Mexico Automotive Review 2018 by Mexico Business Publishing

2018

“Starting on Dec. 1 of this year, we will destine more public investment to be used as seed money to incentivize private investment” Andrés Manuel López Obrador, President-elect

2018

The automotive industry remains a cornerstone for the Mexican economy, contributing 3.5 percent of national GDP and 20.2 percent of manufacturing GDP. Investment flows continue to arrive unabated and the country has strengthened its position as the world’s seventh-largest light-vehicle manufacturer and the third-largest light-vehicle exporter. However, changes in global demand and the threat of a redefined trade relationship with the US, its main commercial partner, have clouded the country’s prospects.

Domestically, two years of record-breaking sales and seven years of undisrupted growth are now showing signs of wear with results decelerating. Contracting sales in an already extremely competitive market have forced companies to come up with new strategies to retain their position in the market.

During these challenging times, Mexico Automotive Review provides insight into companies’ views regarding Mexico’s position as an automotive manufacturing destination. Throughout its 14 chapters, success stories are highlighted from companies that maintain strong growth despite market obstacles, while other players share their concerns regarding the main areas of improvement. 2018 is also a transition year for the federal government and in this edition, Mexico Automotive Review includes a special feature on Andrés Manuel López Obrador, his projected plans for the automotive industry in Mexico and the thoughts of key leaders at the dawn of a new political era.

ALL RIGHTS RESERVED ÂŠ Mexico Business Publications S.A. de C.V., 2018. This annual publication contains material protected under International, United States and Mexican Laws and international Treaties. Any unauthorized reprint or use of this material is prohibited. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system without express written permission from Mexico Business Publication S.A. de C.V. Mexico Automotive Review is a registered trademark.

The publisher has made all reasonable efforts to provide accurate information, and the information contained in this publication is derived from sources believed to be true and accurate. However, the information in this publication should not be considered to be complete or definitive, and may contain inaccuracies or typographical errors. The publisher accepts no responsibility regarding the accuracy of information and use of such information is at your own risk. The publisher will not be liable to any party for any direct, indirect, special or other consequential damages arising out of any use of information in this publication. The publisher provides no representations or warranties, express or implied, including any implied warranties of fitness for a particular purpose, merchantability or otherwise in relation to any information provided by the publisher in this publication.

ISBN: 978-0-9993108-9-2

TABLE OF CONTENTS

STATE OF THE INDUSTRY

PRODUCTION & INVESTMENT

MEXICOâ&#x20AC;&#x2122;S ENGINEERING DRIVE

UNITED STATES

GERMANY

6 7

Supplement

GLOBAL SUPPLY CHAIN

LOGISTICS, CONNECTION, INFRASTRUCTURE

FACTORY OF THE FUTURE

SALES CHANNELS & DOMESTIC GROWTH

AFTERMARKET OPPORTUNITIES

JAPAN

MOBILITY TRENDS & OTHER DISRUPTORS

ESTABLISHED LEADERS & NEW ARRIVALS

INTO THE FUTURE

THE NEXT SIX YEARS

GM San Luis Potosi

STATE OF THE INDUSTRY

A changing economic and political landscape brought uncertainty to the industry but at the same time created new opportunities to update Mexico’s position as a growing automotive sector participant. In the midst of the NAFTA renegotiation, the country is looking to establish its position as a key player in the North America region and create new opportunities for future investment in the automotive industry. Light-vehicle production and export figures have once again reached record numbers, although it is still unclear if Mexico will become the world’s sixthlargest light-vehicle manufacturer soon.

State of the Industry presents a complete overview of how the industry has evolved since the second half of 2017 through the first half of 2018. The effect of NAFTA negotiations on foreign investment is analyzed, as well as the country’s results in terms of production, exports and sales in the light-vehicle, heavy-vehicle and auto-parts segments. Key players from associations and the public sector present their view on the industry’s performance and their vision for Mexico’s development in the automotive sector.

CHAPTER 1: STATE OF THE INDUSTRY 8

THE YEAR ON REVIEW: With Change at its Doorstep, the Industry Will Evolve or Falter

VIEW FROM THE TOP: Ildefonso Guajardo, Minister of Economy

VIEW FROM THE TOP: Rogelio Garza, Deputy Minister of Industry and Commerce

VIEW FROM THE TOP: Eduardo Solís, AMIA

VIEW FROM THE TOP: Armando Cortés, ProMéxico

VIEW FROM THE TOP: Óscar Albin, INA

VIEW FROM THE TOP: Miguel Márquez Márquez, Governor of the State of Guanajuato

INSIGHT: Luis Rojas, COFOCE

VIEW FROM THE TOP: Rubén Reséndiz, JALTRADE

STATE SPOTLIGHT: Guanajuato, Crown Jewel of the Bajio

VIEW FROM THE TOP: Guillermo Prieto, AMDA

VIEW FROM THE TOP: Miguel Elizalde, ANPACT

VIEW FROM THE TOP: Guido Vildozo, IHS Markit

ROUNDTABLE: What Are Mexico’s Opportunities to Improve Its Global Positioning?

| THE YEAR ON REVIEW

WITH CHANGE AT ITS DOORSTEP, THE INDUSTRY WILL EVOLVE OR FALTER Mexico is entering a period that will impact both its position as a production powerhouse and its domestic market development. Industry leaders say this is a natural process but even so, the country must prepare to evolve if it is going to cater to a new market ruled by different demands and possibly new trade standards

The Mexican automotive industry enjoyed undisrupted

rising, as are gas prices and after years of continued

growth in light-vehicle production, exports and sales in

growth, the US market is also stabilizing. Guido Vildozo,

the domestic market from 2010 to 2016. However, 2017

Senior Manager, Americas Light Vehicle Sales Forecasting

was a breaking point. Starting in the second half of the

of IHS Markit, expects the US will end up at yearly sales

year, sales began declining, reaching a total of 1.53 million

of 16.5 million units in due course.

units. Compared to 2016, this represented a reduction of 4.6 percent. In Mexico Automotive Review 2017, Guillermo

“Mexico has the potential to reach yearly sales of 2

Prieto, Chairman of AMDA, said that the one plausible

million units but not in the short term,” says San Román.

scenario for the industry was to end the year with a 6

To understand this, two factors must be considered in

percent growth rate. The most pessimistic expectation

Mexico’s domestic development. First, in an effort to

was for sales to plunge 17 percent compared to 2016.

boost vehicle sales as much as possible, the financing

The 4.6 percent decrease fell in-between and it still

market implemented an aggressive strategy to spur

represented growth of 13.2 percent compared to 2015.

new-vehicle purchases. In 2010, only 49.8 percent of all light-vehicle sales were financed. By the end of 2017, that

In terms of production and exports, however, the country

number had risen to 71.1 percent.

continued to deliver stronger results, with a total of 3.93 million units manufactured and 3.25 million units

Although this is not a bad sign and it is in fact a key

exported by the end of the year. This represented an

factor in ensuring continued growth in the industry, banks

increase of 13.5 percent in production and 17.5 percent

achieved this by elongating financing plans to the point

in exports. Volumes are still expected to increment in the

where now clients can find loans of up to 72 months. “By

coming years as automakers such as Audi, Mercedes-

enabling this, companies are extending repurchase terms

Benz, INFINITI and Kia continue to ramp up their

and disrupting the sales cycle,” says San Román. “We are

operations while others such as BMW and Toyota bring

finally noticing the effects of this strategy; the market

new operations to the country. Nevertheless, changes in

cannot sustain such growth levels indefinitely and that

global demand are also expected to decelerate Mexico’s

is completely natural.”

rise as an automotive powerhouse. The second factor is the fallout from Mexico’s presidential

PERIOD OF STABILIZATION

elections. The market’s sales decline continued into 2018.

Until 2016, industry experts expected the market to reach

As of July 2018, the market had seen 14 straight months

the 2 million-unit mark in terms of domestic sales by 2020.

of negative results. Between January and July 2018, the

However, the downturn in sales has colored the picture

market sold 795,011 units, which compared to the 865,161

significantly, moving the 2 million mark further down

units from 2017 represents a contraction of 8.1 percent.

the line. Although not as exciting as growing at double-

Many industry participants attribute the negative results

digit rates year-on-year, industry leaders still see a strong

of the first half of 2018 partly to the elections on July 1.

market in Mexico and urge other players to not see this

Due to the uncertainty caused by the campaign of now

as a catastrophic turn of events. “Domestic sales are not

President-elect Andrés Manuel López Obrador, some

falling, they are just decelerating. Moreover, Mexico is not

customers put their purchases on hold until getting more

the only market going through this process,” says Gerardo

clarity regarding the future of the country.

San Román, Head of Latin America at JATO Dynamics. “Dealership visits have fallen in the past few months,” The US, Mexico’s main export market and the second-

Carlos López de Nava, Director General of Grupo Alden,

largest automotive market in the world, saw a 1.7 percent

said prior to the election. “To boost confidence among

contraction in its domestic sales by the end of 2017, going

potential buyers, some brands are offering their clients

from 17.55 million units in 2016 to 17.25 million units the

unemployment insurance to protect them for a few months

following year. Interest rates for vehicle financing are

should they lose their jobs because of the elections.”

Consumer confidence also was shaken during the first half

These moves are not the only concerns. Traditionally,

of 2018 and inflation rates were on an uphill climb since

Mexico has been a compact-car oriented production hub,

January 2017, reaching a peak in December 2017 of 6.77

which was fine as long as demand supported these units.

percent. However, the country’s economic situation has

But consumer preferences are changing and the world is

somewhat stabilized, returning inflation to 4.81 percent

becoming a light-truck intensive market. The US, Mexico’s

as of July 2018.

main export market, is now favoring larger models that are not normally produced in Mexico. The shift in

The market expects stronger results now that the election

environmental policies in the US after it abandoned

is over and some even suggest stronger results compared

the Paris Agreement and announced a revision of the

to 2017 due to the low numbers registered during the

emissions-standard goals applied by the Environmental

second half of that year. “The ideal scenario would be to

Protection Agency during President Barack Obama’s

stop further drops in demand and reach approximately

administration are contributing factors.

1.48 million by 2018 and an equilibrium point of 1.5 million units by the end of 2019,” says Guillermo Rosales, Director

“Mexico will have to compete against the rest of the

General of AMDA.

world to maintain its share in a relatively flat market,” says Vildozo. Its capability to do so, however, will depend on

A NEW MARKET REALITY

how willing companies are to shift their existing platforms

In terms of production, Mexico was expected to surpass

in Mexico. Some manufacturers, such as Honda and

the 5-million-unit mark once all new OEM investments

FCA, already manufacture larger models in the country.

arrived to the country and started production. This would

Toyota, on the other hand, shifted its production plans

take the country from its current position as the seventh-

for Guanajuato to produce Tacoma pickups instead of

largest light-vehicle producer to sixth, overtaking India.

the previously scheduled Corolla. But not all companies

However, Vildozo, expects the country will not move past

are responding in an equal fashion. “Ford, for example,

production of 4.1 million units due to the changes that

canceled its manufacturing investment in San Luis

some companies have made in their production plans.

Potosi because it saw there was no point in producing 400,000 passenger cars if the US would not take them,”

In December 2017, Ford announced that it would move

says Vildozo.

its production of Fusion out of Hermosillo, Sonora, to China by 2020, which according to Vildozo represents

It will take some time before the market stabilizes to its

approximately 400,000 units. Meanwhile, FCA disclosed

true levels but there are already signs of deceleration in

in January 2018 that its production of RAM would move

the manufacturing market. Between January and July

out of its plant in Saltillo, Coahuila, to Michigan after CEO

2018, production numbers reached 2.25 million units,

Sergio Marchionne said it was an error to move RAM

which were only 0.1 percent above the results from the

production to Mexico. The company will spend US$1

same period in 2017. Exports, however, remain strong with

billion on the move and Vildozo says that makes another

an increase of 8.1 percent between January and July 2018

200,000 units that will no longer be manufactured

compared to 2017, even without Nissan’s export numbers,

in Mexico.

which the company stopped reporting in April 2018.

LIGHT-VEHICLE PRODUCTION, EXPORTS AND SALES (million units) LIGHT-VEHICLE PRODUCTION, EXPORTS AND SALES (MILLIONS) 4 3.5 3 2.5 2 1.5 1 0.5 0

2010

Source: Production AMIA Source: AMIA

2011

Exports

2012

2013

Sales

2014

2015

2016

2017

1H18

Sales Exports Production

Q: IF NAFTA WERE CANCELED, WHAT

Q: IF NAFTA WERE NOT CANCELED BUT RULES

OPPORTUNITY WOULD MEXICO HAVE TO REMAIN FINAL ASSEMBLY VS AUTO PARTS PRODUCTION (THOUSANDS) A LEADING AUTOMOTIVE PRODUCTION HUB?*

OF ORIGIN CHANGED, IMPACT COULD THIS DISTRIBUTION OF THE WHAT REGIONAL SUSTAINABLE DEVELOPMENT FUND 2 INDUSTRY?* HAVE ON THE REGIONAL

49.7% Strong opportunity PARTICIPATION ON AUTOMOTIVE INDUSTRY IN 2015 40.6% Slight opportunity % OF 0.6% No opportunity answer 9.1% AutoNo parts

Negative impact 11% 42.4% Mazapil Slight opportunity 9% 18.2% Cananea No opportunity 7% 17% Nacozari de Garcia No answer 5% 22.4% Fresnillo

terminal production *Mexico Automotive Review 2018 interviewee survey

2% Sahuaripa 2% Morelos 2% Eduardo Neri 2% Aquila

4% Ocampo

2% Alamos

4% Caborca

1% Chinipas

DOORS CLOSE, WINDOWS OPEN

2% Sierra Mojada 47% other While NAFTA talks have been slow, Mexico has been very

Overall, 2017 and 2018 have been challenging years for

active in promoting free trade and expanding its opportunities

an industry that has been a cornerstone of Mexico’s

beyond North America. “Mexico has not been quick enough to

economic development. Companies maintain business

consider other destinations, such as Africa or Eastern Europe,

as usual but there is a lingering concern regarding

and to find ways to compete against manufacturing hubs like

what might happen with NAFTA once negotiations are

Morocco, Turkey, Romania, Poland and Hungary,” says Vildozo.

over. Talks were originally supposed to end before 2018

“Understanding how these countries export to other regions

and when that did not happen, they were supposed to

is critical for Mexico to be more competitive and to diversify

conclude before the presidential elections in Mexico to

its operations beyond NAFTA.”

Source: CGM, Ministry of Economy 1 With figures to March of 2015

avoid differences of opinions between the current and the future administrations.

The country appears to have gotten the message and is now keeping track of potential trade opportunities. Mexico

An agreement has not yet been reached, however, and

was the first to ratify the CPTPP, followed by Japan and

although there is optimism regarding a potential deal

Singapore. All three countries are urging the other eight

between Mexico and the US regarding rules of origin and

members to ratify the agreement and start opening barriers

salary policies, there is also discrepancy between what

for more opportunities in automotive and other industries.

the government is willing to compromise and what the

“CPTPP demonstrates the commitment of its members to

industry is demanding. Early in August 2018, negotiators

open markets and to establish greater economic integration

said conditions were favorable to finalize discussions

in the Asia-Pacific region,” says Yasushi Takase, Ambassador

before the end of the month and sources assured Mexico

of Japan in Mexico. “CPTPP will enhance trade and business

and the US were finally seeing eye to eye on some thorny

opportunities for the Mexican automotive industry and help

subjects. However, this was quickly dismissed by Fausto

bolster the region’s value chain.”

Cuevas, Director of AMIA, who said there was still no agreement between both countries. “Nothing has been

Mexico has also pushed to strengthen trade lanes with its

accepted and nothing has been confirmed,” he said during

Latin American neighbors, promoting further integration

a press conference regarding advances in the negotiation.

with the Pacific Alliance and Mercosur, the two main trade blocks in the region. The goal is to eliminate trade obstacles,

On a positive note, countries are still negotiating and there

bring more countries to these alliances and attract investment

is disposition from all three sides to reach an agreement

to all countries involved thus elevating the region’s overall

soon. Furthermore, after becoming president-elect, López

competitiveness. “Mexico is ready, willing and able to

Obrador appeased investors and the industry in general

compete in the global market. The country has been capable

when he showed willingness to keep the negotiations

of exporting to the US, which has been one of the most

moving forward and aligning to what the previous

competitive markets in the world along with Europe for

administration had put on the table.

more than 30 years,” says Vildozo.

VIEW FROM THE TOP |

SUCCESSFUL RESULTS, POSITIVE OUTLOOK ILDEFONSO GUAJARDO Minister of Economy

Q: As the Peña Nieto administration comes to an end, what

already set up shop in Mexico, there is still an opportunity to

message would you give to current and potential investors

attract investment from Tier 1 Asian enterprises. Furthermore,

in the Mexican automotive industry?

Mexico needs to grow its supplier base at the second and

A: In recent years, Mexico’s automotive industry has reached

third levels of the value chain, prioritizing providers of raw

record levels for light-vehicle production and exports.

materials and tooling components. It is necessary to develop

Between 2013 and 2017, production achieved growth of 36

the supply chain by type of process, boosting growth of all

percent and exports of 38 percent. In 2017, the automotive

kinds of suppliers, while promoting quality certifications and

industry, including light and heavy-vehicle production as

specialization among all players. Another strategic move to

well as auto parts, represented 3.5 percent of the national

strengthen and diversify the automotive supply chain would

GDP and 20.2 percent of the manufacturing GDP. Meanwhile,

be to reduce the existing gaps between the industry’s human

automotive exports amounted to 32.4 percent of total

capital requirements and what is offered by technical and

manufacturing exports and 28.9 percent of the total national

professional academic institutions.

exports, with an approximate value of US$118.2 billion. This allowed Mexico to become one of the main automotive hubs

Q: What conditions must be met for the automotive

in the global market in 2017, ranking seventh in terms of

industry to remain a pillar in Mexico’s economy?

production and third in exports.

A: For the industry to remain a pillar of the Mexican economy, global markets must remain open. In addition, the country

Our expectations for Mexico’s automotive industry remain

must strengthen the capabilities of its local industry, including

positive and our forecasts show that by 2020, light-vehicle

infrastructure development and human capital availability

production could reach 5 million units per year. Furthermore,

based on the profiles the industry demands. In order to

we expect the country will maintain a strong performance

do so, appropriate human capital development must be a

in auto part and component production. My message for

priority, especially to adjust their skills to meet Industry 4.0

investors would be to remain confident about the Mexican

productive trends. At the same time, innovation is essential

automotive sector. Investing in the national industry will

to escalate the industry toward higher value-added activities.

continue yielding positive results but it is imperative that both industry and investors adapt to the complex global

Q: How far along is Mexico in its journey toward being an

environment.

advanced manufacturing and engineering destination? A: R&D centers in Mexico are now specialized in research

Q: What are the main areas of opportunity that need to

and testing projects with global reach, virtual design, project

be addressed in Mexico to improve the local supply chain?

management, prototyping and emission analyses, as well as

A: Even though the automotive industry had an exemplary

design and engineering of automotive components, systems

performance during this administration, there are still areas

and subsystems. Promotion of these types of activities will

of opportunity to be addressed to increase the country’s

lead Mexico to a more relevant position as an automotive

competitiveness and strengthen Mexico’s position as one

design and production hub capable of catering to the latest

of the main investment destinations, especially with the

technological developments and adhering to the strictest

emerging trends in auto manufacturing.

environmental regulations.

The latest investments arriving to the country for vehicle assembly, including companies such as BMW, INFINITI,

Ildefonso Guajardo was appointed Minister of Economy on Dec.

Daimler, Kia and Toyota will increase demand expectations

1, 2012. Originally from Monterrey, Guajardo has also served as

on auto part production. Despite many of the largest auto

President of the Economic Commission and Coordinator of

part companies from North America and Europe having

Business Relations during Enrique Peña Nieto’s presidential bid

| VIEW FROM THE TOP

‘LIGHT’ STRATEGY EMPOWERS INDUSTRY ROGELIO GARZA Deputy Minister of Industry and Commerce

Q: How can Mexico grow its competitiveness in the

Q: What is the Ministry of Economy doing to incentivize

automotive industry under new trade conditions

the development of Mexican suppliers?

with the US?

A: Since large companies have the resources to grow

A: If NAFTA were canceled and we worked under WTO

and insert themselves into the production chain, our

regulations, a 2.5 percent tariff in car and auto part

main focus has been on SMEs. We launched the ProAuto

production would not impact us as long as we remain

program as a way to support companies to become

competitive. The only real impact would be on pickup

part of the automotive production chain. However, this

truck production, which would have a tariff of 25 percent.

administration implemented a “precise-shot” strategy

Furthermore, if stricter rules of origin led to tariffs

to give priority to companies that focused on areas of

higher than 3 percent thus threatening competitiveness,

opportunity for the country. We no longer hold massive

companies would only have to choose to operate under

events hoping to find one or two suppliers to develop.

WTO standards to maintain solid operations.

Instead, we go directly to OEMs and large Tier 1 suppliers and ask them to identify potential local suppliers. With

Mexico’s participation in the industry will be founded

this list of candidates, we pinpoint what companies need

on competitiveness. Our priorities should focus on

to improve to become part of the production chain,

market diversification and investing in the areas that are

whether it is certifications, equipment or production

important to OEMs and suppliers in the country. Under

volume, and we work with Bancomext or CONACYT to

this administration, Mexico has worked on implementing

support them. We have already approached FCA, GM,

a “light” industrial policy where the government only

Bosch and Continental with this strategy and suppliers

intervenes in matters when the market demands it. Our

know they will get a contract once they finish with their

focus has been on four pillars: generating world-class

improvement process.

talent, promoting innovation, supporting supply chain development and creating synergies between clusters.

Q: What opportunity does the government see in China to

Companies arriving to Mexico know the exporting

become a strong commercial ally in the automotive sector?

opportunities they have thanks to Mexico’s free-trade

A: We are open to investment from any country. Some

network and with the newly signed CPTPP, the country

Chinese OEMs, as well as lighting and brake suppliers, have

has access to 11 new markets that open the door to Asia.

already established in the country. Their first priority is to

However, we must ensure that investors find the right

target the domestic market but they are also using Mexico

human capital, a strong supplier network and a solid

as a stepping stone to reach Latin America. We see China

logistics infrastructure to move their products. The lack

as an important trade ally, although we are aware that a

of any of these three factors could endanger Mexico’s

new NAFTA agreement would give preference to North

competitiveness, which is why clusters are so important

American production. Still, we must not close ourselves

to ensure supplier availability and talent development.

to regional production at the expense of companies’ competitiveness.

BMW, Mercedes-Benz, Toyota and several other OEMs have brought their operations to Mexico because they

We have already organized some trade missions to China

have found strong development opportunities. But, we

and we have a trade committee led by a businessman from

must keep growing our capabilities for this investment

Mexico and one from China. The committee works with

to continue. The industry expects production of 5 million

ProMéxico to promote product exchange.

light vehicles by 2020 and exports of more than 3.8 million, so we will need ports capable of supporting this flow of

Q: What has been the biggest success of the current

products in and out of the country.

administration regarding the automotive industry?

A: Our biggest success has been defining the areas where we

projects when the company has its design operations in

need to invest thus attracting more investment to the country.

Mexico rather than just component production.

Mexico received significant investment in the automotive sector in past years but during this administration, many

Q: How is the Ministry of Economy supporting providers

companies arrived to the country knowing they would find

in the shift toward electrification?

the right conditions to grow their investment. Our “light”

A: As a country, we are fully committed to the Paris

industrial policy has been key to helping the industry without

Agreement and our strategy to reduce polluting emissions.

interfering in matters where we should not participate. We

This involves not only manufacturing operations but also

have built strong relationships with academic institutions

carbon emissions from the national vehicle park. The future is

to develop capable talent, we have spurred innovation

electric for the automotive sector and within our “precision-

and fostered an environment for R&D and engineering

shot” strategy, we have opened a specific division for

capabilities and we have laid the foundations for strong

suppliers wanting to participate in the electrification trend.

collaboration between companies, thus leading to successful

Soon, Mexico will start manufacturing electric light-vehicle

clusters in the north and in the Bajio region.

models and that will force us to move ahead with supplier development strategies for these types of components.

Q: How important are technology implementation and Industry 4.0 trends for the Ministry of Economy?

Electrification will bring new business opportunities

A: If we do not develop the right talent to address these

as demand for these vehicles grows and we must take

trends, supported by a strong network of R&D centers,

advantage of our position as manufacturers to make the

eventually companies will find Mexico unsuitable for further

best of this new trend. As a government, we must be agile

investment. Technology is crucial for the national industry to

enough to support this transformation and integrate more

keep evolving. We are pushing for the creation of a national

suppliers to the production chain.

artificial intelligence center to support not only automotive but all manufacturing sectors in the implementation of

Q: What would you like to achieve before the end of the

Big Data, robotics and all other trends involved in the

current administration?

Industry 4.0 concept. The future of the industry is based on

A: We want to consolidate our “light” industrial policy so the

artificial intelligence; it is the only way for cars to become

next administration understands very clearly why we chose

autonomous and capable of interacting with other elements

it and why the ministry should continue implementing it.

in a Smart City platform.

There might be small variations but the strategy’s goals and priorities should remain unchanged. At the same time,

We are also trying to develop a national cybersecurity

we have specific agendas for each sector with technical

center to handle all digital transactions, monetary or

specifications regarding short-term, mid-term and long-

otherwise, for all industries. As the market moves toward

term plans. We are updating all of them so the new

digitalization, it becomes essential to have something like

government understands the strengths and weaknesses

this to protect our knowledge and investments.

in each industry and how upcoming projects will impact their development. The ministry only acts as an enabler of

Q: How much did the government advance toward its goal

public policies and the new administration must understand

of incrementing R&D expenditure to 1 percent of GDP?

that investors are the ones who know what is best for the

A: We are currently at 0.9 percent, which is certainly not

industry and its growth.

in line with what we are trying to achieve as an industrial country. We started our participation in the industry as a

The new government should be aware that our trade

low-cost manufacturer and gradually advanced to high-

openness and our focus on generating world-class

value operations. The next step for the country is to attract

talent, promoting innovation, supporting supply chain

new investment focused on design, R&D and engineering,

development and creating synergies between clusters have

moving to the top tier of the manufacturing chain. Our goal

been the main attraction for foreign investment. Similarly,

is to design more cars and more auto parts locally and have

the country should keep investing and be aware of the

more prototyping and testing centers but to do that, we

impact that Industry 4.0 trends will have in the evolution

need to invest in our talent and in supporting companies

of the industry.

to engage in R&D activities. We cannot neglect traditional manufacturing activities

Rogelio Garza is the Deputy Minister of Industry and Commerce

since they are a solid source of employment. However, we

at the Ministry of Economy. Previously, he was Deputy Director

can gradually evolve to participate in higher-value and high-

General of International Trade Negotiations and Subdirector of

tech production. Moreover, it is far easier to retain foreign

Negotiations in the Automotive and Electronics Sectors

| VIEW FROM THE TOP

INTERESTING TIMES AHEAD EDUARDO SOLÍS Executive President of AMIA

Q: What is Mexico’s best opportunity to take advantage

The Mexican industry must advance its position in the

of the new conditions established by a NAFTA 2.0?

value chain. We must also bet on local engineering by

A: This treaty looks to modernize trade rules in North

investing more in R&D activities. Today, we are the industry

America. Considering that the automotive industry is the

that demands the most resources from CONACYT.

main success story stemming from the original NAFTA, our hope is that the new agreement maintains conditions to

Q: What would you say to investors to assure them about

ensure growth and progress in all three countries. There

Mexico’s position in the global automotive industry?

is a good opportunity to reach an agreement. However,

A: Mexico is ranked fourth in light-vehicle exports and we

the aspirations put on the negotiating table by the US

are tied with South Korea in sixth place in light-vehicle

government push us away from reaching a consensus that

production. The country has demonstrated its capabilities

could ensure Mexico’s ongoing success.

as a competitive automotive hub and now our goal is to define the best way to face the current trade challenges

Q: What has been the main achievement of the current

including the possibility of new tariffs that could be

federal administration regarding investment attraction?

implemented by the US on vehicle imports, similar

A: A key element was establishing the right conditions to

to those the country slapped on steel and aluminum

do business in our sector. Investment in the automotive

following Section 232 investigations on national security.

industry demands long-term certainty and the structural

These are interesting times and particularly now, many

reforms implemented by this administration have been

changes are coming. Whatever we can tell investors

crucial in ensuring this. The government has also been

today could change in the following months and they

successful in maintaining a stable economic environment,

must be aware of that. Nevertheless, we are optimistic

with sustained macroeconomics and a relatively stable

about the future.

exchange rate. Q: What diversification opportunities will the CPTPP Promoting access to international markets has also been

agreement create for the Mexican industry?

a success of this administration, along with constructing

A: We must recognize the real opportunities that this

a strong supplier base and boosting the development of

agreement will create for the automotive sector. Our

a capable world-class labor force.

biggest commercial relationship with the existing CPTPP members is with Canada and Japan at the moment and

Q: What should the industry prioritize to ensure

we already have a pre-existing agreement with the

continued growth?

latter. Australia or Malaysia could present interesting

A: One priority should be to strengthen the domestic

opportunities but we are talking about countries with

market. We need a healthy domestic market to keep

markets of between 1 million or 1.5 million units where

boosting the industry and so far, 2018 has seen a

we have no presence. Whatever sales we can generate

deceleration in sales of almost 10 percent. Just like Chile

will not solve our dependence on the US market. It is

and Argentina, what we need is to sell 20 new vehicles per

interesting to open new markets but these will not be

1,000 inhabitants and today, that rate is at 13 vehicles per

substantial, at least in vehicle production.

1,000 inhabitants. Controlling used-vehicle imports from the US is also critical because it has been one of the main

Q: What will be the impact on the national industry

contributors for domestic sales growth. Even though this

considering changes in preference toward SUVs and

has not been an excellent year, for the past three years

crossover models?

domestic sales have thrived thanks to strict controls at

A: Mexico will be flexible enough to face changes

the border and a strong financing strategy.

in international demand. If the market wants us to

manufacture hybrids, medium-sized cars or SUVs, we will

Therefore, to strengthen the local supply chain and grow

be there. Demand is changing and we will not cling to our

our competitiveness as an automotive hub, we must

production model if there is no market for it. Otherwise,

promote investment from Tier 2 companies and support

we will face the same fate as Kodak. We are quite flexible

growth of local family-owned companies and SMEs.

regarding future changes in demand. Q: What are your overall expectations for production Q: Today, how attractive is it for companies to bring

and export results?

production of electric and hybrid units to Mexico?

A: It is difficult to make a forecast given the complicated

A: That is for companies to decide but today, there are

global scenario we are facing. As of June 2018, US

companies finalizing their production plans for Mexico

President Donald Trump was still threatening to close the

and they are also considering production of electric

border and slap tariffs on vehicle imports from Canada

and hybrid units. All production sites from a company

and Mexico. We are on the brink of a pointless trade war

compete to integrate new models and I hope Mexico is a

that clouds whatever prediction we might make.

strong contender for new technology production. If no Section 232 measure is implemented, we still see a The country is ready to participate in this process and its

possibility to reach production of 5 million light vehicles

supply chain is flexible enough to cater to new market

by 2020 and exports of over 4 million units. So far, we

needs. Companies must learn to adapt to the changes

are producing over 4.1 million vehicles yearly, both light

introduced by new technologies, so axle and other

and heavy, and exporting over 3.3 million.

transmission component manufacturers will have to find ways to participate in a new industry. The challenge

Q: Regarding domestic sales, how sustainable it is

for Mexico will be to get ready to supply essential

to maintain an aggressive financing strategy with

components for electric-vehicle production. Today, no

elongating terms?

company in North America manufactures batteries for

A: Financing must remain a pillar for the industry, mainly

automotive use. The current providers are focused on

in the number of units that are financed out of total sales.

lead-acid products and have not made the switch in

Leasing also presents an opportunity for the domestic

North America to the lithium-ion batteries used in these

market, considering that this product represents only

vehicles.

10 percent of the total financing solutions offered. So far, we have not reached a 70 percent rate of financing,

There is an excellent opportunity to grow our participation

considering we have oscillated between 65 and 68

in the industry, not only with electric vehicles but also

percent. The rate has undoubtedly increased, considering

with self-driving technology. All control units, radar and

that years ago we were at 50 percent but our goal is

LiDAR sensors are imported from Asia, so there is still a

to reach an 85 percent level, which is the international

gap to fill not only in Mexico but in North America.

benchmark.

Q: What role will local design and engineering centers

There is a clear growth opportunity but regulations must

play in the development of the national industry?

also change to offer more certainty to credit institutions

A: These centers will participate as technology developers

in countries like Mexico and ensure recovery.

that will shift the industry toward the most advanced technology and as tropicalization agents for vehicle

Q: How ready is the Mexican market to ditch its stigma

components. Engineering is crucial to the successful

regarding Chinese vehicles?

introduction of a new vehicle in Mexico and in Latin

A: The world has changed and good and bad vehicles

America in general, where environmental and physical

come from many countries. Mexico has built a reputation

conditions are different than in other parts of the world.

as a quality automotive manufacturer and now China will have to make that same effort. It is the same process

Q: How can Mexico bolster its local supply-chain and grow

that Korean companies followed when they arrived to

its global production presence?

the country. They had to build a reputation but they have

A: Mexico has a strong and capable Tier 1 supplier

succeeded.

network, with practically 95 percent of all companies in the world already present in the country. However, at a Tier 2 level, 85 percent of the needs of Tier 1 suppliers

The Mexican Association for the Automotive Industry

can only be met through imports. Machining, forging,

(AMIA) is a civil association formed in 1951 with the goal

foundry, plastic injection, stamping, molds and tooling

of representing the interests of vehicle manufacturers

are among the gaps that the national industry must fill.

established in Mexico

| VIEW FROM THE TOP

EVOLVING TO PARTICIPATE IN A TECH-DRIVEN INDUSTRY ARMANDO CORTÉS Executive Director for Industrial Development at ProMéxico

Q: How can Mexican companies increase their participation

Q: How likely are Mexican companies to adopt automation

in foreign markets and boost exports of Mexican-designed

and other Manufacturing 4.0 technologies?

technology?

A: Mexico has the capacity to be highly successful in

A: Mexico’s domestic market is highly dynamic. Automotive

Manufacturing 4.0 and companies are open to these

OEMs and several key aerospace and electronics companies

technologies. The organizations that fail to implement

already have a good demand base that will enable local

these processes into their production operations will be

companies to insert themselves into those value chains.

out of the market in the medium term. The only way to

SMEs are usually integrated into value chains as Tier

remain competitive in the automotive industry is through

3 suppliers and the market offers them new business

innovation. We boost technological innovation through the

opportunities. Globally-renowned Mexican companies, such

expos and missions that we organize for Mexican players

as Nemak, Rassini, TREMEC and Grupo Quimmco, export

so they can learn what is being done in Germany, Japan

technology and advanced-manufacturing components.

or the US and incorporate those best practices into their

For instance, TREMEC recently opened an engineering

productive processes.

center in Belgium where it plans to focus on transmission components. Additionally, Mexico was invited as a guest

Q: How do you expect the vehicle-electrification trend to

country to the 2018 Hannover Messe fair that focused on

impact Mexico’s automotive industry?

industrial automation and Manufacturing 4.0. These trends

A: EVs are a disruptive change that has not yet attracted

are being increasingly adopted by Mexican players and

strong support in Mexico. There are several companies

ProMéxico wants to showcase that to the world.

making advances in that segment, though. For instance, Nemak and Rassini have created their own EV-focused

Q: How has the NAFTA modernization process affected

divisions and several Mexican companies already supply

ProMéxico’s strategy to attract FDI?

for Tesla. ProMéxico wants this trend to further permeate

A: The industrial structure of Mexico has not been modified

Mexico’s industrial structure so that it translates its focus

because of the NAFTA renegotiation. As a matter of fact, the

from metal-mechanic components to electronic-digital

country reached record automotive exports and production in

components. By 2025, I expect Mexico to be a leader in

2017. This means value chains continue working and ProMéxico

the development of components for EVs. China and the

is trying to diversify the country’s portfolio of investment to

US are the main powerhouses in the production of EVs

reduce the country’s dependence on North America. We have

and Mexico is in the process of finding its value niche. This

pushed more strongly for diversification of both FDI sources

will continue consolidating the country’s position as a key

and destination markets. ProMéxico visits many countries to

player in the global automotive industry.

attract investment into the automotive, aerospace and other technology-oriented industries. The opportunities that Mexico

Q: How ready is Mexico to participate as a technology-

offers for advanced-manufacturing are far greater than the

developer rather than as a manufacturer in the global

impact from changing political conditions. Mexico is a great

automotive industry?

country because of its strong advanced-manufacturing base

A: Mexico has everything it needs to be successful in this

and competitive human capital.

area. Mexico’s human capital is well-trained, specialized and young, which is fundamental for technological innovation. Additionally, the country is positioned as an advanced-

ProMéxico is a branch of the Mexican government that coordinates

manufacturing country. Although there is still more to be

the country’s participation in the international economy. Its main

done, Mexico has increasingly well-trained engineers, better

objectives are promoting the attraction of FDI and supporting

information and best practices and these advantages will

the internationalization of Mexican companies

eventually make the country highly successful in this area.

VIEW FROM THE TOP |

LEVELING THE FIELD FOR QUALITY SPARE PARTS ÓSCAR ALBIN Executive President of INA

Q: What is INA’s role in making sure quality components

Q: How might the downturn in sales of new vehicles that

have an even playing field to compete against cheap, low-

started in 2H17 impact the Mexican aftermarket?

quality imports?

A: Changes in light-vehicle sales normally impact the

A: Considering the country is more price sensitive than the US

aftermarket after three years. During their first three years of

or Canada, many users prefer to keep their vehicles, trucks and

use, vehicles demand simple maintenance such as change of

buses on the road by using low-quality parts even if it is only

oil and regular components such as filters and perhaps brake

for short periods and puts the vehicle at high risk of breaking

pads. Repairs also generally take place in dealerships that use

down. INA is pushing for quality norms in Mexico that regulate

original equipment parts. After this and when vehicles lose

the entrance of cheap, low-quality products into the Mexican

their warranty, users start taking their vehicles to independent

aftermarket. As an association that represents Mexico’s auto

shops and use components from independent brands. At the

parts companies, INA works with the Ministry of Economy’s

moment, the vehicles going through this transition are those

General Directorate of Norms to develop these standards.

that were sold in 2015, which was a good year in terms of sales and thus will generate large revenues for the aftermarket.

Several norms to regulate vehicle security standards and

Since 2016 was a record year with sales of 1.6 million units,

emissions have already been introduced. Norms on brake

2019 will also be a great year for independent brands and

pad quality are in place and we are working on a new norm

workshops in the Mexican aftermarket.

for vehicle dampers. These norms will ensure imported auto parts meet basic standards and will act as a nontariff barrier

Q: How important is the development of e-commerce for

against the sale of low-quality spare parts. We cannot produce

the Mexican aftermarket?

norms for every component family in the Mexican aftermarket,

A: For a domestic market with sales of approximately 1.5 million

so our main focus is on critical parts that impact passenger

vehicles per year, Mexico has a huge variety of brands, models

and pedestrian safety.

and vehicle versions. Knowing what spare part is necessary for each vehicle plays a key role in the aftersales market and

Q: What aftermarket segments and components have the

access to digital catalogues is essential for consumers.

most pressing regulatory needs? A: INA works toward the development of regulations that focus

Q: What do Mexican auto parts manufacturers need to do

on important products for the aftermarket. In collaboration

to supply more cost-competitive components to OEMs?

with the Ministry of Economy, we have developed voluntary

A: There is no such thing as a bad automotive supplier since

technical norms or NMXs on filters and brakes that we expect

companies without the necessary standards rarely survive for

will soon become an official and compulsory norm or NOM.

more than two years. Good Mexican auto parts companies

The next norms will focus on dampers and tie rod ends and

wanting to become excellent suppliers need to make constant

eventually vehicle lighting systems.

reinvestments. All players must remain updated in areas of quality and cost, which means they cannot allow themselves

Q: How can stricter emission regulations in Mexico impact

not to invest in new equipment. Any company wanting to

the local aftermarket?

remain afloat needs to deliver enhanced productivity at

A: These norms have a positive effect because vehicles

lower costs.

will have to be thoroughly repaired in a timely manner to be allowed on the road. Using the wrong spark plug or a bad catalytic converter will prevent these vehicles

The National Auto Parts Industry (INA) is an association that

from passing inspections. This process will boost sales of

represents auto parts manufacturers. It promotes the growth and

ignition, exhaust and injection system components in the

development of its member-companies in the original equipment

Mexican aftermarket.

and aftermarket segments

| VIEW FROM THE TOP

DRIVING SIX YEARS OF AUTOMOTIVE GROWTH MIGUEL MÁRQUEZ MÁRQUEZ Governor of the State of Guanajuato

Q: What would you consider the highlights of your

opportunities. We are taking the industry to the employee,

administration regarding new investment?

instead of trying to take the employee to the industry.

A: During this administration, we have consolidated Guanajuato as the biggest automotive cluster in Latin

Q: How is Guanajuato helping SMEs to adopt digitalization

America. We have assembly plants belonging to OEMs

and technology into their processes?

such as Mazda, Honda and GM, as well as component

A: In 2017, Guanajuato was the first state in the world to

manufacturing facilities from others such as Ford and

declare a year focused on innovation. We collaborated with

Volkswagen. Toyota will shortly finalize the construction

UNESCO to diagnose how the state was doing regarding

of its new venture in the country. By 2020, we expect

technology and what we want to achieve by 2040. This

Guanajuato will be the main vehicle producer in Mexico

initiative went beyond the industry and included cultural,

and Latin America.

sports, agricultural and other elements that could help Guanajuato reach the concept of Industry and Company

In terms of foreign direct investment, we had projected

4.0. We also organized the Innovation Forum, which was

a total of US$5 billion by the end of the administration

one of the most important technology events in Latin

but we will close our six-year period with almost US$13

America, and we established the basis for this to be an

billion in new projects. Consequently, we have had a great

annual event in Guanajuato.

impact on the state’s unemployment rate, driving it down to 3.5 percent, which is barely above the national average

We want the state to be committed to the idea of Industry

of 3.1 percent. Guanajuato has recently been among the

4.0. Today, we have eight innovation parks, supported by

main states regarding job creation and by the end of

a strong network of universities and research institutions.

the administration, we will have generated 300,000 new

Moreover, Guanajuato is third for patent registrations

positions. Only in 2017, 62,000 new jobs were created,

nationally according to the Mexican Institute of Industrial

leading to an average of 50,000 new positions per year.

