Sustaining the Strong Momentum of the Automotive Industry
Q: What are the most in-demand services that IHS Automotive provides to the Mexican automotive industry?
A: The range of forecasting services that we offer includes sales and production for light and heavy commercial vehicles, as well as syndicated services that focus on sales, production, powertrain, and components. We also offer customized solutions catered to the particular needs of our clients, encompassing anything from an entry strategy to new export destinations in the automotive sector. When it comes to automotive market insight, our acquisition of Polk in 2013 has given us a new perspective. We are now starting to look at how we can support national sales companies with short-term products. In line with this strategy, IHS is in the midst of releasing a new service called the Sales Operations Forecast, which is released on a monthly basis within days of the actuals becoming available. The forecast looks at the next three years in the industry and enhances an automaker’s ability to adapt its short- to mid-term plans, enabling it to better achieve future sales targets and benchmark against its competitors. While our previous core business was to look solely at the initial stage of production planning, we are now also focusing on sales, distribution, aftermarket, and recalls, touching upon virtually every stage up to when the vehicle exits the market.
Q: What key benefits has IHS drawn from the acquisition of Polk?
A: Polk has a unique capacity for tracking every vehicle’s Vehicle Identification Number (VIN) and determining whether it was registered privately or as part of a fleet. The company possesses the most comprehensive database of vehicle registrations around the world, which has allowed us to provide insight into areas like aftermarket, dealer development, and other customized solutions. For Mexico, this now means we offer the most complete, up-to-date view of the vehicle market in this country, enabling parts suppliers to determine the true potential of this vital NAFTA market. Another element that is not usually mentioned is CARFAX. This division allows us to access the history of each vehicle to check for previous accidents and review its maintenance records. Mexico is probably not a good market for CARFAX due to the country’s current database.
Additionally, since AMIA only focuses on retail sales without any differentiation regarding engine or body type, we are not able to get the coverage depth that we need. Eventually, the goal is to apply these legacy services globally, but we are also looking to expand throughout the BRIC countries.
Q: What are some examples of how automotive companies apply IHS’ services?
A: From an OEM standpoint, we help determine if companies will be able to reach their annual sales target or the market share they have in mind. From a production point of view, we help both OEMs and suppliers establish how to modify their production according to the demand from the local and the international market. We look at OEM’s market shares and volumes and aid them in determining potential competitors, as well as advising them on volume planning for suppliers. IHS adheres to five business development pillars, namely customer satisfaction, corporate sustainability, shareholder value, bottom-up growth, and colleague engagement. These core priorities are the root of the IHS culture.
Q: More than half of the Tier 1 suppliers in Mexico are clients of IHS. How did you achieve such a large market share?
A: This is more of a global situation. In fact, 92 of the 100 largest global suppliers are our clients. We have a long history in the forecasting side of our business, which started with the automotive services offered by DRI, eventually evolving into Global Insight. This company was later purchased by IHS along with CSM, which was Global Insight’s main automotive competitor at the time. In the end, the acquisition of these companies has allowed us to achieve full coverage with Tier 1 suppliers around the world.
Q: Mexico is rapidly replacing other countries as a manufacturing hub. What key aspects led to this development over the last decade?
A: Many people have said that Mexico’s labor cost was the cause for all these investments, but we always like to highlight the knowledge and expertise behind the Mexican automotive industry. As the world experienced new challenges with the yen and the euro, Mexico became a natural location for OEMs and suppliers to establish their operations. The other factor is the amount of free-trade agreements that Mexico has with other countries. There is also the quality of the Mexican labor, with workers possessing a certain pride in the quality of their assembly. The combination of all these factors is what makes Mexico the powerhouse that it is today.
Q: In what ways could the Mexican supplier base be further developed?
A: The country has a robust presence of Tier 1 companies, but there are gaps in Tier 2 and Tier 3 supplier bases, as well as in R&D, that need to be filled over the next few years. Mexico is highly specialized in building competitive vehicles for the rest of the world. In fact, Nissan takes pride in the efficiencies of its facility in Aguascalientes and how it has served as the blueprint for other plants around the world. The challenge is in the product development area. The moment production loses competitiveness, R&D is essential for staying ahead of the game, understanding the changes in the industry, and assimilating them into the manufacturing process. Right now, Mexico is not proactively targeting this particular area, since it has focused on expanding its production blueprint. By the end of 2015, Mexico will be manufacturing twice the volume it achieved ten years ago, causing concern about how to ramp this up. From a sales standpoint, Mexico has to quickly figure out how to move things forward, since global demand is growing at a much slower pace than the country’s automotive expansion. Looking at where production is headed, the next sales priority is going to be powertrain. This is a critical situation given the global legislative changes, but IHS is committed to ensuring our clients are prepared to face these changes in a suitable fashion. In Brazil, IHS was a key contributor to INOVAR-AUTO, the automotive policy that is currently in use, and IHS will continue to work on similar projects around the world. However, as far as Mexico is concerned, IHS needs to make sure its clients understand the impact of the CAFE legislation, and how they need to transition into the future from a sales-based powertrain perspective.
Q: How will the arrival of premium OEMs into Mexico impact the industry over the coming years?
A: This situation can be viewed from either a production or sales standpoint. From the manufacturing side, there was the announcement of the joint venture between Mercedes-Benz and the Renault-Nissan Alliance. The project is succeeding and has plans to cater least to the Americas, if not the world. From a sales point of view, there is still some uncertainty on how to promote and market new products locally. There is a significant appetite for premium vehicles and it is one of the segments that has grown the most. However, our concern is that many of the new entry vehicles have a price range that is too close to larger vehicles. As a result, we are still uncertain if the customers are going to prefer a small premium vehicle or an SUV, which is also a growing segment in the country. Looking at Audi and the success of the A1, it would indicate that the market is willing toward move to a smaller vehicle, but Mexico has always been a country with large families, meaning that vehicles need to cater to this particular need. This could lead to SUVs taking on a role of higher purchase consideration. There are some premium models that had significant success in their launch year, but we must consider if this was a result of product novelty or if the brand itself was successful. Moreover, it is still not clear if this success can be sustained, given the competition from regular brands that are now offering more luxury in their products.
Q: What are your predictions for Mexico’s automotive future?
A: From a sales point of view, our critical challenge is to determine if the strong momentum of Q1 is going to be sustained. Currently, there is a strong disconnect between what is happening economically and what is happening with consumer confidence. We have detected a push from OEMs that resulted in around 1.25 million units moving during the first quarter of 2015. If this continues, we should have the best year ever for the Mexican market. However, that is a concern for us because it would mean that OEMs would have to provide a lot more in the way of incentives, which would result in lower profitability.
In terms of production, our goal is to try to understand how quickly OEMs can ramp up a second and third shift at the new plants that just started operations. Our priority is to understand which export destinations are going to be added to these plants, in order to determine the future production volume for the country. There are going to be issues, but the region is certainly not in a crisis. The investments are in place and the industry will need to take things one day at a time.