New Bet on MexicoFri, 09/01/2017 - 10:19
Q: How does Scania plan to develop a greater presence in the truck segment?
A: Mexico remained the biggest market for Scania buses for the second year in a row in 2016, although we are still number 27 in the market. We relaunched our truck portfolio in 2016 and have already delivered significant orders including one for the Mexico City fire department. We see this as an important market for the company to drive our growth. Scania achieved 50 percent market share in 2016 in the coach segment, which means there is little room for further development.
Our new bet is that in the next four years, over 30 percent of the trucks sold in Mexico will be cab-over units. Changes in regulations to NOM-012 regulating truck size will result in a full renovation with cab-over vehicles. We expect massive growth for companies dealing with cab-over units and Scania is already participating in that market.
Q: How did Scania’s service network growth help the company maintain a strong foothold in the country?
A: In 2016, we inaugurated 12 service points across the country, nine of them within our clients’ facilities. These companies designated a large area to tooling and spare parts services and dedicated personnel to clients’ operations, making it easier for clients to take units to the closest service point. Our three other service points, located in Veracruz, Hermosillo and Culiacan, are open to the public.
This marked another record for the company and we still have expansion plans for 2017, expecting to open two more service points in Tijuana and the south of Mexico City. We need one more operation in Mexico City because our current service shop is already full and working 23 hours a day.
Q: How rapidly do you expect demand for heavy vehicles to grow in Mexico?
A: We see a smaller market in 2017 compared to 2016 and the production capabilities of body manufacturers will play a pivotal role in this process. We stock chassis in case of extra orders but our body manufacturers in Queretaro and Monterrey are limited in the number of orders they can fill. These two companies represent 90 percent of our vehicle production capacity, which means that any new orders were frozen for the first quarter of 2017.
We are looking to establish new relationships with body manufacturers, especially in the urban and natural gas segments. We are firm believers in free competition and clients must be free to choose whichever body manufacturer they prefer. Companies previously limited the body options clients could choose from, which I believe is still a sign of the weak consumer rights that exist in Mexico.
Q: What opportunities exist for Scania to develop its own bodies?
A: Body manufacturing is a truly artisanal process and the market is completely different to what we know about chassis production. A company’s portfolio must be immense and competing with companies with years of previous experience would be exhausting. In countries like Finland and Poland, Scania does have a body manufacturing branch but they are isolated efforts with focused investments.
Q: What will the Next Generation Scania initiative bring to the Mexican market?
A: This project was launched in Europe and will not reach the Mexican market until the country embraces Euro VI regulations. The new vehicles are more fuel efficient and clients will be pleased with the results they offer.
We are distributing our current lineup in Mexico, which has many advantages over American trucks, including pneumatic suspension in the cabin, user-friendly transmission, improved visibility and innovative braking technology. Safety is one of our priorities and our emergency braking systems have demonstrated their efficiency under the worst conditions. Many of our Mexican clients are now demanding this system in new vehicles.
Q: How successful have Scania’s natural gas units been in the market?
A: Scania placed a huge bet on natural gas vehicles but institutional uncertainty has limited the adoption of these units in several cities. Tijuana spent two years developing a new public transportation project with natural gas units. But due to a lack of permits to establish a natural gas station, the private operator decided to purchase diesel units. Other cities have had similar problems in terms of regulations, forcing natural gas to take a step back.
In 2015, I expected Scania’s natural gas units to represent 25 percent of our total volume by 2017 but our volumes remain less than 3 percent of vehicles. Our natural gas success is directly linked to exogenous factors so it is difficult to predict when we will reach the original goal. We need government transparency in regulations in order to continue developing this industry.
Q: How will the peso-dollar exchange rate volatility impact Scania’s operations in 2017?
A: Volatility affects our sales department so we are always trying to be more efficient in terms of costs and training. If the peso devaluates 50 cents, our previous efforts are diminished but this forces us to be constantly prepared. Although we assemble our bus chassis locally in Queretaro, we import components valued in dollars from Europe and Brazil.
Currency volatility motivated us to develop our aftersales operations. If we focused solely on selling vehicles, Scania would already have failed. We deliver quotes with a certain price and an expected profit margin but these change before we deliver the vehicle, aggravated by body manufacturers’ timeframes. These companies normally took 60 days to deliver a vehicle but in 2016 the waiting period extended to 90 days. We are positive about the future of the Mexican market and we have changed our quotations to dollars to counteract these challenges. Clients understand because they know we tried to delay these measures as much as possible.
Q: What are your growth expectations for 2017 after the record numbers Scania achieved in 2016?
A: 2016 was not only a record year in sales but also in manufacturing activities, signed service contracts and sales of spare parts. Even though vehicle sales were favorable, our growth in these three other areas was even more noticeable. Our vehicle park in Mexico grew 10 percent while our aftersales division grew almost 30 percent, demonstrating a much more solid position in the market.
By the end of 2016, we managed 63 percent of our fleet through a maintenance policy. Although this level is common in Europe, these numbers are unheard of in the Mexican industry, making it a record for Scania and for the country itself. We value this much more than a sales number because it required greater effort in terms of team development and corporate structure.