Property and first in GDP generation due to patent registrations according to UNESCO. We went from zero

Q: How have you helped Guanajuato become a pinnacle

innovation in the state to leading our nation’s committee

of the automotive industry in Mexico?

to the World Educational Robot Contest with nine students

A: Human capital has been key for the development of

from Guanajuato out of the 15 that traveled to Shanghai

Guanajuato. We are now the leading state in terms of

to compete.

training and in the opening of academic slots due to the industry’s talent demand. At the same time, educational

Q: How are you ensuring continuity in Guanajuato’s

institutions are gradually adapting their programs based

investment promotion strategies?

on what companies require and our offering of robotics,

A: Investment promotion is not only dependent on state

nanotechnology, aeronautics and pharma engineers has

policies and all investment projects are approved by a

increased considerably.

citizen’s council. That being said, Guanajuato offers legal certainty above anything else. According to the National

We have also worked extensively to ensure new investments

Institute for the Consumer, we are among the Top 3 states

have strong support. We wanted to close the administration

for contract fulfillment. As a result, companies know that

with seven new industrial parks and the end result was 27

whatever contracts they sign with this administration

and an additional offering of 2,000ha of available space.

will stand once the new government arrives. We also

We are growing beyond the traditional industrial corridor,

offer certainty based on the development plan we have

offering companies new areas in the north and south of the

structured for 2040, which helps investors understand

state where there is more available talent looking for job

where the country will be in the next couple of decades.

Guanajuato Puerto Interior / Silao, Guanajuato

Lastly, according to INEGI’s last census, Guanajuato appears

number. We need to diversify our operations but not

to be the region with least corruption in the country thus

compromise the good relationship we have with our North

providing transparency in every process a company must

American neighbors.

follow with the government. Q: Considering Guanajuato’s 2040 vision, what should be We expect all these factors will offer certainty for

the state’s priorities to maintain the growth momentum?

investment to continue arriving to Guanajuato after we

A: Creating and maintaining trust of new investors should

leave office. We have 100 pending projects to bring new

be a priority. Our administration was built on trust and

investment to the state, 70 percent of them oriented to the

delivering on our promises regardless of the contracts we

automotive industry.

might sign. Especially in an uncertain environment, the best thing we can offer companies is confidence regarding their

Q: Considering the current renegotiation of NAFTA, what

investment no matter what. Furthermore, we must consider

is Guanajuato’s position regarding international trade?

ourselves as account managers, which means that we

A: We are actively participating in the discussions regarding

must follow up on any relationship we establish with new

NAFTA, not only related to the automotive sector but

investors. We are allies and partners throughout the lifetime

also to the textile and agricultural segments. Automotive,

of their investment and not just while the plant is being built.

however, is the hottest topic so far, mainly because of the discussion on rules of origin. We think reality will prevail; the

Education must also be a priority to ensure growth. The

market is not something we can control and it must follow

state must continue supporting academic institutions

supply and demand laws, as well as the best conditions

and incentivizing the establishment of dual-education

regarding cost. We must find a solution that satisfies every

programs. At the same time, we must not lose our logistics

party and we are firm believers that if Mexico wins, the US

competitiveness. By the end of the year, we will deliver the

and Canada also move forward.

Celaya railway bypass and in our 2040 plan we foresee the construction of another bypass in Irapuato. Similarly,

We are confident that the government will reach an

Guanajuato must focus its efforts on the development of

agreement soon and that certainty will return to the

an integrated mobility strategy that includes a passenger

market. Nevertheless, we are prepared for a scenario with

train for people that travel from one city to another on a

or without NAFTA. We know that if NAFTA is canceled there

daily basis. We also met with Hyperloop One in Los Angeles

would be an impact on our operations but it would also

to learn about their project to build a hyperloop train that

open an opportunity to further diversify those operations.

would go from Mexico to Queretaro, Leon and Guadalajara.

The CPTPP, for example, opens new possibilities for our

We will pass that information to the new administration.

products to be exported to Asia and South America. Right now, Guanajuato exports to over 125 countries representing US$22 billion per year when 20 years ago we only exported

Miguel Márquez Márquez is a Mexican politician affiliated

to three countries production worth US$200 million. If we

with the PAN party. He has been Governor of Guanajuato

consider this administration alone, we started 2012 with

since 2012. Previously, Márquez was mayor of the Purisima del

US$11 billion yearly in exports and we have doubled that

Rincon municipality

| INSIGHT

HEDGING EXPORTS THROUGH IMPROVED COMPETITIVENESS LUIS ROJAS Director General of the Guanajuato Foreign Trade Promotion Coordination (COFOCE)

As Industry 4.0, information technologies and innovation

local companies would need to increase their competitiveness

processes take the automotive sector by storm, it is time

to neutralize these effects. “We have analyzed all tariff codes

for Mexico to take the next step as a manufacturing center

for Guanajuato’s main exports and looked for ways to boost

and increase its competitiveness, according to Luis Rojas,

companies’ competitiveness accordingly,” says Rojas.

Director General of the Guanajuato Foreign Trade Promotion Coordination (COFOCE). “Guanajuato’s economy was based

This might be easier said than done but Rojas has identified

on the textile and maquila industries but the state has

several areas of opportunity for companies to pursue. COFOCE

become an automotive hub that will mature with Toyota’s

is now supporting training and certification programs, while

latest investment,” says Rojas. He adds that the state’s

promoting innovation and digitalization to streamline the

economy will also improve thanks to a focus on information

value chain and make manufacturing processes more efficient.

technologies, high added-value and the differentiation of

“Industry 4.0 and information technologies must become a

products and services. “Manufacturing is a labor-cost game

reality in Guanajuato to make the leap from manufacturing to

but Mexico’s competitiveness can no longer be supported

‘mindfacturing’ and truly add value to the state’s production,”

solely by cheap labor,” says Rojas. “It is necessary to bring

says Rojas. COFOCE is organizing trade fairs such as Foro

together all the advantages that the state can offer to create

Automotriz de León and high-level conferences such as Foro

a friendly ecosystem that fosters this innovation and further

GO where it brings key international figures from various

investment.”

industries to promote innovation. “These events help us understand how local companies must adapt their strategy

As a public trade-promotion agency, COFOCE has gone the

in the face of a changing market,” says Rojas.

distance to encourage exports of Mexican products across several industries. The agency has participated in several

The state has also made significant advances in the area of

trade missions oriented to auto parts production to showcase

e-commerce. The Guanajuato Supply initiative, for example,

Guanajuato as a benchmark in this sector. Similarly, COFOCE

will enable 500 companies from all industries — among them

has made efforts to boost the participation of Guanajuato’s

the automotive aftermarket — to reach over 120 countries

auto parts and aftermarket segments at both national and

through the partnerships that COFOCE has established with

international trade fairs.

key e-commerce companies such as Amazon, Ali Express and Kichink. “The goal we have with Guanajuato Supply is to

The key for COFOCE’s success in boosting the state’s position

cut the middleman between the state’s auto parts companies

in the international market has been competitiveness.

and final consumers around the world,” says Rojas. “COFOCE

But Rojas signals the NAFTA negotiation as an event that

has started pilot programs and some companies are already

could put Guanajuato’s industry at risk since according to

exporting to international destinations.”

the coordination, almost 38 percent of the local industry’s operations could be impacted should the treaty be

Rojas adds that “Guanajuato bets on digitalization and

terminated. However, COFOCE has focused on helping local

COFOCE champions this trend.” This objective has already

players strengthen their operations to minimize any negative

been set out in the Guanajuato 2040 State Development

impact. “With or without FTAs, competitive companies will

Plan, which projects Guanajuato will be the fifth-largest state

prevail,” Rojas says. “Even if the US decides not to pull out

economy in Mexico by that year. COFOCE is participating

of NAFTA, more competitive exports mean more business

in outlining the priorities of the program and Rojas lists

opportunities for local companies.” COFOCE has already

the construction of test tracks and the promotion of the

calculated what would be the impact on local operations due

Guanajuato Auto Show as key projects to develop the state’s

to tariffs resulting from reverting to a WTO-regulated market.

automotive industry, coupled with the implementation of the

Based on that, Rojas and his team have determined how much

latest digitalization trends.

VIEW FROM THE TOP |

GROWING EXPORTS KEY FOR JALISCO’S DEVELOPMENT RUBÉN RESÉNDIZ General Manager of JALTRADE

Q: What is Jalisco’s role in the Mexican automotive

JALTRADE has been working with companies in the sector

industry and how much does the state represent in terms

and receiving the support and expertise of the Nuevo

of exports?

Leon Automotive Cluster. We applied the methodology

A: Between January and August 2017, total exports from

that the cluster established and have advanced swiftly

Jalisco accounted for US$33.7 billion. The state has a

thanks to its advice. Universities, companies and the

significant export offering, including everything from

government are also part of this initiative to boost the

agrobusiness and industrial manufacturing to ideas, software

local industry.

and innovation. The electronics industry leads the state’s exports, with automotive in second and food products placing third. This offer grows as we develop export consortiums and support export groups through training, certifications and the establishment of direct contacts with buyers abroad. During the same period in 2017, US$5.6 billion in exports

US$5.6 billion of Jalisco’s exports came from the automotive industry between January and August 2017

came from the automotive industry. This represents a 6 percent decrease compared to the total exports registered

While we have been actively participating in its first stages,

between January and August 2016. Honda is the only OEM

we think the development of the new Jalisco cluster should

plant in the state but there is an interesting supplier base

stay in the hands of the private sector so that it moves on

of Tier 1 and Tier 2 companies. The state government places

its own when administrations change. There is no reason for

value on the automotive industry and is making an effort

the government to interfere in these associations.

to attract foreign companies from Japan and Germany. To this end, an automotive-oriented industrial park in Lagos

Q: What are the main areas of opportunity for the state to

de Moreno was established, strategically located near

develop a strong local supply chain?

Aguascalientes, San Luis Potosi, Guanajuato and Queretaro.

A: The local electronics industry has always imported

The continued growth of the electronics industry and its

most of its materials and components, which also

relationship with the automotive sector has also helped

happens in the automotive industry. However, many of

attract more projects to the state.

the components imported from Asia could be produced in Mexico. Clusters and private companies are focusing

Q: What is the state government’s role in developing the

on addressing these needs. Activities such as stamping,

local industry?

mold fabrication and maintenance, plastic injection,

A: JALTRADE is working to develop a strong supplier base

lamination and die-cutting are a few examples of what

for the electronics and automotive industries. This effort

the industry and the local supply chain need. Since

includes certifying and training SMEs and finding resources

companies without certifications have no opportunity

for them to modernize their plants.

to enter the automotive industry, JALTRADE has focused on gathering resources to help SMEs receive training and

Our other goal was to create the Jalisco Automotive

gain certifications in these business areas.

Cluster. This cluster now has over 30 member companies and has developed links with CLAUGTO, Clautedomex and other automotive clusters in Aguascalientes, Nuevo Leon

The Jalisco Foreign Trade Promotion Institute (JALTRADE) is

and Queretaro. AMIA and INA support this collaboration

a decentralized public organism in charge of promoting trade

between clusters and good practices are being shared

between the state of Jalisco and foreign companies. It offers

among the clusters to the benefit of the newest ones.

strategic information on international trade

| STATE SPOTLIGHT

GUANAJUATO, CROWN JEWEL OF THE BAJIO In recent years, the state of Guanajuato in Central Mexico has become a world reference because of its economic dynamism, its investment-attraction capabilities and its drive to create adequate conditions for the professional development of its inhabitants. Guanajuato has a strategic and privileged location, which has been a key factor for foreign and national investors to install their operations in the state. In a 400km radius, companies can access 80 percent of the Mexican market and 70 percent of the country’s industry. Moreover, the region is responsible for 70 percent of Mexico’s international trade and exports. In terms of connectivity, Guanajuato has privileged access to the North American region. Both the NAFTA and Pan-American roads run through the state, while Route 15 that connects Mexico City, Guadalajara and the northern border is accessible south of the state. “By the end of the year, we will deliver the Celaya railway bypass and in our 2040 plan we foresee the construction of another bypass in Irapuato,” says Miguel Márquez Márquez, Governor of the State of Guanajuato.

Guanajuato will be the main vehicle producer in Mexico and Latin America by 2020 During the current state government administration, ongoing and new public policies were aimed at strengthening education, infrastructure, security, social development and health. Guanajuato is ranked fourth in terms of job creation in Mexico and data shows that seven out of every 100 jobs are created in Guanajuato. Only in 2017, 62,000 new jobs were created in the state, resulting in an average of 50,000 new positions per year between 2013 and 2017. “Human capital has been key for the development of Guanajuato,” Márquez says. “We are now the leading state in terms of training and in the opening of academic slots due to the industry’s talent demand.” Twenty-three countries are investing in Guanajuato, which has been key to ensuring the state’s economic development. “By 2020, we expect Guanajuato will be the main vehicle producer in Mexico and Latin America,” says Márquez. Between 2013 and 2018, 267 new investments were registered in the state, This has led to growth of twice as much as the national average. Today, Guanajuato is the seventh-largest state in economic terms.

| VIEW FROM THE TOP

DECELERATION NOT CATASTROPHIC FOR THE INDUSTRY’S FUTURE GUILLERMO PRIETO Chairman of AMDA

Q: Given the renegotiation of NAFTA, what are Mexico’s

anticipated sales due to market uncertainty. The election of

opportunities to improve its position in the international

a new president in the US, coupled with the renegotiation of

automotive market?

NAFTA and less than friendly rhetoric from the US toward

A: The automotive industry is a pillar of the Mexican

the Mexican automotive industry were key elements that

economy, representing 3 percent of national GDP and 18

kept sales from maintaining that aggressive growth.

percent of manufacturing GDP. It is also the main currency generator in the country, at over US$60 billion per year. The

The presidential elections here were another key factor that

regional integration between Mexico, Canada and the US is

increased the level of uncertainty in the domestic market.

critical and all industry participants are hoping for a fruitful

Between January and April 2018, sales contracted 9.3

renegotiation. This agreement must be advantageous for

percent compared to the same period in 2017. Considering

all three countries and we do agree that it needs to be

the growth levels seen in previous years, we expected

updated after 25 years. However, we also know that we

a decrease of 5-6 percent. The added volatility from

cannot measure NAFTA’s success based only on the deficit

the dollar-peso exchange rate contributed to the more

that the US may have with Mexico. The more trade we have,

pronounced fall.

the more successful our economies can be. Still, we do not see this 9.3 percent decline as catastrophic Regardless of these discussions, I think Mexico is in an

for the industry. This is just an adjustment and it is possible

excellent position in the global automotive industry. We

that we will see better results in the second half of 2018.

are already the seventh light-vehicle producer and the third

The second half of 2017 saw major sales decreases as well

exporter and by 2020 I expect the industry will have an

so, by comparison, this year’s numbers could be healthier.

output of 5 million light-vehicle units. Our challenge now is

In the end, it will all come down to the proposals outlined

to improve our logistics infrastructure to move an extra 1.5

by the new administration and how successful they are in

million units from manufacturing plants to the final user. Ports

boosting foreign investment and the country’s economic

and highways are already showing signs of over-capacity and

stability, while eradicating corruption and impunity.

the situation will only worsen as production increases. Q : H ow h a s t h e s a l e s d e ce l e rat i o n i m p a c te d Q: What do you see as the main causes behind the

dealership groups?

sustained drop in domestic light-vehicle sales?

A: Uncertainty has increased not only in the automotive

A: Over the past six years, light-vehicle sales grew at double-

sector but in most economic activities. Prices increased

digit rates. This growth was significant considering that in

as did interest rates following numerous revisions from

2012 we were selling less than 1 million vehicles per year

Banxico that pushed rates over 7 percent from 3 percent.

and we ended 2017 with total sales of over 1.5 million units.

These increments have an immediate and direct impact on

It is difficult to sustain such accelerated growth, especially

the costs of inventories for dealers because most sales-

considering the bar was set higher each year. In particular,

floor financing plans are linked to the Interbank Interest

2016 was an exceptional year with a growth rate of 18.6

Rate Balance. Inventories have also increased, although that

percent compared to 2015, which we think was caused by

has been dependent on each brand’s performance. While some brands have shown increments of 100, 200 or even 300 percent, comparing 2017 with 2016, the average has

The Mexican Association of Automotive Dealers (AMDA)

been 25 percent, moving inventories to 70 days from 56

was founded in 1945 and it now represents over 1,800

days. Some brands have reached inventories of 180 days,

dealerships

which combined with the increase in interest rates has led

groups

located

throughout the country

than

210

cities

to a significant cut in profit margins.

VIEW FROM THE TOP |

A CLEAR ROADMAP FOR REACHING MARKET POTENTIAL MIGUEL ELIZALDE Executive President of ANPACT

Q: What are your projections regarding the contraction of

A: There are five key areas where the industry should focus.

the domestic market?

The first is what we call green incentives, which are related

A: The projection we made at the end of 2017 regarding

to new environmental regulations. Considering the added

domestic sales in 2018 expected a wholesale market of

investment necessary to purchase new, high-tech units, the

41,000 units and retail of 40,000 vehicles. We closed

government will have to provide incentives for companies

2017 with 40,756 units sold through wholesale and 41,765

to renew their fleets. These will also be crucial for fleets

through retail, which means sales would remain stable in

to purchase new vehicles in line with the new standards

wholesale and we could see a contraction of 4.3 percent

stipulated by NOM-044-SEMARNAT. Second, we must

in retail operations. However, we also performed a market

improve the financing conditions offered by development

analysis in collaboration with UNAM and its Economics

banks. So far, OEMs’ financing arms offer more attractive

School that showed the maximum potential demand of

loan options so development banks must step up their

the retail heavy-vehicle market would be 66,900 units if

game to support the industry, particularly at the owner-

we operated under optimal conditions.

operator level.

So far, we are 28 percent below the industry’s best-case

Professionalization is the third issue we must tackle, not

scenario. Between January and June 2018, we have seen a

referring in this case to operators but to micro, small and

fall in wholesale of 9 percent and a 1 percent decline in retail.

medium road-carrier companies. Most of these players

We come from an already lower result in 2017 of 6.8 percent

are family companies that have never received training on

in wholesale compared to 2016 and 5.2 percent in retail.

how to best administer their business. We have developed

We do anticipate, however, a pick-up in purchases ahead

several training plans over the years but we think these

of the two regulatory changes that are expected to come

should be compulsory and tied to the financing offering

to the industry. NOM-012-SCT related to road safety will be

and the availability of green incentives.

enforced on Jan. 1, 2019, while NOM-044-SEMARNAT will move the industry to Euro VI and EPA 13 from Euro IV and

Our fourth focus refers to the modernization of regulations.

EPA 04 in a process starting on Jan. 1, 2019 and finishing

All revised regulations should consider the latest technology,

two years later on Jan. 1, 2021.

particularly regarding safety. This area has gradually improved and as an example, ABS braking systems will be

Q: How have the NAFTA renegotiations impacted the

mandatory starting on Jan. 1, 2019 for all vehicles registered

heavy-vehicle sector?

at the federal level.

A: We do not make forecasts regarding production and exports but we have noticed gradual recovery in the market,

However, what is still lacking is vehicle inspection, which

particularly in export operations. Between January and May

is our fifth priority. Vehicle inspection should be the

2018, exports increased 26.0 percent while production

promoter of fleet renewal but we have to promote more

volumes rose 8.9 percent, although we must consider that we

transparency. Vehicles that do not comply with emission

are still operating under the trade conditions established by

standards and service criteria should be removed from

NAFTA. At the moment we have not seen any impact related

highways.

to the renegotiation of the treaty, but the US administration has already implemented tariffs of 25 percent and 10 percent on steel and aluminum, respectively.

The

National

Association

Bus,

Truck

and

Tractor

Manufacturers (ANPACT) has represented heavy vehicle and

Q: What should be the industry’s priorities to help the

engine manufacturers since 1992, promoting the development

domestic market realize its true potential?

of the commercial-vehicle industry in Mexico

| VIEW FROM THE TOP

AUTOMOTIVE LEGISLATION NECESSARY TO MAINTAIN GROWTH GUIDO VILDOZO Senior Manager, Americas Light Vehicle Sales Forecasting of IHS Markit

Q: What are your projections regarding the NAFTA

but in the rest of the world, which means a government

negotiations and the possible changes in regional content

support program that helps companies participate in this

regulations?

transformation should be considered.

A: IHS Markit does not make assumptions on where things are headed regarding the NAFTA negotiations. We are

Q: How likely is it that Mexico will diversify its exports

waiting for the end of the current talks and, for the time

outside the US?

being, our baseline forecast says negotiations will be

A: Mexico is ready, willing and able to compete in the

resolved favorably and we will move forward with a new

global market. The country has been capable to export

version of NAFTA.

to the US, which has been one of the most competitive markets in the world along with Europe for more than 30

Q: What do you see as the biggest risks for Mexican

years. The challenge we have is that the trading partners

production?

we expected to tackle, mainly Latin America and Mercosur,

A: Growth in Mexican production over the past five years

have contracted considerably, especially Brazil. Mexico has

has been easy due to the growth in the US market of

not been quick enough to consider other destinations such

approximately 1 million units per year. However, 2017 was

as Africa or Eastern Europe and to find ways to compete

the first year since the Lehman Brothers’ crisis in which the

against manufacturing hubs like Morocco, Turkey, Romania,

US market entered a stabilization cycle. The market closed

Poland and Hungary. Understanding how these countries

at 17.2 million units sold, which was a small contraction

export to other regions is critical for Mexico to be more

compared to 2016. In due course, the US market will

competitive and diversify its operations beyond NAFTA.

continue stabilizing to an end figure of 16.5 million units. As a result, Mexico will have to compete against the rest

Q: What do you see as the main advantages the Mexican

of the world to maintain its share in a relatively flat market.

industry has over the rest of the world? A: Mexico’s two main assets as a manufacturing hub are its

The US market is also becoming light-truck intensive, while

versatility and the quality of its production. The country

Mexico is passenger-car intensive. All new investments that

can build anything from an entry vehicle to a premium or

came to the country were following Corporate Average

luxury model and any model in between, following the most

Fuel Economy (CAFE) standards that favor passenger cars

stringent quality standards. In a growing and changing

but this is not necessarily ideal for what the US market is

environment, this allows Mexico to produce whatever the

demanding. Some companies are realizing this and shifting

global industry may require and it presents an opportunity

their operations accordingly. Ford, for example, canceled

for the country to continue building on its capabilities.

its manufacturing investment in San Luis Potosi because it saw there was no point in producing 400,000 passenger

Q: How can the government support the industry’s

cars if the US would not take them. Honda, Nissan and FCA

transformation?

have also introduced larger models to their production

A: We still see the absence of an automotive legislation

portfolio in Mexico and Toyota has changed its investment

as the biggest obstacle for the industry’s growth. All new

plans in Guanajuato to focus on its Tacoma pickup truck

plants coming to Mexico have been the result of companies

instead of the Corolla.

expanding their operations in North America, trying to localize their operations or exporting out of the country.

All these changes have originated within the private sector

None of them were the result of a true automotive policy

and, from our perspective, there is no awareness from

from the Mexican government. The industry is evolving

the government regarding the transition that is unfolding

rapidly and a change in vehicle motorization is imminent,

in the US market. SUVs are the future not only in the US

pushing aggressively toward electrification. Although

part of this transformation has permeated the Mexican

distort that projection but so far, interest rates are going

industry from a private-sector standpoint, nothing has

up, hindering the availability of financing which is crucial

been done from a legislative or an R&D standpoint.

for sales growth. On the bright side, the country is still

Mexico is playing to its strengths — manufacturing,

holding back used car imports from the US, maintaining

labor and trade agreements — and if another country

an opportunity for further growth.

offers better conditions in any of these fronts, we will see significant negative pressure on local manufacturing

We think the automotive market will grow at a pace

operations.

comparable to the country’s GDP. Regarding 2017’s results, with sales of 1.53 million units, it signals moderation in the

If we look at the industry from an operations point of

market. We are still facing headwinds derived from the

view, we have deficiencies in infrastructure and human

peso devaluation that resulted in higher prices.

capital. Both the port and the rail network have capacity issues and there are not enough people with the right

Conditions will remain the same in 2018 given that it will

skillset to run manufacturing plants the way they should

be a year full of uncertainty. On the one hand, we will

be run. Labor turnover levels are increasing considerably

be dealing with NAFTA negotiations, interest rates will

in both OEM and supplier operations, which clearly shows

continue to go up and inflation will still be an issue. On

we need more people working on the frontline of the

the other hand, the presidential elections on July 1 were

automotive industry.

another disrupting factor

Q: How important do you consider R&D operations to be for the future development of the national industry? A: The government must establish clear priorities for where the country should be in the coming years and R&D operations must be among them. R&D is a critical pillar in the industry’s development. Looking at Toyota’s strategy, for example, the company is investing very little in electrification yet it is aggressively focusing on fuel

Mexico’s lightvehicle sales results by 2020 will oscillate between 1.7 and 1.8 million units

cells. Companies are realizing that electrification is just a stepping stone to the true goal. Therefore, the only

Q: What will be the impact of the federal elections by

way to participate in these changes is by embracing R&D

the end of 2018?

and understanding manufacturing, logistics, emissions,

A: From a manufacturing standpoint, there is not much

legislative and market transformations. Assuming

that can hold back the industry’s progress. Investments

electrification and vehicle automation continue growing

have been announced, expansions are taking place

at the current pace, the endgame ideally should be for

and that is not likely to change. The domestic market,

the country to meet the rest of the world by 2030.

however, will definitely be impacted in the short term considering its development is closely tied to consumer

Q: Do you think the government should keep offering

confidence. We saw a significant decrease in sales during

incentives to boost FDI?

1Q17 after the presidential elections in the US. Similarly,

A: Because of our geographical position and the fact

consumer confidence was shaken in 1H18, affecting the

that Mexico competes first in the NAFTA market and

market dynamics for the automotive industry.

then internationally, Mexican states compete not only against themselves but also against US southern states.

Q: What would be your main concerns regarding the

These regions have historically provided an incentive of

coming change in administration?

approximately 30 percent on investments that are over

A: One of the main pillars for growth in the country has

US$1 billion. If that is the benchmark against what Mexico

been the automotive sector, which today contributes

needs to compete, then the government should keep

more to the national GDP than remittances. Ignoring

playing a role in attracting investment.

the role that the industry plays would be extremely detrimental to the economy as a whole.

Q: What are your projections regarding the development of the domestic market? A: We have revised our outlook downward and it seems

IHS Markit is the result of a merger between firms IHS and

domestic sales will probably be somewhere around 1.7

Markit. The company offers business intelligence to over

million light-vehicle units by 2020, according to IHS

50,000 players in capital-intensive industries. IHS Markit

Markit sales forecasts. There are elements that could

operates in more than 140 countries

| ROUNDTABLE

WHAT ARE MEXICO’S OPPORTUNITIES TO IMPROVE ITS GLOBAL POSITIONING?

The renegotiation of NAFTA has shone a light on Mexico’s true competitiveness as an automotive hub. Regardless of the outcome of these talks, the country must find a way to raise its standards as an investment destination or face a potential decrease in its manufacturing operations. Companies must find areas of opportunity to improve the local supply chain against other global leaders and lessen the country’s dependence on a single market. Although industry leaders have different opinions on what Mexico could do to strengthen its position, they all agree the

country still has a strong opportunity for further growth and higher value-added production.

Mexico’s participation in the industry will be founded on competitiveness. Our priorities should focus on market diversification and investing in the areas that are important to OEMs and suppliers in the country. Under this administration, Mexico has worked on implementing a “light” industrial policy where the government only intervenes in matters when the market demands it. Our focus has been on four

ROGELIO GARZA Deputy Minister of Industry and Commerce

pillars: generating world-class talent, promoting innovation, supporting supply chain development and creating synergies between clusters. If NAFTA were canceled and we worked under WTO regulations, a 2.5 percent tariff in car and auto parts production would not impact us as long as we remain competitive. We must keep growing our capabilities for investment to continue.

Mexico’s two main assets as a manufacturing hub are its versatility and the quality of its production. The country can build anything from an entry vehicle to a premium or luxury model and anything in between, following the most stringent quality standards. However, we still see the absence of an automotive legislation as the biggest obstacle for the industry’s growth. Mexico is playing to its strengths —

GUIDO VILDOZO Senior Manager, Americas Light Vehicle Sales Forecasting of IHS Markit

manufacturing, labor and trade agreements — and nothing is being done from a legislative or R&D standpoint. If another country offers better conditions in any of these fronts, we will see significant negative pressure on local manufacturing operations. The government must establish clear priorities for where the country should be in the coming years and R&D operations must be among them. R&D is a critical pillar in the industry’s development.

We are prepared for a scenario with or without NAFTA. We know that if NAFTA is canceled there would be an impact on our operations but it would also open an opportunity to further diversify those operations. The CPTPP, for example, opens new possibilities for our products to be exported to Asia and South America. Right now, Guanajuato exports to over 125 countries representing US$22 billion

MIGUEL MÁRQUEZ MÁRQUEZ Governor of the State of Guanajuato

per year when 20 years ago we only exported to three countries production worth US$200 million. If we consider this administration alone, we started 2012 with US$11 billion yearly in exports and we have doubled that number. We need to diversify our operations but not compromise the good relationship we have with our North American neighbors.

If the US pulls out of NAFTA, 38 percent of Guanajuato’s total exports would be deeply impacted including pickup production, which would face a 25-percent export tariff. Boosting players’ competitiveness is crucial to prevent harm because, with or without FTAs, competitive companies will prevail. We have worked to increase the competitiveness of Guanajuato’s exports to neutralize any harm stemming from the US leaving NAFTA. And even if the US decides not to pull out of NAFTA, more competitive exports mean more business opportunities for local companies. We

LUIS ROJAS Director General of COFOCE

have analyzed all tariff codes for Guanajuato’s main exports and looked for ways to boost companies’ competitiveness accordingly.

The country has demonstrated its capabilities as a competitive automotive hub and now our goal is to define the best way to face the current trade challenges including the possibility of new tariffs that could be implemented by the US on vehicle imports, similar to those the country slapped on steel and aluminum following Section 232 investigations on national security. These are interesting times and particularly now, many changes are coming. Considering that the automotive industry is the main success story stemming from the original NAFTA, our hope is that the new agreement

EDUARDO SOLÍS Executive President of AMIA

maintains conditions to ensure growth and progress in all three countries. There is a good opportunity to reach an agreement.

Mexico is in an excellent position in the global automotive industry. We are already the seventh light-vehicle producer and the third exporter and by 2020 I expect the industry will have an output of 5 million light-vehicle units. Our challenge now is to improve our logistics infrastructure to move an extra 1.5 million units from manufacturing plants to the final user. Ports and highways are already showing signs of over-capacity and the situation will only worsen as production increases. The automotive industry is a pillar of the Mexican economy, representing 3 percent

GUILLERMO PRIETO Chairman of AMDA

of national GDP and 28 percent of manufacturing GDP. It is also the main currency generator in the country, at over US$60 billion per year.

The country has now entered the CPTPP agreement and is negotiating its FTA with the EU, which means more roads are opening for Mexico to diversify its operations and to lower the impact that an altered or even canceled NAFTA could bring. At the same time, talent is without a doubt one of the country’s greatest advantages. Over 100,000 engineers graduate each year and participate in the development and implementation of new technologies, including Industry 4.0 practices. Furthermore, OEMs and leading Tier 1 suppliers are now establishing their own training centers or universities to ensure talent availability. Such is the case with Nissan, BMW and Audi that have training centers working closely with the state and Federal governments.

ALBERTO TORRIJOS Partner and Automotive Sector Leader at Deloitte Mexico

The Mexican automotive industry has gained momentum and will continue on that path. The country has done a great job attracting OEMs and these companies have brought their Tier 1 suppliers along. The next step is to develop a strong local supply chain to support these companies. As premium brands such as BMW and MercedesBenz prepare to start operations and as GM ramps up its production, Mexico needs to evolve from offering inexpensive labor to being able to cater to increasingly complex vehicle platforms. This is not just about supplying a growing demand for components but also meeting the specific needs of luxury brands.

HÉCTOR SOTO Managing Director of the Automotive Cluster of San Luis Potosi

Guanajuato Puerto Interior / Silao, Guanajuato

PRODUCTION &Â INVESTMENT

Once companies decide to establish their new operations in Mexico, they must ensure a soft landing to make operations run as smoothly as possible. A stable financing partner is key, coupled with a strong localization strategy depending on the companyâ&#x20AC;&#x2122;s priorities in terms of labor, energy and land costs, as well as development of its local supply chain. Mexico has already developed defined automotive clusters and it is up to companies to decide where they can make the most of their investment.

In this chapter, leaders of the automotive clusters illustrate the advantages that each region provides to potential investors based on their own development efforts. Industrial developers and financing partners also share their experience on how to support new companies looking for the best place to establish new operations and what investors might find in each of the countryâ&#x20AC;&#x2122;s industrial hubs.

CHAPTER 2: PRODUCTION & INVESTMENT 34

ANALYSIS: Mexico, a Halfway Polished Diamond

VIEW FROM THE TOP: Diego Spannaus, HSBC

VIEW FROM THE TOP: Guillermo Jiménez Sepúlveda, ProCrédito

VIEW FROM THE TOP: Eduardo Muñiz, Bancomext

INSIGHT: Eduardo Castillo, UNIFIN

INFOGRAPHIC: Location, Location, Location

VIEW FROM THE TOP: Fidel Otake, CLAUGTO

INSIGHT: Manuel Montoya, CLAUT

INSIGHT: Héctor Soto, Automotive Cluster of San Luis Potosi

INSIGHT: Alexandro Burgueño, Jalisco Automotive Cluster

INSIGHT: Daniel Hernández, Queretaro Automotive Cluster

INSIGHT: Elisa Crespo, Automotive Cluster of the State of Mexico

VIEW FROM THE TOP: Mónica Mendoza, GIRAA Automotive Cluster

Efraín Mata, GIRAA Automotive Cluster

VIEW FROM THE TOP: Jaime González, CLAUZ

ROUNDTABLE: What Advantages Does Your State Provide to Potential Investors?

PROJECT SPOTLIGHT: Guanajuato Puerto Interior, from Manufacturing to Mindfacturing

VIEW FROM THE TOP : Armando Cortés, ProMéxico

INSIGHT: Jesús Longares, IDOM Mexico

VIEW FROM THE TOP: Alejandro Lara, American Industries

VIEW FROM THE TOP: Lorenzo Dominique Berho, Vesta

| ANALYSIS

MEXICO, A HALFWAY POLISHED DIAMOND When deciding where to put their money, companies weigh a plethora of factors, from labor costs to taxes. Mexico’s advantages as a production and investment destination are many, and have helped turn the country into a manufacturing behemoth. Still, it lags in certain areas

Investment decisions are not made lightly. Many factors

Senior Manager, Americas Light Vehicle Sales Forecasting of

must be considered beyond a company’s country of origin

IHS Markit, this is something that needs to be done for the

and according to KPMG’s latest Competitive Alternatives

country to remain competitive.

analysis, Mexico is the most competitive country with the lowest business cost for investment. The report, which

“Mexican states compete not only against themselves but

analyzed 100 cities in 10 countries and took US investment

also against southern US states,” he says. “These regions

costs as a basis for comparison, showed Mexico as the ideal

have historically provided an incentive of approximately

investment destination being 22.5 percent more competitive

30 percent on investments over US$1 billion. If that is the

than its northern neighbor. Labor, land, utilities, taxes,

benchmark against which Mexico needs to compete, then

transportation and financial or other incentives must be

the government should keep playing a role in attracting

considered to have a clear perspective of which country or

investment.” That being said, some governments have chosen

region offers the best advantages for a company. Mexico

to move away from the incentive approach and play on the

excels in some of these areas such as salaries which remain

state’s advantages instead. “Guanajuato offers legal certainty

a sore spot in NAFTA renegotiations. KPMG’s report shows

above anything else,” says Miguel Márquez Márquez, Governor

an average annual salary of US$35,168 in Mexico, which

of the state. “Especially in an uncertain environment, the best

is only 32 percent of the US average of US$109,542. This,

thing we can offer companies is confidence regarding their

however, considers all manufacturing and service industries.

investment, no matter what. We must consider ourselves as

Taking into consideration only the automotive industry, the

account managers, which means that we must follow up on

difference is much more pronounced.

any relationship we establish with new investors.”

According to the Friedrich Ebert Foundation, the average

Mexico might be KPMG’s designated champion regarding

annual wage in the automotive industry in Mexico is US$7,198.

investment competitiveness but the country is far from

The US offers an average annual salary of US$63,306,

perfect. The same report highlights transportation costs as a

according to the Bureau of Labor Statistics, which is almost

major area of opportunity to increase competitiveness. While

nine times higher than the average in Mexico. “All global

the average annual transportation cost per kg of merchandise

automotive clusters have a low-cost manufacturing partner,”

is US$929 in Japan, the leader in this segment, in Mexico

says Manuel Nieblas, Partner and Manufacturing Industry

that number rises to US$2,568. Moreover, as production and

Leader at Deloitte Mexico. “This means that forcing Mexico,

export operations grow, Mexico’s logistics infrastructure and

the low-cost manufacturer in the North American region, to

regulatory framework are now insufficient to cater to the

increase wages would be unviable and would compromise

demands of automotive companies. “The biggest challenge

the dynamics of the region.” Beyond salaries, Mexico also

we face is the regulatory framework for the transportation

offers advantages in terms of land costs. According to the

sector,” says Miguel Muñoz, Managing Director of Geodis

KPMG report, the total investment cost per square foot in

México. “If we compare Mexico to the US or Europe in terms

Mexico, considering both land and construction costs, is

of technology advances or safety regulations, we are far from

US$44.7 while in the US it is approximately US$138.6. Utility

operating under state-of-the-art conditions. Ports are also

costs are also advantageous, albeit more moderately. In

saturated and we are operating with fiscal precincts that

Mexico, the average cost for electricity is US$0.102/kWh. In

have technology from the last century.”

the US it is US$0.105. Although already being addressed by the government and Government incentives have also played an important role in

clusters throughout the country, the local supply chain’s

attracting investment to the country. There are differences

competitiveness is also a worrisome factor for Mexico’s

among states regarding the benefits that can or cannot

development. “Supplier localization is an advantage for any

be offered but in the end, investment entering the country

company and we are open to finding new suppliers in Mexico.

only boosts national development. This strategy has proven

However, our customers’ demands in terms of quality, cost

difficult at times, given that some administrations were

and deliveries are extremely high,” says Yasushi Nishikawa,

willing to offer more than their successors, leading to court

President of Sumitomo Corporation de México. “Only

battles between states and companies, but for Guido Vildozo,

complying with the expectations OEMs have is not enough.”

VIEW FROM THE TOP |

SOLID GROWTH, MODERATE INFLATION EXPECTED DIEGO SPANNAUS Head of Global Trade and Receivable Finance LAM at HSBC 35

Q: How has HSBC’s growth forecast for Mexico been

Q: What role do you think China will play in the development

impacted by changes in the political and economic

of the Mexican automotive industry and how will it change

environment of North America?

trade dynamics between Mexico and its NAFTA partners?

A: HSBC maintains the same outlook. In terms of growth,

A: China mainly exports to Mexico and then Mexico re-

while economic activity was slightly lower in 2Q18 than our

exports to other countries with the US being the main

estimates, Mexico’s economy has shown resilience in 3Q18.

target. NAFTA 2.0 should set an attractive landscape for

Considering the market volatility stemming from the NAFTA

Chinese companies to increase their investments in Mexico.

modernization process, the mutual imposition of trade tariffs

If the outcome of the negotiations is positive, we expect

between the US and Mexico and the dynamics preceding the

Chinese foreign direct investment in Mexico to grow.

2018 presidential elections, 2Q18 was rather challenging. We have kept our growth forecasts above general consensus,

Q: What are the main opportunities for Mexico to strengthen

with year-on-year growth rates of 2.5 percent for 2018 and

its position following the modernization of NAFTA?

2.7 percent for 2019. We expect this growth will be supported

A: Mexico has very little to lose and a lot to gain from

by sound services and gradual recovery of Mexico’s industrial

the renegotiation. This is particularly true when including

production. Exports and external cash flows such as foreign

economic sectors that were not part of the original

direct investment and remittances have incremented in

agreement such as energy and retail. Consumers were not

2018, which suggests that the external factors impacting

really a part of the original 1994 agreement but with the

the Mexican economy remain in check.

penetration of the Internet and the growth of e-commerce, it is likely that US retailers will push to increase their online

Mexico has shown a constructive attitude toward NAFTA.

sales in the region.

A successful deal could further strengthen trade dynamics in the region. Markets have reacted well both to the

Mexico has already established itself as a strong automotive

resumption of talks in July 2018 after a two-month pause

hub. The country’s infrastructure is already strong, its supply

and to negotiating teams highlighting the possibility of

chain has matured and the country’s labor is qualified. We

speeding up the text modernization process.

believe the Mexican automotive industry will continue growing as more manufacturers see Mexico as an attractive

Q: What are your expectations for inflation in

option to grow their operations. We agree with Bloomberg

2018 and 2019?

about Mexico being the most attractive emerging market.

A: Inflation exceeded market expectations during the first

The country needs to finalize the NAFTA renegotiations,

half of July 2018 due to faster-than-anticipated increases

include sectors that were not originally contemplated in

in both core and noncore inflation components. The year-

the treaty’s text, strengthen the domestic market, increase

on-year rate is rising and has reached 4.85 percent after

its competitiveness and boost security and rule of law in

hitting an annual year-on-year low at 4.41 percent in the

its territory. HSBC believes that Mexico has a potential for

second half of April 2018. We do not believe the recent rise

domestic sales of about 2.1 million vehicles a year. This

signals change in the underlying trend of disinflation but

demand is between 600,000 and 700,000 vehicles larger

the pace of convergence to the central bank’s target will

than the number of vehicles being sold today.

be delayed. HSBC recently revised up its inflation forecast to 4.1 percent toward the end of 2018 from its previous 3.8 percent expectation. This still reflects significant ease

The Hong Kong and Shanghai Banking Corporation (HSBC)

compared to the 6.8 percent rate registered at the end

is a UK-based multinational financing institution. The bank’s

of 2017. By the end of 2019, we expect inflation to be

subsidiary in Mexico, Grupo Financiero HSBC, is one of the

3.7 percent.

main financing institutions in the country

| VIEW FROM THE TOP

TACKLING FINANCIAL CHALLENGES IN THE INFORMAL SECTOR GUILLERMO JIMÉNEZ SEPÚLVEDA Director General of ProCrédito 36

Q: How did ProCrédito become a fully Mexican-

had a model for micro and SMEs with a credit range

owned SOFOM?

between US$10,000 and US$400,000.

