The Untapped Potential of the Commercial Vehicle MarketBy Guillermo Prieto | Mon, 07/19/2021 - 12:59
The Mexican commercial heavy duty vehicle market is formed by two large segments: trucks (heavy-duty trucks and tractor-trucks) and passenger vehicles (local and intercity buses). This market has been characterized by its sales structure focused on the retail sales of trucks and trailers. Both subsegments represent 82.8 percent of the sales in the segment (43.5 percent heavy-duty, and 35.5 percent tractor-trucks), while the passenger segment is the remaining 17.2 percent. For the latter segment, most of the market is concentrated in urban buses with 85 percent of sales.
There are 14 brands competing in the commercial vehicle market: Dina, Foton, Freightliner, Hino, International, Isuzu, Kenworth, Mack Trucks, Man Truck and Bus, Mercedes-Benz, Scania, Volkswagen Camiones y Autobuses, Volvo Buses and Volvo Trucks. Five brands accumulated 85.1 percent of retail sales in 2020: Freightliner, Kenworth, International, Hino and Mercedes-Benz Buses, the first three having the largest market share at 29 percent, 24.6 percent, and 18.1 percent, respectively.
Commercial vehicle brands have been present nationwide with 418 sites (Including points of sale, parts and service centers) by the end of 2020, including dealerships, workshops, and spare parts centers. Most of the sites are established in the central and northern regions.
Pandemic Effects, First Five Months’ Results and Forecast for 2021
It is important to mention that over the last 13 years, sales peaked in 2007, with 52,753 units sold. In 2009, due to the international financial crisis, sales recorded historical minimums of 22,892 units sold that year. The SARS-COV 2 pandemic left 2020 with 27,857 units sold, a 34.4 percent contraction compared to 2019. Retail sales were 13.7 percent above the lowest sales recorded in 2009, while registering a negative 47.7 percent compared with the sales peak of 2007.
That being said, the market has experienced a steady recovery, considering that between January and May 2021, retail sales marked 12,636 units sold, a 28 percent increase over the same period in 2020. Nevertheless, the sector is yet to surpass the sales recorded in 2019, standing at 29 percent below sales in the same period of that year.
In this context, AMDA in May 2021, projected sales between 31 and 32 thousand units by the end of 2021, a nearly 15 percent increase in the conservative estimation and an 19 percent increase in the optimistic forecast, compared to sales in 2020. The range would be similar to market sales seen in 2011. This forecast does not take into account intercity buses.
It is also important to highlight that retail sales of commercial vehicles are far from reaching their full potential. Mexico's National Autonomous University (UNAM) estimated in 2017 that market potential is above 61 thousand units sold per year. This reflects an important opportunity for the sector.
Challenges, Recommendations to Strengthen the Market
When it comes to commercial vehicles, Mexico faces several challenges that must be addressed to reach the full potential of the market.
With an average vehicle age of 18 years, heavy vehicles in the truck segment are assessed on mechanical conditions as well as polluting emissions. The assessment itself presents different opportunity areas, beginning with how rigorous the process is and ending on the points that are assessed. Within passenger vehicles, the requirement of 15 years old or less for buses is only observed by formal bus chains, creating an unequal playing field that gets worse if we take into account road safety.
The issues become more serious for transportation units driving under local or state regulations given that in many states the minimum circulation age for heavy vehicles are not met. Regarding the vehicle park that is older than 18 years, both emissions and mechanical conditions represent a risk for the health of the communities they operate in, due to environmental conditions and traffic accidents they may cause.
Without a doubt, safety elements related to mechanical conditions and emissions are being addressed with the creation of a more robust legal framework. This norms, however, must be realistic and reflect the conditions of the country. For instance, regarding NOM-044 SEMARNAT 2017, it would seem illogical and less viable to enforce a legal framework that requires heavy vehicles to use ultra-low-sulfur diesel when such fuel is not fully available nationwide — even more so since we are talking about vehicles that have a high capital value for the owner, that, generally speaking, do not have a predefined route and that at any moment may require the special fuel anywhere in the country.
As a result, it becomes necessary to generate a better legal framework as long as it is viable and enforceable, therefore incentivizing the renewal of the heavy-vehicle park in an environment that provides certainty for investments and stakeholders in the sector.
Along this line, it is necessary to promote a redistribution of the gross fixed capital investments, having as a primary objective the new vehicle commercial market. This could be achieved taking into account aspects such as regulation and monitoring of older used heavy vehicles that represent irregular competition both technically and in prices; create registers of micro-enterprises and driver-owners that allow promoting and monitoring secondary markets that can potentially be renewed, either through new or pre-owned vehicles; generate and disseminate the multiple advantages that a new vehicle implies, through indicators such as fuel efficiency and maintenance costs; developing and implementing attractive credit schemes that with competitive interest rates promote new vehicle sales, and strengthening the implementation of subsidy programs and warranties, such as the program for vehicle renewal among some of the most relevant aspects.
The heavy duty commercial vehicle market in our country faces multiple challenges but it has an enormous potential to generate greater levels of demand, boosting the country’s economy from multiple perspectives such as job creation, supply chains, industrial competitiveness, and international positioning.