SUPPLIER LOCALIZATION KEY TO MINIMIZING UNCERTAINTY
STORY INLINE POST
Q: How successful has Volvo been regarding its manufacturing operations?
A: We are now manufacturing what we sold by the end of 2017 and we are pleased to have almost all our production slots taken. 2018 will be a good year in terms of production; we closed several deals from the beginning of the year through May. We have some free production slots but we intend to use them for potential sales during the year. So far, we have seen good results for the brand in Mexico.
Q: How is the company advancing in terms of sales considering the difficult political and economic conditions that have unfolded?
A: There was much uncertainty during the first half of the year because of the federal elections in July and we expect many changes as we move forward. Globalization is key in our industry and we do not think focusing all our resources on developing the domestic market is a good strategy moving forward. However, the true plans of the new administration are still unknown, which slows our clients’ decision-making process as a result.
We think 2019 will be a difficult year, although not as catastrophic as many believe. We expect the peso to continue depreciating and foreign investment to slow. Having said that, Mexico will not become a closed market. There will be some challenges in the beginning but eventually the market will stabilize.
Q: What strategies are you implementing to minimize the impact uncertainty has on your company?
A: We have tried to adjust our manufacturing capacity according to our expectations for the size of the market in the coming years. At the same time, we have worked on our supplier localization strategy. We depend greatly on components coming from Europe and the US that are normally priced in dollars. Therefore, having a local supplier network priced in pesos would be an advantage in a volatile exchange-rate environment. The bus market is not volume oriented like the light-vehicle market. Sales in the coach segment amount to 1,500 units per year on average, which means suppliers must be prepared to offer specialized components in small volumes at more competitive rates than international companies. That has been the main challenge in building a strong supplier network in Mexico.
Q: What benefits has creating a separate chassis division brought to Volvo?
A: Creating a separate chassis division was a complete success for the company because it allowed us to compete in a segment where we were previously not present. Our complete buses were well-positioned in the top-tier segment of the industry but moving down to a more volume market, our units were too expensive. Now that we sell our chassis with bodies from other manufacturers, we have become much more competitive, growing our customer base without neglecting our original clients. Thanks to our chassis business we are growing our market share. We ended 2017 with a 31 percent share and our goal for 2018 is to reach the 35 percent mark. We are already working with Irizar and Beccar, which represent the bulk of our business with body manufacturers, and we are also partnered with Marcopolo.
Q: How is Volvo’s electromobility strategy going to impact your sales and growth projections in Mexico?
A: Mexico has enormous potential to take the next step toward electrification. Urban transportation will be the first segment to tackle to eventually move toward interurban and coach applications. In Mexico, Volvo is still working with diesel technology, although as a brand we have hybrid, plug-in hybrid and full-electric units. We have already introduced Euro V engines to the country even though the law requires only Euro IV standards, and we are lobbying with the authorities to show the benefits that electrification might bring. We understand initial investments are higher with electrified units but governments must see this as a long-term strategy for improving the city.