A: ProCrédito was founded as ProCredit México. It was a subsidiary of Germany’s ProCredit Holding in 2006, but

Q: What advantages does ProCrédito technology deliver?

at the beginning of 2016 it was sold to a group of Mexican

A: Our technology is focused on the informal and

executives who also acquired the unit’s credit technology

semiformal markets. We analyze each client individually,

and all its staff and subsidiaries. Although we are still

looking at their activities and how those are conducted.

associated with Germany in the systems, technology and

We also ask for proof of income and expenditures.

training areas, this is no longer true for the economic

Combining our methodology with computer software, we

sphere. We changed our name to ProCrédito in 2018 as

then make an evaluation and in two days prepare the loan

part of this process.

and release it. This technology is similar to that used for corporate credit, only on a smaller scale. It involves a tool

ProCrédito loans range between MX$200,000 (US$10,000) and MX$6 million (US$300,000)

that enables us to make decisions based on data provided by our clients, which is not found in an audited financial statement. Financial statements are usually internal and fiscal information often differs from reality, so we have to balance this data. Q: Why did ProCrédito decide to establish in central Mexico and the Bajio region? A: We believe the area enjoys stable growth compared with the country’s northern and southern regions that

ProCrédito provides loans to people engaged in business

either are not growing or that grow rapidly only to

activities or to small enterprises. For instance, two years

collapse when a crisis occurs. ProCrédito also decided to

ago, the company lent a client money to buy his second

focus on this region because of the automotive facilities

urban bus. Last year, we extended more funds so he could

being built there. Many of ProCrédito’s clients are Tier

acquire his third bus and he is now asking for credit to

3 suppliers. They have lathes or tooling equipment and

buy two more.

provide machining to the suppliers of large Japanese, US or German assembly plants. Some clients offer

We started by offering microcredits to the informal

cleaning or personnel transportation services directly to

economy. In 2010, our parent company ProCredit Group

automotive plants. Our subsidiaries in Aguascalientes,

raised the level of available credit to our clients in

Leon, Queretaro and San Juan del Rio work mostly with

East Europe, South America and Mexico from around

the automotive industry.

US$2,000-US$3,000 to between US$10,000 and US$50,000. When ProCredit Holding divested from

What

ProCrédito’s

ProCredit México and we took over, the company already

supporting SMEs?

main

strategy

for

A: Our priority is flexibility. Our model prevents clients from getting too indebted and enables us to lend them ProCrédito is a SOFOM that focuses on providing credit to

money according to their needs and business cycles. For

companies without access to bank products and that are

example, a client in tourism-oriented transportation may

part of the informal economy. Once a subsidiary of ProCredit

require a payment scheme wherein they pay more during

Holding, ProCrédito now is a 100-percent Mexican institution

peak seasons and less during low seasons. ProCrédito

is also flexible regarding the duration of loans. We may

A: Even though ProCrédito has a small past-due portfolio,

offer a loan due in four or five years and often clients will

approximately 20 percent of our clients fail to pay on

pay it off before the deadline because we do not charge

their due date and do so a few days down the line. This

for advance payments. Transport companies account

market segment usually pays but not on time. We have

for 53 percent of ProCrédito’s clients, with a variety of

to find ways to manage this better.

businesses making up the rest. Clients that produce or offer services to the automotive industry account for

We have many good practices from ProCredit Holdings

about 10 percent of ProCrédito’s client portfolio.

in Germany, including our credit analysis methodology, procedures, IT systems and institutionalism. Our main

To prevent clients from becoming too indebted,

challenge is adapting these practices to Mexico’s

ProCrédito analyzes credit needs and payment

informality, economic cycles and credit culture. To

capabilities. We do not lend more money than necessary,

achieve this goal, ProCrédito tries to be empathetic with

even if the client’s payment capabilities are greater.

its customers and their needs and to remain flexible in

ProCrédito also periodically checks with several credit

terms of payments and economic cycles.

bureaus to see if our clients have increased their debt with other institutions. We monitor our customers with

Q: What are ProCrédito’s growth priorities in

risk evaluations run by our credit risk department once

Mexico for 2018?

or twice a year. Procrédito remains close to its customers

A: We want to continue growing in the center of the

on a monthly basis when a loan is issued and does a

country and in the Bajio region and to open subsidiaries

credit monitoring assessment to ensure they can fulfill

in Mexico City, the State of Mexico, San Luis Potosi and

their duties upon maturation of their debt.

Monterrey. We are also discussing with an assembly plant the possibility of becoming this company’s financial

Q: How would you define ProCrédito’s ideal client and

institution oriented to the informal market. Part of our

how do you attract these players?

midterm strategy focuses on building alliances with

A: We look for businesses that have been operating for a

automotive companies and distributors that have 15-30

couple of years at least. Most of what we do is financing

dealerships.

growth, either through working capital or asset acquisition. Our loans range between MX$200,000 (US$10,000) and

Since acquiring ProCredit México, we have increased

MX$6 million (US$300,000) for entrepreneurs who lack

the company’s loan portfolio by about 25 percent and

access to the banking system, either because they have

doubled its capacity to offer new loans. ProCrédito issues

no previous banking experience or because the quality of

many loans per month and its clients often pay them

their financial information does not comply with banks’

before they are due thanks to their positive cash flow. We

requirements.

expect to achieve a 48 percent growth rate in our balance sheet in 2018 by focusing on the automotive market and

Q: What are the main challenges associated with offering

either financing vehicles and trucks or Tier 3 suppliers.

credit to the informal sector and how has ProCrédito

We also plan to further diversify into the service and

faced them?

production entrepreneur segments among SMEs.

| VIEW FROM THE TOP

NAFTA 2.0: EXPECTED STEPPING STONE FOR GROWTH EDUARDO MUÑIZ Head of Automotive, Aerospace and Logistics Financing at Bancomext 38

Q: What opportunities can a modernized NAFTA 2.0 bring

percent in the last five years in its automotive-oriented credit

to the Mexican manufacturing industry?

portfolio. We usually are in the top position when it comes

A: Even before NAFTA 2.0 is defined, North America has

to offering funding to the Mexican automotive industry. In

achieved competitiveness and consumption levels that can

2017, we grew our portfolio for this industry by 20 percent

hardly be ignored. In terms of manufacturing, the region is

to close to MX$12 billion (US$600 million). Bancomext’s

so closely integrated that any separation between these

product mix includes not only first-floor or direct credit, but

markets would mean the dismantling of a world-class

also guarantees, letters of credit, factoring and second-floor

value chain and an important loss of competitiveness

credit in which we increased by 237 percent the outstanding

against other regions. Mexico has started focusing

balance from 2012 to 2017.

on the production of high added-value manufactured goods and has the potential to successfully take part in

Q: How does Bancomext accompany investors interested

the global market. In 2017, within the automotive sector,

in Mexico?

Mexico became the seventh-largest light-vehicle producer

A: Most of these players already have information about

worldwide, reaching record production of over 3.8 million

Mexico and want to know how to introduce their investments.

light vehicles and ground-breaking exports of 3.1 million light

As a development bank, Bancomext addresses these

vehicles, despite uncertainties around the future of NAFTA.

companies’ concerns and supports them as they land their

Mexico continues to attract significant foreign investment

investment projects. Companies may be interested in finding

and the sector maintains a favorable outlook. We expect

technology partners or co-investors and Bancomext helps

this sector to continue growing and advancing towards a

them by taking advantage of our solid business intelligence.

most likely output of 5 million light units by 2020 or 2022.

We know many companies participating in each industry and we have several credit lines with other development banks

Q: What is the role of development banking in supporting

around the world to pull FDI toward Mexico.

growth of the Mexican automotive industry? A: Development banks usually are the first point of contact

Q: How do quality system certifications boost the appeal

for foreign investors interested in a new country. Development

of an automotive company in the eyes of Bancomext?

banks focus on attracting and channeling projects until they

A: Certifications are essential if a company wants to be

consolidate. After that, it is time for commercial banks to jump

a part of the automotive industry. Having certifications

in and support investors. Part of Bancomext’s job is making

proves that a company has good technical, administrative

sure investment projects have the funding required to initiate

and financing capabilities and thus can deliver orders

operations. In recent years, Bancomext has channeled around

and generate enough revenue to pay for financing, which

MX$100 billion (US$5 billion) to the automotive industry,

mitigates risks.

providing liquidity and funding capital expenditure for investment projects in the vehicle sector. However, we not

Q: How can Special Economic Zones (ZEEs) become more

only support foreign investors in Mexico but also suppliers

attractive for automotive companies?

and service providers in lower tiers of the supply chain.

A: The automotive industry is generally organized in

Bancomext has achieved an average annual growth of 9.8

regional clusters. ZEEs open a natural space for the industry but so far, these zones have been established outside these regional clusters, so it will take time for an

The National Bank of Foreign Trade (Bancomext) is a

automotive company to move into one of these areas.

development bank focused on attracting FDI to Mexico and

There are companies interested in establishing in those

promoting trade. It has the capacity to grant corporate loans

areas but it might be easier and faster for companies in

directly or through collaborations with commercial banks

other sectors.

INSIGHT |

LEARNING WHERE AND HOW TO GROW EDUARDO CASTILLO Deputy Director General of Automotive Financing at UNIFIN 39

Although some players might be wary of catering to the

vehicle segment as 4-6 million transactions involving used

SME sector, especially under volatile economic conditions,

cars take place in Mexico every year. Yet, this market has

this market offers an excellent opportunity for growth.

been largely neglected by financing institutions,” says

Financing partners must find the right way to support these

Castillo. “Finding inexpensive loans with low interest rates

players, says Eduardo Castillo, Deputy Director General of

is difficult in the used-vehicle segment.”

Automotive Financing at UNIFIN. While the overdue portfolio in that segment is larger Castillo says that Mexico’s need for financing options

compared to the new-vehicle market, Castillo thinks

and UNIFIN’s portfolio of financing products make for a

UNIFIN could find a way to balance risks with benefits to

winning combination to cater to the needs of SMEs. “We

go ahead. SMEs and owner-operators with small fleets

have created a niche where we can thrive financially while

have traditionally been among the main beneficiaries of

supporting financing in Mexico,” he says.

UNIFIN’s financing product for rolling stock. With half of its total client portfolio in this market segment, UNIFIN has

So far, there is no particularly aggressive competition in

focused on creating financing products that cater to SMEs

Mexico’s leasing market because banking institutions do

that lack access to large loans. “The average credit for used

not consider leasing as a sound investment option and

vehicles amounts to MX$110,000 (US$5,500),” he says. “The

are not interested in taking part in it, according to Castillo.

challenge is finding the right loan maturation period where

Nevertheless, UNIFIN has found its niche, acting as a

monthly payments fit clients’ budgets.”

SOFOM that focuses on financing, leasing and factoring mainly for SMEs in different sectors such as automotive.

While it may be challenging to offer loans to companies

About half of the leasing services that UNIFIN has marketed

in Mexico’s informal economy, Castillo says UNIFIN keeps

are oriented to the acquisition of transportation equipment.

a small overdue portfolio by understanding client needs

“We have grown to hold between 5 and 8 percent of the

and payment capacities, running efficient operations and

Mexican leasing market,” he says.

thoroughly analyzing risk. “Our total credit portfolio amounts to approximately MX$60 billion (US$3 billion) and our overdue

UNIFIN has secured its market share by attacking

portfolio amounts to less than 1 percent of that,” he says.

automotive segments where it could more easily compete, betting on the potential of Mexican SMEs and constructing

UNIFIN’s competitive credit costs have also been an

hedge funds to offer competitive loan costs despite

advantage that the company ensures by securing the

exchange and interest rate variations. “For years we wanted

availability of funds. “Bank loans, securitization of our assets

to increase our share in the new-vehicle segment,” says

and placing bonds abroad are our three main sources of

Castillo. “But this segment is extremely competitive due

funding,” says Castillo. “UNIFIN has practically satisfied its

to the presence of most OEM financial branches that have

funding needs up to the second half of 2020.” Securitizing its

radically different funding costs compared to us.” Instead,

own assets has also been highly beneficial for the company

UNIFIN chose to focus on other markets such as freight-

and its investors, mainly because of the attractive yields upon

based transportation and financing of trucks, trailers and

maturation that UNIFIN can offer. Pension-fund holders are

other rolling stock. “We have reached a market share of 2-3

among those that find UNIFIN’s offering especially attractive

percent in that segment,” he says.

since the company’s stock normally yields effective interest rates plus two percentage points in periods of five years.

Mexico’s informal used-vehicle market is a potentially

Furthermore, since UNIFIN’s bonds in the US market are

attractive target segment for UNIFIN’s automotive financing

always linked to a hedge fund, the company eliminates the

products. “This segment is four times the size of the new

risk that variations in exchange rates could present.

| INFOGRAPHIC

LOCATION, LOCATION, LOCATION For new investors, choosing where to establish their

projections. Overall, Mexico offers competitive utility and

operations can be a challenging endeavor. The Bajio

land costs but the benefit will vary depending on the

region is growing but so is north and central Mexico. Many

region. Moreover, companies looking to place substantial

factors must be put into the equation for an informed

sums must also consider where their clients are and

decision to be made, which in the end will depend on

which region could offer the best opportunity for further

the company's priorities in terms of cost and expenditure

development in the long term.

ELECTRICITY COSTS - AUTOMOTIVE REGIONAL BREAKDOWN (CFE) 40

Northwest North Gulf North Jalisco Bajio Gulf Center Center West Center South Center East Valley of Mexico – North Valley of Mexico – Center Valley of Mexico – South

TARIFFS FOR LARGE LOW-TENSION (LLT) AND LARGE MEDIUMTENSION (LMT) DEMAND PER REGION (MX$/kWh per month) 500 400 300 200 100 0 2016 (LLT)

2016 (LMT)

2017 (LLT)

2017 (LMT)

2018 (LLT)

2018 (LMT)

0 Mexico's metropolitan area Source: Coldwell Banker Commercial, CENAGAS, Natural Gas Intelligence www.NatGasIntel.com/Mexico, CFE, KPMG, CRE

Queretaro

Queretaro - SLP

5 de Febrero

Mexico - Queretaro

Airport

Vallejo

Tultitlan

Toluca - Lerma

Tlalnepantla

Cuautitlan

Tepotzotlan

Naucalpan

Iztapalapa

Huehuetoca - Zumpango

AVERAGE LEASING COSTS FOR INDUSTRIAL FACILITIES IN REPRESENTATIVE AUTOMOTIVE REGIONS (US$/m2 per month) 8

WATER AND GAS AVAILABILITY IN MEXICO'S AUTOMOTIVE REGIONS (CONAGUA and CENAGAS)

WATER AVAILABILITY Zone

1 3

4 2 6

GAS AVAILABILITY

HydrologicalAdministrative Regions

Renewable or available water (hm3/year)

Northwest

North Pacific

25,596

Rio Bravo

12,352

Northern Central Basin

7,905

LermaSantiago Pacific

35,080

North Gulf

28,124

Aguas del Valle de México 1

3,442

8,273

Balsas

21,678

Center Gulf

95,022

5 7

Pipelines to be tendered by CENAGAS Pipelines proposed by companies

Pipelines under construction

Private pipelines Pipelines operated by CENAGAS

INVESTMENT COST-COMPETITIVENESS COMPARED TO THE US (percent) Mexico 25 Japan Canada 20

CLUSTER DELIMITATION Cluster

States it Covers

Automotive Cluster of Nuevo Leon (CLAUT)

Nuevo Leon

Laguna Automotive Cluster

Coahuila and Durango

15 10 5

Germany

Automotive Cluster of San Luis Potosi

San Luis Potosi

Queretaro Automotive Cluster

Queretaro

Jalisco Automotive Cluster

Jalisco

Automotive Cluster of Guanajuato (CLAUGTO)

Guanajuato

Automotive Cluster of the State of Mexico

State of Mexico

GIRAA Automotive Cluster

Aguascalientes

Automotive Promotion (FOMOAUTO)

Aguascalientes

Automotive Cluster of the Center Region Puebla – Tlaxcala (CLAUZ)

Puebla and Tlaxcala

Netherlands

Italy

France

Australia

RELATIVE SIGNIFICANCE OF LOCATION-SENSITIVE FACTORS WHEN INVESTINGCost INAdvantage MANUFACTURING Compared to theOPERATIONS US (Percentage) (percent range)

60 50 40 30 20 10 0

Labor costs

Facility costs

Logistics costs

Utility costs

Costs of capital

Taxes

2017

Monterrey

Guadalajara

Old Industrial Area

Northwest

Lopez Mateos South

Periferico South

El Salto - Airport

Santa Catarina

San Nicolas

Salinas Victoria

Pesqueria

Monterrey

Guadalupe

Escobedo

Cienega de Flores

Apodaca

1H18

| VIEW FROM THE TOP

ENSURE COMPETITIVENESS THROUGH TECHNOLOGY IMPLEMENTATION FIDEL OTAKE President of CLAUGTO 42

Q: How has supplier integration evolved in Guanajuato and

analyzing the state’s situation along with the government,

how is CLAUGTO supporting this process?

as well as the state and municipal police forces to determine

A: Integration into local supply chains has advanced.

the best strategy going forward.

OEMs have a time frame of five years to establish their local supplier networks and that has given us enough time

Q: What impact are you expecting from the current trade

to grow the participation of local companies. Many Tier 2

uncertainty between Mexico and the US?

businesses are expected to set up shop in Guanajuato by

A: Our productivity and competitiveness will help us

the end of 2018 and our focus at the moment is to support

face whatever challenges we might face. As long as

SMEs that want to participate more actively in global

companies remain strong and focused on their operations,

supply chains.

we will not be fazed by external tariffs. To this day, many plants in Guanajuato have been recognized by

We are organizing several events to promote supplier

their global headquarters thanks to their productivity

integration in Guanajuato and in our neighboring states.

levels and that puts Mexico in a good position within the

We have also developed a system to evaluate the level of

global industry. Our focus now should be on technology

maturity of local suppliers, coupling that with trainings and

integration, both in product and manufacturing processes.

couching programs during the year to connect the needs of

Within the cluster, we also have a committee focused

OEMs and Tier 1 companies with the available capabilities

on technology and innovation. Product-engineering

in the local supply chain.

directors and manufacturing leaders gather periodically to create synergies with research institutions to accelerate

Q: What impact will Toyota’s upcoming operations have

technology-development processes. Our role in this is to

on the state?

help the private sector connect with the government to ask

A: Toyota’s operations will bring a new wave of investment

for funds and resources for technology development, as

to the state. We expect the company will start operations

well as helping companies access new technologies.

by the end of 2019 and many new Tier 1 companies will accompany the OEM to support its operations. Companies in

Q: How is CLAUGTO helping companies embrace the

Guanajuato are already strengthening their own operations

Industry 4.0 trend?

to prepare for when Toyota arrives but newcomers will have

A: Industry 4.0 will shape the future of the sector. This is a

to set up shop quickly to be ready when the company starts

global trend and if we want to remain competitive, the only

ramping up its operations.

way is to implement technologies that ensure traceability, efficiency and data management. In 2018, we are launching the

Q: How has CLAUGTO addressed the challenge of security

4.0 Smart Industry program with several industrial institutions

concerns in Guanajuato?

to help local suppliers become part of this revolution.

A: Security has become a key topic for our human resources committee. This became such an issue for companies in

Q: How is the cluster incentivizing investment related to

the state that we had to create a subcommittee focused

R&D and engineering activities?

on asset protection. We are exchanging information and

A: To incentivize this, we can work with local research centers so they focus their operations on the needs of the industry. In this way, companies know their design

(CLAUGTO) was

operations will be supported by a local player. To that

officially presented in 2012 as a civil association made up of

end, we are working with the state government to create

six committees focused on preserving and promoting the

an R&D center focused exclusively on supporting the

development of the automotive industry in the state

automotive sector.

The

Guanajuato

Automotive

Cluster

INSIGHT |

CHEAP LABOR NOT MEXICO'S ONLY VIRTUE MANUEL MONTOYA Director of the Automotive Cluster of Nuevo Leon (CLAUT) 43

It is no secret that competitive labor costs are one of

US and Japanese workstyles but local suppliers are not

the main advantages that attract foreign automotive

yet fully acquainted with the specific requirements that

companies to Mexico. So why would companies set up

Korean companies are bringing.”

shop and stay in Nuevo Leon, where labor costs are higher than the national average?

Montoya expects Korean Tier 1s will soon integrate more local content, possibly in two years as the company

Manuel Montoya, Director of the Automotive Cluster

begins production of new models. “In its first production

of Nuevo Leon (CLAUT), says regions are more or less

stages, Kia strived for production stabilization,” he says.

attractive to an investor depending on the kind of operations

“The next step will integrate more local suppliers and this

they will carry out and the level of labor sophistication they

evolution will continue step-by-step.” Montoya is optimistic

need. “Certain processes need specialized talent that can be

regarding the opportunities of the local supply chain and

more easily found in Monterrey,” Montoya points out. The

he points out that some CLAUT members have already

region’s appeal is not to be found in labor costs as much

reached a 40-percent rate of national content integration.

as in the capabilities of the workforce. CLAUT’s objective is to strengthen the local supply chain Availability of universities and technical training schools

to anchor new investments in the region. “One of our

producing engineers and technicians, industrial parks,

goals is to attract engineering and design operations

services-oriented infrastructure and a strong supplier

to integrate manufacturing with these processes,”

base have also made Nuevo Leon a preferred automotive

Montoya says. “There is a far-reaching industry and a

destination. This, however, does not mean that the region

culture of industrial work at all levels that make Nuevo

is free of challenges when looking forward. CLAUT is

Leon attractive for companies to invest in sophisticated

in charge of identifying the problems the supply chain

processes.”

suffers and addressing them by attracting companies to collaborate with one another.

The cluster is already working on its attraction strategy and part of that involved establishing the Automotive

Kia’s new operations in Pesqueria, for example, have

Center for Technological and Talent Development

changed the automotive game in Nuevo Leon. Montoya

(DRIVEN). “We offer a master’s in automotive science

says the OEM, which produced its 300,000 unit only 18

where students can also practice in real-industry cases,”

months after starting operations, brought along a flood of

says Montoya. At the same time, CLAUT is encouraging its

investment from Korean suppliers. “These companies are

members to bring engineering operations to the country.

new sources of jobs and they also mean great opportunities

Navistar is among those that has already complied

for local Tier 2 suppliers to grow,” says Montoya. However,

and now the OEM has a team focused on design and

several challenges must be overcome before local

engineering in Monterrey. Montoya says CLAUT is also in

companies can take advantage of these opportunities. “The

the process of launching a tooling cluster, which is one

automotive industry is demanding in general but Korean

of the main areas of opportunity not only in Nuevo Leon

companies are even more so,” Montoya says. “Companies

but in the country. According to Montoya, Mexico imports

wanting to supply Kia will have to be stricter in areas such

over US$2 billion in tooling components and there are

as costs, deliveries and operating times.”

no local companies that can repair these thus harming

competitiveness. “We are setting the stage for a tooling The high percentage of imported Korean content that

industry to bloom in the region by training tool-making

Kia uses is one of the main challenges for the region’s

and cast-molding technicians and design engineers,”

development, according to Montoya. “We are used to the

says Montoya.

| INSIGHT

LOCAL DEVELOPMENT THROUGH INTERNATIONAL COOPERATION HÉCTOR SOTO Managing Director of the Automotive Cluster of San Luis Potosi 44

Expectations of local suppliers are high as time approaches

supply chains. “Automotive companies must change their

for BMW to start manufacturing in San Luis Potosi. According

mindset and invest in certifications that ensure a future for

to Héctor Soto, Managing Director of the Automotive Cluster

their operations,” he says. “They also need to develop their

of San Luis Potosi, the state’s suppliers are getting ready to

technical and technological capacities to support OEMs

jump in and start supporting the German OEM but there are

that work with state-of-the-art vehicle platforms.”

still challenges to maximize the region’s potential. But to grow and exploit these opportunities, local suppliers “Automotive companies in San Luis Potosi must understand

need financing and Soto underlines that access to funding can

the importance they play in the state’s economic

be a tough challenge for Mexican businesses. “Automotive

ecosystem,” Soto says. The Mexican automotive industry

companies need to buy machinery and equipment to grow

has gained momentum and will continue on that path. The

and certify,” he says. To support them, the Automotive

country has done a great job attracting OEMs and these

Cluster of San Luis Potosi collaborates with government

companies have brought their Tier 1 suppliers along. The

agencies, OEMs and Tier 1 suppliers to create attractive

next step, according to Soto, is to develop a strong local

financing schemes so Tier 2s can invest and become more

supply chain to support these companies. As premium

competitive.

brands such as BMW and Mercedes-Benz prepare to start operations and as GM ramps up its production, Mexico

To prepare for future increments in demand, Soto and

needs to evolve from offering inexpensive labor to being

the Automotive Cluster of San Luis Potosi, have also

able to cater to increasingly complex vehicle platforms,

established international cooperation projects with

says Soto. “This is not just about supplying a growing

Japanese government agencies such as JICA to continue

demand for components but also meeting the specific

strengthening the Bajio’s automotive-oriented capabilities.

needs of luxury brands.” Soto points to certifications and

One of these projects dubbed “Strengthening Mexico’s

the readiness to supply for green and increasingly complex

Automotive Clusters” focuses on transmitting Japanese

combustion-engine vehicles as key areas of opportunity

expertise to local SMEs that want to participate in the

that Mexican suppliers can harness to integrate into global

automotive supply chain.

INSIGHT |

JALISCO, THE DOOR TO INNOVATION ALEXANDRO BURGUEÑO Director General of the Jalisco Automotive Cluster 45

Jalisco has been singled out as a technological hub and

growth,” says Burgueño. The cluster has already identified

even known by some as the Mexican “Silicon Valley.” As

between 140 and 150 companies that could participate and

the automotive industry becomes more technological,

it is analyzing each player and selecting those with the best

Alexandro Burgueño, Director General of the Jalisco

opportunity to flourish in the industry. “In the end, we expect

Automotive Cluster, sees an opportunity for the state to

to move forward with 90-100 companies and to establish

support Mexico’s transition into an advanced industrial

clear objectives to fill the gaps in Jalisco’s supply chain.”

future. “We must take advantage of our experience and foster the creation of more R&D and engineering centers so

The cluster is also looking for new investment through

we can move away from mere manufacturing,” he says. “This

promotional campaigns in countries such as Japan and

should be a priority not only for Tier 1 suppliers like Flex and

Germany. According to Burgueño, Jalisco is entering a

Continental but also for local Tier 2 and Tier 3 companies.”

collaboration with other automotive clusters in Mexico, mainly the Automotive Cluster of the State of Mexico, to

To successfully participate in this growing industry, Jalisco

build a general strategy that can help the whole country

must first consolidate its position as a true automotive

attract new investment. “We do not want to compete with

cluster. “Many companies think we are late to the game

other clusters,” he says. “The best way we can move forward

but we still see many opportunities to support Jalisco’s

as a country is by taking advantage of what other regions

automotive future,” says Burgueño. The new cluster’s

are doing and finding the best way to collaborate.”

Director General says that because of OEMs’ preference to invest in Guanajuato and Queretaro, Jalisco had been

Although clusters have a common goal toward investment

somewhat neglected as an automotive region. This is now

promotion, Burgueño also sees this collaboration as an

changing. Lagos de Moreno alone has received investment

opportunity to boost R&D and engineering operations.

from 20 new companies, mainly from Japan and Germany.

“Once we define our goals and areas of opportunity, we will

“These players have realized the benefits of investing

definitely put the topic on the table,” he says. “Our board

in Lagos de Moreno, mostly because of its closeness to

is working on the creation of a Competitive Technology

Guanajuato and Aguascalientes,” he says.

Intelligence Observatory to support the development of R&D activities in the state.”

Since its establishment on Jan. 20, 2017, the Jalisco Automotive Cluster has attracted 30 members, 10 of

There are already efforts from the public sector to boost

which are Tier 1 companies and the rest Tier 2s and Tier 3s.

technology development originating in the Ministry

Being a newly launched cluster, many companies including

of Innovation, Science and Technology. Similarly, the

Honda are still waiting to see how it develops. This has

Guadalajara government has created a master plan for what

encouraged Burgueño and his team to find the best way

is now called the Ciudad Creativa Digital (Digital Creative

to connect companies with local suppliers and establish

City), focused on promoting digitalization and creating

training programs for the Jalisco workforce.

an environment for design and innovation. The private sector and academic institutions are also riding the wave,

The cluster’s priority is to identify new companies that can

with companies like Bosch and Continental establishing

participate in automotive activities and the main areas of

important design centers in the region and ITESM creating

opportunity to strengthen the local supply chain. It also

an institute focused on the car of the future. “We want the

evaluates the capabilities of the existing suppliers and offers

cluster to be the integrating force that unites all initiatives

training for future certification processes. “The endgame is

oriented to the automotive sector,” Burgueño says. “That

to first have a clear perspective of what we have so we can

way, we can orient all efforts toward the latest trends in the

set clear goals in terms of investment attraction and export

industry and encourage more companies to participate.”

| INSIGHT

ADDING TO REGIONAL INTEGRATION DANIEL HERNÁNDEZ Director General of the Queretaro Automotive Cluster 46

Queretaro has made a name for itself among automotive

of tooling components are imported from Asia,” he says.

companies thanks to the quality of its talent, the

“Instead, both the public and private sectors should

infrastructure of its industrial parks and its solid support

work together more actively to develop proper tooling

industry. However, the availability of tooling solutions, staff

technicians and invest in the technology needed to

turnover and new certifications present fresh challenges

produce these solutions locally.” Tooling companies in

and opportunities for local players to fulfill their potential,

Mexico are focused on maintenance, adjustment and

says Daniel Hernández, Director General of the Queretaro

engineering adaptations. However, it is high time for local

Automotive Cluster.

players to participate in design and manufacturing of these components, according to Hernández. “Companies arrive

“The Bajio region represents 29 percent of Mexico’s auto

to Queretaro looking for manufacturing centers for molds,

parts production and INA estimates that figure could grow

dies and other equipment,” he says. “A value chain can only

to 40 percent as new OEMs arrive to the country,” says

be as strong as its supporting industry.”

Hernández. While Queretaro is renowned for its Tier 1 companies, the state’s automotive industry also includes

Labor is another challenge that plagues Queretaro and the

indirect suppliers of components and added-value

Bajio region in general, Hernández says. “Staff turnover is a

processes, as well as a strong support industry. Hernández

natural process that stems from people looking for better

says that Germany, Japan and the US are the main sources

work conditions,” he says. “However, it becomes a problem

of FDI in Queretaro. “Almost 27 percent of the state’s

when brain drain spins out of control and companies’

assembly plants are German, followed by Japan with 19

production is affected.” In the case of Queretaro, some

percent, the US with 13 percent and then a combination of

industrial areas suffer greater turnover problems because of

Canada, Sweden, China and South Korea,” he says.

their geographical location and transportation availability. “In the Bajio alone, the Ministry of Economy expects demand for

Investment continues to flow into Queretaro and

30,000 engineers by 2023 because of the industry’s growth,”

neighboring states such as Guanajuato, which only

Hernández points out. The cluster is working with companies

increases the need to boost the region’s competitiveness.

and the government to solve this problem through training

The Queretaro Automotive Cluster plays a key role in this

and specialization to meet the industry’s needs.

process by helping local players overcome challenges common to the local industry. However, this should not

The cluster also introduces tools such as the Toyota

be an isolated effort. Hernández points out that rather

Production System to its members and organizes

than competing, clusters should work together to support

certification programs so that members can achieve lean,

the industry as a nation. “Clusters can achieve a greater

efficient and competitive operations. This, however, is but

level of regional integration but we need to support the

the first step for companies to reach the level of certification

complementarity between the activities in each region,” he

needed to participate in the industry. Says Hernández:

says. The Queretaro Automotive Cluster is already working

“The cluster needs to push for companies to gain the

with CLAUGTO, the government of Aguascalientes and of

certifications that they need and free their operations from

San Luis Potosi to launch an international cooperation

faulty components.” Since the IATF certification is oriented

project with the Japanese International Cooperation

to risk analysis and minimization, all companies involved

Agency (JICA) to develop a structured supply chain that

in vehicle and auto parts production must have a certified

can support strategic players in the region.

quality management system. “Even companies that are not part of the automotive value chain such as tooling and

According to Hernández, tooling is a major challenge for

clamp suppliers must be certified to continue participating

both Queretaro and Mexico. “A substantial percentage

in the industry,” he adds.

INSIGHT |

EDUCATION KEY FOR SUSTAINED INVESTMENT ELISA CRESPO Vice President of the Automotive Cluster of the State of Mexico 47

In an uncertain economic and political environment,

As the country moves away from traditional manufacturing

maintaining competitiveness is crucial to incentivizing

operations and into higher added-value activities, companies

foreign investment. Understanding the role education plays

and associations like the Automotive Cluster of the State of

in company development is the basis for further industrial

Mexico are learning how they can best support technology

development, according to Elisa Crespo, Vice President of

development and become an innovation hub. “The state has

the Automotive Cluster of the State of Mexico.

years of experience in the industry and that has given it the tools to lead the charge in innovation efforts,” says Crespo. She

“Companies should make continuous improvement a must,

highlights an electric vehicle project developed by ITESM’s

both in quality of products and processes,” says Crespo.

Research Center for Automotive Mechatronics as an example

“Talent development should be one of the utmost priorities,

of how collaboration between the industry and academia has

together with technology integration, particularly as it

spurred innovation in one of the latest industry trends.

relates to Industry 4.0 applications.” Just like other clusters, the State of Mexico sees supply chain development rooted

“The current administration has made collaboration

in human capital growth as a key element in growing the

between the public and private sectors a priority and

national industry. Although the Automotive Cluster of the

because of that, we were able to participate as part of a

State of Mexico has only existed for five years, its members

business delegation at the Hannover Messe exposition,”

support an industry with over 30 years of experience in the

says Crespo. This fair is one of the most important

region and for Crespo, the roadmap toward competitiveness

events globally related to innovation and technology

is to understand how talent can participate in technology

developments and in its 2018 edition, Mexico made a

integration and what is known as Manufacturing 4.0.

strong statement by arriving with a delegation of over 100 companies and representatives of several states, including

“When talking about technology integration, we must

the State of Mexico. According to Crespo, the event was

understand how knowledgeable workers are regarding new

an excellent platform to attract new investment in several

technologies and their implementation in manufacturing

industry segments and even served as the setting to sign

processes,” says Crespo. The cluster is working together

a collaboration agreement with the state government for

with training centers to develop adequate programs

the development of the automotive sector.

for technology implementation, including a Technician in Robotics program created along with ABB. “Other

“Overall, the relationship between the industry, the public

companies such as Dassault Systèmes and Siemens are

sector and academia is what drives the state forward and

equally interested in sharing their latest developments with

continues to attract investment to the region,” she says.

the industry and with academia,” she says.

Despite uncertainty regarding the current negotiations for a new NAFTA agreement and the intricate relationship

The cluster is also collaborating in the renewal of academic

between the US and the State of Mexico in automotive

programs at R&D centers and high-tech institutions. “These

matters, Crespo is optimistic about the region’s future.

players are bringing companies the industry’s latest

“The US will remain our main market,” she says. “Having

technology and innovations and they know the cluster is

said that, the industry, the state government and academia

their launchpad to a wider reach along the entire supply

have started to analyze and cultivate new relationships

chain,” says Crespo. Moreover, the Automotive Cluster of

with other countries.” Germany, for example, has always

the State of Mexico recently opened the Innovation Center

been a good partner for the state, Crespo says, and the

for the Development of Human Capital, which according to

cluster is developing training programs to help companies

Crespo, is focused not only on technology integration but

adapt to the manufacturing practices and standards from

also on continuous improvement education.

the country.

| VIEW FROM THE TOP

SME STRATEGY TO BUILD A STRONGER SUPPLY CHAIN

MĂłnica Mendoza Director General of GIRAA Automotive Cluster

EfraĂn Mata President of GIRAA Automotive Cluster

Q: What opportunities will the new Daimler and

are a gateway for more companies to be involved in

Renault-Nissan COMPAS venture bring to suppliers in

global production operations.

Aguascalientes? EM: Having three different brands manufacturing in

Q: How do requirements change between companies of

the country will create huge opportunities for the local

different nationalities and how does that impact strategies?

supply chain. SMEs, in particular, will have an excellent

EM: Each company has its own specific requirements and

opportunity to grow their participation in the industry

certifications might change from one player to another.

as long as they can meet OEM requirements in terms of

Nevertheless, quality is the common denominator among all

quality, productivity, cost and delivery times. Certification

industry participants. At the moment, GIRAA is focusing its

in IATF is a must, as well as understanding how best

support efforts on offering training for companies wanting

to integrate into manufacturing chains. Right now,

to participate more actively in the supply chain. Talent is a

the COMPAS venture has reached significant INFINITI

key element in the automotive industry and OEMs generally

production and eventually Mercedes-Benz will start

demand that suppliers have specialized human capital to

manufacturing, adding to production volume and

support their operations. We are working with universities

increasing pressure on suppliers.

in the state to train the people the industry needs because demand for talent will only increase.

MM: OEMs are looking to make their operations more cost-efficient and having a local supplier network is a key

MM: Aguascalientes is already a globalized entity and

element in that strategy. In the end, logistics advantages

company executives must understand they need to invest in training and certifications to play in the big leagues. Our goal at the moment is supporting companies that

GIRAA Automotive Cluster is a private company association

go through their certification process, helping them

that offers support to SMEs in Aguascalientes to participate in

understand that this investment will yield good results in

the automotive supply chain. The cluster was founded in 2013

the future. We are also pioneering the implementation of

and works with both the private and public sectors

the dual-education system in Aguascalientes.

VIEW FROM THE TOP |

WORK THROUGH BEST PRACTICES, REGULATIONS JAIME GONZÁLEZ Director of CLAUZ 49

Q: What have been CLAUZ’s main achievements after over

Q: How have demands in the state changed now that Audi

a year of operations?

has ramped up its operations and what have been the

A: CLAUZ is now the first cluster in Mexico with an internal

cluster’s priorities to support members?

rulebook that covers its entire staff and membership. This

A: Audi’s growing operations open the doors to a wave of

gives potential members the confidence to participate in

investment from Tier 1 companies focused on catering for

the cluster, knowing that we manage our operations with

the premium automotive segment. This has put positive

transparency in terms of information and use of resources

pressure on the local supply chain to grow its capabilities

for project development.

in terms of quality and production volumes. At CLAUZ, we are identifying the most pressing needs of these large Tier

The cluster has also successfully launched its diploma

1 suppliers so we can support smaller companies in the

program for Management Competencies, designed

best way possible.

specifically for the automotive industry in collaboration with the People’s Autonomous University of the State of

From the moment CLAUZ was established, both Audi and

Puebla. This program addresses the strengthening of soft

Volkswagen became permanent members of the cluster’s

skills in benefit of all our members and collaborators. In

Board. This has led to extraordinary collaboration and

terms of education, we have also started implementing a

effective decision-making from our part. These companies

dual-education model with the Technological University of

have already highlighted the need for more suppliers

Huejotzingo focused on maintenance of dies and molds

with engineering and design capabilities because they

for the College-level High Technician program. In this

want Mexico to participate in the development of electric,

program, students only have 20 percent of their classes at

connected and autonomous vehicles. But, to do this, the

the university, while the other 80 percent is completed at

local supply chain must deliver above-average performance

a company’s facility.

and high levels of competitiveness.

Regarding the development of the local supply chain,

Q: How successful have your strategies been in attracting

we have completed the strategic analysis we performed

more Tier 1 companies to the cluster and what can you do

regarding the needs of the region, which will help us identify

to support these players better?

companies that can enter productive chains and strengthen

A: The best strategy to attract new members is for

Puebla and Tlaxcala’s supply chain. This analysis has also

companies to find value in the initiatives launched by our

helped us identify gaps that we can fill through effective

work committees. Because of this, our work methodology

attraction of foreign investment.

is strictly oriented to the needs that companies share with us. As a result, all our projects have an innate rate of

Q: How have you worked with the state governments of

success. After a year of operations, we already have 20

Puebla and Tlaxcala to ensure ongoing foreign investment?

members and we expect to close 2018 with between 25

A: We have a very close relationship with the state

and 30 members, which would represent an increase of

governments of Puebla and Tlaxcala since they are a

100 percent compared to our standpoint at the moment

key part in our operation and permanent members of

of CLAUZ’s foundation.

our Board. Just as we help them identify the gaps in the local supply chain, we offer both administrations a neutral platform to obtain first-hand knowledge of what

The Automotive Cluster of the Center Region Puebla – Tlaxcala

the industry is demanding. That way, the states can adjust

(CLAUZ) is an association that brings together companies,

their economic development policies and support new

government entities and academic institutions to work on a

entrants to the region.

common plan to increase competitiveness in Puebla and Tlaxcala

| ROUNDTABLE

WHAT ADVANTAGES DOES YOUR STATE PROVIDE TO POTENTIAL INVESTORS?

As the automotive industry developed, clusters started forming in specific areas of the country that later had an impact on investment coming to the country. Although there is a national desire to attract more companies to the country, each state provides different advantages for its investors that clusters and other associations use as leverage to increase economic growth in the region. Collaboration or not, there is competition to attract the best companies to each state. To showcase these differences, Mexico Automotive Review asked cluster and association leaders to name the biggest advantages their state could offer and why should investors

choose their region to invest.

Queretaro has evolved to offer more than just manufacturing operations thanks to engineering centers like GE’s or Continental’s and the network of public R&D centers that exists in the state. Queretaro can now offer design and engineering operations to the automotive industry. With over 50 years of automotive history, the state has created specific academic programs and a strong supplier base with around 200 Tier

DANIEL HERNÁNDEZ Director General of the Queretaro Automotive Cluster

2 companies that support the industry’s evolution. The state’s support industry also includes companies that automate production lines, produce tooling solutions and check fixtures. Moreover, several companies have chosen to establish their operations in Queretaro because of the calmness and security conditions that exist here, coupled with a solid infrastructure of industrial parks.

Our biggest advantage is our logistics infrastructure and the advantages it gives us in terms of connectivity. Having access to a state-of-the-art airport that can rival any project in the world will position not only the State of Mexico but the whole country as a model for logistics infrastructure and trade. Our human capital is equally important, together with our long-standing experience in helping companies

ELISA CRESPO Vice President of the Automotive Cluster of the State of Mexico

survive their first years after establishing in the region. Overall, the relationship among the industry, the public sector and academia is what drives the state forward and continues to attract investment to the region. We are learning how we can best support technology development and become an innovation hub. The State of Mexico is the region with the highest concentration of R&D centers in the country, both public and privately funded.

Aguascalientes is in a good position as an investment destination but we still need more involvement from the state and Federal governments. There has been investment in industrial infrastructure and a customs agency that allows companies to do all their paperwork in the state and not at the border. We even have a consolidation center that gathers all materials that companies need and that they can use to avoid

EFRAÍN MATA President of GIRAA Automotive Cluster

housing unnecessary stock at their premises. The state is also in a privileged position logistics-wise. We are located between the Lazaro Cardenas port and Veracruz and we also have access to the rail network. Having said that, it would be ideal to have one or two more points of access to ease transportation efforts. Our airport infrastructure is also limited and cargo planes must sometimes land in Guadalajara.

