we still make buses and trucks there, and we also produce engines in Brazil and Argentina.

Q: How have you structured your supplier strategy for Mexico?

A: We try to secure the best suppliers worldwide through negotiations carried out from our corporate offices. In Mexico, we would like to increase the number of local suppliers in order to reduce our logistics costs, which is part of a worldwide strategy wherein we source local content to have the best opportunities globally. Having to go back to the US for our decision-making is not a challenge as the entire company is clear about the strategy we need to follow. It is in the best interest of our corporate purchasing office to increase local content in Mexico. Almost 50% of our worldwide production is in Mexico so Navistar wants to make its operations here as profitable as possible.

Q: What potential do you see for Navistar in the internal Mexican market?

A: It is important to alter the age of the Mexican truck population. When trucks reach 18 years, safety issues and cost of operation become too much for our customers to deal with. We want to bring the average age of our trucks to less than 12 years. To do that, we have to stop the illegal importation of trucks from the US. It is impossible to create a used truck market if there are around 2,000 units coming illegally across the border every month. If we could reduce the age of trucks to 12 years, the vehicle market in Mexico would double. Right now, the country is a 40,000 unit market, which is nothing for an economy the size of Mexico. 

Q: What measures do you take to ensure the success of a new offering to the market?

A: The first step is to have a great product. Today, the ProStar has become the most efficient truck out there since being launched four years ago. The next thing is to have a focused dealer network. We have been working to change the mindset of our dealers to move from being a medium bus brand to allow Navistar to become a real player in the heavy vehicle market. The third aspect is to truly become a unique supplier for our customers. We normally say that we do not sell trucks, we sell transportation solutions. Everybody can sell a truck but we provide parts, finance, insurance, and a training center for our customers. A lot of attention is also being given to fuel consumption. The next thing is uptime, how many hours the truck can work in a given month or year. Following on from that is ergonomics, as the driver needs to feel very comfortable while operating the vehicle so he can do it in a more efficient way. The driver actually plays a big role in fuel efficiency. If the driver is comfortable, well-rested, and has a truck that is easy to operate, then we can get the best from the vehicle. Navistar’s designs help reduce fuel consumption, for example, through aerodynamics. When you talk about fuel consumption at a certain range of speed, aerodynamics can account for 50% of fuel consumption. Our ProStar has proven itself in the US and in Mexico. The other important part for fuel consumption is the weight of the truck. Our trucks are not as heavy, which helps a lot. The next important aspect is how well the engine communicates with the truck. The Cummins engine in our trucks provides excellent compatibility, and most brands in Mexico use Cummins. These engines can make differences of between 5% and 10% for fuel consumption.

Q: How is your dealer network supporting your brand trajectory?

A: Our dealer network is very focused on service. They understand the importance of aftersales and we work with them to have the same service around Mexico and the world. Our customers want to receive the exact same service in Baja California and in Yucatan. We have a lot of different programs that we develop along with our dealers to help accomplish this. We own a renting and full-service lease company named Idealist, which is focused on aftersales and the renting of equipment. This is a unique offering in Mexico and has become one of our key advantages in the market. Betting on aftersales and on service is the right way to achieve sustainable growth.

Q: Do you foresee moving development activities to Mexico?

Navistar has already implemented a part of its engineering development in Mexico. We have a collaborative program with ITESM where around 16 engineers are working for Navistar on product development. We have found a lot of talent present in Mexico, which speaks to the country’s advance toward high-skilled engineering and design. Finally, we benefit from a common advantage to our entire industry. The labor force is cheaper here than in the US, so we plan to continue developing that side of our business in Mexico. We will keep making fresh investments here as long as the country’s financial and political environments are right for us to do so, and support us.

Q: Your sales figures for 2013 were slightly lower than for 2012. To what do you attribute this downturn?

A: Two key factors led to this. The first was the political environment: 2013 was a very complicated year for the entire industry due to various reforms. Customers were afraid to spend money and government expenditure was also very low. Part of our business in Mexico is based on huge government orders, so that had an impact. The other factor had to do with the currency exchange. Heavy industry in Mexico is very sensitive to changes on the dollar. The value of the dollar was fluctuating throughout 2013 so it was normal that the market slowed down a bit. These two factors together limited the market’s growth. So even though 2013 was a good year for Navistar, we did not grow as much as predicted. We work with a finance company to develop plans and programs to try to mitigate the exchange rate. We also installed a fixed exchange rate for some of our programs or work with some customers in pesos to help close the deal. A steady peso always helps the industry.

Q: A huge market segment is comprised of single owneroperators with limited access to financing. How do you see access to credit being addressed?

A: President Enrique Peña Nieto has announced that he wants to increase access to credit in Mexico, and has ordered different banks to be more aggressive in providing credit. With the right help from the government and lenders, truck manufacturers will be willing to provide more credit which will be beneficial for the country. It may well convince small companies, those with between one and five trucks, to comply with their tax payments. Navistar is working with NAFINSA to develop a program for the bus segment. NAFINSA is willing to take on the financial risk if we operate the credits. We will start this program with buses as they are the most complex segment. If this program is successful, it will be easier to translate that success to other segments of the market. Reducing the age of vehicles by providing credit is the only way to create a bigger market in Mexico. This is one of Navistar’s top goals, but our competitors are also thinking about this, so we are working together to reach that goal.