Volvo and Mack Focus on Growing Their Custumer BaseTue, 09/15/2015 - 16:16
Q: How has the Volvo Group’s T1515 strategy evolved in 2014 and how likely will it be for the company to reach its goals?
A: Currently Volvo Group Mexico has two brands: Volvo Trucks and Mack Trucks. Mack’s initial strategy for the Mexican market was to partake in the construction segment, with its Class 8 products from the Baby 8 line. During our most successful years, sales would typically reach between 1,500 and 2,000 units per year. However, those numbers have recently dropped to 700 and 900 units, given the recent drop in activity in the construction industry. Within the Class 8 segment, our tractors typically reach 15,000 units, while trucks oscillate between 7,000 and 9,000 vehicles. The T1515 strategy is mostly focused on tractors, which represent our biggest sales volumes, with a 12% market share for Volvo and 3% for Mack. Previously, Mack only handled construction and long-distance vehicles, until 2014 when it finally entered the tractor segment.
There are big growth opportunities for Volvo Group, but the Mexican market has slowed considerably between 2014 and 2015. At the moment we have only scrapped 300 units, which is a huge step back from the 8,000 reported in 2014. The main reason for this reduction is that clients are waiting for the new scrapping program, as it will offer twice as many incentives as the previous one. The objective with the new decree is to reach 6,000 units, with 3,000 of them stemming from owner-operators. Furthermore, the difficult exchange rate situation, coupled with low oil prices, has also affected our clients and our operations. We initially forecasted that our sales would reach 2,500 units this year, but those numbers have now been hindered by all these obstacles. The T1515 is currently beyond our reach, although it still remains our ultimate goal.
Q: How is Volvo Group matching production and sales volumes, and what are your Mexico sales targets for the near future?
A: Our plant in Mexico focuses on buses, so all our trucks and trailers are brought from our New River Valley plant. This facility is 100% automated and has immense production capacity, so there is no real need to have a plant in Mexico at the moment. Nevertheless, most of our suppliers are based in Mexico including Eaton, Meritor, Goodyear, TREMEC, and Metalsa. Thanks to the NAFTA agreement, around 60% of our components come from within the region.
In terms of our operations in the domestic market, we want to increase our customer base with suppliers from the automotive industry. These companies are having truly lucrative years, so we must ride in the wake of their success. We closed 2014 with 13,000 units sold in the tractor trailer segment, and we believe we can reach 15,500 units by the end of 2015. Regarding Class 8 distribution vehicles, we sold 8,000 units in 2014 and we expect to reach 11,000 in 2015. Additionally, there is a new segment where we are trying to position our vehicles. Current weight and dimensions regulations allow a maximum of 75 tonnes and 31m, respectively, and there is a new trend to have flat-nosed trucks that use the extra length for longer boxes. To address this, we are bringing FH units from Europe to supply clients like Bimbo and FEMSA. Even though the construction segment is improving, the segment is quite small for Volvo since it represents only 8% of our sales. Therefore, Mack’s focus has changed to incorporate long-distance trucks. Moreover, until the scrapping program stabilizes, we are planning to offer rebates and discounts to support our clients.
Q: How can the Mexican government and the automotive industry cooperate to tackle emissions?
A: The problem in Mexico’s transportation sector is the age of our vehicles, since the current average is 19 years. This is mainly due to NAFTA regulations regarding used vehicle imports. In fact, in January 2015 used vehicle sales surpassed new vehicle numbers, with a penetration in the tractor segment of 45%. Every two years this regulation updates, allowing newer vehicles to enter the country. Furthermore, the US is expecting to sell 260,000 tractors by 2015. We are working with the Ministry of Environment and Natural Resources regarding NOM-044, which regulates emissions for new vehicles. Mexico is still using EPA 04 and Euro IV emission standards for its engines, but a new regulation coming into force in January 2018 will change Mexico’s standards to EPA 10 and Euro VI. Nevertheless, if we want the technology to work, we need ultra-low sulfur diesel (ULSD). It is a known fact that by 2016, we will see private companies entering the Mexican fuel distribution market. However, we will have to wait until 2018 for them to bring their own fuel at international prices. At the moment, there is ULSD in Mexico City, Guadalajara, Monterrey, and according to PEMEX, from September 2015 we will have 75% to 80% availability of this fuel in the whole country.
Q: One of Mack’s greatest advantages is its flexibility to adapt to various applications. What has been the greatest challenge to achieve this flexibility?
A: NOM-012 defines weight and dimension regulations, and for long-distance trucks we must comply with a 75-tonne requirement. However, once we cross the border to the US, the permitted weight is 45 tonnes. Furthermore, the Mexican mountainous landscape presents many challenges in terms of gearboxes, making the 18-shift transmission the most popular product in Mexico, while the US is used to a 9-shift product. In that sense, Mack has developed the 12-gear mDRIVE transmission, which fits both markets perfectly thanks to its engine calibrations that can reach higher levels of torque and power. On the other hand, an average axle in Mexico has a load capacity of 46,000lb, while the US works with close to 30,000lb.
Q: Given the condition of Mexican roads, how does Mack test its products to ensure they can endure them?
A: We have three classifications from an engineering standpoint: Class Operation 1, Class Operation 2, and Military. All our products aimed at the Mexican market are developed with Class Operation 2 specifications, allowing us to tackle those obstacles. We submit all our vehicles to reliability and acceleration tests under challenging conditions, to make sure they comply with all safety and quality requirements. Furthermore, Mack’s specifications exceed those standards. We have also recently integrated electronics into our operations, and we are currently improving those components to reach our Military classification. In addition, we just won a tender with the US government to oversee certain military vehicle production. When our products have a golden bulldog on the bonnet, our customers know that it is 100% Mack produced. If the bulldog is chromed, then at least one component has not been developed by Mack. The US market is keen on purchasing golden bulldog products since it shows their pedigree. Additionally, in terms of engine, transmission, and axle design, Volvo Group gives a unique distinction to each brand to ensure that they continue to be recognized as the quality machines that they are.