San Luis Potosi is in a very attractive development phase. Metaphorically speaking, San Luis Potosi is like a teenager that is just recognizing his potential. Mexico City and the metropolitan area are like a 60-year-old man that has reached maturity and is not looking for anything new. Puebla, Jalisco and Nuevo Leon represent a 30 or 35-year-old that still has drive and is planning to ensure a healthy retirement. San Luis Potosi has massive potential and many countries, such as Germany, Japan and Korea, are realizing the opportunities of investing there. Other states might already be consolidated clusters but in San Luis Potosi we are eager to be a key player in the industry.

ALEJANDRO VERAZA Chairman of the Automotive Cluster of San Luis Potosi 51

One of our key advantages is our geographic location and what this offers in terms of logistics. We have access to both railways moving to the north of the country and to ports in both the Atlantic and the Pacific. However, talent is what really differentiates Guanajuato as an investment destination. We have a distinguished work culture and many people specialized in key activities for the industry. Security, although an issue in the entire country, has been controlled in the region as well, mainly because of the high talent demand the automotive industry has generated. We have also

FIDEL OTAKE President of CLAUGTO

tried to strengthen the security standards within companies. We have worked with companies to identify weak spots and to offer training for security personnel.

Our objective is to become a supplier hub for all the OEMs established in the Bajio. This region is already becoming saturated and investing in an existing or new industrial park is becoming increasingly expensive. Meanwhile, Jalisco still offers accessible and competitive infrastructure. Service availability is also becoming an issue in the Bajio, mainly when it comes to water access. Jalisco still has a vast water supply, which is a must for some automotive processes. We do not depend solely on Honda to attract new suppliers. Many companies think we are late to the game but we still see many opportunities to support Jalisco’s automotive future.

ALEXANDRO BURGUEÑO Director General of the Jalisco Automotive Cluster

Regions are more or less attractive to an investor depending on the kind of operations they will carry out and the level of labor sophistication they need. Certain processes need specialized talent that can be more easily found in Monterrey. The region’s appeal is not to be found in labor costs as much as in the capabilities of the workforce. Availability of universities and technical training schools producing engineers and technicians, industrial parks, a services-oriented infrastructure and a strong supplier base have also made Nuevo Leon a preferred automotive destination. There is also

MANUEL MONTOYA Director of CLAUT

a far-reaching industry and a culture of industrial work at all levels that make Nuevo Leon attractive for companies to invest in sophisticated processes.

We know a company’s decision of where to invest has many variables and involves a certain amount of time to analyze the information on each region. However, we have realized that one of the biggest advantages for companies that choose Puebla and Tlaxcala as an investment destination is the availability of qualified labor, as well as low labor turnover rates when compared to other regions in the country. Both states also offer a stable business environment with a very low threat of strikes. Furthermore, this region is a natural cluster that surrounds many of the most important universities in the country with programs ideally suited for the automotive industry.

JAIME GONZÁLEZ Director of CLAUZ

| PROJECT SPOTLIGHT

+17,000 jobs generated by companies in Guanajuato Puerto Interior

GUANAJUATO PUERTO INTERIOR, FROM MANUFACTURING TO MINDFACTURING Guanajuato Puerto Interior is considered the most dynamic and consolidated dry port in Mexico and Latin America. This industrial and logistics complex in Guanajuato has reinvented its business model that was traditionally focused on industrial and manufacturing activities toward the generation of high added-value businesses and services or what is now called “mindfacturing.” The economy of knowledge and Industry 4.0 will now be the driving forces behind the development of this complex supported by the state of Guanajuato. Since March 2006, Guanajuato Puerto Interior has promoted the investment of companies from over 18 countries, installed in over 1,270ha and generating over 17,000 direct jobs. The Interior Customs Office of Guanajuato has also been a key element in developing foreign trade in the region and in managing imports and exports in record time for companies in the state. The complex now houses national and international manufacturing companies from the automotive and auto parts sectors, as well as an intermodal rail terminal operated by Ferromex, as well as the Sky Plus aerospace park. Following industrial technological advances and demands for business modernization, Guanajuato Puerto Interior’s bet is on Industry 4.0-oriented companies that can make it a Smart Port 4.0. This is a new dynamic development focused on financial, human and technological resources that seeks efficiency in governance, logistics, sustainability, housing and most importantly, human resources through retention and attraction of talent. The goal of this new strategy is to offer higher added-value to the logistics, manufacturing and industrial supply chain. R&D and innovation will be a priority for all companies establishing in Guanajuato Puerto Interior. IPN will remain a cornerstone for talent development through its Professional Interdisciplinary Unit for Engineering Campus Guanajuato, where over 2,500 students are training in industrial, biotechnological, pharmaceutical, aeronautics and automotive systems engineering. Smart Port 4.0 will boost what is called the City of Innovation, Technology and Services, which will involve projects such as CIATEC’s Innovation and Technological Development Complex, as well as the Center for Research and Development on Crating and Packaging from the De La Salle Bajio University.

| VIEW FROM THE TOP

SUPPLY CHAIN KEY FOR INVESTMENT PROMOTION ARMANDO CORTÉS Executive Director for Industrial Development at ProMéxico

Q: What is the main area of opportunity for Mexico to continue being an attractive investment destination? A: Mexico will continue growing as long as we can diversify the country’s investment sources and export markets, strengthen value chains and continue investing in human capital, engineering and R&D. ProMéxico is confident about the steps that Mexico is taking to develop its strategic industries because those are the internal factors that depend on the country. Inasmuch as Mexico prepares itself and has competitive industries, the country will be more successful. Q: What are ProMéxico’s priorities to develop the local supply chain A: It is important to have strong terminal industries but even more so to produce a strong, diversified supply chain with potential for development. Building a national supplier base is an institutional priority for ProMéxico. We cater to advanced-manufacturing industries, such as aerospace, automotive and electronics, which usually share a supplier base. Mexican suppliers are evolving. Rather than catering to a single industry, they are supplying several and diversifying their portfolio. This is a positive step in the development of the country’s advanced-manufacturing industries. ProMéxico focuses on identifying the productive capacities of SMEs so they can join these industries’ supply chains and on boosting Mexican content in these industries through business meetings focused on strategic industrial processes.

ProMéxico is a branch of the Mexican government that coordinates the country’s participation in the international economy. Its main objectives are promoting the attraction of FDI and supporting the internationalization of Mexican companies

INSIGHT |

CARRYING OEM GROWTH PLANS TO SAFE HARBOR JESÚS LONGARES Director of Industry and Energy at IDOM Mexico 55

As a greater number of large multinationals bring new

times in terms of both employees and invoicing and this

projects to the country, they must be aware that the

industry has played a key role.”

established infrastructure models they use at home might not work in Mexico. This can be an unexpected challenge for

IDOM has previous worldwide experience in the automotive

automakers who often underestimate their requirements,

sector, working on recent projects like the new Mercedes-

according to Jesús Longares, Director of Industry and

Benz Vans plant in Charleston, South Carolina. Longares says

Energy at IDOM Mexico, a Spain-based consulting,

the company has mainly focused on OEMs such as Daimler,

architecture and engineering company.

GM, Renault, PSA and Nissan, but expects to collaborate with an auto part company shortly. “We should grow 40

“When companies in the auto parts sector build a new plant in

percent in the automotive sector in 2018 in terms of both

Mexico,” he says, “they try to replicate the same infrastructure

employees and invoicing,” he says. “My main objective for

model they use for their European or Asian facilities.” The

this year is to start working on small contracts with large

standard process is a design-bid-build scheme in which the

OEMs while continuing to work with auto parts companies.”

developer tenders all construction activities — an approach companies might use when developing a completely new

Together with its design and project management operations,

project. Instead, suppliers in Mexico use a basic and already-

IDOM’s multidisciplinary consulting team enables the company

tested plant model for their new project and bring in a general

to respond to clients’ needs while helping them make the

contractor supported by a supervising team that often is not

transition into the Mexican market. The company advises

adequate in number or suited to the task.

client companies using feasibility studies, competitiveness proposals, logistics studies and layout optimizations. While

“Auto parts companies work according to OEM orders,”

this can help new companies establish their operations

says Longares. “This makes their delivery times short,

swiftly, Longares advises new investors to keep an open and

so they must reduce plant construction times as much

unprejudiced mind about what they might find in the country.

as possible.” However, according to Longares, European

“Many think that even though it is a capable country, Mexico

companies usually entrust supervising activities to a small

still lacks the necessary elements for a project to succeed,

team, something that is simply not possible in Mexico.

such as competent engineering,” he says. At the same time,

“One of our main challenges is convincing companies,

Longares has found some potential clients are reluctant to

especially those from Europe, that the supervising team

invest in the required resources for consulting and engineering

must be more robust than the one they expect.” IDOM has

studies prior to the construction of a new plant. “Companies

extensive experience in design and project management

might choose a cheaper analysis but in the end that will result

across various sectors. In Mexico, the company was initially

in bad engineering and further costs down the line.”

focused on energy projects including the El Porvenir wind farm and the Tamazunchale combined cycle power plant, the

Longares maintains a positive outlook for 2018 while being

largest one in Latin America at the time producing 1.2 GW. As

aware of the impact that political uncertainty stemming from

projects became smaller and more localized after the Energy

the 2018 federal elections and the NAFTA renegotiation can

Reform, the company turned to the Mexican manufacturing

have. “IDOM has experienced the paralysis that uncertainty

sector. “Hyundai is considering a new plant in Mexico, Ford

generates, as some projects that had already started have

wants to bring its electric-vehicle production to the country

been put on hold,” he says. “Elections will worsen this effect

and Tesla has inquired about land availability in Puebla” he

because infrastructure projects stop around the middle of

says, showcasing IDOM’s positive expectations for the sector.

the year and start picking up after August or September.

“Automotive is a priority for IDOM,” says Longares. “In the

Several companies will take the foot off the throttle until

last four years, our manufacturing division has grown 3.5

the political storm passes.”

| VIEW FROM THE TOP

UNCERTAINTY IS TEMPORARY, LOCATION AND LABOR ARE DECISIVE ALEJANDRO LARA Director General of American Industries 56

Q: How has American Industries grown its project portfolio

A: Putting commercial rules to the test opens the door

in the real-estate and sheltering markets?

for doubts regarding the viability of projects in Mexico.

A: We have grown in terms of real estate and new shelter

In this situation two processes take place. One, there are

administrative services projects in most of the regions where

definitions that reduce uncertainty. Two the companies that

we operate. These regions include Jalisco, Guanajuato,

choose to bet despite uncertainty will become the winners.

Queretaro, San Luis Potosi, Nuevo Leon, Ciudad Juarez and Chihuahua. Regarding our real-estate offering, we are

Tariff levels for exports if NAFTA falls through are

growing between 50,000m and 70,000m in leased area

important for any company planning a new project in

per year, mainly in Guadalajara, Queretaro, Ciudad Juarez,

Mexico. If NAFTA were scrapped, we would fall into a WTO

Monterrey and Chihuahua. We are closing between 10

scheme resulting in export tariffs of 3 percent on average.

and 12 projects per year and we expect to maintain this

Exchange rate volatility is already casting doubt on the

level of growth in 2018. Last year was challenging but we

continuity of NAFTA but eventually, tariffs would be

expect for more certainty from 2Q18 to the end of the

compensated by the currency exchange rate. The peso has

year. Regardless, we know projects cannot be stopped

devaluated against the dollar 8 percent against a potential

despite the uncertainty originated in the ongoing political-

tariff of 3 percent. This means the lack of competitiveness

commercial environment.

due to the end of NAFTA would be diminished by an

improvement in exchange rate conditions. Q: In which regions does American Industries expect to experience the most growth?

Q: What should real-estate developers and shelters

A: Markets that are not too dependent on the automotive

prioritize to promote investment in Mexico?

industry will not be so sensitive to the uncertainty stemming

A: Having the most updated and accurate information is key

from NAFTA renegotiations. As a result, we expect more

to helping companies make a strategic projection of their

significant growth in regions such as northern Mexico

costs in Mexico. American Industries has a Site Selection

and areas with greater diversification in the electronics

service where the company offers potential investors a

or aerospace industries, such as Queretaro, Chihuahua,

cost-modeling service that measures the feasibility of their

Ciudad Juarez and Guadalajara. In comparison, states

business in Mexico. Depending on the industry, one region

with a greater exposure to the automotive sector, such as

may be better than another. For the automotive industry

Guanajuato, San Luis Potosi or Aguascalientes, will likely see

it varies.

slower development due to this uncertainty. At the moment, between 30 and 35 percent of our operations are related to

The most important factors to consider when identifying

the automotive industry but despite the uncertainty regarding

a new investment site are location of clients and suppliers,

trade, we will not change our long-term expectations for

cost and availability of labor. These vary from region to

the industry.

region, generate variations in our costs modeling and impact projects depending on where companies choose

Q: How will American Industriesâ&#x20AC;&#x2122; shelter services be

to install their operations. The north, for example, was

affected by the NAFTA talks?

ideal for the production of harnesses 30 years ago but as labor costs rose, many harness companies started looking for locations in central and southern Mexico and in more

American Industries is a shelter and real-estate services

remote northern areas. In this sense, companies that need

provider with more than 40 years of experience in the Mexican

more specialized labor and can pay higher salaries may be

market. It has helped over 200 manufacturing companies

better placed in a city with a more expensive labor market

establish their operations in Mexico

that suits their specialization needs.

VIEW FROM THE TOP |

AUTOMOTIVE DYNAMISM BOOSTS GROWTH OF INDUSTRIAL DEVELOPER LORENZO DOMINIQUE BERHO CEO of Vesta 57

Q: Given over half of Vesta’s real-estate development

account for 52 percent of our automotive clients, while the

portfolio is in the Bajio region, what are the advantages

remaining 18 percent are Tier 2 and Tier 3 suppliers. We also

of the area and what is your differentiator?

have distribution centers oriented mostly to the aftermarket

A: The automotive industry’s growth has concentrated mostly

where we support automotive companies, mostly OEMs.

in this region. Since 2008, states in this area have reached

We target multinational companies with high credit quality

GDP growth rates of 4 percent compared to the national

because they can commit to long-term contracts. Aside

average of 2 percent. This economic growth is directly linked

from OEMs themselves, our ideal clients are multinational

to industry’s expansion. Vesta has focused its operations on

suppliers that support several automakers and do not

the Bajio region because of the area’s economic dynamism.

depend on a single automaker to operate.

We excel at helping foreign OEMs and suppliers set up shop in the Bajio region because of our 20 years of experience

Q: How can Vesta support its clients in their logistics

working in this area as opposed to other industrial real-estate

operations?

developers that have focused on northern or central Mexico.

A: By collaborating closely with clients. Not only are the avenues in our industrial parks wide enough for trailers

Q: What challenges might Vesta face due to the potential

to move efficiently, Vesta also makes sure its clients’

saturation of automotive companies in the Bajio?

switchyards are built with appropriate concrete, receive

A: Saturation is a good problem to have. Automotive

constant maintenance and have enough space to park

companies in this area can easily achieve synergies with

trailers. Our buildings’ roofs must be at least 9.7m high so

one another thanks to their proximity. There are nine

clients can stow and store goods efficiently, while managing

OEMs located in a radius of 150km in the Bajio region and

forklifts with ease. Clients choose whether they want the

a myriad of Tier 1, 2 and 3 suppliers. Rather than saturation,

export program service since they can have their own

Vesta sees the concentration of automotive companies

free-trade zones in their facilities through the Temporary

as an opportunity for the industry to develop more and

Import Program for Export Articles established by the Tax

better products. Automotive-oriented infrastructure in the

Administration Service.

region has been surpassed by the industry’s growth, which incentivizes the construction of new roads, railroad tracks

Q: What are Vesta’s growth priorities for the rest of 2018?

and other logistics infrastructure.

A: We continue increasing the size of our available industrial real-estate portfolio while also bringing in more customers.

Q: What is Vesta’s strategy to meet the demands of

In 2017, Vesta reached an occupancy rate of 95.3 percent

automotive manufacturing companies?

of its industrial portfolio, up from the 93.8 percent in 2016.

A: Vesta is focused on understanding every link in the

In 2018, we expect to increase our total space portfolio by

automotive supply chain. We understand the infrastructure

280,000m2 to 2.8 million m2 with an occupancy rate above

needs of each company in terms of quality standards, heights,

95.3 percent. We expect to continue attracting the strong

switchyards, electrical power, automation, proximity to other

participation of the automotive industry while bringing

companies and available labor in each regional market. There

in more aerospace, renewable energies, medical devices,

are different kinds of automotive companies from OEMs and

logistics, electronics, retail and e-commerce clients.

Tier 1s to automotive-oriented logistics operators. Vesta tries to understand each client to offer solid support. Vesta is a Mexican real-estate development corporation that

Almost 30 percent of our automotive clients are OEMs.

focuses on industrial parks for manufacturing industries and

These include BMW, Mercedes-Benz, Volkswagen, Nissan,

distribution centers. The company’s portfolio will total 2.8 million

GM and Chrysler. Tier 1s such as Voestalpine, HBPO and ZF

m2 by the end of 2018

Kia Proceed Concept Drawing

MEXICO’S ENGINEERING DRIVE

Mexico’s position as a low-cost manufacturing hub is no longer enough to keep potential investors interested. Technological evolution and the adoption of new trends like mobility and electrification are forcing the country to participate in a more advanced environment. Without a proper strategy to face these challenges, Mexico risks losing its position as an automotive leader. Technology integration, local supplier development and the evolution of capable human talent are among the most pressing needs the country faces on its road to success.

In this chapter, several Mexican leaders share their perspective on what should be the country’s priorities to remain competitive in the automotive industry. From up-and-coming national players to long-standing suppliers that have created an international image, Mexico’s Engineering Drive features both challenges and success stories related to the Mexican market and how the country is advancing toward an added-value offering.

CHAPTER 3: MEXICO’S ENGINEERING DRIVE 62

ANALYSIS: Disposition Does Not Equal Action

VIEW FROM THE TOP: Mario Rodríguez, Arbomex

VIEW FROM THE TOP: Jorge Martínez, Zacua

VIEW FROM THE TOP: Miguel Avalos, Air Design

VIEW FROM THE TOP: Ernesto Sánchez, Seeräuber Automotive de México

INFOGRAPHIC: Competition in the Big Leagues

VIEW FROM THE TOP: Julieta Torres, CIDETEQ

VIEW FROM THE TOP: Jesús González, CIDESI

INSIGHT: Óscar Morales, Grupo Mess

INSIGHT: Omar Carrera, Dukke Consultores

INSIGHT: Victor Vazquez, Consultores CPM

ROUNDTABLE: How Attractive is Mexico as an Engineering Destination?

INSIGHT: Renato Villaseñor, Galnik

INSIGHT: Eugenio Floresgómez, Grupo Pochteca

INSIGHT: Franco Beltrametti, Alian Plastics

INSIGHT: Luis Fernando García, SINEC Technologies

VEHICLE SPOTLIGHT: Zacua, the New Mexican OEM Bet

INSIGHT: Sergio Andrade, Grupo Sypeisa

INSIGHT: Charles Trimmer, Grupo CTT

Hernán Barrios, Grupo CTT

| ANALYSIS

DISPOSITION DOES NOT EQUAL ACTION The government and the industry understand that Mexico needs to evolve beyond manufacturing and into added-value operations. Yet, there remains a disconnect between talk and implementation. Companies are gradually bringing more R&D and engineering to the country but is it enough for Mexico to transform itself?

That Mexico is the seventh-largest light-vehicle

Overall, investors have faith in the capabilities of Mexican

manufacturer in the world underlines the country’s

talent, evidenced by the fact that only 15.2 percent

attractiveness as an investment destination for

of the companies surveyed by MAR 2018 see a lack or

production operations. Globally, the automotive industry

deficiency of human talent as an obstacle for Mexico’s

is at the forefront of innovation, not only in manufacturing

evolution beyond a manufacturing site. In contrast, 35.1

processes but in the technology that is increasingly

percent of the companies see lack of R&D and technology

present in a vehicle. Electrification and autonomy have

development capabilities as a hindering factor for the

become hot topics for every industry participant. Yet,

country’s development. “Universities should be a priority

Mexico has not evolved past its collaboration as a low-

in the process of incentivizing R&D and design operations,”

cost manufacturing site, which in the end could be

says Miguel Avalos, Director General of Air Design. “At

detrimental to its position as a key automotive hub and

the moment, the knowledge that these institutions

an attractive investment destination.

are generating is sorely lacking compared to other design hubs.”

According to a survey conducted by Mexico Automotive Review (MAR) 2018, 64.2 percent of the companies

Companies are doing their part and many have already

questioned agree that Mexico is ready to become an

established training programs to help new hires elevate

engineering and design hub, while only 16.4 percent

their capabilities to what the global industry needs.

believe the country is still not up to the challenge. This

Foreign players, in particular, have been very open in

shows promise when considering that new projects

sharing best practices with local talent and helping local

oriented to R&D and engineering activities keep arriving,

engineers develop their skills through international training

one of the latest being Continental Automotive’s new

programs. However, this cannot be a one-sided effort.

R&D center in Queretaro with an investment of US$58.3 million. However, when digging deeper into why this

“Education must be at the top of the list for the new

is not a common practice among investors, the main

administration,” says Miguel Márquez Márquez, Governor of

factor that comes up is the lack of specialized academic

the State of Guanajuato. “The government must continue

programs that offer graduates the right knowledge and

supporting academic institutions and incentivizing

skills to participate more actively in the industry.

the establishment of dual-education programs.” The government must make advanced education a priority

“Right now, there is no education program that can offer

for the industry to advance at a faster pace. Some state

graduates the necessary expertise on mobility technology

governments have already understood this and they

or embedded systems,” says Jorge Vázquez, R&D Center

are working together with their respective clusters to

Director of Continental Automotive. To bolster its appeal

find ways to import experience from abroad and build a

to potential investors, the country’s strategy was to

stronger collaboration between the state and the industry.

develop manufacturing expertise, mostly at a technical

However, at a federal level there is still considerable room

level to satisfy the most pressing demands of a growing

for improvement.

industry. This was a necessary measure considering that even with these programs implemented, the country

President Enrique Peña Nieto’s administration set the goal

still faces a lack of available talent to cover company

of increasing R&D expenditure to 1 percent of national

requirements. “In the center of the country, people are

GDP and according to Rogelio Garza, Deputy Minister

highly specialized but there is little availability, which

of Industry and Commerce, Mexico’s expenditure stands

means we must train our new hires as fast as possible,”

at 0.9 percent of GDP. “It is far easier to retain foreign

says Alejandro Veraza, Managing Country Director of

projects when the company has its design operations in

TI Automotive. “In the north of the country, we face

Mexico rather than just component production,” he says.

a problem of constant migration. People who wanted

Among President-elect Andrés Manuel López Obrador’s

to move to the US but stayed close to the border are

goals is to boost innovation and technology development

now returning to their states of origin because work

in the country, which gives hope to companies wanting to

opportunities are blooming.”

develop their local operations.

VIEW FROM THE TOP |

AN OPEN MIND KEY FOR BUSINESS SURVIVAL MARIO RODRÍGUEZ CEO of Arbomex

Q: What advantages can foreign investors gain from local

lawnmowers and tractors also use the same systems. We

players with design and engineering operations?

are trying to attack this niche and we are showcasing our

A: Besides being a more profitable country in terms of

products and technology with the same level of quality and

costs, one of Mexico’s biggest advantages is the continuous

highest standard of performance that we deliver to other

training of technicians and engineers focused on advanced

industries. As an example, we are already collaborating with

technology, coupled with the establishment of engineering

Kawasaki Motors Manufacturing Corporation.

and design centers from local and foreign companies. Mexico is advancing toward a more technological

As an automotive supplier, the main advantage we can

participation in the automotive production chain thanks

offer to clients in these new segments is our experience

to the support of private companies, universities such as

in quality and repeatability in our production process.

ITESM and IPN, as well as government R&D centers.

Our cost structure has already been depurated to the minimum and our parts-per-million scrap generation is

Q: How has Arbomex grown its collaboration with

minimal, thus giving us an edge over any competitor

universities and R&D centers?

in the market. We also have the advantage of being

A: We are in the middle of an ambitious project to develop an

vertically integrated with foundry, machining and sub-

iron camshaft which could compete with steel in automotive

assembly operations, which allows us to control the entire

internal-combustion engine applications. We named this

manufacturing process of our components from casting

material Acehierro and our camshafts derived from it will

to machining.

lead to lower production costs, thus giving us an opportunity to grow our market share. We established a collaboration

Q: What are Arbomex’s growth expectations and what are

agreement with IPN in August 2017 that assigns us Ph.D.

your plans regarding inorganic growth in other regions?

graduates in the topic of metallurgy. They have oriented us

A: We expect a good year in 2018. We are in the middle of

in our material development process and now we are testing

a renovation tied with our strategic development plan set

our components at IPN’s laboratories.

at the end of 2016. First, we are working on implementing a new foundry, which will bring more productivity, quality and

Q: As a leading Mexican Tier 1 player, what advice would

cost competitiveness to our operations. We are working on

you give to new local players?

ensuring repeatability throughout our entire process with

A: The biggest challenge for companies is to gain clients’

the use of Industry 4.0 solutions. In terms of expansion to

trust. In our case, being the camshafts manufacturers of

other regions, we are evaluating the Asian market. China is

choice, we deliver added value in terms of quality, cost,

rapidly evolving, companies are making strategic decisions

technology and timely deliveries. Local players must be

and the country is becoming the strongest economy on the

ready to demonstrate that they can offer an added value

planet. Meanwhile, India is also growing its presence in the

to their clients. At the same time, companies must be

global market. The US will always remain an important client

open and creative enough to showcase their products and

for Mexico due to its proximity but we do not want to miss

technology in other industries besides automotive. We work

out on the opportunity to become suppliers for two of the

with the highest quality standards in the manufacturing

strongest economies in the world.

sector, which can be applied to many different industries. Q: What strategies does Arbomex have regarding

Arbomex is a Mexican company that specializes in production

diversification?

of powertrain and chassis components, including camshafts,

A: Internal combustion technology is not only applicable

crankshafts, casted parts and precision machining parts. It

to the automotive industry. Many products such as

mainly exports to North America and Europe

| VIEW FROM THE TOP

PARKING LOT GIANT PUTS FAITH IN NEW MEXICAN OEM JORGE MARTÍNEZ Director General of Zacua

Q: What spurred a parking lot management company

Q: Considering the unsuccessful previous ventures of

like COPEMSA to launch an auto OEM and develop an

Mexican OEMs, how are you ensuring Zacua’s success

electric vehicle?

in the automotive market?

A: From a business standpoint, we realized that due to the

A: We do not want Zacua to be a mass-market brand.

time required for electric vehicles to recharge, charging

Our product targets a changing market that in the last

infrastructure could only be located in houses, office

years has been willing to pay more and even relinquish

buildings or parking lots — places where people leave their

some comfort in favor of an innovative and more socially

cars for long periods. COPEMSA manages a large parking

conscious offering. That being said, we had to find a way

infrastructure spread across all of Mexico’s metropolitan

to make the project viable and bankable.

areas, which gives us natural access to this business opportunity. Additionally, we believed this would be a good

We spent years looking for the right partners to develop

opportunity to reach out to future clients. Approximately 5

our technology and engineering, enabling us to create

million vehicles circulate in Mexico City, plus close to 2 million

a proposal that was ready for the global industry.

more that come from the Mexico City metropolitan area.

Although we have found these collaborators, we are still

COPEMSA’s parking lots register around 7 million entries per

pacing ourselves to ensure our success in the market.

month, which means we have access to practically the entire

After the M2 and M3 release in 2017, we announced

client base that could potentially buy a new car. This gives

we would market 100 units in our first year, 200 in the

us an insight into what car owners are looking for and why.

second and 300 in the third. We had a slight setback in our manufacturing output due to the Sept. 19, 2017

Looking at the problem subjectively, we were not happy

earthquake that impacted our operations in Puebla and

living in a country without its own OEM, particularly when

forced us to move from the city center to the Puebla

the country has a strong automotive focus; a quality, efficient

2000 industrial park. But commercially speaking, we

and well-structured supply chain and the necessary talent

expect to beat these targets.

to develop its own technology. Our inconformity allowed us to bring a different and innovative proposal to the market.

Q: How soon do you expect sales of the M2 and M3 to generate a profit for Zacua?

We were initially hesitant to launch our vehicle because we

A: We do not evaluate Zacua from an economic

were not sure what reaction we would get from the public.

perspective. Rather than focusing on the returns, we

Zacua would be a new brand in a highly competitive market,

want to develop a strong company, which would be a

a Mexican brand and it would focus on electric vehicles; our

good strategy for the Mexican economy as a whole. We

proposal was one paradigm shift after another. However,

are not worried about our profits at the moment and all

we were pleased to find that the market was interested in

resources entering the company are being reinvested to

our proposal. Clients were attracted to our designs, they

support our technology development process.

agreed that the car’s capabilities could help solve the city’s mobility issues but beyond that, they liked that it was a

How long it takes to recover our investment depends on

Mexican vehicle.

many variables. We could expect to see a profit in five or six years but if we have remarkable results, we could recover everything in just one or two years. Furthermore,

Zacua is a 100-percent Mexican OEM focused on electric

we are not developing the M2 and M3 from zero. Thanks

vehicle development. The company released its first two

to our strategic relationship with Chatenet, we had access

models, the M2 and M3, in 2017. Both are manufactured at

to the company’s designs and we have remained ahead

Zacua’s facilities in Puebla

of our projections.

Zacua Manufacturing Plant / Puebla

We are now developing a four-seater model from scratch

launch this new business before the end of 2018 but right

that will require a significant investment. Depending on

now our priority is to invest in Zacua.

how the project advances and how the market evolves, the process might take three years, which means we

Q: As Zacua’s operations grow, how will you garner the

would see a return on that investment in the next eight

necessary resources for its development?

to 10 years.

A: Originally, the company was a family-and-friends venture. However, a fellow C-level executive from a

Q: How will Zacua manage its operations from a distribution

financing institution advised me to pitch the idea of

standpoint?

investing to our current suppliers to gauge their reaction.

A: Our distribution model will be purely digital, except for a

We approached our powertrain partners from Dynamik

single showroom in the Polanco area of Mexico City that will

Technological Alliance — originally from Spain’s Basque

serve as a gathering point so clients can see the vehicles.

Country — and they were eager to join the project. We

Other than that, our business will rely only on digital

are still open to new investors but beyond the monetary

marketing. We believe this is the best way to commercialize

offering, we want partners that can provide an added value

our vehicles and we do not want to reduce our margins

and new ideas to Zacua.

by adding distribution intermediaries. This allows us to guarantee the best prices for our end customers.

Q: How attractive is Mexico as an engineering destination and what can national players do to improve this image?

We also have an alliance with the Car Fast platform, which

A: We have all the elements in place to advance as an

will serve as an additional channel for clients to get to

automotive design and engineering destination. There is

know the vehicles and find a suitable financing alternative.

a strong and fully articulated supply chain, supported by

Electric vehicles do not require as much maintenance as

quality operations and capable technical and engineering

internal combustion-engine models due to the simplicity

talent. We are also at the right time to make this transition

of the equipment. As a result, we do not need a massive

and the heat we have been receiving from US President

aftersales infrastructure.

Donald Trump should encourage the country to reflect on its current capabilities and lessen its dependence on

In the following months we will be more active in our

low-cost manufacturing activities.

marketing campaigns, not only looking to be in the mind of the consumer as a new brand but also as an agent of

Big national companies such as Grupo Carso and Bimbo

change toward a more environmentally conscious future.

are already investing in the development of a Mexican

In the end, we want to earn the public’s trust through a

automotive industry and that will only incentivize more

clean strategy.

players to participate in the market. Moreover, as automotive technology moves toward alternative motorization, the

Q: Why did you not choose Zacua vehicles to support your

technological barriers that prevented companies from

other venture focused on car sharing, xixo?

participating in the supply chain are removed. Internal

A: Zacua owners who spend approximately MX$500,000

combustion engines are overly complex and require

(US$27,000) on their vehicle do not want that same model

the combination of several systems and technologies.

to be in the car-sharing economy. Therefore, we have

Meanwhile, electric, hybrid and fuel-cell systems are

chosen another brand of clean cars called Tazzari, among

simpler and invite more companies to participate in their

others, to implement our car-sharing service. We expect to

development other than the big OEMs and Tier 1 suppliers.

| VIEW FROM THE TOP

MEXICAN DESIGN MAKES ITS WAY INTO OEM STYLE MIGUEL AVALOS Director General of Air Design

Q: How have Air Designâ&#x20AC;&#x2122;s operations developed during the

We have special edition vehicles displayed on the sales floor

contraction in the domestic market?

of many distributors thanks to a much closer contact with

A: The customization and accessories market does not

these players. Air Design has incremented its sales force

depend on how the general industry moves. On the contrary,

numbers to visit dealerships in Mexico City and other states,

when new-vehicle sales decrease, distributors must find

thus generating demand for special editions and customized

new ways to compete and maintain operations profitable

components. We loan our components and customization

in a contracting market. Vehicle customization and sales of

equipment to distributors so more clients are aware of what

special edition units present an excellent alternative. For Air

they can purchase and as a result, we get more orders from

Design, 2018 has been a good year and we expect to close

OEMs to equip vehicles at their plants with our products.

the year with 20 percent growth in sales compared to 2017. Q: When is the ideal moment for dealerships to market Air Having said that, the industry has become extremely

Designâ&#x20AC;&#x2122;s products?

dynamic and that presents a challenge for our operations.

A: The ideal moment to sell a special edition or customization

All plants are renovating their portfolios and that means Air

kit is before the sale of the unit is completed. The client can

Design has to keep up with the design of customization kits

negotiate financing terms based on the cost of the vehicle

for each of these models. As examples, Volkswagen has the

and its accessories. After that, there is a window of five

new Jetta, Kia is introducing a renovated Forte and GM is

months when clients tend to return to the dealership to

pushing its new Cavalier and Aveo units very aggressively.

equip the vehicle. It is not that common for customers to ask for customized components after this period.

Q: What strategies has the company implemented to boost its growing operations?

Q: How ready is Mexico to participate in design operations

A: Our company already enjoys a good position among

and evolve beyond a manufacturing center?

OEMs in Mexico, Central and South America. We have

A: Mexico is full of talent. GM has over 2,000 engineers in

implemented several strategies to make our operations

Toluca designing components and Ford also has thousands

more competitive and we now install our components

of engineers in Santa Fe designing body parts. Design

at OEM manufacturing sites in special sections called

software has become universal and it has lessened the

Modification Centers and entry ports. Today, we are

dependence companies might have on the experience and

already working with Ford, Kia, Volkswagen, Nissan,

artistic sensibility of Italian and other European experts.

General Motors and several other companies. Other Special

Every day, more companies are delving into design

Editions by Air Design for the Kia Rio Cross Hatchback

operations and even universities are becoming more

and Sedan are now assembled in Peru, Colombia, Ecuador,

involved in providing students with the necessary tools to

Panama and soon in South Africa and Australia. Moreover,

participate in these activities.

at the last SEMA Show in Las Vegas and at the Los Angeles Auto Show, the new Kia Stinger GT Federation designed

Air Design is actually having trouble retaining its talent.

and equipped with the body-styling kit from Air Design

We train our personnel and take them to the highest level

was named Best of Show.

possible, which means they sometimes receive generous offers from companies in the US or Europe. Mexico has the challenge of generating sufficient talent to cover the

Air Design, founded in 1991, is a product-development

demand for growing design and engineering operations.

company focused on specialty equipment and customization

Beyond having the capability to design mechanical

kit production. The company employs over 250 engineers and

components, academic institutions should also incentivize

has design centers in Mexico and the US

aesthetic design operations.

VIEW FROM THE TOP |

THE CHANGING INDUSTRY: A TALE OF TWO TRENDS ERNESTO SÁNCHEZ CEO of Seeräuber Automotive de México

Q: How is Seeräuber Automotive positioned in the

Mobility preferences are changing and the shift toward EVs

Mexican market?

will take place faster than many believe. We are interested

A: The number of projects that Seeräuber Automotive

in entering electronics because EVs only have 10 percent

develops with its main customer, ZF, has grown. We have

as many moving components as mechanical vehicles.

also started working with new clients such as FOX Factory.

When EVs become commonplace, many metal-mechanic

Seeräuber Automotive is exploring two new areas besides

companies will cease operations. Youngsters are no longer

mechanical assemblies. We find electronic assemblies

overly interested in buying a car or even getting a driver’s

an interesting market and we also have received several

license. The death of the internal combustion engine is

requests for precision machining, although we have not yet

evident and the supply chain will take a huge hit as there

tackled them. We will make a large investment in machining

will be fewer vehicles and fewer components in them.

and electronics to complement Seeräuber Automotive’s value offering. The company has good expectations for

Q: What are Seeräuber Automotive’s goals in terms of

2017 and 2018, although for the moment I cannot assure a

customers?

new Seeräuber Automotive plant will open next year.

A: This company can handle a maximum growth of three or four new clients per year, mainly because of the risk

Q: What opportunities and challenges do you foresee from

related to overdiversification. Since Seeräuber Automotive

changes in the NAFTA agreement?

becomes an extension of its clients’ operations, it would be

A: All future growth results depend on what happens

irresponsible to grow beyond that level. We have received

with this treaty. If NAFTA is canceled, the company will

several quotation requests for machining from automotive,

be seriously damaged because a large number of vehicles

electronics and industrial equipment companies. A strong

produced in Mexico are destined to the US market. That

focus on processes is one of our key differentiators but

being said, modifications to regional rules of origin can

not enough for us to grow and survive. Companies must

be positive because they could incentivize the North

consider how to transform and adapt, which is why we are

American manufacturing sector to produce components

interested in electronics. Seeräuber Automotive will not

that are now imported from Europe, leading to further

leave the automotive niche but we must diversify to grow.

investment in Mexico. For these companies, the least risky,

We need to find and exploit a market niche where large

most inexpensive and fastest way to manufacture in Mexico

companies such as Continental are not too interested in

is through a contractor such as us.

competing.

Q: How far along are the company's projected product

Q: How attractive has contract manufacturing become for

development, quality inspection and analysis operations?

automotive companies?

A: Seeräuber Automotive is participating in the development

A: This model’s attractiveness is on the rise but it is slow to

of parts for a small EV for short-distance public mobility. We

permeate the automotive industry. There will be a disruptive

entered this project to focus more on innovation. Seeräuber

change as Californian electronic equipment companies such

Automotive participates in a consortium with other

as Tesla or TD Best bring in their outsourcing-intensive

companies inside ITESM’s Innovation Center at Campus

manufacturing models from Silicon Valley.

Guadalajara, supported by the government of Jalisco. Some of our engineers are collaborating in mechanical areas such as brakes, chassis and suspension-component

Seeräuber Automotive de México is a contract manufacturer

development. Other companies are also collaborating in

that offers mechanical assemblies, process design, logistics

the development of the vehicle’s lithium battery pack and

and supply chain management services to companies in the

position control through GPS and IoT, for example.

automotive industry

| INFOGRAPHIC

COMPETITION IN THE BIG LEAGUES Mexico has an undisputed position in the automotive

Talent availability and a disconnect between the industry's

industry as a vehicle and component manufacturer.

needs and the skills provided by academic institutions

However, the country has yet to improve its attraction as

remain key challenges, coupled with the government's low

an engineering and R&D destination, limiting the investment

spending on science, technology and innovation compared

flowing into these areas.

to other countries.

R&D EXPENDITURE AS PERCENTAGE OF GDP AND IN PPP$ Korea

Israel

Japan 4.3%

68 4

4.2%

Switzerland Finland

3.4%

3.2%

Sweden

3.2%

3.1%

0.5%

Austria

3.1%

of Mexico's GDP

2.9%

Germany

2.9%

2.7%

Denmark

Mexican OEMs VUHL – Queretaro Zacua – Puebla

Moldex – Hidalgo DINA – Hidalgo Beccar – Jalisco

LABOR COSTS IN THE NAFTA REGION (US$) 110

Mexico

Canada

200

63,305.6 per year

173.44 per day ay y

$109,542

204 per day

$75,373

7,197.8 per year

35,168

19.72 per day

74,460 per year

250

150 100

Average

• Average in the automotive industry

labor cost

3,786,162

844,407

1,410,802

3,254,687

11,882,755

5,657,534

2,049,589

2,439,412

4,159,525

1,237,512

7,128,836

2,554,606

3,474,961

523,309

2,126,205

654,054

8 4

522,043

922,260

2,426,598

EDUCATION LEVEL IN MEXICO (INEGI 2015)

100 80 60 40

Percentage:

Nuevo Leon

Nayarit

Morelos

Michoacan

State of Mexico

Jalisco

Hidalgo

Guerrero

Guanajuato

Durango

Mexico City

Chihuahua

Chiapas

Colima

Coahuila

Campeche

Baja California Sur

Baja California

Aguascalientes

Not specified No studies Elementary education High school education College of above

Source: UNESCO 2016, World Economic Forum, Automotive News 2017, INEGI

Q: What is the most important factor hindering Mexico’s evolution beyond a manufacturing site?*

35.1% Lack of R&D and

Q: Do you consider Mexico ready to become an engineering and design hub?

tech development

20.6% Lack of

government incentives

15.2% Lack or deficiency of human talent

64.2% Yes 16.4% No 19.4% no answer

GLOBAL RANKING (World Economic Forum 2017-2018) Innovation and sophistication 1

11.5% Supply chain

underdevelopment and lack of integration

3 Top 10 countries

17.6% Other

4 5 6 7 8 9

Top 5 Latin American countries

10 42 48 50 51 64

Switzerland US Germany Netherlands Sweden Japan Israel Finland UK Austria Costa Rica Panama Chile Mexico Colombia

Competitiveness 1 2 Top 10 countries

3 6

Top 5 Latin American countries 1,112,487

1,470,991

4,350,813

1,554,283

5,960,115

908,171

2,500,369

1,713,350

2,070,267

2,169,167

1,941,965

$476.46 US $370.59 China $170.51 Japan $109.8 Germany $73.19 Korea $60.78 France $48.06 India $44.16 UK $42.12 Brazil $39.83 Russia

1,090,216

1 2

2,794,973

Top 10 countries (UNESCO 2016)

R&D SPENDING IN PPP$ (billion)

33 47 50 51 66

Switzerland US Singapore Netherlands Germany Hong Kong SAR Sweden UK Japan Finland Chile (33) Costa Rica Panama Mexico Colombia

R&D EXPENDITURE BY SECTOR IN MEXICO

Mexico – PPP

Population, 15 years of age or older *Mexico Automotive Review 2018 interviewee survey

Zacatecas

Yucatan

Veracruz

Tlaxcala

Tamaulipas

Tabasco

Sonora

Sinaloa

San Luis Potosi

Quintana Roo

Queretaro

Puebla

Oaxaca

$11.58 billion 38.5% Public

26.6%

30% Private sector

4.9% Private non-profit

sector

Universities

| VIEW FROM THE TOP

LOCAL PARTNER BOOSTS OEM CAPABILITIES JULIETA TORRES Director General of CIDETEQ

Q: What are your goals as the new Director General of

this industry. We can offer different testing and laboratory

CIDETEQ and how do they differ from the road plan

services, as well as technology development programs

established by your predecessor?

based on internal research. Automotive is a key sector for

A: Our former Director General, Gabriel Siade, established

CIDETEQ and it represents approximately 50 percent of

an institutional project based on five strategies. Three of

our testing and laboratory services.

these are oriented to CIDETEQ’s own operation, including better internal collaboration, development of new research

Q: What are the main capabilities that CIDETEQ can offer

projects and ensuring the center’s self-sustainability. The

its automotive clients?

rest are focused on external factors such as building a

A: In 2017, we signed a new agreement with a Japanese

better relationship with the industry and improving the

company to perform weathering tests on their components.

quality of our graduate programs, which are already part of

We have a whole division in CIDETEQ focused on corrosion

the National Program of Quality Graduate Degrees. Overall,

testing but we have specific chambers dedicated to

the goal of these initiatives is to make CIDETEQ a standard

automotive component testing and we already have

in technology development operations.

business with Toyota and other Japanese companies in the Bajio region. Toyota’s demands, for example, are mostly

My administration intends to maintain these strategies,

related to cyclical testing. We test components and their

bringing new ideas regarding how best to implement them.

response to different temperature extremes, exposure to

We are extremely interested in building this connection with

UV radiation and corrosion under specific humidity and

the industry and elevating the quality level of our graduate

salinity environments. We even have a chamber that can

programs to deliver highly specialized talent to the national

test textile materials and their reaction to sun exposure.

industry. We have already approached the Queretaro Aerospace University with the goal of establishing a joint

Most of our activities are related to material and failure

education program.

testing, unlike other centers that focus more on the production side of the business. Along with our weathering

My goal for 2018 is to continue working on the previously

tests, we have projects to design specialized coatings for

established plan. In the medium term, which would be by

automotive applications and we test their efficiency in

the end of my administration in 2023, I expect CIDETEQ

terms of corrosion, friction and wear. We also support

to grow in terms of self-sustainability, establishing stronger

companies in the design of their water treatment plants

ties with the industry and relying more on its technology

for different manufacturing processes.

development projects. Q: How have the latest trends in the industry impacted Q: How important is the automotive industry to CIDETEQ’s

CIDETEQ’s R&D process?

operations?

A: The general trend in the industry is to move toward more

A: Historically, we have had a strong relationship with the

efficient vehicles that are environmentally friendlier. Hybrid

automotive sector and every two years we organize an

technology has become a hot topic in the sector and we

event where we showcase our capabilities to companies in

already are doing research in battery development and fuel-cell applications that could eventually be applied to the automotive sector. In terms of lightweighting, we are

The Electrochemistry Research and Technology Development

also collaborating in the development of composites that

Center (CIDETEQ) is a public R&D center that is part of the

are more structurally sound and offer a suitable alternative

CONACYT network. It offers material characterization services

to traditional components. Finally, in terms of aesthetics,

and failure analysis among other services

OEMs are continuously working on their vehicle designs

and they need solutions that ensure the endurance of the vehicle’s appearance. To address this, we are working on nanotechnology solutions to improve coatings without compromising the car’s visual appeal. Our challenge is complying not only with companies’ requirements but with the users’ demands in terms of performance and driving experience. Q: How have you evolved in terms of processes and equipment to ensure quality standards? A: Each of our different divisions has standards that ensure the quality of our operations. In the research department, all our collaborators are affiliated with the National Researcher System, which means they must publish papers constantly and with exceptional quality. Meanwhile, people working on technology development activities must be up to date with the latest trends in the industry. Finally, our technology services department must be certified in different norms depending on the process they are offering. As a center, we must remain close to our clients at all times to understand their needs and evolve our services accordingly to ensure the highest quality standards and the fastest response times. Equipment-wise, we must constantly invest in state-of-the-art technology both for our students and our clients. All our projects consider an extra fee for equipment maintenance and we also receive support from CONACYT to grow our infrastructure as we see fit. Q: What are the main advantages that companies derive from trusting in local R&D centers? A: The main advantage is time. Generally, clients have to send their components to their headquarters for validation, which can take weeks or months for the final results to arrive. Once companies realize that we can offer the same validation processes as their headquarters with the same certifications, they can access better response times and even costs. Furthermore, if a situation were to arise, clients know they are close to us and we can help them solve whatever problem they might have. As an example, we have already been certified by Bombardier on several processes and the company now chooses CIDETEQ over other international centers to do its testing. Q: How have you promoted CIDETEQ’s capabilities among potential clients? A: Our most effective strategy has been to invite clients to the center to see our facilities and the type of equipment we manage. Furthermore, although we are specialized in electrochemistry, we have access to infrastructure from CIDESI and CIATEQ to complement our capabilities and offer clients a more rounded service. CONACYT has worked on arranging centers in consortia based on specific capabilities for different industries and companies have found this integration very attractive.

| VIEW FROM THE TOP

HARNESSING DIGITALIZATION FOR DIVERSIFICATION JESÚS GONZÁLEZ Director General of CIDESI

Q: In what ways does CIDESI support the adoption of smart

We are also constantly holding seminars and conferences

manufacturing practices in the Mexican industry?

to present SMEs with the industry’s cutting-edge

A: In Nuevo Leon, CIDESI has delivered machinery that

developments. We plan to create 30 to 40 microclusters

predicts malfunctions before they happen to prevent

where SMEs can group themselves around a certain

unscheduled downtime and save costs. One of our

industry topic and create projects for member companies

flagship projects was the implementation of sensors at

to take part in. This will allow us to help companies engage

forging company FRISA. Adding sensors that gauge 20

in transcendental topics and share both investment and risk.

different variables has enabled the company to know where malfunctions might occur before they do. If Mexico wants to

Q: What are the most interesting digitalization projects

keep its leadership in manufacturing, it needs to participate

that CIDESI is developing?

in the digital industry. CIDESI has traditionally focused on

A: Conventional and advanced manufacturing are sectors

advanced manufacturing processes including die-cutting

where CIDESI has done well. However, we need to diversify

and welding but it is moving toward modern technologies

to remain updated. These areas include the digitalization

and processes with greater added value.

of the Mexico City subway, smart cities, production of customized sensors and additive manufacturing. CIDESI is

Q: How can the use of virtual reality in the design of

now developing three Industry 4.0 projects for the Mexico

manufacturing projects lead to better production results?

City subway where we work on predictive maintenance

A: When an automotive company requests new equipment

for engine-driven compressors. These control the

or a new assembly line, we deliver a virtual version of the

wagon’s brakes, doors and other pneumatic systems, so

project so design changes can be implemented before

a maintenance-related failure could be dangerous. CIDESI

building the actual facility. CIDESI creates the mechanical

is also creating the first smart, sensor-equipped subway

design of a solution and transfers it to a virtual platform

car produced in Mexico and a Waze-like app that tells

where clients can use special goggles to see the whole

passengers the number of people riding the trains in real

operation and give us feedback. By simulating the

time so they can plan their commutes more effectively.

production process, we reduce costs and prevent costly modifications later.

CIDESI will soon have an operations center focused on security, mobility and Industry 4.0 services. We are aware

Q: How does CIDESI support SMEs that want to acquire

that additive manufacturing is the future of the sector, so we

advanced manufacturing solutions?

recently signed an agreement with the Ministry of Sustainable

A: Acquiring manufacturing solutions requires a certain level

Development of Queretaro and GE to invest US$13 million in

of sophistication and critical mass to afford the equipment.

an additive manufacturing laboratory that will be located at

To convince SMEs to invest in CIDESI’s solutions, we

CIDESI Queretaro. We have also created a team that focuses

subsidize projects to some extent and support companies

on additive manufacturing and surface engineering.

to enter government programs including those established by CONACYT. In 2014, we developed 450 projects for SMEs

Q: What are the main challenges that CIDESI faces as a

and 590 in 2015.

public dependency of the Federal Government? A: Although some people believe that CIDESI should not charge for its services because it is a public research center,

The Industrial Engineering and Development Center (CIDESI)

only a fraction of our income comes from the public budget.

is focused on creating high-value solutions for its clients

We need to constantly grow and cannot allow ourselves to

based on applied engineering research and cutting-edge

remain static. Part of our payroll is covered with the revenue

experimental development

we get from projects with private companies.

INSIGHT |

METROLOGY CENTER TO FOSTER TALENT, TECHNOLOGY, JOBS ÓSCAR MORALES Director General of Grupo Mess

The need to reduce ppm rates, meet component

on-the-job experience for new recruits to get the hang of

specifications and increase machine uptime has led to an

metrology equipment but Grupo Mess’ center could reduce

increase in demand for talented metrology technicians.

that time fivefold. “We will both reduce training times to

Yet, supply has not grown in tandem, according to Óscar

only one to two years and provide automotive companies

Morales, Director General of Grupo Mess. In fact, he says,

with talent that can truly help the industry,” he says.

it is just the opposite. “Metrologists have become scarce following the automotive industry’s growth over the last

The Mess Metrology Center will enable the company

decade,” says Morales. “Mexico faces the challenge of

to work on Industry 4.0 trends and develop new

talent graduating from universities being well-prepared

technologies. Grupo Mess’ interest in Industry 4.0 focuses

but lacking practical experience in the use of equipment.”

on digitalization, reverse engineering and 3D printing. The public sector is collaborating in the center’s creation as part

Grupo Mess has spearheaded a triple-helix effort to train

of its commitment to the region. According to Morales, the

the calibration, maintenance and metrology technicians

Queretaro government has agreed to help accelerate the

Mexico’s automotive industry demands. The company is a

center’s development to boost the creation of well-paid

100 percent Mexican metrology venture that started as a

employment choices. Grupo Mess is also in talks with most

maintenance and calibration services business. It eventually

universities in Queretaro as well as with regional clusters

began distributing equipment from several brands and later

including INTEQSOFT, the Queretaro Automotive Cluster

manufactured its own fixtures and gauges.

and research centers such as CENAM, CIDESI and CIDETEQ. “We want to work with academic institutions and clusters

Before Grupo Mess’ operations, Morales says the manufacturing

to develop Mess Metrology Center’s academic programs,”

industry used to depend solely on equipment manufacturers

he says. “Creating synergies with these institutions enables

to service their equipment. Since these companies often

us to develop things more quickly and with better quality.”

lacked presence in Mexico and there was no other option for maintenance and calibration services, equipment providers

Morales says that companies have developed a taste for

would often take their time to deliver. “There was a gap and

Mess solutions. He enumerates the company’s dependability,

nobody offered the service companies needed,” says Morales.

the variety of its metrology equipment options and the

“Grupo Mess seized the opportunity and filled that divide,

complexity of its maintenance and calibration services

which prompted equipment manufacturers to deliver faster

as key for Grupo Mess’ relationships with clients such as

response times.” The company eyes education, training and

TREMEC. On customer care, Morales says Grupo Mess

technological innovation as the next business area to explore

offers a 24/7 client support that enables the company to

and with over 80 percent of its operations focused on the

immediately answer client demands. “Being able to respond

automotive industry, it has decided to take the next step and

in the middle of the night or on a weekend when a client’s

build the Mess Metrology Center shoulder to shoulder with the

machine fails makes all the difference,” he adds.

Queretaro government, local clusters and several academic institutions.

While more companies have entered the Mexican market for machine maintenance and calibration services,

The company’s metrology center has three main objectives,

delivering a more complete value proposition gives Grupo

according to Morales: education, Industry 4.0 and additive

Mess an edge, says Morales. “There are many companies

manufacturing. “Grupo Mess wants to share its experience

in the sector that offer lower prices but that also deliver

in the metrology business with Mexican students and

less complete solutions,” he says. “Companies that require

graduates through the Mess Metrology Center,” he says.

equipment servicing must pay attention to what services

He points out that it usually takes four to five years of

they need.”

| INSIGHT

CERTIFICATIONS: SHORTCUT TO THE SUPPLY CHAIN OMAR CARRERA Co-founder and Director General of Dukke Consultores

An integrated supply chain is crucial if the automotive

company that develops practical courses on logistics.

industry is to have greater resilience, profitability and

“Production-line issues are the next area of concern for

flexibility, but client companies require that suppliers

OEMs after quality control,” says Carrera. Trouble on an

implement quality management systems and get

OEM’s production line is usually due to suppliers not

certifications to ensure smooth production processes, says

shipping on time, not reporting when they are low on stock

Omar Carrera, Co-founder and Director General of Dukke

or when their machines have broken down or because they

Consultores. “Companies’ certification priorities depend on

do not know how to handle inventories or properly plan

what a client wants and what the company’s position inside

their production, he adds.

the value chain is,” he says. “Every OEM and Tier 1 has its own personality.”

According to Carrera says the most common concerns among manufacturers that are about to enter the automotive

Aside from common automotive certifications such as IATF,

supply chain are the many requirements and steep fines that

VDA or ISO, OEMs usually require their suppliers to comply

can be leveled by OEMs. “Automakers charge a lot when you

with customer-specific requirements. He points out that Tier

stop their plant,” he says. “But there are structures, insurance,

3 and Tier 4 automotive companies are either noncertified

processes and filters to prevent this.” Carrera enumerates

or certified with ISO, Tier 2 companies are virtually all

customer-specific requirements as another key concern for

certified unless it is a greenfield project and it is almost

suppliers. “Ford has Q1, while Volkswagen and Audi have

compulsory for Tier 1 companies to hold a VDA or IATF.

Formel Q, for instance.” While certifications are important for the automotive supply chain, Carrera says some clients may

Dukke Consultores cites its knowledge of the labor market,

ask their suppliers not to certify to prevent a rise in costs. “It

cultural challenges and the profiles of OEMs as its main

is necessary to raise prices to place a structure in place that

added value. Carrera says this enables the firm to efficiently

can meet all requirements,” he says. “Many businesspeople

guide clients in implementing quality management systems

wonder how to grow their companies and that is achieved

and to deliver satisfaction. “We participate in several

through quality-management systems.”

sectors including government, education, health, services and commerce but manufacturing is the strongest,” he

Carrera recognizes that some suppliers are ineligible for

says, “Eighty percent of our projects are in this sector

certifications because their projects are not yet mature.

and half of that percentage is in automotive.” Carrera

“For instance, IATF requires 12 months of quality-system

explains that Dukke Consultores often works with Tier 2

use. A company that does not comply with this and other

and Tier 3 companies. With businesses newly arriving to

requirements cannot be certified, which is why companies

Mexico, Dukke Consultores helps by tropicalizing their

usually start with ISO 9001 and then migrate to other

quality-management systems. “Some companies have

certifications.”

their headquarters in other countries and they already have a system,” says Carrera. “We help the local company

On the side of engineering and design, Carrera says

customize it.” The consulting firm can also help companies

that Mexican companies that want to engage in these

develop a quality-control system from scratch. “We enter as

activities must employ good practices and consider three

support for a knowledge-transfer model so that companies

factors: cost per hour of engineering, time efficiency and

understand what they need for ISO, IATF or other customer-

effectiveness and quality of what is being engineered. He

specific requirements,” he says.

underlines that there are two kinds of design: that in which a local company owns the design and that in which the

The firm also has a supply chain division and it is an

company works as a design maquila. “We need to migrate

authorized distribution partner of APICS, an American

ownership to the local design center,” says Carrera.

INSIGHT |

HARNESSING TECHNICAL EDUCATION OPPORTUNITIES VICTOR VAZQUEZ Director General of Consultores CPM

Even though Mexico graduates among the highest number

Many universities, for example, do not train industrial

of engineers per year globally, there is still a lack of

engineers in manufacturing processes on the same way

congruency between what universities and other academic

as they do with mechanical engineers. “Similarly, we have

institutions offer and what the industry demands. This gap

engineers capable of synthetizing automation and meeting

must be filled by the industry itself, says Victor Vazquez,

the country’s automation needs but who end up in areas

Director General of Consultores CPM. “There is no education

such as quality, production inspection and industrial

focused on design for manufacturing processes,” says

engineering,” he says.

Vazquez. “These activities must then be done by industrial or mechatronics engineers who were not trained for this

Technical education in itself poses a challenge, according

and who would rather be focusing on other tasks.”

to Vazquez, who believes that schools are putting too much stock in skills that could be otherwise developed.

Consultores CPM is among those companies that have

“Courses on socialization and personal skills have been

committed to bridging the gap between the workforce’s

introduced as priorities, taking attention away from key

capabilities and the industry’s needs. The company’s core

technical concepts,” he says. “Teamwork, oral and written

business is helping clients develop effective manufacturing

expression or socialization should be measured in the

processes to bring component designs to reality. According

work students do for all other classes and professors

to Vazquez, about 85 percent of the company’s operations

should be trained to measure these in their own subjects,”

focus on the automotive industry and most of the solutions

Vazquez says.

it commercializes are directed to that sector. Technical curricula in Mexico is also too short in comparison Vazquez says the company wants to approach OEMs with its

with similar programs in other countries, says Vazquez.

services during 2018. While the consultancy has had contact

While German students take three years to perfect the

with automakers such as FCA, Ford and Volkswagen, there

necessary skills to participate in the industry, Mexican

are some challenges when approaching these companies.

students are expected to learn in too short a time for them

“Automakers usually have a series of set procedures and

to conceptualize all topics effectively. “Three years is the

a certain critical mass is necessary before you can cater

required time to teach a student to use machine tools and

to them,” he says. Additionally, CPM Consultores wants to

design simple dies or molds,” he says.

insert itself into new regions. “We want to start focusing on Guadalajara to attack the Jalisco-Aguascalientes region and

The best way for students to learn what is needed in the

on Tijuana to attack Baja California.”

industry is by participating in real projects, which is the basis for Germany’s dual-education system. Vazquez says

One of the main opportunity areas Consultores CPM has

the Mexican government should offer more stimuli for the

detected is the need for quality assurance engineers to help

creation of schools and scholarships that support dual

suppliers. “They need to go beyond monitoring quality in their

education. “A good example of such a program is the

organizations to providing their suppliers with solutions,”

Dual-Specialization Center (CEDUAL),” he says. Managed

he says. Thanks to its expertise in the sector, the company

by the metal-forming company Schuler, this center

knows that many universities have changed their curricula

offers training and specialization in industrial mechanics

in favor of R&D operations thus neglecting the grounds on

and tooling according to the standards of the German

which the industry was founded. “Education is lacking in

Chamber of Industry and Commerce. “Encouraging dual

engineering and technical education,” says Vazquez. “For

education makes it less costly for companies to train

us, this is a great opportunity to jump in and train people on

people and enables them to choose the personnel they

manufacturing processes.”

want to hire.”

| ROUNDTABLE

HOW ATTRACTIVE IS MEXICO AS AN ENGINEERING DESTINATION?

Mexico’s success as an automotive manufacturing hub is undeniable. The country is already the seventh-largest lightvehicle producer in the world and incoming investments will only push the country further up the ranking. However, when it comes to engineering and added-value activities, Mexico still has a way to go to compete against global leaders like Japan and Germany in design and product development. Some companies have already brought R&D and engineering centers but, how can Mexico become more attractive to investors as an engineering destination?

Mexico is not a country that guarantees conditions that promote R&D investment. Even the Mexican government reduces budget for these activities. These conditions must be driven by private companies as part of their corporate social responsibility activities and commitment with Mexico. Mitsubishi Electric Automation has Mitsubishi University, a program that provides training for customers around the world. The content learned

VÍCTOR FUENTES Director General of Mitsubishi Electric Automation Mexico / Latin America

by Mexican workers certifies them according to Mexican regulations. It is also the same content that a worker in Japan or the US learns. Due to the extension and diversity in Mexico, we decided to create training centers where Mitsubishi Electric’s business partners provide training and knowledge to customers on behalf of Mitsubishi Electric. By the end of 2018, we will also be launching a scholarship program for public university students where they can receive training at our facilities.

We must take advantage of our experience and foster the creation of more R&D and engineering centers, so we can move away from mere manufacturing. This should be a priority not only for Tier 1 suppliers like Flex and Continental but also for local Tier 2 and Tier 3 companies. There is an opportunity for Mexico to participate in advanced manufacturing operations but we need to change our work culture and mindset.

ALEXANDRO BURGUEÑO Director General of the Jalisco Automotive Cluster

We need to move from the “Made-in-Mexico” focus to the “Designed-in-Mexico” approach. Mexicans are creative but are not trained in planning for the future and how best to tackle it. A change in mindset needs to happen both within companies and academia to create an environment that fosters value. Our board is working on the creation of a Competitive Technology Intelligence Observatory to support the development of R&D activities in the state.

We have all the elements in place to advance as an automotive design and engineering destination. There is a strong and fully articulated supply chain, supported by quality operations and capable technical and engineering talent. We are also at the right time to make this transition and the heat we have been receiving from US President Donald Trump should encourage the country to reflect on its current capabilities and lessen its

JORGE MARTÍNEZ Director General of Zacua

dependence on low-cost manufacturing activities. Big national companies such as Grupo Carso and Bimbo are already investing in the development of a Mexican automotive industry and that will only incentivize more players to participate in the market. Moreover, as automotive technology moves toward alternative motorization, the technological barriers that prevented companies from participating in the supply chain are removed.

Several companies are bringing their development centers to Mexico. The Mexican electronics industry transitioned from being mere manufacturing to the establishment of innovation and research centers of both transnational and Mexican companies. Intel, Oracle and Continental are examples of this process. The government could foster this change in the automotive industry by empowering the market through tax incentives for vehicles with a percentage of Mexican-designed components. However, Mexico needs a trans-sexennial strategy between the government and the private sector for this to work.

ERNESTO SÁNCHEZ CEO of Seeräuber Automotive de México

Mexico is already becoming an engineering and design hub as engineering centers continue to go up in the country. Both automotive clusters and the government are aware that taking a step beyond being a maquila center is what will give Mexico the added value it needs to continue growing. The only value left to add when production is possible anywhere in the world is design and intellectual property. Our main issue is talent development. Without capable people, technology adoption becomes much harder. We collaborate with SEDECOs and state ministries of labor to open centers for training in design where companies can recruit new talent and

GUNTHER BARAJAS Vice President of Dassault Systèmes de México

adopt new technologies.

Mexico is full of talent. GM has over 2,000 engineers in Toluca designing components and Ford also has thousands of engineers in Santa Fe designing body parts. Design software has become universal and it has lessened the dependence companies might have on the experience and artistic sensibility of Italian and other European experts. Every day, more companies are delving into design operations and even universities are becoming more involved in providing students with the necessary tools to participate in these activities. Air Design is actually having trouble retaining its talent. We train our

MIGUEL AVALOS Director General of Air Design

personnel and take them to the highest level possible, which means they sometimes receive generous offers from companies in the US or Europe.

Education is lacking in engineering and technical education. For us, this is a great opportunity to jump in and train people on manufacturing processes. Many universities, for example, do not teach manufacturing processes for industrial engineers at the same level taught to mechanical engineers. Similarly, we have engineers capable of synthetizing automation and meeting the country’s automation needs but who end up in areas such as quality, production inspection and industrial engineering. Schools are putting too much stock in skills that could be otherwise developed. Furthermore, technical curricula in Mexico is too short in comparison

VICTOR VAZQUEZ Director General of Consultores CPM

with similar programs in other countries.

Gradually, more and more companies are becoming interested in developing engineering in Mexico, not only large international players but also smaller local companies. Players such as Moldex have ventured into the development of state-of-the-art technologies and they are even generating new knowledge that will help in the evolution of electricvehicle innovations. CIMA is also starting to collaborate with Zacua in the design and engineering of their vehicles, which was previously managed by a foreign company. ITESM is also changing its education model based on its TEC 21 strategy, which will lead to a stronger integration with the industry both at an engineering and graduate level.

ALEJANDRO ROJO Director of CIMA at ITESM Toluca

| INSIGHT

PLATINGS AND COATINGS ADAPT TOO RENATO VILLASEÑOR Technical and Commercial Director of Galnik

Manufacturing 4.0, automation, electrification and

focus mostly on environmental matters. US companies,

lightweighting do not only affect automakers and components

meanwhile, care more about corrosion resistance. Japanese

suppliers. The effects of these trends trickle down the supply

players place more importance on the appearance of the

chain in the form of specifications, norms and needs that

coating,” he says.

companies in the supporting industry must also assess. To keep up with the changing needs of the automotive Renato Villaseñor, Technical and Commercial Director of

industry, Galnik remains close to the Queretaro Automotive

Galnik, says Mexico’s coating and plating market has also

Cluster and other clusters in the country and generates

felt the effects of this process. “Players that support the

partnerships with coating suppliers that engage in R&D

supply chain must remain updated in prices, processes

operations in Asia, Europe and the US. “We are not in the

and the requirements of the automotive industry,” he says.

business of producing chemical processes but in applying

Being part of a Mexican company that offers electroplating,

them, so we make sure our suppliers meet OEMs’ coating

coating and surface finishing services to the automotive

specifications,” says Villaseñor. Coating suppliers that

industry, Villaseñor identifies three main challenges that

engage in R&D usually also help OEMs develop their coating

coating companies face: meeting environmental issues,

specifications and audit the companies that apply their

extending corrosion warrantees and preparing to meet the

products. “Working with these suppliers helps Galnik gain

needs related to electric-vehicle manufacturing.

the trust of OEMs for coating applications,” he explains.

“Environmental regulations by the government and global

Implementing stricter standards might be pricier for

sustainability strategies of OEMs are changing the coating

companies but Villaseñor underlines that sustainability has

business,” he says. As automakers choose to stop using certain

not affected overall vehicle costs. “Years ago, cars would

metals in their components, the challenge lies in carrying out

have a 2.5mm-thick bracket with a zinc coating that ensured

R&D to meet the requirements of new projects. The coating

it would remain corrosion-free for five years,” he says. “That

industry is also in the middle of a race to deliver and extend

bracket has evolved and is now only 1.7mm thick, making it

guarantees against rust and corrosion. “The bar is set at 15

lighter and cheaper, but it requires a zinc-nickel alloy that

years,” he says. “As specifications and norms in the industry

avoids corrosion for 15 years.” The price of the coating may

become increasingly complex and start requiring the use of

rise but the production of the bracket is less expensive,

alloys, nanoparticles and other processes, coating companies

so the vehicle’s cost does not increase. “Making coatings

are busy looking for new ways to fend off corrosion and

more resistant means making processes more efficient to

deliver these warrantees to clients,” says Villaseñor.

keep vehicle costs in check while still meeting weight and durability requirements,” he adds.

The lightweighting trend, whereby heavy materials are substituted for lighter ones in vehicle production, is another

Practicing what he preaches, Villaseñor has also invested

challenge that Villaseñor sees for coating companies. “Steel

to make Galnik as cost-efficient as possible through

is losing ground to plastic in vehicles and there are more

automation. The company has been developing its own

electronic sensors to consider during coating processes,”

automated plating lines since 2003. “We use top-of-the-line

he says. Companies must ensure their surface treatments

technology to fabricate our plating lines without having to

do not interfere with the functionality of these sensors.

bring engineers from Germany or spare parts from Japan

While Galnik and other companies tackle these changes,

and China,” he says. However, the company saw a need to

Villaseñor adds that companies must worry about how

enter the e-coating market so it brought in technology from

automakers’ requirements and priorities for coatings

abroad to boost its competitiveness. “We are importing the

vary depending on their origin. “European automakers

latest technology to attack new markets,” says Villaseñor.

INSIGHT |

STRIKING GOLD IN AUTOMAKER WASTE EUGENIO FLORESGÓMEZ Director of Sales and Branches at Grupo Pochteca

Waste elimination need not be a burden for automotive

Bajio in particular since it has a potential for growth of

companies when operations can be made more

35 percent according to Floresgómez. “Most of our local

environmentally friendly while delivering savings. According

subsidiaries grow at the rate of the Mexican economy but

to Eugenio Floresgómez, Director of Sales and Branches at

the Bajio region grows faster thanks to the dynamism of

Grupo Pochteca, several OEMs in Mexico still do not treat

the automotive industry,” he says.

purge solvent for recuperation, which means there are opportunities to improve efficiencies.

Pochteca plans to refurbish its facilities in these regions and Guadalajara to increase in size and capacity. The company’s

“OEMs normally use four or five solvents in their painting

expansion plans for Monterrey include a larger working

process,” says Floresgómez. “Separating these after use

area and railroad transportation, as well as new solvent

allows companies to reuse part of their waste by selling it

recuperation equipment there and in Guadalajara. “We

as raw material for new products and processes that meet

are almost quadrupling our storage capacity with railroad

all regulations.”

services to include more tank railcars,” says Floresgómez.

With over 30 years in the market, Pochteca is a Mexican

Pochteca’s overall growth strategy is twofold. “We

company that focuses on wastewater treatment for the

will focus on the automotive projects and initiatives

recuperation of solvents. The sector has grown at double-

we have landed to achieve 7 percent growth in 2018,”

digit rates since 2013, mostly thanks to the continuous

says Floresgómez. “Selling more products to our

growth of the Mexican automotive industry, according

current customers makes more sense than opening a

to Floresgómez. “Our growth is directly related with

distribution center in a new region or manufacturing new

the momentum of the sector and the consistency of

products,” he adds.

our value offering to its entire supply chain,” he adds. Pochteca already counts GM and Mazda among its local

In terms of technology, Pochteca currently focuses on

automotive clients but Floresgómez says more OEMs can

increasing the benefits clients can gain from investing in

find advantages in investing in the recuperation of solvents

the company’s solutions. “We grow organically by finding

as opposed to merely generating waste.

new ways to integrate our value offer in raw materials for assembly lines and purge solvent treatments,” says

Pochteca is present in several automotive segments,

Floresgómez. Introducing new equipment to its solvent

developing other products that support its clients’

recuperation facilities is part of this strategy since these

operations, such as lubricant solutions that minimize

machines will enable Pochteca to better fractionate solvents

engine replacements and downtime while maximizing the

and offer purer product streams for future use.

vehicle’s life cycle, according to Floresgómez. “We are also planning to develop cleaning materials for auto parts,” he

“We need to raise awareness of our products as automotive

adds. The company targets inorganic growth through M&As

companies continue to arrive,” says Floresgómez.

aside from the organic growth its core activities offer. The

“Pochteca has worked on technological development with

company recently purchased former client Conjunto LAR

US companies, which makes it easier for us to collaborate

and entered the car care aftermarket with degreasing

with them.” Asian and European OEMs, on the other hand,

agents and cleaning materials for tapestries.

represent key opportunities for growth for Pochteca although Floresgómez still sees a challenge to enter

However, solvent recuperation remains the company’s

this particular market. “European and Asian companies

strongest business area. This makes the Bajio region, Puebla

generally look for companies they already know from their

and Monterrey the company’s priorities for expansion, the

home markets,” he says.

| INSIGHT

SUPPLIER DEVELOPMENT SECURES THE FUTURE FRANCO BELTRAMETTI Director General of Alian Plastics

On track to produce 5 million vehicles a year by 2020,

Beltrametti wants to harness the ongoing growth in demand

Mexico must develop its local supplier base, engage in

and increase its sales 20 to 25 percent by 2020-2021. The

product design operations and improve its infrastructure to

company plans to double its plastic injection capacities to 600

make that growth a reality, says Franco Beltrametti, Director

ton per month from 300 ton and to grow its manufacturing

General of Alian Plastics.

area from 10,000m2 to 21,000m2. “Several Kia suppliers have shown interest in partnering with us but we are working at

“Mexico faces the challenge of developing its local supplier

full capacity,” he says. “After this expansion we will be able to

base and investing in logistics infrastructure,” he says. “A

effectively work with them on long-term contracts.”

big wave is coming and we are not ready yet. OEMs such as GM are facing shortages and Tier 1s face difficulties catering

Ensuring the growth of the national industry is not the

to the demand from several automakers.” To weather this

sole responsibility of the private sector, however, and for

challenge, it is necessary for Mexican Tier 2s to evolve into

Beltrametti it is crucial for the private and public sectors to

Tier 1s and for Tier 3s to become Tier 2s. According to

join efforts to develop suppliers and exploit the country’s

Beltrametti, this process is already starting thanks to the

potential. “Mexico offers many areas of opportunity to

arrival of American, Asian and European OEMs and the

develop its automotive industry,” he says. “But, if Mexican

resulting upturn in demand for components.

suppliers fail to rise to the challenge, foreign companies may arrive to the country and engage in the operations local

Rapid growth in any industry usually entails chaos and

companies could be doing.”

this was the case of the Mexican automotive market, says Beltrametti. “The 80 percent increase in vehicle sales that

Opening communication channels between all automotive

Mexico saw in the last decade caused turmoil in the local

players involved and sharing best practices is key to exploiting

industry.” Alian Plastics learned to take advantage of this

all possible opportunities, says Beltrametti. At the same time,

growth and eventually came out on top. The company used

investment in logistics infrastructure should be a priority for

to solely provide plastic injection parts for the Mexican home

the Federal Government. “By locally manufacturing goods

appliances industry but shifted to solely producing automotive

that would otherwise be produced in China, Europe or the

components in 2013. “We saw the potential for growth that

US, Mexican suppliers can help clients save on logistics

the automotive industry offered and decided to focus all our

costs and reduce unscheduled downtime,” he says. However,

operations on that industry,” he says.

Beltrametti says Mexico lacks the logistics routes and infrastructure necessary to support the production of 5 million

Alian Plastics let go of its light plastic injection machines

vehicles a year.

used to produce small plastic components and brought in heavier plastic injection machinery to manufacture larger

On the R&D front, although some Mexican companies may

parts. Beltrametti says the company chose to go for large

still need technological support from European, Asian

parts as it is a market niche rarely attacked by local plastic

and American players to develop design and engineering

injection companies. “We are a Tier 2 supplier that not only

capabilities, there are already several local design centers

produces large-sized plastic components but that also does

where Mexican engineers are collaborating in developing

some assemblies for Tier 1s and OEMs,” he says. The company

automotive technology. “Mexico is more than capable

increased its sales by 90 percent between 2013 and 2017 and

of participating in design and engineering operations to

now caters to world-class Tier 1 suppliers, including Dräxlmaier,

develop components for high-end vehicles,” he points out.

Faurecia, Magna and Premium Sound Solutions. Through

“Delphi and Continental have opened design centers in

these alliances, Alian Plastics components are used in vehicles

Mexico and Zacua is already producing made-in-Mexico

of premium brands such as Tesla, Audi and Mercedes-Benz.

electric cars.”

INSIGHT |

AUTOMOTIVE LAND OF OPPORTUNITY FOR ELECTRONICS HOPEFUL LUIS FERNANDO GARCÍA CEO and Operations Director of SINEC Technologies

Sometimes called the Mexican Silicon Valley, Guadalajara’s

size sevenfold and increased its production capacity. “This

growing electronics industry has worked to the advantage

investment enables us to take on bigger projects and grow

of Jalisco’s second-largest exporting sector: automotive. As

between 100 and 150 percent in both revenue and number of

vehicles become more dependent on electronics, the state’s

projects,” he says. “Our previous installed capacity did not let

experience has allowed more companies to participate in

us accept more than one or two projects from a client. Now,

the automotive production chain.

clients can give us 10 projects and we still have space for more.”

Launched with a focus on training and certifications

With growth also comes the need for automation and

on quality norms for electronics 11 years ago, SINEC

García underlines that between 50 and 55 percent

Technologies has now moved toward manufacturing

of SINEC Technologies’ manufacturing processes are

electronic assemblies and its CEO and Operations Director,

automated. Although the company could move past that

Luis Fernando García, sees in the automotive sector a great

ratio, García wants to keep a 50:50 to 60:40 balance

opportunity for ongoing growth in component design and

between automation and human labor. “Sometimes 100

development. “Automotive represents about 20 percent

percent automatable projects arrive at our door,” he says,

of SINEC Technologies’ business,” says García. “We expect

“but factors such as time-to-market and production must

to grow 300 percent in this sector and for our operations

be weighed as automation does not always deliver better

to become 50 percent oriented to this industry by 2019.”

time efficiency.” Perhaps one or two of SINEC Technologies’ clients would prefer that the company was fully automated

The company’s client portfolio for training and certification

but 20 others do not require it, so balance is key, he adds.

on quality norms included electronics companies such as Delphi, Bose and Omron. Over time, SINEC Technologies

Looking ahead, García expects to start offering component

grew and evolved to target automotive OEMs and Tier 1 and

design and development activities for Tier 1 companies in

2 suppliers. On the manufacturing side, SINEC Technologies

one to one-and-a-half years. “The automotive industry

produces electronic cards and harnesses destined for Tier 2

requires ISO/TS certification for design activities and

suppliers, including Continental, CTS and HELLA Automotive.

that takes time,” he says. “Establishing protocols and procedures, gathering all documents and receiving an

SINEC Technologies also plans to engage in design and

audit must take place before SINEC Technologies can

development operations for Tier 1 companies further

start developing components.” Another challenge for the

down the line. García believes that global companies are

company to engage in design and engineering operations

gradually trusting Mexican engineers to work on design

is being identified by possible Tier 1 client companies, which

projects, pointing to companies like Continental and HELLA

is why SINEC Technologies has adopted a more formal and

Automotive that have already established design centers

aggressive sales and marketing strategy for Mexico and

in Guadalajara. “Five years ago, protocols were brought

international markets such as Asia.

from Japan, Germany or the US and adapted in Mexican design centers while approval came from these countries,”

Despite diversifying its activities, SINEC Technologies will

he says. The company does not see competition against

always keep its training and certifications area because

foreign companies in engineering as a challenge because

those are part of its core business, García says. However, the

according to García, “we are as good in terms of capacity,

company’s vision is to become the first Mexican electronics

skill and knowledge.”

manufacturing services company with global recognition. “It has been an amazing journey to move from being a

To reach its development goals, in April 2017 the company

single-room company to serve globally renowned brands,”

made an investment in infrastructure that multiplied its

says García.

| VEHICLE SPOTLIGHT

ZACUA, THE NEW MEXICAN OEM BET Some Mexican companies have already made a name for themselves in the international automotive market but mainly as Tier 1 and Tier 2 suppliers. In the OEM segment, previous attempts by Mexican companies to penetrate the market have been unsuccessful but a new player has risen to challenge the industry’s status quo with an unusual offering. 83

Zacua is the first 100-percent Mexican electric vehicle, a small and aesthetically pleasing model designed for the city. The brand originated as a spinoff of parking-lot giant COPEMSA and is managed by Jorge Martínez. “We were initially hesitant to launch our vehicle because we were not sure what reaction we would get from the public,” he says. “However, we were pleased to find that the market was interested in our proposal.” Pride played a role in the vehicle’s development. “We were not happy living in a country without its own OEM, particularly when the country has a strong automotive focus; a quality, efficient and well-structured supply chain and the necessary talent to develop its own technology,” says Martínez. Zacua already has two two-seater models, the M2 and M3, both designed to adapt to Mexico City’s streets and with sustainable technology that contributes to reducing polluting emissions. The vehicles' designed was encharged to Chatenet to later introduce Zacua's own technology. Both models are practically identical, the only difference being the design and cargo volume of the trunk. The M2 has 240cm2 of space while the M3 offers 480cm 2. Zacua’s goal is to widen its product portfolio by introducing a four-seater sedan in 2019, as well as more models in the near future to target different market segments. Zacua has a manufacturing plant in Puebla, with five assembly stations to produce the M2 and M3 managed by independent company Motores Limpios. The company employs 35 women to assemble one car per day, incorporating an electric powertrain fully designed by the company. After the M2 and M3’s release in 2017, Martínez announced the company would deliver 100 units in its first year of operations, 200 in the second and 300 in the third, according to demand in the domestic market. “We do not want Zacua to be a mass-market brand,” he says. “Our product targets a changing market that in the last years has been willing to pay more and even relinquish some comfort in favor of an innovative and more sociallyconscious offering.”

| INSIGHT

BIG OPPORTUNITIES FOR SMALL TOOLING PLAYER SERGIO ANDRADE Executive Director of Grupo Sypeisa

One of the largest gaps in Mexico’s automotive industry

Grupo Sypeisa also collaborates in component design

is the production and maintenance of tooling systems

according to its clients’ specifications, although the

used in component manufacturing. As a result, metal-

company sometimes pitches and implements design

mechanic companies are forced to import most of their

improvements. “Component designs rarely change as

resources, which creates a natural opportunity for local

they generally come directly from OEMs that want to

companies to rise up to the challenge, says Sergio

meet certain specifications,” he says. “But in some cases,

Andrade, Executive Director of Grupo Sypeisa.

some modifications can be negotiated inasmuch as the changes are not critical.”

“Our goal is to substitute the imports of these products to deliver a better cost-benefit balance for the

The company now works with suppliers, such as

automotive industry,” says Andrade. Aguascalientes-

Gestamp, Federal Mogul, TREMEC, Pemsa and MAHLE,

based technology integrator Grupo Sypeisa has taken

as well as OEMs such as Ford. Its growth, however,

advantage of this opportunity to jump in and support

is still limited by challenges that other suppliers in

the industry through a lineup that includes made-in-

the automotive market face. On the one hand, Grupo

Mexico and imported tooling systems. The company visits

Sypeisa must ensure potential clients the company has

automotive companies’ warehouses and identifies the

the necessary equipment and machinery to produce

components that they import but could be manufactured

high-precision parts and tools according to design or

locally. That way, Grupo Sypeisa can present them with

physical sample references while being able to develop

cost-competitive alternatives. The company has already

tooling components hand-in-hand with potential clients.

designed and manufactured industrial ring-containers

According to Andrade, authorization times still harm

for MAHLE and Ford, certified by the OEM in the US but

Grupo Sypeisa’s ability to deliver the advantages of its

made in Mexico.

tooling solutions. “Long authorization times prevent us from showing companies what they can get in terms of

Grupo Sypeisa’s offering for tooling systems also

cost-reduction and operational improvements by using

includes mold repair. The company offers plastic injection

our products,” he says. “We have been in talks for two

companies the opportunity to return their used molds

years with a certain company, for example, and the

to their original dimensions so they can be reused.

project has only reached the testing stage.”

These services are complemented by special machining solutions, production of industrial racks and other

The current political turmoil has been challenging for

industrial storage products and a variety of fiber-glass

the industry and Grupo Sypeisa has been no stranger

applications.

to difficulties. “Threats of US tariffs on vehicle imports affect the whole value chain, so SMEs such as Grupo

According to Andrade, the key to the company’s success

Sypeisa must collaborate with each other to survive,”

has been constant care of clients’ needs and creating

Andrade says. The company already works with the

synergies with fellow local suppliers. “We deliver exactly

GIRAA Automotive Cluster to lobby for the adoption of

what we are required on time and in good quality,” he

practices that improve the situation of Aguascalientes’

says. Automotive companies require increasingly higher

automotive industry but Andrade says Mexico’s regional

precision from its machining suppliers, which can be

clusters need to focus on bringing local companies

challenging for small players in the sector. But Andrade

together to promote integration and participation in

says Sypeisa has landed contracts with key players such

global supply chains. “Local companies are scattered

as Volkswagen through MAHLE by delivering components

across the land and we need supplier integration as a

that meet tolerance, coating and material requirements.

federal policy rather than as a state goal,” he says.

INSIGHT |

LOCAL TESTING BOOSTS COMPETITIVENESS

Charles Trimmer President of Grupo CTT

Hernán Barrios Sales Manager of Grupo CTT

Component testing is the only way for suppliers to comply

Trimmer. “We will test Mexican and US accelerometers at

with OEM specifications. However, local and foreign

a more competitive price thanks to this lab.” Grupo CTT

companies tend to look abroad for validation and testing

is also the local representative of several measuring and

systems when they could look toward Aguascalientes, says

testing equipment brands, including MTS, PROMESS,

Charles Trimmer, President of Grupo CTT.

Dakota and PCB. “By working with brands oriented to various types of testing we can cover a wider specter

Grupo CTT is a Mexican company with over 38 years in

of processes and complement our own testing offering,”

the component testing business. According to Trimmer, 80

Trimmer says. One Grupo CTT brand focuses on electro-

percent of the company’s operations are oriented toward

mechanic and servo-hydraulic testing while others focus

testing automotive components, 15 percent to R&D in this

on accelerometer calibration and audiometry or ultrasound

segment and 5 percent to the aerospace industry. “We

testing for monoblock integrity, explains Trimmer. Grupo

support our clients by offering tests and testing equipment

CTT’s top-selling systems in Mexico are vibration tables

that gauge fatigue, resistance and durability of parts used

that help aerospace and automotive companies detect

in critical components, such as engines, drivelines, axles,

loose parts and squeaks in their systems and adjust them.

gearboxes and dampers,” he says.

However, Barrios says these industries are developing a taste for more complex testing systems. “Companies now

According to Hernán Barrios, Sales Manager of Grupo CTT,

demand hybrid-simulation solutions where a component

testing systems enable automotive suppliers to validate their

is connected to a servo-hydraulic testing equipment while

products following OEM quality standards while reducing

a software runs simulations on how this component can

ppm rates. “Knowing the needs of an OEM, Tier 1 or Tier

affect the rest of the vehicle or aircraft,” he says.

2 in terms of the component to be tested, the method to be used and its testing requirements enables us to design

To showcase the advantages that local companies can

and deliver turnkey projects that suit those needs,” he says.

get in this and other areas by trusting its equipment and services, Grupo CTT participates in every major automotive

Grupo CTT has grown to hold 30 percent of Mexico’s

trade fair in Mexico and organizes seminars with aerospace

automotive testing systems market but Barrios thinks there

and automotive companies. Grupo CTT presents the new

are still opportunities for growth since some companies

applications that testing equipment can offer to OEMs,

in the country often send their components for testing

Tier 1s and Tier 2s in both sectors. The opening of the

abroad while others do not validate their production at

accelerometer calibration lab was a novelty but now that

all. “There is no laboratory in Mexico that performs all

it is operating, the next step in Grupo CTT’s expansion

the tests that automotive companies need, which forces

plan is opening an audiometry lab that Trimmer expects

companies to work with international providers,” he says.

will start operations in 4Q18. After that, the company

Grupo CTT pondered opening such a lab in Mexico but

will move in year 2020 into opening a weathering lab.

several challenges stood in the way. “Such a project would

“This facility will include saline, corrosion, temperature

require investment in expensive testing equipment and we

and oxidation chambers to test components in different

have not received enough support from the government to

environments,” he says.

build it,” Trimmer says. Although 2017 was record-breaking in terms of sales for Instead, Grupo CTT decided to start small and build a lab at

Grupo CTT, Trimmer says the company expects 2018 to

its Aguascalientes offices focused solely on accelerometer

be a weaker year as several projects were put on stand-

calibration. “There are only two companies in Mexico that

by because of the elections. “We go through this project

do these tests and one only works with PEMEX,” says

stoppage every election year. It is normal,” he says.

Mustang GT Performance Pack Level 2

UNITED STATES

With the consolidation of NAFTA in 1994, North America grew to become a relevant region on the automotive scene, competing against the mature European region and the growing Japanese presence. The US became the regionâ&#x20AC;&#x2122;s design center and trend-setter, supported by supply chain operations from Mexico and Canada. Now the second-biggest market in the world, the US has become both a strategic ally and the main export destination for Mexico.

In this chapter, suppliers and technology developers headquartered in the US share their views on how North America can remain a competitive region in the automotive industry. Mexicoâ&#x20AC;&#x2122;s position in these countriesâ&#x20AC;&#x2122; development strategies is featured, along with company objectives and plans for sustained growth.

CHAPTER 4: UNITED STATES 90

ANALYSIS: Some Relationships Cannot Be Broken

VIEW FROM THE TOP: Mónica Flores, AmCham

ANALYSIS: Choices Defined by Preference

ANALYSIS: NAFTA: Renegotiating Key Trade Deal

ANALYSIS: NAFTA’s True Colors

VIEW FROM THE TOP: Juan José Zaragoza, DowDuPont

INSIGHT: Francisco Díaz, Donaldson Latin America

100

INFOGRAPHIC: Mexico's Main Export Market

102

INSIGHT: Raúl López, AAM Casting

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VIEW FROM THE TOP: Alejandra Torijano, Agilent Technologies México

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VIEW FROM THE TOP: Humberto Garza, EVCO Plastics

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Carlos González, EVCO Plastics

VIEW FROM THE TOP: Juan Alcide, Gill Industries

| ANALYSIS

SOME RELATIONSHIPS CANNOT BE BROKEN Discussions over NAFTA opened a breach between Mexico and the US in terms of each country’s position and importance in the automotive industry. However, the relationship that exists between both nations is so tight that regardless of what may come, their mutual dependence will remain untouched

Mexico’s agreements with 46 countries make it the

crucial. “Mexico is still behind when compared to other

poster-country for open trade. Yet, most of the country’s

developed-world automotive hubs, which is why it must

business is with the US. The automotive industry is no

shed its mindset of a manufacturing or even maquila

exception and it is in fact one of the sectors where this

country,” says Francisco Díaz, Commercial Director

trend is more pronounced. By the end of 2017, 75.3

Engine of Donaldson Latin America.

percent of all vehicles produced in Mexico were sent to the US. Taking Canada into consideration, Mexico’s

OEMs, such as Ford and FCA, have already brought some of

automotive trade with its NAFTA partners accounted for

their engineering operations to the country. Marcos Pérez,

83.9 percent of its total light-vehicle exports. The US

Director of Product Development at Ford de México, said

is also a large source of foreign investment in Mexico,

during a presentation at the Forum México Disruptivo that

accounting for approximately US$43.4 billion in 2017,

beyond being capable of participating in higher added-

according to Mónica Flores, President of American

value activities, Mexican engineering is far less costly than

Chamber of Commerce of Mexico.

in the US or Germany, making it much more competitive.

On the horizon is the final ratification of the 11-member

But it is not just Mexico that brings something to the

CPTPP by the eight countries that have yet to sign,

relationship. The US can also collaborate with Mexico to

which many believe will bring new opportunities to the

increase competitiveness across the entire NAFTA region.

automotive market. Mexico is among the three members

According to market analysis company Market Realist,

that have already ratified the deal. Japan and Singapore

raw materials represent almost 47 percent of the total

are the other two. “More roads are opening for Mexico

production cost of a vehicle. Mexico, Canada and the US

to diversify its operations and to lower the impact that

have built strong competitiveness in the development

an altered or even canceled NAFTA could bring,” says

of components and even high-tech parts and software.

Alberto Torrijos, Partner and Automotive Sector Leader at Deloitte Mexico.

However, many companies still find it difficult to source raw materials locally, forcing them to import them from outside

However, the CPTPP will not offset the country’s massive

the NAFTA region. “Companies in North America need to

dependence on the US. “We must recognize the real

complement each other by understanding the specific

opportunities that this agreement will create for the

needs of both countries,” says Juan Alcide, Vice President

automotive sector,” says Eduardo Solís, Executive

and General Manager of Gill Industries. “Most raw materials

President of AMIA. “Australia or Malaysia could present

are not produced in North America but imported from Asia

interesting opportunities but we are talking about

and Europe, so the challenge is finding a way to produce

countries with markets of between 1 million or 1.5 million

competitively in Mexico or the US and engaging in regional

units where we have no presence. Whatever sales we can

barrier-free trade.”

generate will not solve our dependence on the US market. It is interesting to open new markets but these will not

Although each country fights for its own economic

be substantial, at least in vehicle production.”

development, North America is also a block competing against other automotive regions in the world. European

If the country cannot separate its growth from that of the

leaders, including Germany and France, are supported

US, then the best bet for both countries is to strengthen

by Turkey and Morocco. Meanwhile, Japan and South

their relationship even further and work on the areas

Korea rely on Malaysia and Thailand to boost their

of opportunity that could bring the greatest benefit to

competitiveness. That being said, protectionist measures

players on both sides of the border.

like those implemented by the US government to prevent the entrance of raw-material imports are not the answer. For

Mexico still has much to offer to the US in terms of

the US and Mexico to continue growing as automotive hubs,

supplier availability. However, for more local companies

stronger collaboration is needed to reduce production costs

to participate in American productive chains, higher

and generate the technology that not only North America

quality standards and a technology-oriented mindset is

but the entire world needs.

VIEW FROM THE TOP |

US BUSINESS COMMUNITY TRUSTS IN MEXICO’S ADVANTAGES MÓNICA FLORES President of AmCham

Q: How would you assess the business community’s

A: Mexico’s competitiveness depends on a variety of

sentiment regarding Mexico’s relationship with the US?

conditions that are not limited to NAFTA. The country must

A: We face uncertainty, rapid changes and the digital

overcome internal challenges about rule of law, security,

era. These processes entail challenges for societies,

corruption and impunity. Furthermore, Mexico’s automotive

governments, companies and individuals. Mexico is living

industry faces the issue of finding the right talent to

a unique moment because of the 2018 elections and the

implement appropriate business strategies. Technology

NAFTA modernization process. The business community

changes manufacturing processes, which means the

expects positive results from the negotiations and while

workforce’s skills must also adapt to remain competitive. This

we are conservative in our budgets and forecasts for 2018,

is not only a problem of formal education but also a matter

we remain optimistic and trust the FTA will be successfully

of on-the-job training, upscaling digital competences and

updated, elections will be democratic and that we will adapt

improving leadership. Training within and without Mexico’s

to the new environment.

automotive industry is designed for the past rather than the future. There should be apprenticeships, dual education, on-

Q: What would be the ideal outcome of the NAFTA

the-job training and a promotion of talent mobility.

renegotiations for the region’s automotive industry? A: The best scenario includes a modern NAFTA, democratic

Q: How can companies help Mexico improve its image

elections in Mexico and companies being able to reinvent

in the US?

themselves in the digital era. The new NAFTA must address

A: Mexico lacks good marketing. We need spokespeople who

topics such as e-commerce, telecoms and energy that were

go out and promote the good things about the country. US

not considered when it was first drafted. On the other

companies with presence in Mexico must work with their

hand, the agreement must not lose its goals of making the

headquarters and offer all information related to the country.

region more competitive, promoting formal jobs, increasing

Yet, American companies are still willing to invest in Mexico.

the countries’ GDP and boosting domestic growth in all

In 2017, AmCham companies accounted for 20 percent of the

three markets.

private sector’s fixed gross investment in Mexico, representing around US$43.4 billion and they will continue on that path.

The region must aspire to better negotiation terms

Our members represent 21 percent of Mexico’s GDP and

for the automotive industry. If NAFTA falls through,

create 2.5 million direct and 6 million indirect formal jobs.

automotive would be among the most affected industries. Companies need to upscale their talent and be able to

Q: What opportunities can the CPTPP offer the Mexican

adapt to market conditions. With or without NAFTA, the

automotive industry?

automotive industry needs to reinvent the way it produces,

A: This agreement opens new markets for business and

hires people and does business in line with technological

under better conditions; it is a good agreement for every

advancements. That being said, companies are unlikely to

country involved. Without losing its ties to Canada and the

stop investing in Mexico if the FTA is canceled. Automotive

US, Mexico needs to expand its vision to really assert itself

companies have a history of investing in Mexico and it

in the global economy and be among the Top 10 economies

is unthinkable that they would simply pull out and set

in the world.

up shop somewhere else. Overall, there are around 1,450 companies associated with AmCham and they will continue investing in the country.

American Chamber of Commerce of Mexico (AmCham)

an association that represents the interests of the binational

Q: What are the main challenges that US companies face

business community in Mexico. AmCham focuses on connecting

when setting up shop or expanding operations here?

companies to strengthen value chains and boosting trade

| ANALYSIS

CHOICES DEFINED BY PREFERENCE In a decelerating market, every unit sold counts for both OEMs and distributors. However, when brands see their sales threatened by new competitors with a much more aggressive offer for the Mexican market, it is time to make bold decisions and adjust to the new market reality

2016 was the year the Big Three peaked in the Mexican

“In an extremely competitive environment, clients can

market. Although their market share was compromised

choose what best suits their needs,” says Guillermo

by newcomers from Japan and Korea, Ford, GM and FCA

Rosales, Director General of AMDA. “Contrary to other

were still enjoying continuous growth. By the end of 2017,

Latin American markets, Mexican consumers are much

that trend had turned for the worse. Ford ended the year

more sophisticated in their evaluation before purchasing

with total sales of 81,698 units, representing a decrease

a new vehicle.” European brands have bet on the premium

of 17.7 percent against the numbers from 2016, the largest

and high-end market. Meanwhile, Japanese and Korean

percentage fall of all three automakers. FCA was the least

brands have become standards for compact-car cost-

hit, with sales totaling 100,846 units and decreasing 2.9

competitiveness. American brands, however, have

percent against 2016. Meanwhile, GM ended with 258,523

stagnated in terms of design and innovation. That has

units and a decline of 16.2 percent. That was slightly less

cost them their position not only in Mexico but around

than Ford’s contraction but in terms of units it was much

the world.

“

more significant.

Ford wants to reduce its presence in the market to have fewer distributors with better profits” Carlos López de Nava, Director General of Grupo Alden

When President Trump was bickering about unfairness toward the US in terms of trade and tariffs, one of his comments was that the US bought many German cars while Germany did not give much importance to American production. He said this was because of Europe’s high tariffs against US exports. However, the reality is that European markets just do not find American cars attractive due to their large size and poor fuel economy. That is not the case in the US, which is the second-largest automotive market in the world and where American consumers are increasingly showing preference for larger vehicles. Therefore, it is logical that companies choose to

The situation did not improve in the first half of 2018 and

favor their domestic market before the rest of the world.

all three brands maintained a downward performance.

This vision was further enabled after the Environmental

Between January and July, Ford sold 12.1 percent less

Protection Agency announced a revision on the fuel-

than in 2017 with a total of 41,194 units. FCA has seen

efficiency goals it had implemented during President

sales decline by 10.5 percent, amounting to 50,887 units.

Barack Obama’s administration of 15km/L.

Finally, GM suffered a fall of 13.2 percent in its sales numbers for a total of 124,045 units. Meanwhile, brands

Due to its average purchasing power, Mexico is a compact-

such as Kia, Hyundai and Mazda continue growing and

car oriented market. According to Rosales, the average

winning a larger market share in a contracting market.

price of a vehicle in the domestic market is MX$300,000 (US$15,000), which means that only brands capable of

Considering the numbers from July 2018: Ford held a

participating in this segment will succeed. It is no surprise

market share of 5.2 percent, down from the 10.2 percent

then that the American share in the market is decreasing.

it had in 2010. FCA had a market share of 6.4 percent

Ford, at least, sees an opportunity in this trend.

down from the 9.3 percent it enjoyed in 2010. Finally, GM’s share has fallen to 15.6 percent from its previous position

“Ford wants to reduce its presence in the market to

with 19 percent of the total market.

have fewer distributors with better profits,” says Carlos López de Nava, Director General of Grupo Alden. “The

Although they are a significant part of the region’s

brand wants dealerships to sell fewer but better models

automotive heritage and three of the brands with the

to improve margins. I think it is a smart move and the

oldest manufacturing presence in the country, Ford, GM

objective I think is to have better dealerships and better

and FCA have lost their grip on the Mexican market.

businesses in accordance with the times.”

The domestic market, however, is not the problem. The

One of the measures implemented was an entire

issue is the imbalance between what Mexico produces

overhaul of Ford’s portfolio, giving up on the compact

and what its top export market, the US, wants. “Growth

segment. The final result was the elimination of all of

in Mexican production over the past five years has been

the company’s sedan and hatchback models except for

easy due to the growth in the US market of approximately

the Mustang and the upcoming Focus Active that the

1 million units per year,” says Guido Vildozo, Senior

company will ship from China. This latter model was

Manager, Americas Light Vehicle Sales Forecasting of IHS

previously projected for the company’s new plant in San

Markit. “The US market is becoming light-truck intensive,

Luis Potosi until the project was canceled. Prior to this,

while Mexico is a passenger-car intensive manufacturer.”

the company had already announced in December 2017

This puts the country in a difficult situation because

a shift in production of the Ford Fusion manufactured in

if its main export destination is the US and American

Hermosillo also to China.

companies do not see the point in continue manufacturing light vehicles, there is no place for Mexico.

Ford expects that by 2020, 90 percent of its sales in North America will be in the light-truck segment. Since

“Production will move according to international demand

Mexico is solely focused on production of the very models

and we will most likely see a reduction in our vehicle

that Ford decided to cut, the industry is waiting to hear

output,” says Gerardo San Román, Head of Latin America

whether production will be refocused at its four plants in

at JATO Dynamics. “OEMs are making decisions on their

the country or if further divestment should be expected.

product lineups based on the profitability of each product

Only the future for the production of the Lincoln MKZ

segment. This is a pragmatic view, especially considering

manufactured in Mexico remains unclear since the

that competition in the compact and subcompact

company made no comments regarding this brand.

segment is becoming fiercer.” “We are going to be allocating even more capital to that

FORD LEADING THE WAY?

(the light-truck segment) to make it even larger and more

In April 2018, Ford announced its decision to refocus its

positive for us and that will take capital away from those

business toward SUVs, crossovers and pickup trucks. As a

parts of the business that we think we do not have a path

result, Mexico’s position in the company’s manufacturing

forward to appropriate returns,” said Bob Shank, CFO of

network was left adrift. The country manufactures

Ford Motor Company in an interview with Bloomberg.

Ford's Focus and Fiesta models, both of which will be cut from the company lineup in favor of larger models.

Although there is a risk in making the decision to ditch

“We are committed to taking the appropriate actions to

compact models should gas prices increase or fuel-

drive profitable growth and maximize the returns of our

efficiency measures are reinstated after Trump’s time

business over the long term,” said Jim Hackett, President

in the White House ends, most opinions favor Hackett’s

and CEO of Ford Motor Company in the corporation’s

decision to revamp Ford’s business. “The passenger car

1Q18 financial statement. “If appropriate returns are not

rationalization plan is just the sort of bold and decisive

on the horizon, we will shift that capital to where we can

action we believe investors have been waiting for,” said

play and win.”

Ryan Brinkman, auto analyst at JP Morgan Chase & Co.

GM, FORD AND FCA SALES (thousand units) GM’S, FORD’S AND FCA’S SALES (THOUSANDS OF UNITS) 350 300 250 200 150 100 50

2010

——FCA Source: AMIA

2011 FCAFord

——

Ford GM

Source: AMIA

2012

——GM

2013

2014

2015

2016

2017

| ANALYSIS

NAFTA: RENEGOTIATING KEY TRADE DEAL The relationship between Mexico, Canada and the US has grown deep roots. Much of that is a result of the groundbreaking NAFTA deal signed in 1994 and now being renegotiated. After a year of talks that were supposed to conclude before the end of 2017, a resolution has not been reached on the future of trade for all three countries

After the implementation of NAFTA on Jan. 1, 1994, the

his promise and announced a revision of the agreement

elimination of tariffs gave way to better opportunities

that led to a start in negotiations on Aug. 16, 2017 in

and a greater integration between Mexico, Canada and

Washington, D.C. Trade representatives expected seven

the US that strengthened many industries, automotive

rounds of negotiations, which were scheduled every three

among them. “The Mexican automotive industry was the

weeks starting in August, to be finalized before the end

real winner after NAFTA was enforced,” says Óscar Albin,

of 2017. According to El Financiero, one of the Mexican

Executive President of INA. “Our industry has grown the

negotiators stated that this was planned to avoid an

most thanks to this trade agreement and there is still a

overlap with Mexico’s presidential elections in 2018.

great deal of room for more.” Yet, not everyone is happy

“

with the results of the agreement.

The Mexican automotive industry was the real winner after NAFTA was enforced. Our industry has grown the most thanks to this trade agreement” Óscar Albin, Executive President of INA

Among Trump’s demands regarding NAFTA was the implementation of a 35-percent tariff on automotive exports entering the US, which was later transformed into a border adjustment tax that would favor US exporters while charging companies importing products to the US. Both of these initiatives found resistance from investors and members of the Democratic and Republican parties, as well as industry representatives that urged Trump to reconsider his position to avoid messing with an agreement that had brought so many benefits to the industry. Rules of origin were also to be revised even though AMIA and its counterparts in Canada and the US lobbied to keep regulations unchanged. “NAFTA represents a success story and we should not be messing around with important topics such as rules of origin,” stated Eduardo

Beginning with his campaign for office, President Trump

Solís, Executive President of AMIA. “Our members feel

has attacked NAFTA as the “worst trade deal ever made”

very strongly that rules of origin are not the tools to

by the US. He says it had led to an enormous trade deficit

use to reshore jobs to the US,” said Ann Wilson, Senior

with Mexico and the loss of countless manufacturing

Vice President of Government Affairs for the Motor and

jobs for US citizens. It is true that once NAFTA was

Equipment Manufacturers Association in an interview

implemented, it was easier for companies to establish

with Reuters on Aug. 14, 2017.

manufacturing operations in Mexico, where it was cheaper to produce components and assemble vehicles

Although the border adjustment tax issue was dropped,

but at the same time, many jobs were lost due to the

the revision of rules of origin was kept with the objective

increasing automation that the industry implemented to

of decreasing the US$74 billion trade deficit the US had

remain competitive and deliver the production volumes

with Mexico and to limit the entrance of Chinese auto

the global market demanded.

parts to the region.

This, however, was not good enough for Trump who

The US government’s requirements changed but America

stated that once he entered office, the first thing he

First was still the connecting thread in its rhetoric. Trump

would do was to renegotiate the agreement or pull the

demanded a more stringent rule of origin that required 80

US out altogether should he find it unsuitable for the

percent of the components used to manufacture a vehicle

country’s new America-first policy.

to be sourced in North America, while 50 percent of this content should come from the US. This was an equally

At first, industry leaders thought this was just a bluff, akin

negative alternative for an industry that for over 20 years

to Trump’s promise to make Mexico pay for a border wall

had worked to raise its local content sourcing strategies to

to prevent immigration. But Trump followed through with

NAFTA’s current standpoint of 62.5 percent.

“A more stringent limit than the 62.5 percent local content

inflation, that average would translate to approximately

regulation already in place would force automakers to go

MX$358.84 (US$19.72). This would mean that if the

straight to paying the added tariff,” said Charles Uthus,

US proposal was accepted, salaries in automotive

Vice President for International Policy of the American

manufacturing operations would have to increase by

Automotive Policy Council in an interview with Reuters

508 percent.

on Aug. 14, 2017. “If stricter rules of origin led to tariffs higher than 3 percent, thus threatening competitiveness,

Since skilled, low-cost labor availability has long been

companies would have to choose to operate under

regarded as one of Mexico’s greatest advantages as an

WTO standards to maintain solid operations,” added

investment destination, a decision of this kind could

Rogelio Garza, Mexico’s Deputy Minister of Industry and

have significant repercussions on the country’s role as

Commerce.

an automotive manufacturer. That being said, Reuters sources indicate that even though Mexico and Canada

FOCUS ON WAGES

were analyzing the proposal, the wage floor would be

This was a major concern that prevented the negotiations

much lower for a deal to be viable.

from advancing but in March, it was announced that Trump had dropped his demands regarding local content

While this was discussed, Trump seemed to be adamant

in what seemed like a rare concession. “(The proposal)

of finding a way to push Mexico to agree to his conditions

was completely unfeasible and unreasonable in a free

for a new NAFTA. In one of his Twitter rants, Trump

trade agreement,” Albin said in an interview with El

accused Mexico of failing to act to stop illegal immigration

Economista on March 23, 2018. For a moment, it seemed

and appeared to be willing to hold NAFTA hostage in

the NAFTA stalemate could be broken. Salaries, however,

order for US Congress to approve the budget to build his

became a new threat for Mexican production, along with

infamous wall. On April 1, 2018, Trump tweeted: “Mexico is

Trump’s views on Latin American immigration.

doing very little, if not NOTHING, at stopping people from

“

If stricter rules of origin led to tariffs higher than 3 percent, thus threatening competitiveness, companies would have ... to operate under WTO standards” Rogelio Garza, Mexico’s Deputy Minister of Industry and Commerce

flowing into Mexico through their Southern Border, and then into the U.S. They laugh at our dumb immigration laws. They must stop the big drug and people flows, or I will stop their cash cow, NAFTA. NEED WALL!”

MIGRATION AS LEVERAGE Migration has been a sore topic in Trump’s government for a while, especially after Democrats in Congress fought to keep the Deferred Action for Childhood Arrivals (DACA) alive. Trump had already used immigration before as leverage for Congress to approve his wall budget but at the moment he seemed to be using it as a way to influence both the wall discussions and NAFTA negotiations. After a convoy of migrants coming from

After the domestic content proposal was dropped, US

Honduras and headed for the US entered Mexico, Trump

trade negotiators started working on an idea to integrate

once again threatened Mexico over NAFTA.

wages into the discussion. The idea was to determine a percentage of component production that should be

“The big Caravan of People from Honduras, now coming

completed in higher-salary regions, which was later

across Mexico and heading to our ‘Weak Laws’ Border,

set at 40 percent, as well as a wage floor for all other

had better be stopped before it gets there. Cash cow

manufacturing activities.

NAFTA is in play, as is foreign aid to Honduras and the countries that allow this to happen. Congress MUST ACT

Reuters reported on March 30, 2018 a wage floor of

NOW!” he tweeted on April 2, 2018.

US$15 per hour, which would translate to a daily wage of approximately US$120 considering an eight-hour shift.

Trump addressed the issue one more time saying Mexico

The 2014 research by Alex Covarrubias for the Friedrich

should do things his way regarding immigration or he

Ebert Foundation in Mexico, Explosión de la Industria

would not sign a renewed NAFTA agreement. “NAFTA has

Auomotriz en México: De sus encadenamientos actuales

been fantastic for Mexico, bad for us,” he said in an official

a su potencial transformador, outlined an average daily

speech. “We have had our car plants move to Mexico,

salary in the Mexican auto industry of MX$305.90. When

many of them. We make tremendous numbers, millions of

considering the yearly increase in salaries related to

cars in Mexico that years ago did not exist. They closed

in Michigan, they closed in Ohio, they closed in other

interest of the American consumers and even though this

places. Now they are starting to move back because of

has not been directly linked to the NAFTA negotiation, it

what we have done with regulation and with taxes. They

is still an issue that will impact trade relationships among

are starting to come back into our country in a big way.”

Mexico, Canada and the US.

Unfortunately, immigration was not the only tool Trump

NAFTA negotiations stopped in June before the Mexican

used to try to coerce the Mexican government into seeing

presidential elections but they resumed shortly after

things his way. While negotiations on NAFTA were under

Andrés Manuel López Obrador was designated the new

way, Trump also started revising the US’ position in terms

president-elect. López Obrador has already designated

of trade tariffs with other countries. On March 8, 2018,

Jesús Seade as the chief negotiator for his administration

under the banner of a national security threat following

but he has shown openness to keep talks moving.

Section 232 of the US Trade Expansion Act of 1962, Trump

Minister of Economy Ildefonso Guajardo and US Trade

slapped a 25 percent tariff on steel imports and another

Representative Robert Lighthizer met again in August

one of 10 percent on aluminum. Mexico and Canada

and they said they were close to finalizing an agreement,

were exempt from these tariffs along with the EU but

possibly by the end of the month.

eventually, the US President decided to lift this exemption starting on June 1, 2018 as a way to pressure Mexico and

Guajardo informed the media on Aug. 2, 2018 that

Canada to move the NAFTA negotiations along since his

Mexico and the US were finding common ground in their

view was that both countries were not collaborating to

proposals regarding rules of origin and that an agreement

finalize the agreement.

might come soon. This, however, was later dismissed by

“

We have had our car plants move to Mexico, many of them. We make tremendous numbers, millions of cars in Mexico that years ago did not exist” Donald Trump, President of the US

Fausto Cuevas, Director of AMIA, at a press conference, saying “nothing has been accepted and nothing has been confirmed.” Still, the industry remains positive as well regarding the possible outcome of the negotiation since all industry leaders agree a successful treaty would be the best bet to continue driving the industry forward. That being said, the industry is still not willing to give in to the US’ demands regarding rules of origin that could be detrimental for the development of the supply chain. “A key element (for investment attraction) was establishing

Canada was adamant in seeking support from the industry

the right conditions to do business in our sector,” says Solís.

to counter US protectionist measures not only regarding

“Investment in the automotive industry demands long-

NAFTA but also related to the steel and aluminum tariffs

term certainty.” This vision is supported by the document

imposed by Trump. “You cannot say that Canada is a

Dialogue With the Automotive Industry 2018-2024 where

national security risk to the United States when we are

all associations in Mexico categorized NAFTA negotiations

so partnered on so many different issues,” said Prime

as fundamental for the industry’s development.

Minister Justin Trudeau in an interview with Bloomberg on May 31, 2018. Yet, the tariffs remain even though

KEY STICKING POINTS IN THE NAFTA

Trudeau and other members of the G7 urged Trump to

NEGOTIATION

rethink his position regarding global trade. Determination of an adequate rule of origin to Not only did Trump not change his position, he launched a second national security probe on May 23, 2017, this time toward vehicle imports to the US. The investigation

substitute the current 62.5 percent Determination of a percentage of content to be manufactured in areas with a high-paying salary rate

can last up to 270 days, plus 90 more when Trump can decide whether to act on the results or not. However,

Discussion regarding a sunset clause that would

if the investigation returns a negative result, the US

terminate the deal every five years unless all parties

President has threatened to slap a 25 percent tariff on

agree to maintain it

all vehicle imports. Industry representatives had already spoken against this initiative, saying they are willing to challenge Trump’s decision in court to support the

Discussion regarding Chapter 20 related to conflict resolution between members

ANALYSIS |

NAFTA’S TRUE COLORS Twenty-three years after its implementation, the North American Free-Trade Agreement is now being renegotiated under petition of President Trump. His administration has been adamant that the treaty has been detrimental to the US economy and the country’s relationship with its neighbors, but has it? The original NAFTA was negotiated by Mexican President

US$290 billion in 1993 to US$1.1 trillion in 2016. Canada

Carlos Salinas de Gortari, US President George W. Bush

became the US’ main export market, followed by Mexico

and Canadian Prime Minister Brian Mulroney and it was

and both countries represent a third of total US’ exports.

later ratified by Salinas de Gortari, US President Bill

Trade with Mexico alone increased by 455 percent, from

Clinton and Canadian Prime Minister Kim Campbell. At

US$41.6 billion in 1993 to US$231 billion in 2016.

its roots, the treaty implemented on Jan. 1, 1994 had a

goal to strengthen the relationship of all members of

For the US, CAS estimates NAFTA had a positive impact

the North American region, as well as their respective

on the country’s GDP of approximately 0.5 percent, or

economies, as stated by Clinton’s speech on Sept. 14,

US$80 billion, after its full implementation with gradual

1993 prior to NAFTA’s implementation. “This debate

increments year-on-year. Meanwhile, Mexico’s economy

about NAFTA is a debate about whether we will embrace

grew 1.3 percent year-on-year on average between 1993

these changes and create the jobs of tomorrow or try

and 2013. Estimates from the Peterson Institute for

to resist these changes, hoping we can preserve the

International Economics (PIIE) also show that NAFTA is

economic structures of yesterday.”

responsible for approximately 2 million jobs in the US related to trade operations with Mexico. “Between 6 and

With NAFTA, trade in agriculture, textiles and

10 million jobs in the US depend directly on NAFTA and

manufacturing was liberated in an effort to boost

if President Trump’s goal is to create more jobs, he will

industrial development in all three countries and take

have to think very quickly about how to create more than

advantage of the benefits that each of them could

10 million jobs to offset NAFTA's termination effects in

bring to the table to become a strong trade block. Most

the US,” says Francisco Torres Landa, Partner at Hogan

tariffs on imports and exports were eliminated and

Lovells BSTL. That being said, the open investment policy

foreign investment was encouraged between countries.

arising from NAFTA did lead to job migration from the

Furthermore, one of the goals in the implementation

US to Mexico.

of NAFTA was to reduce illegal migration from Mexico to the US. By strengthening the Mexican economy and

According to PIIE, approximately 350,000 jobs were

creating a stronger manufacturing industry, more job

lost in the US automotive industry between 1994 and

opportunities would exist for people to stay in Mexico.

2014, with an approximate loss of 15,000 jobs per year,

According to Salinas de Gortari, NAFTA would allow

while Mexico’s labor force grew from 120,000 to 550,000

Mexico “to export goods, not people.”

workers. However, that same study shows that for every job lost, the US economy grew US$450,000 due to high-

NAFTA became a stepping stone for Mexico to develop

productivity rates and lower prices for the end consumer.

its position as a manufacturing hub, particularly in the automotive industry. That being said, the treaty also had

NAFTA’S MAIN ACHIEVEMENTS

the goal of gradually elevating the Mexican industry to the point where it could be more equal in conditions to those found in the US and Canada. This point in particular has not borne fruit since the wage gap between Mexico and its partners is still considerable. In addition, although

Growth of regional trade from US$290 billion in 1993 to US$1.1 trillion in 2016 Increased trade with Mexico from US$21.6 billion in 1993 to US$231 billion in 2016

foreign investment has led to the establishment of a strong supplier base in the country, Mexico has not yet

Foreign Direct Investment growth from the US to

developed a strong network of national suppliers to

Mexico from US$15 billion in 1993 to over US$100

support incoming projects.

billion in 2017

Still, NAFTA’s benefits cannot be understated, not only for Mexico but for the entire North American region. According to the US Congressional Research Service (CRS), thanks to NAFTA trade in the region rose from

Total automotive exports from Mexico to the US of US$126.7 billion in 2017 Over 70 percent of the Mexican vehicle production is destined to the US

| VIEW FROM THE TOP

MORE BUSINESS MEANS NEW CHALLENGES JUAN JOSÉ ZARAGOZA Mexico Country Leader of Transportation and Advanced Polymers at DowDuPont

Q: How has your portfolio been impacted after the merger

needs to continue participating as a design and engineering

between Dow and DuPont?

hub for automotive companies and we need more research

A: As DuPont, we managed polymers, fibers and

centers and adequate education plans that are in line with

mechanical seals. After the merger with Dow, resulting in

the industry’s needs. Besides manufacturing, OEMs are

the new Transportation and Advanced Polymers division of

gradually bringing engineering operations to Mexico.

DowDuPont, we integrated specialized structural adhesives, brake fluids, lubricants, thermoplastic compounds and

Q: After DowDuPont’s division into Dow, DuPont and

medical silicon. Our portfolio has become much more

Corteva, what will be DuPont’s auto industry priorities?

diversified but we still have a strong focus on the automotive

A: We want to maintain our growth expectations and

industry and most of our business is in this industry, 60

minimize whatever impact could arise from this division. So

percent of it approximately.

far, we forecast double-digit growth for the Transportation and Advanced Polymers division and the idea is to keep that

We are actively searching for new investment opportunities

going. Automotive manufacturing operations are growing

to grow our business but at the moment, our priority

at a 5 percent rate in Mexico, so growing at a double-digit

is to fully integrate our new product families to our

rate means we need to advance two or three times faster

lineup. As DuPont, we worked closely with OEMs and

than the entire industry. We are also announcing several

Tier 1 suppliers to support their design and R&D efforts.

new investments across the world in new plants and added

However, particularly with the structural adhesive line, we

production capacity in our different product divisions.

now collaborate as direct suppliers of OEMs so our goal is to maximize our penetration in this sector. As polymer

Q: What contribution can DowDuPont make to the

providers, DuPont had an excellent relationship with Tier

development of trends like lightweighting and electrification?

1 suppliers. We want to translate that market position to

A: Our contribution depends on our different product

our new product divisions.

applications. With structural adhesives, the more welding points are eliminated, the more weight is reduced in the

Q: What are the biggest challenges you face to grow your

vehicle. Our latest technologies allow us to substitute these

position in the automotive industry?

welding points for structural adhesives that can guarantee the

A: The biggest challenge we are facing at the moment is

quality and durability of these unions. In the end, less weight

the uncertainty in the market about free-trade agreements.

means a more efficient engine with less polluting emissions.

Supply chains in North America are tightly constructed

The same goes for polymer use. Today, the average car weighs

and it would be very hard to dismantle them. Investment

1.5 tons and a third of that is made of plastic.

keeps coming from Germany, Japan and even from the US despite this uncertainty. Yet, the country needs to build a

Q: How do polymers compare with traditional steel and

strong talent backbone to support these ventures with low-

aluminum applications in terms of price?

cost production, not from a salary but from a productivity

A: What we want our clients to understand is the benefits

standpoint. We still see an opportunity for training young

they can get from a total cost perspective. You can compare

talent in engineering and design in Mexico. So far, the country

the cost of 1kg of metal vs 1kg of plastic but the most effective way of measuring cost savings is by comparing how costly it is to manufacture a component in metal or in plastic.

DowDuPont is a holding company comprised of The Dow

This analysis involves everything from the raw material to its

Chemical Company and DuPont with the intent to form

manufacturing, energy and tooling costs and in most cases,

strong, independent, publicly traded companies in agriculture,

working with polymers is equally or even less expensive than

materials science and specialty products sectors

working with metal.

INSIGHT |

CAPABLE TALENT, STRONG LOCAL SUPPLIERS EQUAL RECIPE FOR SUCCESS FRANCISCO DÍAZ Commercial Director Engine of Donaldson Latin America

Maintaining a leading position in a growing industry can

Mexico and Latin America represent the third most

be challenging but finding new development opportunities

important manufacturing region for Donaldson.

supported by a competitive cost structure can help keep

Globally, the company’s revenue grows at an annual

a company ahead of its competitors, says Francisco Díaz,

rate of 6 percent and Díaz says Mexico’s contribution

Commercial Director Engine of Donaldson Latin America.

has been significant in these results. “The company’s two manufacturing plants in Aguascalientes are working

“We have worked on developing a competitive cost

at full capacity, delivering 16 million liquid filters and 10

structure that allows us to grow not only regionally but

million air filters per year,” he says.

also internationally through exports to Europe, the US and Asia,” says Díaz. For more than 30 years, filtering

The company is analyzing how best to grow its global

solution provider Donaldson has based its strategy in

manufacturing operations and in Mexico, Díaz sees great

Mexico on two simple principles: developing the technical

potential for the company to boost its competitiveness

capabilities of its local workforce and growing its sourcing

by focusing on design and engineering operations for

of local talent.

products and tooling equipment. “These are still greenfield

“

Mexico is still behind when compared to other firstworld automotive hubs, which is why it must shed its mindset of a manufacturing or even maquila country”

areas for Donaldson in Mexico but it is the next logical step to secure the company’s ongoing development in the country,” he says. “Mexico is still behind when compared to other first-world automotive hubs, which is why it must shed its mindset of a manufacturing or even maquila country.” Finding new development opportunities is key for companies like Donaldson as the current political and commercial uncertainty can lead to bigger hurdles in the future. Amid the negotiations of a NAFTA 2.0 agreement, regional content rules are still on the table and could face an increase to up to 80 percent from the current 62.5

Although separate at first glance, both of these ideas

percent. Donaldson’s operations have a competitive level

are rooted on the capabilities of the Mexican labor force,

of regional content but Díaz says that if changes were

which Díaz sees as one of the best growth opportunities

made to the agreement, Donaldson would have to invest

for the Mexican industry. “Beyond competitive labor costs,

more resources to help automakers meet new regulations.

Mexico has the advantage of a world-class workforce with

Still, the company remains positive in its projections for

an impeccable work culture,” he says.

the near future. “If we had to, we could operate under stricter regionalization standards,” he says.

Although Donaldson has learned to take advantage of the capabilities of the local workforce when training its

The company participates in both the original equipment

own team, Díaz explains that local companies must follow

and the aftermarket segments. “At the moment, our

suit to become more competitive in a global environment.

operations are 40 percent oriented to original equipment

“Mexican companies looking to participate in our supply

and 60 percent to the aftermarket,” says Díaz. “Our goal

chain must develop the skills and technical knowledge of

is to remain a leading company in filtering solutions for

their operative, administrative and technical workforce,”

both segments, maintaining a 6 percent global annual

he explains.

growth rate in 2018.”

| INFOGRAPHIC

MEXICO'S MAIN EXPORT MARKET Despite having trade agreements with 46 countries,

TOP 10 US SUPPLIERS

Mexico's main market for automotive exports remains the US. Over 80 percent of its total automotive production auto parts. Thanks to NAFTA, the relationship between Mexico and its northern neighbor has grown strong and deeply intertwined in benefit of both nations. Mexico has also been a significant market for American OEMs that for years have positioned among the Top 10 brands in the country. 100

The NAFTA negotiation might have created uncertainty among American players, especially those with the most

Global Ranking (Top 100 parts suppliers in 2018)

goes to this country, including assembled vehicles and

recent operations in Mexico. However, the industry expects talks to end on a positive note for the North American region to continue enjoying growth.

Lear Corporation

Adient

BorgWarner

Tenneco

Flex-N-Gate

Dana

American Axle & Manufacturing

Nexteer Automotive

Cooper-Standard

Visteon

VALUE OF MEXICO'S AUTOMOTIVE EXPORTS AND MEXICO-US TRADE BALANCE (US$ billion) US share of Mexico's total automotive exports

80.4%

—— Mexico-

130

Total

110

82.3%

81.2%

77.9%

79.1%

US trade balance 107.7 100.1

automotive exports

88.4

82.7 72.7

-20

—— Annual

-40

61.7

52.7

42.4

2008

2009

2010

2011

2012

470,483

ANNUAL USEDVEHICLES IMPORTS FROM THE US variation (%)

34.9

30 *Data from January to May (annualized)

44.7

55.7

64.9

69.9

exports to the US

79.2

Automotive

93.7

72.4

60 40

596,889 26.9

20 0 1,031,048

-23.2

-20.2

-60 -80

458,114 -73.5 272,909

65,772 sold units

Aveo is the second best-selling light vehicle in Mexico. It is produced at GM’s plant in Villa de Reyes, San Luis Potosi Sources: AMIA, USITC, Banxico, Automotive News

PARTICIPATION OF US OEMs IN MEXICO’S LIGHTVEHICLE MARKET (Jan-June)

General Motors Ford Motor 19.3%

FCA (including Mitsubishi) Lincoln

0.5%

18.9%

225,984

0.3%

212,515 22.8%

20.6%

59.5%

58%

19.3%

US OEM ASSEMBLY PLANTS IN MEXICO Light Vehicles

Ford 0.5%

184,418 23.7%

General Motors

56.5%

800

184,418

212,515

200 0

2016

US OEMs in Mexico

82.7%

680,699

743,051

225,984

400

721,856

600

FCA

Total vehicle sales

State State of Mexico

Chihuahua

Hermosillo

Sonora

Silao

Guanajuato

Toluca

State of Mexico

Ramos Arizpe

Coahuila

Silao

Guanajuato

San Luis Potosi

Saltillo

Coahuila

Toluca

State of Mexico

Heavy Vehicles

Location

State

Kenworth

Mexicali

Baja California

Saltillo

Coahuila

Freightliner

2018

2017

Location Cuautitlan Izcalli

Escobedo

Nuevo Leon

Santiago Tianguistengo

State of Mexico

Navistar International

Escobedo

Nuevo Leon

Cummins

San Luis Potosi

83.9%

85.2%

85.4%

123.1

122.1

123.1

83.2%

86.4%

125.5 108.5

105.4

113.3 96.8

80.8

91.8

97.6

97.8

109.4

114.5

113.2

133.8

126.7

132.3

2013

2014

2015

2016

2017

2018*

644,209

57,283

40.6

28.45 -17.7 -29.3 455,372

-16.4 123,638

147,829 -60.6 179,577

1,842 1,647

2013

2,380

2,284

2,143 1,876

2014

*Data from January to March (annualized)

1,993

2015

2,602

US 2,640

3,000

2,335

2,392

2,000

North America

MEXICO'S LIGHT-VEHICLE EXPORTS (thousand) 2,134

1,000 2016

2017

2018*

101

| INSIGHT

STRENGTHEN CORE WHILE LOOKING FOR NEW OPPORTUNITIES RAÚL LÓPEZ Managing Director of AAM Casting

102

Few inputs are as important for the automotive industry

AAM has yet to enter the aluminum market but the

as steel. But the trend of lightweighting has prompted

company has implemented a strategy to engage

automakers to substitute metal for plastic and to choose

in different projects from their development stage,

aluminum over steel to harness the advantages of a lighter

thus adding value to the component while increasing

vehicle. Foundries and casting companies must also change

quality and reducing costs. After being acquired by US

to meet the new market’s needs, says Raúl López, Managing

automotive component manufacturer American Axle

Director of AAM Casting, formerly known as Novocast.

& Manufacturing (AAM), Monterrey-based foundry Novocast has further inserted itself in the US supply

Although AAM Casting’s performance has not yet been

chain as part of AAM Casting’s network. López says that

affected by the rise of aluminum in the automotive market,

delivery times, costs and quality have improved as AAM

López recognizes the risk. “The main challenges we face are

integrates Novocast vertically. “We have brought new

the change of platforms and the threat posed by aluminum,”

technologies, engineering processes and productivity

says López. The company participates in the construction

concepts,” he says. “US companies are strongly focused

of vehicle platforms such as GM’s full-sized pickup trucks

on automation and capital investment and Mexico has

and SUVs, which are changing some portion to aluminum.

made several advances in productivity.”

The company operates as a Tier 1 supplier of brackets, axle carriers and other medium-size parts and as a Tier 2 supplier

López highlights that El Carmen AAM Casting wants to

of semi-finished goods for auto parts manufacturers. López

increase its presence in the heavy vehicle sector and

enumerates General Motors, FCA, John Deere and Freightliner

collaborate more with manufacturers of brake systems and

as El Carmen AAM Casting’s OEM clients and Meritor, Linamar,

other components. “We want to grow our presence with the

DANA and SISAMEX as its main partners in the Tier 2 segment.

American manufacturers we do not work with yet and boost

“More than 60 percent of all axle carriers for light trucks are

competitiveness in our product portfolio,” he says. “AAM

produced by AAM Casting,” he says. “AAM’s Casting division

Casting has boosted El Carmen’s previous global presence

is one of the largest foundries of ductile iron and one of the

and we are open to new ideas and technologies where we

largest producers of foundry parts in North America.”

can participate.”

VIEW FROM THE TOP |

MATERIAL TESTING KEY TO ENSURE QUALITY ALEJANDRA TORIJANO Senior Manager Mexico, Puerto Rico and Distributors’ Organization (Latin America Region) of Agilent Technologies México

Q: How has the lightweighting trend impacted Agilent’s

standards and data analysis software for polymer analysis,

technology development process in the polymers division?

coupled with our industry-leading HPLC systems that

A: Polymer development has always focused on creating

accelerate decision times in batch testing with accurate

more resistant and lighter materials. Agilent is contributing

molecular weight information.

to these developments through testing solutions, as well as reliable and robust analysis of polymer samples that can

Agilent’s reliable and easy-to-use range of ICP-MS, ICP-

increase companies’ confidence in the composition and

OES and FTIR systems are pushing the boundaries of

performance of materials. Reliable analyses of polymer

efficient semiconductor impurity analysis, ensuring that

manufacturing materials are critical to ensure product

manufacturers of a wide variety of materials can maintain

performance. Due to the importance of efficiency and cost-

output quality. The 7900 ICP-MS and 8800 ICP-QQQ have

effectiveness in workflows, it is essential to run accurate

enough precision to detect trace metals at industry-leading

analytical processes that can quickly ascertain quality.

levels of sensitivity, while the Cary 600 Series and ExoScan FTIR systems analyze shallow impurities effectively.

Agilent’s reliable and robust range of instrumentation offers a solution for every stage of the polymer production

Q: As vehicles include more electronic components and

process from research and development, to polymerization,

controls, how much has demand grown for Agilent’s

compounding and manufacturing, packaging and shipping,

electronic testing solutions?

final product testing and recycling. That way, our portfolio

A: Overall, the electronic components division is very

can meet companies’ expectations in development,

dynamic and always growing along with the industry.

purification and material composition.

Demand for our products has increased significantly as companies realize the capabilities Agilent products can

Q: How big is Agilent’s participation in the automotive

offer in chemical analysis, ensuring semiconductor process

market in terms of materials research and development?

chemical purity and ultrapure water analysis.

A: Agilent Technologies is the number one company in the world offering innovative and reliable analytical solutions,

Q: What is the main area of opportunity to improve

including consumable products, instrumentation and

automotive electronic components and user experience?

support. We assist our users in consistently and cost-

A: We have found two main opportunity areas in this

effectively delivering the highest quality finished products

sector. First, companies need to deliver improved results

and materials. We have a comprehensive line of instruments

in impurity analyses. Accurately detecting impurities in

for materials testing and research market, which helps

semiconductor manufacturing materials is vital to ensure

companies identify and characterize microcrystalline

component quality and yield. The second opportunity is

irregularities in composites and quantify trace impurities

the need for fast, accurate and compliant detection of

in metal alloys or polymers.

heavy metals in electronic devices. Regulations governing proper disposal of electronic devices containing heavy

Q: How do you ensure client materials meet OEM expectations

metals are vitally important for environmental protection

for quality, structural performance and aesthetics?

worldwide.

A: Our FTIR testing bench and microscopy systems provide insights into both bulk and detailed material structure while our mobile and handheld instruments such as 4300

Agilent Technologies is an American company focused on life

Handheld FTIR provide superior quality information

sciences, diagnostics and applied chemicals. The company

quickly, and in any location. Agilent’s GPC/SEC portfolio

provides instruments, services and consumables to laboratories

also includes market-leading instrumentation, columns,

with operations in different industries

103

| VIEW FROM THE TOP

PLASTIC LIGHTWEIGHTING THE NEXT STEP IN INNOVATION Humberto Garza President of EVCO Plastics

104

Carlos González Sales Director of EVCO Plastics

Q: What percentage of EVCO Plastics’ global operations

shortens the cooling cycle of plastic components, thus

is focused on the automotive industry?

reducing costs. The second project focuses on reducing

CG: About 15 percent of our global operations are

the weight of plastic components using new materials

destined to this industry. In Mexico, this sector represents

and nanotechnology.

33 percent of EVCO’s business. Our main partners in the automotive sector are Tier 1 companies such as DENSO

The third is to create a strategic partnership with the

and Automotive Lighting. We also work with players that

plastic institutes of either Barcelona or Valencia to

are not strictly automotive but are still related, including

eventually develop innovation projects, which in turn

companies such as Caterpillar and John Deere as well as

could help EVCO Plastics improve in areas such as

recreational-vehicle manufacturers Polaris and BRP in the

molding and tooling manufacturing.

production of all-terrain units and quads. Q: What is EVCO’s strategy to become and remain a Q: How has EVCO Plastics harnessed the opportunities

competitive option in the plastics industry?

created by lightweighting?

CG: We adapted several practices from the Toyota Production

HG: OEMs and Tier 1 suppliers seek lighter components

System. EVCO Plastics has been under transformation since

that maintain dimensional stability, resistance and

2009, following a continuous-improvement strategy and a

performance. The first stage of lightweighting is to

lean-manufacturing philosophy.

change metal components for their plastic counterparts. The next stage is to reduce the weight of plastic

Without these adaptations, EVCO would not be as

components. EVCO Plastics works closely with CLAUT

competitive as it is in areas such as finances, inventory,

in this second stage.

operational efficiency, production control and the two most important indicators for our production: parts-per-

CG: Metal has been increasingly substituted with plastic

million metrics for quality control and on-time deliveries.

to reduce both costs and the vehicle’s weight, which also translates to a reduction in fuel consumption.

HG: We have reduced our transportation and inventory

Lightweighting has also given us the opportunity to serve

costs within our supply chain. However, the main

new customers by participating in workshops with Polaris

challenge of the plastics industry is that between 40 and

and BRP to change metal components for plastic ones in

60 percent of the selling price of a component offsets

their recreational vehicles.

the cost of raw materials. Most engineering plastic resins to produce components for the automotive, health,

Q: What advantages has EVCO Plastics found in

electronics and home appliances industries must be

collaborating with CLAUT’s Automotive Center for

imported either from Asia or from the US, which hinders

Technological and Talent Development (DRIVEN)?

our production’s competitiveness.

HG: As a Tier 2, EVCO Plastics is developing three main projects with DRIVEN. The first focuses on 3D-printed

Q: How ready is EVCO Plastics to face a possible increase

metal molds for plastic injection. Using these molds

in required regional content? HG: Clients based in the US and Canada require engineering resins to be sourced in North America.

EVCO Plastics is a manufacturer of plastic parts that caters

Between 40 and 60 percent of our products are already

to the automotive, health, home appliances, electronics and

sourced in the US and considering the amount of raw

electric industries. As a Tier 2 supplier, the company is present

material procured in Mexico, we can deliver products with

in the US, Mexico and China

between 80 and 90 percent North-American content.

VIEW FROM THE TOP |

CHANGES IN DEMAND ALTER PRODUCTION JUAN ALCIDE Vice President and General Manager of Gill Industries

Q: How important is Mexico for Gill Industries’ global

A: The more collaboration exists between clients and

operations?

suppliers, the more competitive manufacturing processes

A: Up to 45 percent of Gill Industries’ revenue comes

are. Clients that engage in design and engineering

from its Mexican operations. The largest investment that

operations in Mexico such as Brose, Nissan or Ford help

Gill Industries has done worldwide since 2010 has taken

Gill Industries produce the components that the industry

place in Mexico. We have increased our market share in

demands. We have increased our added value with our B2P

the country by 70 percent since we started operations in

frames and we continue with our production of second

2006 and continue to acquire new machinery to improve

and third-row seats, as well as with development of new

our manufacturing processes. The Bajio region has received

products for chassis and body-in-white processes. One of

several of these investments as Gill Industries sees great

the main projects that we developed in Queretaro consists

potential for automotive growth and development there.

of a 2,000-ton servo-press that will enable Gill Industries to work with complex materials with low thickness. We want to

Q: How has demand for lighter components impacted Gill

integrate several manufacturing processes under the same

Industries’ productive operations?

roof since most companies only focus on welding, stamping

A: We used to work with highly resistant metals with

or headrest production.

thickness of 2.2mm but have started using martensitic steels with thickness of 0.5mm. Thinning of metal plates

Q: What are the main challenges that Mexican suppliers

used for stamping has become an increasingly important

face to participate in US automotive productive chains?

trend in the global metal-mechanic industry. Gill Industries

A: The main challenge for Mexican companies is investment.

never expected to have presses of more than 1,000 ton

Like Gill Industries, many companies are focused on

in the 2000s because stamped products did not require

developing innovative manufacturing processes since

the use of martensitic or dual-faced materials. Demand

Mexico can no longer be competitive due to low labor costs

has shifted toward harder materials that require greater

alone. Mexican companies should face fewer difficulties

tonnage and tighter control of tolerances. Gill Industries will

to integrate into US productive chains once the region is

continue investing in servo-presses to be ready for these

strengthened. We look forward to having more flexible US-

new materials.

Mexico trade that incentivizes investments in the medium and long term.

Q: What impact has the wide variety of brands, models and versions had in Gill Industries’ operations?

Q: As the automotive industry moves toward Industry

A: Automotive used to be an industry where the same

4.0 practices, what milestones has Gill Industries reached

production platform was used for volumes of 350,000 to

regarding process automation and digitalization?

500,000 units. The shift toward vehicle platforms used for

A: Gill Industries’ most critical manufacturing systems

volumes of 70,000 to 125,000 units has prompted suppliers

are completely online so they can be monitored in real

to keep flexible processes and efficient manufacturing

time. This helps us to make decisions more swiftly and

operations, while delivering competitive costs. The

have more information available for analysis so processes

wide variety of vehicle options poses a challenge for

are improved.

manufacturing processes as companies move away from a scheme of robust, capital-intensive goods produced in large volumes toward more competitive processes.

Gill Industries is a US Tier 1 and Tier 2 manufacturer of seat structures, seating, reinforcement BKTS mechanisms, latches,

Q: What advantages are there in collaborating with Tier 1s

headrests and other components. In Mexico, it focuses on

and OEMs in design and engineering?

headrests and stamped and welded components

105

Mercedes-Benz AMG GT 53 4MATIC Coupé

GERMANY

Germany is known as the creator of modern transportation but it has not rested on its laurels. The country has evolved to become a standard of automotive and technological design for the entire world. The country has grown its presence both in the volume and premium segments, creating a strong network of OEMs and suppliers with a global manufacturing footprint. Mexico has become a partner for companies coming from Germany, which in return have shared their knowledge and expertise with the domestic industry.

This chapter focuses on the opportunities to create tighter bonds between Germany and the Mexican industry, while fostering an environment that incentivizes investment. OEMs and suppliers share their growth perspectives regarding their Mexican operations and the potential to target the North American and Latin American markets thanks to Mexicoâ&#x20AC;&#x2122;s free-trade relationships.

107

CHAPTER 5: GERMANY 110

ANALYSIS: Power Couple With Solid Prospects

111

VIEW FROM THE TOP: Steffen Reiche, Volkswagen de México

112

VIEW FROM THE TOP: Leandro Radomile, MAN Truck & Bus México

114

INSIGHT: Radek Jelinek, Mercedes-Benz México

115

VIEW FROM THE TOP: Jan Hegner, Daimler Buses México

116

INFOGRAPHIC: Manufacturing Footprint Grows

118

VIEW FROM THE TOP: Frank Hezel, BASF’s Coatings Division in Mexico,

Central America and Caribbean

120

VIEW FROM THE TOP: Jorge Vázquez, Continental Automotive

122

VIEW FROM THE TOP: Luis Moreno, OSRAM México

124

VIEW FROM THE TOP: Manuel Guevara, Brose México

125

INSIGHT: Michael Voll, Preh de México

126

TECHNOLOGY SPOTLIGHT: BASF's Automotive Color Trends 2018-19: Keep it Real

128

VIEW FROM THE TOP: Martín Toscano, Evonik Industries de México

130

VIEW FROM THE TOP: Herbert Eisele, Scherdel de México

131

INSIGHT: Daniel Romero, Schunk Carbon Technology

109

| ANALYSIS

POWER COUPLE WITH SOLID PROSPECTS Germany was the second country to assemble vehicles in Mexico after the US. In 1964, Volkswagen opened its first assembly facility in the State of Mexico that would later be moved to Puebla. Since then, Mexico and Germany have developed strong trade and investment relations with a strong focus on the automotive industry

110

According to data from the Ministry of Economy, between

Managing Director of MAN Truck & Bus México. “There is a

1999 and 2017, FDI in Mexico’s automotive industry

strong integration between Germany and Mexico and the

amounted to US$60.7 billion. Germany alone accounted for

country is a key part of MAN’s global strategy.” Radomile

14.6 percent of the total FDI that the Mexican automotive

enumerates Mexico’s increasing adoption of technologies

industry received in this period (US$8.8 billion) and 13.7

necessary for the automotive industry as a key opportunity

percent of the 1,345 total companies with investments in

for both countries to grow their trade relationship.

this sector. Germany ranks third among the top investors in the Mexican automotive industry after Japan and the US.

“Mexico will continue to collaborate with Germany because the commercial relationship works for both countries,” adds

According to Frank Hezel, Business Vice President of

Jan Hegner, CEO of Daimler Buses México. OEM presence

BASF’s Coatings Division in Mexico and Central America,

along with Mexico’s free-trade network and strategic

the presence of over 2,000 German companies including

geographical position are the main advantages that Mexico

outside the auto industry operating in Mexico and

offers to automotive companies, according to Hegner.

generating over 150,000 jobs is a testament to Germany’s

The continuous arrival of investments from Germany and

belief in Mexico’s potential as an investment destination.

reinvestments that OEMs and Tier 1 companies make in Mexico

The future seems promising for German players in the

trickle down the supply chain and open new opportunities in

country as BMW and Mercedes-Benz are projected to

the industry. “The Mexican automotive industry has grown

start assembling premium cars in San Luis Potosi and

at double-digit rates and this trend is linked to hard work,

Aguascalientes, respectively.

great quality, great ideas and support from the public sector,”

“

Mexico has proven to be a top-level manufacturer in quality of workmanship and human resources” Leandro Radomile, Managing Director of MAN Truck & Bus México

says Martín Toscano, Managing Director of German supplier of specialty chemicals Evonik. But Mexico is capable of much more than just manufacturing components, which is why several German automotive players are bringing their R&D operations to Mexico and opening design and engineering centers. Continental opened a new R&D center in Queretaro in May 2018 where the company plans to develop technology for chassis and safety systems that use artificial intelligence and that eventually will be implemented in self-driving vehicles. “These innovations are active accident-prevention systems,” says Jorge Vázquez, R&D Center Director of Continental Automotive. Other German

Radek Jelinek, President and Director General of Mercedes-

automotive players with design and engineering operations

Benz México, says the company’s decision to start production

in Mexico include Volkswagen, which designs and develops

of the A-Class sedan in 2H18 at the COMPAS plant in

special vehicles and electronic auxiliary systems in Puebla, and

Aguascalientes is a progression of its experience here. “It is

Robert Bosch, which projects the construction of a new R&D

based on strong foundations and shows our commitment

center in Guadalajara where software and shared-services

after 25 years of presence in Mexico,” he says. At the same

solutions will be developed.

time, Steffen Reiche, President of Volkswagen de México, says the start of operations of Volkswagen Group’s Audi plant in

Daniel Romero, Americas Automotive Division Manager

Puebla in September 2017 represents new opportunities for

at Schunk Carbon Technology, sees a clear road ahead for

automotive suppliers, logistics operators and service offerors.

German automotive players in the country. “More business opportunities are coming to Mexico and companies that have

“Mexico has proven to be a top-level manufacturer in quality

created a positive image in Mexico will be able to expand their

of workmanship and human resources and has demonstrated

product lineup and diversify into new market niches thanks

its ability to produce auto parts,” says Leandro Radomile,

to these investments,” he says.

VIEW FROM THE TOP |

TRANSITIONING TOWARD THE CAR OF THE FUTURE STEFFEN REICHE President of Volkswagen de México

Q: What are your priorities as the new head of Volkswagen

A: For the third time in a row, Volkswagen has been

in Mexico?

named “Most Innovative High-volume Brand” by the

A: My predecessor Andreas Hinrichs did a great job.

independent research institute Center of Automotive

Under his leadership, the Puebla Plant reached several

Management (CAM). The brand also took top place in the

milestones and consolidated its position as the second-

“Alternative Drives,” “Autonomous Driving and Safety” and

largest Volkswagen facility outside of Europe. Since I took

“Conventional Drives” categories. CAM bestows the awards

over, my priority has been to acquire a deep knowledge

together with auditing firm PricewaterhouseCoopers. The

of Volkswagen’s plants in Puebla and Guanajuato to

jury based its decision to declare Volkswagen the most

understand their processes, as well as the development of

innovative high-volume brand on 62 individual innovations

the Volkswagen Group brands in Mexico. My approach is

the company developed in 2017.

to strengthen what has been done and to reinforce those things that will make us fit for the future of mobility.

The Volkswagen brand is strengthening its model offering with very attractive products. This year, for example, the

Q: How are you pairing the power and performance that

brand launched the totally-new Jetta, a compact sedan

characterize Volkswagen’s vehicles with the ideals of fuel

that is considered one of the most popular cars in the

economy and environmental sustainability?

Mexican market. We also delivered Teramont, a medium-

A: A car’s environmental impact is at its greatest when

sized SUV that will be our second model competing in

it is on the road, which underlines the importance of

the growing SUV segment along with NuevoTiguan.

considering the use phase of the vehicle’s life cycle.

Both of these models will reinforce our presence in this

Volkswagen builds cars that drive as efficiently as possible,

important segment.

enabling drivers to enjoy eco-compatible mobility. Similarly, the company develops its products and services in the

Q: What was behind the drop in sales in FY17 and 1Q18 and

most environmentally compatible way possible. Doing so,

what strategies is the company implementing to regain its

we consider not only the production and use phases, but

position in the market?

also raw-material sourcing, supplier processes and the

A: The Mexican market experienced expansive growth

end-of-life recycling process once the vehicle is no longer

until 2017, motivated by the arrival of new competitors

on the road.

and attractive financing plans. Nevertheless, some variables have changed over the past 12 months. The

Q: The company wants to be the No. 1 player in electric

NAFTA renegotiation, uncertainty about the new rules of

mobility by 2025. How will you accomplish this?

commerce in North America, exchange-rate volatility and a

A: From 2017 to 2022, Volkswagen will invest over €22 billion

general increase in prices of new vehicles and credits were

(US$25.1 billion) in its manufacturing sites around the world.

among the main disruptors that prevented the company

These funds will be destined to support the expansion of

from reaching growth. However, the Volkswagen Group

modular production, promote our model campaigns and

is focusing on a new and attractive model offensive

drive forward the development of electric mobility. In 2020,

that covers practically all segments to counter these

Volkswagen will produce 100,000 electric vehicles. The new

negative factors.

vehicle generation will be launched almost simultaneously in Europe, China and the US. At least 1 million electric cars are planned for 2025.

Volkswagen is a German automaker with manufacturing facilities in Puebla and Guanajuato. The brand is the third-best

Q: What is Volkswagen’s vision for the car of the future, in

seller in Mexico with over 74,000 units sold between January

terms of connectivity and autonomy?

and June 2018

111

| VIEW FROM THE TOP

BUSINESS STRATEGIES THAT BEAT THE TIDE LEANDRO RADOMILE Managing Director of MAN Truck & Bus México

112

Q: What does Volkswagen’s new partnership with Navistar

A: There is plenty of uncertainty for 2018 because of

imply for MAN’s operations in Mexico?

the NAFTA renegotiations and the effect of presidential

A: Having a partner with significant presence in North

elections in Mexico. We understand NAFTA is a 25-year-old

America such as Navistar is a key step toward Volkswagen

treaty that needs to be modernized. There will be a revision

Truck & Bus becoming the main global producer of heavy

but we understand that trade between Mexico and the US

vehicles. Volkswagen was on the lookout for the best

in the heavy vehicle sector will be not be strongly affected.

collaboration alternatives and it created a joint venture with

Mexico is the greatest exporter of articulated trucks in the

Navistar to pursue two objectives: to promote joint technical

world and 90 percent of these exports are directed to the

development and to improve purchasing operations. The

US. Also, 50 percent of the parts for these vehicles are

final goal of this interaction is having a company that

manufactured in the US.

looks for new synergies, growth opportunities and better purchasing options.

If we keep our sales volume steady, it will be a positive year. I am not overly worried about the drop in sales in 2017

Each of the 12 brands that comprise the Volkswagen Group

because the industry’s slowdown was foreseeable. I expect

will keep its own identity, however. There is a common

the year to finish with sales falling 3-5 percent, mainly

force behind them that enables the group to remain

because of the good results the industry enjoyed in 2016.

competitive, but each one is unique in the eyes of the client.

The last two months of that year resulted in record-breaking

Volkswagen Truck & Bus is no exception and regardless of

numbers because of advance purchases attributable

our partnership with Navistar, the company will hold on

to uncertainty with President Trump’s discourse. Over

to its market position and continue competing. Similarly,

5,500 units were sold only in December. To put results

we will keep working and defending our own brand’s

in perspective, a 5 percent drop in 2017 would still mean

characteristics in Mexico.

growth of between 8 and 10 percent compared to 2015, which was a more stable year.

Q: Production and sales of heavy vehicles faced a tough year in 2017. How has MAN Truck & Bus performed?

Q: How has MAN Truck & Bus’ counter-current development

A: 2017 may turn out to be the best year in terms of sales

impacted the company’s growth expectations for 2018?

for MAN Truck & Bus. The heavy vehicle sector registered

A: To date, we have reached a market share of 14 percent

a 5.2 percent drop in 2017. The most significant drop was

in the bus sector and 3 percent in the truck segment.

in the truck segment while the bus market remained firm.

Originally, our expectations were to reach an 18 and 5

However, MAN Truck & Bus saw an increase in sales volume

percent share respectively by the end of 2018 but we

of 22 percent compared to the numbers of 2016. If we divide

have established a new projection. MAN Truck & Bus’ new

our growth by segment, MAN will reach 48 percent growth

objective by 2020 is growing its overall market share to 10

in the truck sector and 7 percent in the bus sector.

percent from our current 5.3 percent, resulting in sales of approximately 5,000 units. Our growth strategies will be

Q: What level of growth is MAN Truck & Bus

founded on product, network development and aftersales

expecting in 2018?

services, and we want to increase our dealer network to 20 points of sale throughout the country by the end of 2018.

MAN Truck & Bus is a subsidiary of the Volkswagen Group.

Q: What new products and technologies is MAN Truck &

Headquartered in Germany, the company focuses on the

Bus bringing to the table?

production of buses and both light and heavy trucks. In Mexico,

A: We launched our highest number of new products for

the company manages Volkswagen and MAN brands

the decade in 2017. We released the new Delivery vehicle

family comprising six new models that required a US$350

Q: What is MANâ&#x20AC;&#x2122;s position regarding natural gas and

million investment from our headquarters. This line includes

hybrid units?

a prototype of the first 100-percent electric light truck

A: New technologies are becoming very strong in Mexico,

developed by Volkswagen. This truck is already being

mainly in main cities where there is a necessity to reduce

tested and we expect it to be mass produced by 2020.

pollution and noise levels. MAN has already developed and

The company is also introducing products equipped with

is actually using both natural gas and hybrid units in Europe.

technology that meets Euro VI emissions requirements.

We are introducing natural gas in Mexico, first in buses and

Even though Euro VI will become the standard in 2021,

recently we have presented a prototype for a truck.

MAN is ready with this technology and we expect to start marketing it in 2019 when the transition will begin.

From our perspective, when natural gas technology matures in Mexico, electric technology will be strong in Europe. It will

In the bus segment, we launched the Volkswagen 14.190

make no sense for Mexico to introduce hybrid technology and

SCD bus. Approximately 50 percent of Mexicoâ&#x20AC;&#x2122;s buses

put an unnecessary transition between natural gas and full-

are Class 7, weighing between 12 and 15 tons, including

electric models. For this reason, our bet is currently on natural

semi-forward-control (SCD) buses that account for sales

gas and we will eventually move toward electric technology.

of between 3,500 and 4,000 units a year. The 14.190 SCD is our bet in this segment and it was a model specifically

Q: What is MANâ&#x20AC;&#x2122;s perspective regarding the cab-over

designed for the Mexican market.

truck sector? A: In Mexico, most trucks are long-nosed. MAN was the first

MAN is introducing the latest diesel, electric and natural

brand to bring cab-over trucks to Mexico in 2004 and 100

gas technology in the heavy vehicles sector. Diesel motors

percent of our products are now cab-over. These trucks

will never die off, they will co-exist with new technologies.

deliver competitive advantages, including safety, visibility,

We will launch a new natural gas Constellation unit with a

maneuverability, driver comfort and greater load capacity

Euro VI engine that the company previously tested in Brazil.

than conventional vehicles. Furthermore, they have been

We expect to start testing this vehicle in Mexico and we

designed to respond better than long-nosed trucks in an

also brought our most successful natural gas chassis, the

accident. We understand that it will take time to change

MAN A69, to ExpoTransporte so Mexican clients could start

misconceptions related to long-nosed trucks but we believe

becoming familiar with European standards.

the future is in cab-over units.

113

| INSIGHT

TRADITION MEETS INNOVATION RADEK JELINEK President and Director General of Mercedes-Benz México

114

Moving into the future can be challenging for a company

Mercedes-Benz’s full-electric models, while CASE continues

but even more so when its offering is based on tradition and

to develop innovative solutions related to connectivity

an established image. Still, it is the only way to succeed in a

and self-driving technology. “We are collaborating with

market that evolves as quickly as automotive, according to

technology developers in our R&D center in Silicon Valley

Radek Jelinek, President and Director General of Mercedes-

to deliver this technology,” says Jelinek.

Benz México. Although the bases for CASE are emerging global trends, “We want to combine the legend that is Mercedes-Benz

Jelinek sees them as a challenge in Mexico as in the rest

with advanced technology and a mobility experience that

of the world. “Our clients are as equally connected to the

goes beyond the vehicle itself,” says Jelinek. With a history

latest trends as anyone in Germany or the UK,” he says.

that goes back to 1886 and a legacy as the inventor of

“We cannot differentiate our products according to the

the automobile, Mercedes-Benz is the oldest brand in the

region because clients demand the latest from us.” Proof

automotive industry and for 132 years it has managed

of that is Mercedes-Benz’s introduction of its state-of-the-

to remain ahead of the latest trends impacting vehicle

art intelligent multimedia system called MBUX, which the

development and consumer preference.

company premiered at the Consumer Electronics Show in Las Vegas in January 2018. MBUX features a natural

As a premium brand, Mercedes-Benz has traditionally been

speech recognition platform called LINGUATRONIC that is

associated with the status and luxury reserved for just a few.

capable of learning and changing its use of language based

The company is changing that idea as younger generations

on its interaction with the user, according to Daimler’s

with a fresh idea of lifestyle and comfort become potential

information. “Instead of implementing this system in our

buyers. “We are detaching our idea of luxury from what

high-end S-Class models, we integrated it in the A-Class

can be considered ostentatious or presumptuous,” says

family, which is oriented to younger customers eager for

Jelinek. “Although we still have many traditional clients,

this technology,” says Jelinek.

we also need to focus on the millennial generation and their technology and connectivity-based approach as well

Mercedes-Benz’s goal for 2018 is to remain the leading

as our sports-oriented clients who prefer the AMG brand.”

brand in the premium market, using digitalization as a platform to modernize its entire operation. Beyond

To truly participate in the latest industry trends, in 2017

innovating in its technology, the company is also investing

Mercedes-Benz decided to open a new business branch

in simplicity and velocity of response using data analysis

called CASE solely focused on addressing four key topics

tools to understand its clients better. “Our goal is to get

and finding the best way to combine them with the

to know our clients intimately to offer a tailor-made

company’s technology development strategy. “Connected,

solution to each of them,” says Jelinek. 2018 will also be

Autonomous, Shared, Electric: each of these has the

an important year for Mercedes-Benz in Mexico, marking 25

power to turn our entire industry upside down. But the

years of the brand’s history in the country after being the

true revolution is in combining them in a comprehensive,

first premium player to venture into the Mexican market.

seamless package,” said Dieter Zetsche, Chairman of the

The company expects to release the new G-Class, CLS and

Board of Management at Daimler AG, after the creation

A-Class models in the second half of the year, as well as

of CASE. The company has invested in several mobility

a full renovation of the GLE by the end of 2018. However,

ventures, such as car2go and MyTaxi, but it has now vowed

the biggest news for Mexico is that by 2H18, the COMPAS

to destine €10 billion (US$12 billion) through CASE on the

joint project between Daimler and the Renault-Nissan-

development of its electrified fleet. Jelinek expects that

Mitsubishi Alliance will start producing the sedan version

by 2020, the newly created EQ brand will start marketing

of the A-Class for the entire world.

VIEW FROM THE TOP |

ONE STEP AWAY FROM EURO VI SUSTAINABILITY JAN HEGNER CEO at Daimler Buses México

Q: What are Daimler Buses’ sustainability priorities and

relationship works to the advantage of both countries.

how do they compare to ANPACT’s and SEMARNAT’s?

Provided this relationship continues, more German

A: Caring for the environment is a key priority for us, so we

companies will come to Mexico and German investments

work with Mexico’s authorities to sell bus units that pollute

in the country will automatically increase. Automotive

less. Daimler Buses has launched its BlueTech 5 engines

companies are interested in bringing operations to

that are more efficient and friendlier to the environment.

Mexico due to the country’s economic stability. This

In terms of SEMARNAT’s NOM-044, we plan to continue

is the most attractive advantage for investors and a

selling bus units powered by Euro V engines and start

priority for suppliers. Other key advantages are Mexico’s

introducing Euro VI engines to the mix over the next few

strategic geographical position and its free-trade network

years. We are all set and expect the transition to be easy

stretching to 46 countries that represent 60 percent of

and quick. We do not expect technological migration to

the world’s GDP.

create problems in Mexico’s passenger transportation industry because we will be ready to offer tailored financing

Q: What strategies is Daimler Buses putting in place

plans that will allow any client to purchase a Euro VI bus.

to ensure solid results amid an uncertain economic environment?

Q: How has Daimler Buses advanced in its strategy to

A: Daimler Buses’ goal is to maintain its leadership in the

work with more Mexican suppliers to counter the peso’s

Mexican market by creating solutions that support mobility

instability?

in Mexico, such as comfortable buses that are both efficient

A: The strategy is still in process. Daimler Buses will continue to

and friendly toward the environment. To help clients

offer parts manufactured locally as part of its aftersales plan.

maximize the benefits of their investment in bus units,

At the same time, we also have developed a special program

Daimler Buses has developed special financial services

called FlexibilidadES that allows us to work with all the body

that help customers purchase new and used units at a low

manufacturers present in Mexico. Thanks to this program,

interest rate. We also have a network of 80 maintenance

Daimler Buses builds chassis and can choose any local body

service points across the country that offer solid aftersales

manufacturer depending on client needs and specifications.

services to clients in Mexico.

We are also working in a Talent Training Plan that enables

Q: What milestones has Daimler Buses achieved with its

us to have experienced and well-educated engineers and

Toreto model since its introduction to the Mexican market?

technicians working with us. People who take part in this

A: We are very excited about the Mercedes-Benz Toreto

program are eligible for a job at Daimler Buses’ dealerships

since this bus has become a very successful product. We

and maintenance service points. This educational program

sold more than 150 units in 2017 and more than 100 Toretos

is run by a specialized school called CEDVA that trains diesel

have reached Mexico’s roads as of May 2018. We hope to

technicians and maintenance engineers. Daimler Buses

market more Toreto units before the end of 2018. Daimler

works to improve this school’s workshops by donating tools

Buses plans to take advantage of the opportunities created

and engines for students to practice and to ensure that we

by the replacement of Mexico’s microbus fleet by offering

have better Mexican talent.

solutions like Toreto.

Q: As a leading German company investing in Mexico, what do you see as the main opportunities for Mexico to grow

Daimler Buses is a subsidiary of the Daimler Group focused

its commercial relationship with Germany?

on production and commercialization of bus units. In Mexico,

A: Daimler Buses expects that Mexico and Germany will

the company builds chassis for Mercedes-Benz buses at its

continue collaborating together because their strong

assembly plant in Garcia, Nuevo Leon

115

| INFOGRAPHIC

MANUFACTURING FOOTPRINT GROWS Volkswagen may be celebrating its 50th anniversary in

and BMW is scheduled to finish constructing its facility

Mexico but for other German players, it is just the beginning

and deliver its first models by the end of 2019. With the

of their history in the country. Audi has already started

arrival of these three players, Mexico has now become

operations in Puebla to build the Q5 that will be exported

a manufacturing hub for the premium segment, thus

all around the world. Meanwhile, Mercedes-Benz is about

adding to the country's already competitive position as an

to start production in Aguascalientes at the COMPAS plant

automotive destination.

MARKET SHARE OF GERMAN OEMs IN MEXICO’S LIGHT-VEHICLE SEGMENT 1H16

1H17

sold units

BMW

6,720

Mercedes-Benz

6,174

SMART

267

Volkswagen Group (w.o. SEAT) Audi Porsche

7,867

Mercedes-Benz

8,426

SMART

515

Volkswagen Group (w.o. SEAT)

106,156 7,379

Audi

677

Volkswagen

sold units

BMW

721,856

9,188 603

Total vehicle sales

15% German OEMs in Mexico 85% Others

Vento was the fourth bestselling car in Mexico in 2017 with a total of 63,402 units

2012

2014

2015

2016

96,753

164,527 2013

79,181

94,088

100

86,037

118,876

150

*Data from January to March (annualized)

2017

2018*

TOP 10 GERMAN SUPPLIERS

Global ranking (Top 100 parts suppliers in 2018)

200

746 74,868

680,699

16.1% German OEMs in Mexico 83.9% Others

MEXICO'S LIGHT-VEHICLE EXPORTS TO AUTO PARTS PRODUCTION GERMANY (million of units) PER YEAR IN MEXICO

82,557 6,943

Volkswagen

Total vehicle sales

16.5% German OEMs in Mexico 83.5% Others

Mercedes-Benz SMART

Porsche

95,269

743,051

Total vehicle sales

9,542

Audi

718

Volkswagen

BMW

Volkswagen Group (w.o. SEAT)

102,967 6,980

Porsche

98,100

178,690

116

1H18

Robert Bosch

ZF Friedrichshafen

Continental

MAHLE

Thyssenkrupp

BASF

Schaeffler

Brose Fahrzeugteile

HELLA

Eberspaecher

2012

VOLKSWAGEN'S MEXICO PRODUCTION AND EXPORTS (thousand)

800 604,508

600

518,132

400

516,146 423,937

387,450 321, 696

461,248

200

386,122

2017

397,976

475,121

2014

333,940 393,263 416,685

457,517

Volkswagen's plant in Puebla celebrated its 50th anniversary in 2017

GLOBAL LIGHT VEHICLE PRODUCTION

——Production (units) ——Exports (units)

*Data from January to June (annualized)

AUDI'S MEXICO PRODUCTION AND EXPORTS IN 2018* (thousand) 20

18,412 16,093

13,633

17,435

17,186

16,657

15,078

18,128

16,465 14,206

12,127

10 9,214 5

January

February

March

April

May

June

*Estimated by AMIA based on AUDI AG's quarterly reports.

GERMAN OEM ASSEMBLY PLANTS IN MEXICO Source: Source: CAAM, JAMA, VDA, KAMA, SIAM, AMIA, ANFAC, Automotive News, Data Center

Mercedes-Benz Buses (Garcia)

BMW 2019 (San Luis Potosi)

Renault-Nissan Alliance-

Daimler (Mercedes-Benz, 2018) (Aguascalientes)

Light vehicles Heavy vehicles

MAN Truck & Bus (Queretaro)

Volkswagen (Puebla)

Volkswagen (Silao) Audi (San Jose Chiapa)

Source: AMIA, ProMéxico and Mexico Automotive Review, : Automotive News / PWC

117

| VIEW FROM THE TOP

INVESTMENT, COLLABORATION FOR ONGOING INNOVATION FRANK HEZEL Vice President of BASF’s Coatings Division in Mexico, Central America and Caribbean

118

Q: After being named Supplier of the Year by GM for the

is to keep transforming our portfolio, which in turn will also

13th time, how have solutions such as CathoGuard gained

help us boost our accelerator rate, which now comprises

ground in the market?

13,000 products in all industrial sectors we cover.

A: BASF creates chemistry for a sustainable future, generating solutions for customers and society through the efficient use

The company’s long-term success, however, requires an

of resources. We received this award because we distinguished

alignment of our creative spirit with the market’s actual

ourselves through our compliance in performance parameters

needs. We have driven innovators in the company but it is

in terms of quality, execution, innovation and cost reduction.

not always easy to be disruptive without compromising the

BASF’s Coatings division helped to improve GM’s productivity

actual implementation of the solution due to an extremely

and environmental performance with its Integrated Paint

high investment. Sometimes, instead of disruption you

Process and through the use of the world-class CathoGuard

have to strive for gradual modifications. This is a constant

800 electrocoat. The company has received other awards,

struggle but we have an optimistic view because otherwise,

including the Supplier of the Year accolade by Mazda Motor

we could not bring change to the industry.

Corporation in 2017 for the use of CathoGuard and the iF Design Award in the “Product” category in 2018 thanks to a

Q: The company continues with a strong inorganic growth

functional painting system that reduces the temperature on

strategy exemplified by its recent acquisitions. How is that

a vehicle’s surface by up to 20°C.

strategy impacting the coatings division? A: Although BASF has strong technical capabilities, at times

One of our strongest principles is innovation to enable

we have to evaluate if it is best to innovate by ourselves or if

success and CathoGuard was developed as part of that

there is a company in the market that has something unique

vision. This product family is the perfect example of high-

and that could add value to BASF’s portfolio. Chemetall,

quality corrosion protection and a sustainable solution

for example, was a strategic acquisition that gave us know-

that helps companies reduce material use and avoid

how in an area where we had no previous experience. This

waste. CathoGuard is now one of the most successful

venture helped us improve our services and solutions,

products in the market; it fills over 100 tanks on paint

offering an integral solution for companies that we had

lines of automotive manufacturers. BASF is expanding

not targeted yet.

its knowledge of chemical applications and coatings, establishing its position as the leader in the surface-

BASF is also collaborating with Swiss company Thermission

treatment sector. We are also leaning on the acquisition

in lightweighting applications using zinc coatings on

of Chemetall, a company expert in surface treatments, to

metallic substrates. Combining different materials often

help us offer customers a complete service from substrate

leads to corrosion, which is common in iron-aluminum

to finishing applications.

mixes. Companies, therefore, need a better corrosion protection strategy and Thermission offers a unique zinc-

Q: How is BASF ensuring a healthy innovation strategy to

based solution that could help to reduce problems. Through

remain a leader in its business segment?

the combination of BASF’s CathoGuard electroplating

A: We want to challenge our own product portfolio to

process with Thermission’s Zinc Thermal Diffusion process,

ensure increased sustainability and we strive for our

we can now provide an advanced anticorrosive protection

innovations to be accelerators in the market. This is a

solution for metallic structural components.

clear strategy that represents an investment of €1.5 billion (US$1.7 billion) annually in research activities. In 2016, 47

Q: In which technologies does BASF see the biggest

percent of our solutions had a positive sustainability impact

opportunity to drive innovation and contribute to

and that figure grew to 56 percent in 2017. Our expectation

lightweighting and electrification in the automotive sector?

A: BASF has set ambitious objectives to remain ahead of

were better compared to other investment destinations,

all other chemical companies worldwide. As the market

academic institutions did not delivered graduates with

leader, we are one of the few companies that can support

the necessary practical experience and the theoretical

the automotive industry’s ongoing innovation efforts.

knowledge that automotive companies needed. Through

We are passionate about surface protection. Whatever

the dual-education system, companies could train their

technology goes into electric or lightweight components

people in-house, while still being supported by universities

must be protected by paint. Our solutions must also ensure

and other industrial partners.

appropriate energy management to help the car heat or cool, especially when there is no internal combustion

Implementing this kind of system entails a risk because

engine to heat the system. Sound must also be controlled

highly trained specialists can choose to leave the company

more efficiently to ensure the comfortable operation of

but that can happen either way. That is why we must

a vehicle, as well as lighting to ensure optimal energy

continue developing our people permanently.

consumption. Q: How has BASF remained competitive in an uncertain Color, too, will maintain a high level of importance,

geopolitical environment?

considering that is what helps truly individualize a

A: Uncertainty is common in all markets and although it is

vehicle. Our goal, and what helped us win the iF Design

true that NAFTA is putting pressure on the Mexican market,

Award, is that we blend design with functionality. Taking

we will have to adapt just like the rest of the industry,

LiDAR as an example, paint has to be developed in a

whatever may come. BASF has always preferred long-term

way that does not block the sensor’s signal to ensure

strategic planning, which means changes in government

autonomous driving capabilities without compromising

administrations do not impact us greatly. The company

aesthetical appeal. Regarding lightweighting, our

still sees Mexico as an attractive automotive market; we

Performance Materials division has worked for several

are investing in local companies, such as sealing solution

years to replace metallic substrates with polymeric and

provider Thermotek, one of our recent acquisitions, and

composite solutions. Our innovations have provided not

we are growing our coating plant in Mexico to increase our

only similar results to metallic components but in some

waterborne solutions capacity to cater to the local demand

cases surpassed the alternatives in terms of stress and

for sustainable products.

endurance. Q: After the negotiation of NAFTA, what are Mexico’s Q: As a leading German company investing in Mexico, what

opportunities to improve its position in the international

areas of opportunity have you detected in the local supply

auto market?

chain and how can you help address them?

A: Mexico must strive to remain attractive for automotive

A: There are already over 2,000 German companies

investment. Investors look for key elements such as talent

operating in Mexico, generating more than 150,000 jobs,

availability and trade openness to access many markets

which clearly shows Germany’s belief in the country’s

without tariffs. Infrastructure is also a crucial element to

potential as an investment destination. BASF values self-

ensure seamless import and export operations and although

learning and individual training with coworkers as the

the country has a strong backbone, there are areas of

optimal tools to develop the Mexican workforce. We have

opportunity to improve this.

created several mentoring and development programs for our employees, training Mexicans outside of Mexico so they

Most of the country’s exports go to the US and that has

can gain international experience, implement it in their

fueled Mexico’s position as a global automotive center. This

everyday activities and share it with their peers. We believe

is positive as long as there is a strong market in the US.

that talent exists in Mexico. We are investing in training for

However, this dependence also leaves Mexico vulnerable

our customers and by the end of 2018 we will re-inaugurate

to any fluctuations in the North American market and

our training center for automotive refinishing in Toluca after

obstacles such as the current negotiation of NAFTA. Mexico

a complete renovation.

must find a way to be competitive in other markets and strengthen its position as a global manufacturer through

Q: What opportunities do you see regarding talent and

cost-competitiveness and higher quality.

education in Mexico? A: There is still a gap between the industry’s needs in terms of skills and capabilities and what education

BASF is a chemistry company founded in Germany in 1865. It

systems in Mexico can offer. The dual-education system

has operations in over 80 countries and has been present in

was implemented in Mexico as a way to cater to the needs

Mexico for over 50 years through its corporate headquarters

of the German industry. Although education plans in Mexico

for Mexico, Central America and the Caribbean

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| VIEW FROM THE TOP

GERMAN BET ON MEXICAN ENGINEERING JORGE VÁZQUEZ R&D Center Director of Continental Automotive

120

Q: What advantages did Continental find in Queretaro to

to train the talent we need to grow our operations. We

justify opening a new R&D center?

have found much openness toward the industry’s needs.

A: Queretaro has a solid business environment in the

When the Queretaro administration realized that the test

automotive and aerospace sectors. We already have an R&D

track the state had could help Continental, it decided

center in Guadalajara but its focus is much more oriented

to invest in its infrastructure to make it more adequate

toward information technologies. Being in a consolidated

for our operations. Similarly, the Jalisco government has

automotive cluster like Queretaro gives us access to

worked on new ways of incentivizing research and one

infrastructure that was previously unavailable to us. With

of its strategies was to create an intellectual property

this new center, we will also make use of a new test track

protection program. Continental is now one of its main

and we will be close to all the public R&D centers in the

users and generator of patents in the state.

state to support our operations. Q: What are Continental’s expectations for its new We analyzed 17 cities according to 26 parameters. We

Queretaro center and how will your headquarters

eliminated several contenders due to insecurity, lack

participate in the project?

of specialized talent and infrastructure related to R&D

A: Our headquarters in Germany contributed the

activities. In the end, we had two possible locations and we

necessary investment of €50 million (US$58.3 million)

decided on Queretaro mainly because of its talent and the

to start the project. Once completed, the center will have

number of graduates that universities produce each year.

two buildings with more than 1,100 engineers working on technology developments focused on chassis and

Q: How has Continental developed its relationship with

safety implementations. These innovations are active

the academic sector?

accident prevention systems that monitor the vehicle’s

A: We have very strong collaboration with universities

surroundings and minimize the consequences of an

and public R&D centers. The goal is to develop the right

imminent accident. In the end, these systems work

talent to participate in the kind of activities we expect to

through artificial intelligence that will eventually be used

complete at our new center. Right now, there is no dual-

in self-driving platforms.

education program that can offer graduates the necessary expertise on mobility technology or embedded systems but

Continental has evolved from component production to

we have organized several workshops independently and

system implementation. This means that components are

with universities to share the necessary knowledge with

no longer individual pieces working within the vehicle.

Queretaro’s talent. So far, we have trained between 200

Each part has to interact with others to help the car’s

and 250 engineering students per year, plus 500 more in

computer make better decisions and minimize risks. We

other majors.

have radars that constantly monitor the distance between vehicles and at the same time communicate with the

Q: What role does the government play in Continental’s

steering and braking systems to help the driver respond

development strategy in Mexico?

faster in the event of an accident.

A: Having healthy relationships with state governments is a good strategy to reach the community that surrounds

Q: What is your position regarding collaboration between

our investment. State administrations have helped us

suppliers in technology development processes?

reach universities more effectively and determine which

A: With technology development processes it is difficult

educational programs would be most suitable to fill job

to collaborate with other companies unless we are

openings at our R&D centers. Furthermore, the government

working toward a common goal. Any joint venture must

has been very open to funding specialization programs

be clearly established so all parties involved know what

Continental Automotive's vision regarding electrification

121

their responsibilities are and what they will gain by the

Q: Overall, how do you see the vehicle of the future

end of the project. Continental has initiatives to identify

evolving and how is Continental planning to participate

startups with sufficient potential to contribute to the

in its development?

industry. Once we find a company with a strong proposal,

A: We see the vehicle of the future as electric, autonomous,

we determine if it is best to acquire it, invest in it or form

connected and intelligent. Electric vehicles will lead to a

a joint venture to make the best of our collaboration. We

zero-emissions future and autonomy will reduce the number

also keep track of the individual projects of each of our

of accidents on the roads. Meanwhile connectivity will

engineers and if they have a promising idea, we offer

ensure we have the capacity to manage all the information

them an incubation period of three or four months to

necessary for the car to function, thus enabling the vehicle’s

develop their idea and present it to the company. This

intelligence to make decisions and work collaboratively with

can even result in spin-off companies that work through

other cars and even the city’s infrastructure. We are already

an association with Continental.

involved in these four fields, manufacturing the systems that are already available such as adaptive cruise control and

In talent development, on the other hand, it is essential

braking-assistance systems and developing the technology

to work with other companies and there is much more

to habilitate further innovations.

flexibility to create something beneficial for all companies. We have created several Master’s and specialization

Q: What role would Continental like to play in the

programs at universities across the country along

development of the national industry?

with other suppliers, hoping to develop the necessary

A: Continental is a globalized company that tries to take

talent for the industry to work according to the highest

advantage of the best of each region where it operates.

standards. We work to develop technology not only

Mexico, for example, is a country with a young labor force

for Mexico but for the entire world and that demands

and one of the main producers of engineers per year. As

state-of-the-art knowledge. Universities do not offer the

a result, it is an excellent region to tackle problems with a

foundation to generate that knowledge, which means the

different perspective than what we can offer in Germany.

whole industry must collaborate to make this a reality.

Mexico is already the second most-important country for Continental globally with 25,000 employees in 23 sites,

Q: How have the latest trends in technology development

which shows our commitment to the country and how a

impacted Continental’s innovation process?

company can bet on Mexico’s talent. Queretaro will now

A: Continental expects to revolutionize driver experience

be the biggest Continental center in the Americas and one

in the same way the industry expects to do so. Right

of the most important in our entire network. Our plan is to

now, the industry is going through its most disruptive

have 1,100 engineers in the state, which means that we still

change since the creation of the automobile, considering

have an opportunity to hire close to 1,000 people. Moreover,

that both technology and the very idea of ownership

thanks to the test track in the state, our innovations will be

are shifting in the consumer’s mind. Drivers will become

ready for production directly from our Queretaro center.

passengers, which means that companies will have to rethink how to design the interior of the vehicle and all components related to the user. Mobility is what will

Continental is a German supplier with operations in 61

shape the industry’s future; new business models will

countries. The company employs 25,000 people in Mexico and

appear and both OEMs and suppliers will have to adapt

has already opened two R&D centers in the country, one in

to remain competitive and present in the industry.

Guadalajara and another in Queretaro

| VIEW FROM THE TOP

SHEDDING LIGHT ON MEXICO’S VALUE CHAIN LUIS MORENO SP Business Director of OSRAM México

122

Q: How is OSRAM adapting to the arrival of new OEMs

A: As a Tier 2, OSRAM does not directly target OEMs; we

and Tier 1 suppliers into the Mexican automotive industry?

target Tier 1 suppliers like HELLA and Valeo. Our strategy is to

A: OSRAM has three strategies to target Mexican and

remain close to our customers and help them provide OEMs

foreign automotive companies. The first is to improve its

with a comprehensive product offering that solves their

LED OPTO Semiconductors (OS) sales division. Two pillars

lighting requirements. As more European companies arrive

support our corporate strategy: specialty products and

to Mexico, we expect to continue growing alongside them.

OS. Bringing together these two areas under the same

We also see many opportunities to collaborate with Asian

umbrella helps us to target the traditional lighting market

companies. For instance, OSRAM is already collaborating

as well as the growing demand for LED solutions, which are

with South Korean groups present in Mexico such as Hyundai

increasingly relevant to our overall portfolio as we introduce

MOBIS, as well as Japanese companies like North American

new applications for areas such as self-driving technology.

Lighting, which is part of the Japanese Koito Group.

For example, we are working on a LiDAR-based monitoring system that tracks eye movement patterns using infrared

Q: What are the main advantages that Mexico offers to

LEDs. It will take a while for this system to reach the market

potential German investors?

but OSRAM’s OS area is growing at a fast pace thanks to

A: Mexico’s labor costs remain a competitive advantage.

our focus on systems rather than just components.

This is particularly true for component manufacturers that require large amounts of manual labor. Looking

The second strategy relates to our joint venture with

ahead, the country needs to support companies in the

Continental. We have great growth expectations for this

process of adding value to components so they can be

company. It focuses on developing intelligent and dynamic

considered within NAFTA rules on regional content.

lighting solutions with integrated electronics and targets the automotive industry. OSRAM-Continental started

Education and training of Mexico’s young population

operations in July 2018 and is projected to employ 1,500

continues to be essential for strengthening production

workers in 16 locations with its headquarters in Munich.

operations. The country also needs to increase support for

OSRAM’s third strategy focuses on gaining greater value

R&D through the generation of incentives from the federal

from mature markets for traditional products, such as

and state governments for technology development.

Xenon, halogen and incandescent headlamps. We expect

Companies do not need the government to offer solutions

moderate growth in these segments as our competitors start

for their problems nor do they require government

to abandon them. OSRAM will achieve its growth goals by

subsidies to grow. What we need is a business environment

introducing products that cater to all needs and by having

that allows for the generation of alliances between different

a much broader product offering than its competitors. The

business elements that benefit each player and help spur

idea is to maintain our presence in mature markets as we

growth. As long as the country generates a positive business

develop new products for automotive lighting.

environment, Mexico will remain an attractive destination for foreign direct investment and the country will keep its

Q: How is OSRAM planning to insert its lighting solutions

positive image among automotive companies.

into the assembly lines of newly-arrived OEMs? Q: How do you expect the automotive lighting market to evolve toward more innovative systems? OSRAM , headquartered in Munich, has over 100 years of

A: OSRAM is focused on strengthening its lighting system

experience in the lighting industry. The company has a wide

division, which we expect will gradually displace our mature

portfolio of visible and invisible light solutions for various

markets. Products in OSRAM’s traditional segments, such

applications, including automotive

as halogens and incandescent lighting, have little room for

technological development, so the company is targeting new

are pursuing an aggressive growth strategy in the original

products with increased efficiency. Light bulbs with a useful

equipment segment. We should grow between 3 and 4

life of 1,000 hours will be substituted for others with twice

percent in original equipment, including both traditional

that lifespan. Our traditional division is focusing on capturing

and OS production oriented to the NAFTA region.

market share in a technology area that already exists and in which we are very strong.

Q: What is OSRAM’s strategy in the face of US tariffs on automotive imports and potential stricter rules of origin

Q: What milestones has OSRAM reached by introducing

within NAFTA?

more LED, OLED and other innovative products to the

A: Our strategies target improved cost-competitiveness.

Mexican supply chain?

OSRAM was already working to reduce its costs but

A: We have only included OLEDs in a few business

President Trump’s rhetoric has enticed us to pay greater

platforms as we believe that OSRAM’s future is in LED

attention to this area. OSRAM is also adding value to LED

illumination, OS components integrated into automotive

products made in Malaysia and incorporated into lighting

systems and self-driving technologies. We want to increase

systems here. This strategy could help us dodge the 25

our participation in LED solutions oriented to illumination,

percent import tariff that the US has levied on some Chinese

signaling and movement detection, both with visible and

products. By importing them to Mexico and adding value

invisible light. Our solutions for self-driving technology are

to them before exporting them to the US, we may be able

important for OSRAM and will continue to be for the next

to meet the necessary regional content to enter the US

20 years, but other segments are key for the short term. For

without paying tariffs. We are not letting NAFTA influence

instance, OSRAM focuses on developing interchangeable

our decisions for the Mexican market, as we are working

LED products through the standardization of LED-based

under the expectation that the deal will continue.

light technologies through its Exchangeable Light Source (XLS) line. XLS will make the design and application of

Q: What role will OSRAM play in Mexico’s long-term

LED products less expensive and more efficient for OEMs.

automotive industry? A: OSRAM is in Mexico to stay. We are planning and

Q: What challenges is OSRAM México facing in the current

implementing long-term projects in the country, for which

economic and political environment?

we would like to see a business environment not plagued

A: Uncertainty is having a heavy impact on the automotive

by uncertainty. We are aware that government changes are

market. Part of our business is oriented to the aftermarket,

a normal part of the business environment and companies

which has taken several hits from the troublesome political

need to learn to navigate around them to find new

and economic environment reigning in Mexico. Some of

opportunities. OSRAM México is interested in knowing the

our clients have stopped or reduced their investments in

next federal administration’s plans to collaborate with the

inventories because they do not have a clear image of what

private sector and what are its plans to promote industrial

the future holds. In terms of original equipment, depressed

growth. We want to hold a larger share of the market so we

vehicle production in the NAFTA region has impacted our

will continue working to increase our participation in the

releases of mature products. To counter this, OSRAM is

Mexican market with the goal of becoming leaders in this

focusing on the development of new OS products. We

country, as we are in others.

OSRAM XLS

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| VIEW FROM THE TOP

SUPPLIER EVOLVES, NOW CATERS TO OWN MANUFACTURING NEEDS MANUEL GUEVARA General Manager Queretaro – El Marqués Plant at Brose México

124

Q: How important is Queretaro to Brose’s global operations?

better salaries. Additionally, our Queretaro – El Marqués

A: Brose has achieved exponential growth in Mexico overall

plant offers a world-class lunch service for employees and

but especially in Queretaro. Our operations in the country

a well-equipped gym where workers can exercise. Brose’s

outsell the company’s plants in Germany and represent

staff turnover rate was close to 42 percent annually in 2014

between 10 and 12 percent of Brose’s global operations. This

but after implementing labor-oriented strategies we reduced

has prompted the company to invest €170 million (US$210.9

that to 14.4 percent in 2017. This number is even below

million) in a new plant located in the Aerotech Industrial Park

Queretaro’s turnover average of 25 percent.

in Queretaro that will focus on seat-frame manufacturing. Q: What challenges does a German supplier such as Brose Q: What challenges and opportunities does greater

face when approaching US or Japanese companies?

automation bring to Mexican labor?

A: Brose is well-integrated with US companies and we

A: Automotive components and manufacturing processes

are leaders among German companies. However, working

require increasing amounts of advanced technology, which

with Asian companies can be more difficult because they

means relying on human labor alone is no longer possible.

usually prefer to have suppliers from their home country.

While job creation may be harmed in the short term because

Even so, Brose has increased its collaboration with

of this, there is an area of opportunity for local labor.

Asian automakers operating in Mexico. We now supply

Technicians and operators will still be needed to operate

Honda and Nissan with fifth-door liftgates produced in

even highly automated processes but they will be forced to

Queretaro. We also have 12 manufacturing plants in China

gain skills that meet the needs of the automotive industry.

and continue to invest there to boost our position in the Asian market.

Q: Why is staff turnover so challenging in the automotive industry?

Q: How easily can local manufacturing suppliers integrate

A: The automotive industry is highly competitive but does

into Brose’s supply chain?

not offer the best salaries. Compared to industries such

A: Most of our resources come from Germany, the US

as pharma or food and beverages, automotive companies

and China. However, we have an ongoing strategy to find

have smaller profit margins and less leeway to offer higher

suppliers around the world and bring them to where our

paychecks. At the same time, it is difficult for automotive

operations are. Brose has managed to attract several

companies to hire people coming from other industries due

Italian and German suppliers that want to supply Brose

to the training they require to work effectively in the sector.

from Queretaro.

As a result, people tend to leave their job when offered small salary increases because they see that as a path to growth

One of the main challenges that Brose has faced in

within the industry.

Mexico is finding local suppliers. Technology complexity is constantly growing but the supplier base has not

Brose trusts and empowers its workers. We created an

developed at the same pace, which is why we must rely

internal Quality University where operators can receive

on foreign production. There are some suppliers that we

training in quality procedures, gain certifications and reach

can and should develop, but others lack the necessary technology to participate in the industry. Die production, in particular, is a gap that the country must fill. We need

Brose Fahrzeugteile is a Germany-based Tier 1 supplier with

to bring heavy die-casting parts from Italy and Germany

62 plants globally. In Mexico, the company has three active

because they are not produced locally. If this technology

facilities and is in the process of starting operations at its third

could be sourced locally, Brose could gain more from its

plant in Queretaro and fourth in the country

investments in Mexico.

INSIGHT |

SEAMLESS GLOBAL DESIGN MEETS MEXICAN MANUFACTURING MICHAEL VOLL Director General of Preh de México

The landing of premium OEMs in Mexico such as BMW in

destined largely to boosting the company’s injection and

San Luis Potosi, Mercedes-Benz in Aguascalientes and Audi

paint production capabilities. “We plan to fill this new space

in Puebla has generated new opportunities for German Tier

as orders arrive for more OEMs including, perhaps, Kia.”

1 suppliers located in the country. However, Mexico should continue supporting these investments with good conditions,

Preh’s plant in Mexico has traditionally focused on

says Michael Voll, Director General of Preh de México.

supporting OEMs in the US and Mexico, including Ford, GM and Volkswagen. The Mexico plant has a close collaboration

“As OEMs grow, so will the whole supply chain,” Voll

with Preh in Novi and Preh Germany where the company

says. “Nevertheless, the country must become interested

designs the products manufactured in Nuevo Leon. At the

in companies that provide maintenance for molds and

moment, close to 70 percent of our local production lines

manufacturing equipment. In addition, further development

are oriented to catering to the needs of Ford and Lincoln,”

of an education system under the university level of Mexican

says Voll. “Preh has worked with Mercedes-Benz for years

technicians would give opportunities to companies and

in Europe and there is a possibility that the company will

people.” Not only German companies setting up operation

give us a project once it starts its assembly operations

in Mexico face the challenge of having to train their

in Mexico,” says Voll. This, however, will depend on the

workforce. Many of them, including Preh, engage in dual-

negotiations that Preh’s headquarters in Germany carry

education projects to make this process more efficient.

out with the OEM.

Voll says Preh has a close relationship with CONALEP and CAINTRA in Nuevo Leon. Mold and maintenance technicians

BMW San Luis Potosi offers growth possibilities, too, as

can find work at Preh and other companies when they

well as Audi’s new operations in San Jose Chiapa, Puebla.

graduate. “Developing a stronger education strategy will

“Preh already produces parts for the BMW 5, 6 and 7

boost confidence from German investors thus benefiting

Series model,” he says. “We also have a logistics chain that

the industry,” says Voll.

reaches Volkswagen and Audi in Puebla and have passed the necessary audit for painting process at Audi.”

Headquartered in Bayern, Germany, Preh is a Tier 1 supplier with extensive experience collaborating with European,

Globally, Preh develops products that OEM clients demand

Asian and US automakers both in the development of state-

and creates its own technological designs to present

of-the-art technology for vehicles and in the production of

at international expos and at its clients’ design centers,

intelligent automotive systems. In Mexico, the company is

according to Voll. The company innovates in automotive

focused on high vertical integration to produce electronic

systems for e-mobility, human-machine interfaces and

subsystems, plastic injection subgroups and automotive

other applications, including haptic displays that improve

surfaces for finished goods. According to Voll, all Preh

the driver experience. “Today, these devices are found in

plants around the world use the same technology and have

high-end vehicles in Europe, such as the Audi A8 and a few

a similar integration in processes to deliver worldwide known

BMWs, but we expect to bring more of these designs to

premium quality.

Mexico for other car lines soon,” says Voll.

After expanding its manufacturing area through the

Preh has favored inorganic growth to increase its

construction of a new building in Preh Guadalupe, Nuevo

technological capabilities for e-mobility and vehicle

Leon’s facility, Voll trusts the company will increase its

connectivity applications. “When we cannot develop

manufacturing capacity by 150 percent once the company

something in-house, we look at what is available in the market

ramps up production of new lines. “Our new building expands

to offer more complete and better vehicle connectivity

our available space by 7,500m ,” he says. This space will be

systems,” Voll says.

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| TECHNOLOGY SPOTLIGHT

Color diversity reflects influential trends in North America

Atomium Sky

BASF'S AUTOMOTIVE COLOR TRENDS 2018-19: KEEP IT REAL Ongoing digitalization intertwines technology into almost every aspect of our lives. More time is spent online. Meanwhile, augmented reality and seamless smart gadgets that simplify life merge the real and virtual world. BASF’s Coatings division designers observe technological and societal changes and use them as inspiration and starting point for intensive research into future trends. Every year they translate their findings Atomium Sky

and predictions into a collection of 65 new colors that reflect global trends and developments within the regions of Europe, the Middle East and Africa, Asia Pacific and North America. “Keep it Real” explores not only technology but human nature. The collection works with the perceptional effect of color, which can make a passenger feel safer, calmer and more attuned to changing urban environments. This can transcend the conventional look of a car. Colors designed by BASF take on a new context: new pigments and effects offer a futuristic, digitalized feel that begin to take on additional functionality. This marriage of technology and aesthetic, of the digital and physical, will enable cars to meet challenging demands.

Metal’s Mettle

ATOMIUM SKY A medium-shade blue with an eclectic color travel provides an illusionary interplay between the physical and virtual. The highlight of the color is a medium-coarse intensely-colored effect that transitions to a softer, semi-opaque hue in longer grazing angles. The overall movement captures the dynamic relationship of the pigments, offering a chromatic visual display of the Keep it Real theme.

METAL’S METTLE The new urban look is captured with a unique blend of effect pigments that generate a stylish, dynamic feel. It is both forward thinking and reflective of how a once mundane color Kleur

space can appear optimistic, understated and luxurious.

KLEUR Boldness and passion resonate with those who are playfully optimistic and this color delivers on both counts. A careful selection of strong chromatic pigments and metal flakes combine to produce a new look to a timeless color space. It is at once digitally strong and authentically real.

CENTRIPETAL BLUE After decades of singular achievements in space, humankind reflects on the beauty of Earth. A deep, dark blue underscores the elegance of the planet’s natural features. The color combines aesthetics and functionality Centripetal Blue

that assist in self-driving mobility and detection.

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| VIEW FROM THE TOP

MATERIALS TO FACE THE CHALLENGES OF TOMORROW MARTÍN TOSCANO Managing Director of Evonik Industries de México

128

Q: As a manufacturer of specialty chemicals with exterior,

polybutadienes, such as Polyvest. In 2018, Evonik was first

interior and under-the-hood automotive applications, how

among the Top 3 automotive suppliers in the Chassis, Body

is Evonik contributing to more efficient vehicles?

and Exterior category of the Automotive INNOVATIONS

A: The automotive industry’s main challenge at the moment

Award granted by CAM, reflecting the company’s

is to reinvent the common concept of mobility. Evonik is

commitment to innovation.

an innovative enterprise that is always looking for efficient management of energy by reducing weight in its polymers

Q: What solutions is the company introducing to ensure

or by the amount of coating or adhesive needed in vehicle

greater fuel efficiency?

applications. Less weight leads to fuel savings, which is how

A: Evonik is working on innovative materials and processes,

Evonik contributes every day to more efficient vehicles.

providing solutions for better cost efficiency and more environmentally friendly systems, as well as materials that

Being experts in chemistry, we are determined to give shape

are more resistant to chemical or mechanical stress. The

to future visions in the industry. We are the partner creating

company has two main drivers: save weight and boost

the essentials for automotive innovations, challenging our

efficiency. Evonik is now working on high-performance

experts to overcome all obstacles and figure out the solution

lightweight materials to replace metal or rubber parts. By

that meets a company’s specific challenge. At the same

combining different polymer materials, weight is reduced

time, we gain advanced knowledge and anticipate future

and efficiency soars. Our solutions give customers the

potential of new materials, thus gaining a competitive edge.

power to design commercially-optimized vehicles with a perfect blend of multimaterial systems.

Q: How have automotive companies benefited from Evonik’s focus on innovation?

Evonik also provides innovative technologies to reduce

A: Evonik is present in practically every OEM in the world

energy consumption and CO2 emissions. The company boosts

and we also have a strong collaboration with the auto parts

efficiency with advanced lubrication of engines and drivetrains,

segment. VESTAMID is among the most important materials

low friction parts and reduced rolling resistance on tires.

developed in collaboration with our partners coordinating research, development and production choices to optimize

Q: What opportunities exist in replacing welding processes

overall automotive performance. The automotive industry is

with adhesive bonding and what impact can that have in

the most important consumer of polyamides at the moment

terms of cost and vehicle structural integrity?

and fuel lines made of VESTAMID L are chief among any

A: One of the biggest issues in mechanical terms is

competitors in the market. Today, VESTAMID from Evonik is

vibration. Replacing welding with adhesives reduces

used more than any other polyamide 12 in fuel-line systems.

vibration and leads to increased safety for users, as well as cost savings for manufacturers. Evonik is always

Similarly, we can safely say that almost every OEM worldwide

innovating in its polymers, such as Vestoplast, an APAO

has benefited from Evonik’s Acrylite/Plexiglas solutions, from

polyolefin; Dynacoll, a reactive polyester; and Polyvest, a

brands such as Ford to Lynk & Co in China. Suppliers, such

liquid polybutadiene. Most of these materials are used in

as Pirelli, have also shown preference for Evonik’s liquid

adhesives and can offer several benefits. Polymers with low density, for example, reduce weight and increase efficiency in adhesive applications. Polymers are also designed for the

Evonik is a leading supplier of specialty chemicals. The

most demanding conditions regarding flexibility, rigidity,

company has presence in over 100 countries and employs

mileage, performance, heat resistance and adhesion in

more than 36,000 people. In FY17, the company generated

different substrates, such as rubber, metal, glass and

sales of US$16.6 billion

plastics like PP, ABS and PE.

Q: How are materials changing to cater for electric vehicles?

A: Evonik Industries de México actively participates with

A: These vehicles’ requirements are focused on energy

several business units to provide solutions to the automotive

efficiency and driving autonomy to save costs and energy

industry. We participate in approximately 30 percent of the

consumption, so our products must be aligned to these

entire value supply chain. Although we distribute products

standards. We have several solutions oriented specifically

for different markets in Mexico, the automotive industry is

to the electric-vehicle market that range from chemical to

one of our most important lines of business. Evonik offers

mechanical performance.

many solutions, including additives, polymers, coatings and adhesives. Our plant in Coatzacoalcos is our only

Our AEROXIDE solution can increase the useful lifetime and

manufacturing site in the country and it is focused on sodium

capacity of lithium-ion batteries when used as a separator

cyanide for mining applications. However, our core activity at

between the batteries’ anode and cathode. Meanwhile,

Evonik Industries de México is supporting our local customers

electronic components like ignition systems are encapsulated

through the best customer service, bringing our entire

in epoxy resins with toughening compounds such as

solutions portfolio to Tier 3 companies in the Mexican market.

ALBIDUR to improve their thermomechanical performance

129

and to remain functional in harsh environments. Electronic

Mexico’s automotive industry has grown at a double-

connectors can also reach higher temperature resistance if the

digit rate for the last five years thanks to hard work, great

basic thermoplastic material is equipped with our crosslinking

quality, great ideas and government support. Although

agent TAICROS. Finally, cooling lines for electric vehicles

the country is facing one of its biggest challenges with

equipped with mono or multilayer tubing with VESTAMID are

the renegotiation of NAFTA and the change in its federal

significantly lighter than metal, while still guaranteeing high

administration, Mexico remains critical for Evonik’s global

mechanical, thermal and chemical performance.

operations, due to its privileged geographic position, especially in the Central American market and to supply

Q: How is Evonik ensuring sustainable and efficient energy

our biggest consumer in the world, which is the US.

consumption in its manufacturing operations? A: Careful use of energy is anchored in Evonik’s corporate

Q: What lessons can small, local Tier 3 suppliers learn from

philosophy as an essential element of daily activities. Efficient

a large and experienced company with presence in several

use of energy resources not only contributes to further

markets and industries like Evonik?

reduction in greenhouse gas emissions, thus making an

A: Investing is key in any company, as well as believing in

essential contribution to the protection of our environment

people. Companies must learn to identify talent and the

and climate, but also leads to a sustained improvement in our

people who can help every day in the sustainability of the

ability to remain competitive. Evonik guarantees constant

business. Teamwork is also important in the automotive

improvement by working with environment, safety, health

industry. If someone in the company fails, customers

and quality certifications and standards.

realize it, which means everyone in the company must be committed to delivering excellence. Having said this, it

Q: How active is Mexico in Evonik’s global operations

takes time to be part of OEMs’ manufacturing chains and

and what is the role of the automotive industry in your

although the benefits are worth it, patience is a virtue for

corporate strategy?

any player looking to enter this market.

| VIEW FROM THE TOP

TALENT, ADVANTAGE AND AREA OF OPPORTUNITY HERBERT EISELE Plant Manager of Scherdel de México

130

Q: What advantages can Scherdel offer its clients as a

We do have engineering operations in Mexico but not

manufacturing company and how has that driven your

on the same scale that we have at our headquarters in

growth projections in the country?

Germany. Our testing processes and basic designs are still

A: Mexico is highly important for Scherdel, especially in the

managed by our corporate office, while Mexico focuses

NAFTA region. As a company, we must be able to comply

on application engineering with our customers and on

with quality standards to act as suppliers for Ford. We must

process engineering for our local operations. OEMs

undergo multiple audit processes and develop specific

have stronger presence in local markets, which makes

systems that adapt to the OEM’s requirements. However,

it impossible for suppliers to rely on their headquarters

Ford clearly sees the technical advantages of our products

for all engineering processes. These companies expect

and recognizes our position as a well-established supplier

their partners to have design capabilities onsite, which

in the global automotive industry.

is the main reason why we brought these activities to the country.

We focus on metal-forming parts, especially springs for the automotive industry, and we have already tripled our

Q: What conditions allowed you to bring engineering

production capacity from our initial standpoint in 2015. We

activities to Mexico?

are expanding our facilities and based on our projections

A: One of the main advantages we have found in the

we expect to grow our operations once more in the next

Mexican market is talent. The country has advanced

three or four years. There are no set plans at the moment

significantly in its education offering for operators and

but we have a positive forecast for the company supported

for people in administrative positions. Having local people

by new business opportunities, which could even lead to a

who can communicate directly with our clients in Mexico

second plant in the future.

in their own language is also beneficial. The only challenge we have found is identifying the best way to transfer our

Q: How has Scherdel evolved in its technological

knowledge to the local talent base. There are cultural

capabilities and what is Mexico’s role in the company’s

differences involved in this process, which means Germans

innovation strategy?

cannot just copy and paste their manufacturing standards,

A: Our offering is based on technology, quality and the

methodologies and procedures. As a company, we must

reputation we have in the global market. What we offer to

understand the differences between our culture and the

customers in Europe is exactly the same we can provide from

country where we are investing in.

our plant in Mexico to our NAFTA clients. In the end, OEMs get the advantages of a global supplier at a local level. We

Q: How can Mexico improve its position as an attractive

have a worldwide sales organization led by our headquarters

destination for German investment?

in Germany that manages all of Scherdel’s key accounts.

A: Historically, Mexico and Germany have enjoyed a good

At the same time, we have a regional sales organization in

commercial relationship. The main opportunity now is to

NAFTA with sales representatives in the US and in our Mexico

work on how to improve cost competitiveness, security,

operations. This means we can address local prospects directly

business certainty and talent availability for new companies.

with the support of our global organizational backbone.

Universities are now trying to emulate German education standards and programs to make knowledge transfer processes more efficient. Products and processes are

Scherdel is a German family-owned corporation part of the

becoming increasingly complex, which means talent must

SCHERDEL Group founded in 1989 and focused on the design

evolve accordingly. However, as investors, we also have

and production of metal-forming parts for various industries

the responsibility of supporting the country during this

such as automotive

transition.

INSIGHT |

DIVERSIFICATION, INVESTMENT FOR THE ELECTRIC LEAP DANIEL ROMERO Americas Automotive Division Manager of Schunk Carbon Technology

As automakers start to move away from internal combustion

comfort systems strategic business unit in 2017. Now, Romero

engines and toward electric or hybrid powertrains, suppliers

sees another opportunity for the company in the recently

must find ways to prepare for future needs. For Daniel Romero,

established production operations from premium brands

Americas Automotive Division Manager of Schunk Carbon

BMW and Mercedes Benz. “Our products are already used

Technology, the key to a successful leap toward electrification

by Mercedes Benz and BMW in Germany and some of them

is in product diversification, investment and the development

are already manufactured in Mexico,” he says. “There is a

of new product applications.

great chance that these companies will also turn to us when producing in Mexico.”

“Only 150,000 vehicles of the 15 million produced in North America are electric and it will take around 15-20 years for

Romero says Schunk Sintermetal, Schunk Group’s division

electric mobility to become a thing in Mexico,” says Romero.

present in Mexico and focused on sintered products, has

While that may be true, the company is getting ready for

also experienced growth thanks to the investment made in a

the next big leap in the automotive industry. “We cannot sit

new plant in Ocoyoacac. “We are producing components for

around and wait for the trend to overrun us,” he says.

Continental at this plant and expect it to generate revenue of US$15-20 million per year that will double or triple as we

Putting his money where his mouth is, Romero is promoting a

expand our capacity,” he points out.

new mechanical carbon applications (MCA) business line that includes radial bearings and washers made of electrographite

Diversifying into the electromobility market, however, will

focused on water/vacuum pumps and exhaust gas

help the company remain competitive in a changing industry

recirculation applications. The company has mostly focused

landscape. “Mechanical carbon applications are the future

on the production of carbon brushes for starter motors.

of Schunk Carbon Technology,” says Romero. “We need

Romero highlights this business as the most consolidated

to widen our portfolio to substitute brushes for products

and successful line of Schunk Carbon Technology in Mexico

that can be used in the electric and hybrid vehicle market.”

after an expected sales total of 52 million carbon brushes

The company also sees an opportunity in the production

in 2018 versus the 32 million units sold in 2017. One of the

of injection thermosets for vehicle water pumps given

drivers for this growth was a change in Schunk Carbon

the projected size of the global market. “We sell HELLA

Technology’s client portfolio. After SEG Automotive North

Automotive around US$9 million worth of pump components

America acquired Bosch’s starters and generators business

per year but we think this market is worth around US$20

unit, demand for Schunk’s products for that segment reached

million,” says Romero.

the 1 million-unit mark in 2017. In 2018, Romero expects to sell 3 million components to SEG alone and over 10 million by

As an emerging market characterized by a qualified labor and

2020. “Through this collaboration, our brushes are present in

a high level of service supported by a free-trade agreement

the entire North American market in OEM production of FCA,

network and strategic access to the North American

Audi, Volkswagen and Ford,” he says. “We are also supplying

European and Asian markets, Mexico has been a well-rounded

Brazil directly from Mexico and have started to work with

investment destination for the Germany-based Schunk

Asian companies that seek success to the NAFTA region, such

Group. The company has brought several new projects to

as Mazda, Toyota, Kia and Hyundai as a Tier 4 company.”

its local Schunk Carbon Technology and Schunk Sintermetal operations, according to Romero, and the country’s quality

Growth in comfort systems has also helped Schunk Carbon

production standards have proven an added value not only for

Technology in its quest for new business. The common use

Schunk but for the general German investment coming to the

of features such as electric seats, sunroofs and automatic

country. “Cost, service and quality are the three advantages

windows prompted a 25 percent growth rate in the company’s

that Schunk has found in Mexico,” he says.

131

Mazda MX-5

JAPAN

Japan has now consolidated as one of the main leaders in the automotive sector, having given birth to concepts such as just-in-time and just-in-sequence operations that are now a standard for all industry participants. Its growing presence has translated to an emerging industry in Mexico, mainly in the Bajio region where most Japanese OEMs have established their home.

This chapter analyzes the importance of Japanese investment in Mexico and the way these companies are transforming the manufacturing landscape in Mexico. New projects are featured, together with company objectives to grow in the domestic and the international markets. Strategies to boost local supplier networks are also discussed, considering the high-quality standards Japanese companies have in place and expect from those wishing to provide them with services.

133

CHAPTER 6: JAPAN 136

ANALYSIS: Optimism in the Face of Market Adjustments

137

VIEW FROM THE TOP: Yasushi Takase, Ambassador of Japan in Mexico

138

VIEW FROM THE TOP: Mayra González, Nissan Mexicana

141

VIEW FROM THE TOP: Miguel Barbeyto, Mazda de México

142

VIEW FROM THE TOP: Tom Sullivan, Toyota Motor Sales de México

144

INFOGRAPHIC: Strength in Numbers

146

VIEW FROM THE TOP: Philipp Heldt, INFINITI Mexico and Latin America

147

INSIGHT: Dai Hosoya, Subaru México

148

INSIGHT: Nozomu Harada, Hino Motor Sales México

149

ROUNDTABLE: What Can Local Companies do to Participate in Japanese Manufacturing Chains?

150

TECHNOLOGY SPOTLIGHT: MISUMI Mexico Ready to Support Industry 4.0 Implementation

152

INSIGHT: Shinichi Nakamizo, DENSO México

Felipe Brondo, DENSO México

153

VIEW FROM THE TOP: Tomoaki Yoshino, JATCO México

154

VIEW FROM THE TOP: Jimmy Otani, MISUMI MEXICO

156

VIEW FROM THE TOP: Gonzalo Esparza, Tachi-S RHQ

Armando Gómez, Tachi-S RHQ

157

VIEW FROM THE TOP: José Carrera, Calsonic Kansei Mexicana

158

INSIGHT: Yasushi Nishikawa, Sumitomo Corporation de México

159

INSIGHT: Oscar Ceballos, Tokyo Boeki Techno-System de México

Shuichi Watanabe, Tokyo Boeki Techno-System

135

| ANALYSIS

OPTIMISM IN THE FACE OF MARKET ADJUSTMENTS Japan has come a long way in Mexico since Nissan became the first Japanese OEM to set up shop in 1966 in Cuernavaca, Morelos. Since then, the country has expanded its presence to nine light-vehicle and two heavy-vehicle brands, seven OEMs with assembly operations and the largest share of Mexico’s light-vehicle market

136

As of 1Q18, there were 206 Japanese companies with

Mexican market were the main factors behind Nissan’s drop

investments in the automotive industry that accounted for

in market share. “We ended 2017 with a 23.4 percent market

15.3 percent of the 1,345 foreign companies investing in this

share and could not be more pleased,” says González. “Nissan

industry in Mexico. According to the Ministry of Economy,

remains the market leader with a difference of 7 points of

Japan is the second-largest investor in Mexico’s automotive

market share against its closest competitor. The industry had

industry. It accounted for 18.2 percent (US$11 billion) of the

grown nonstop since 2009 and it is natural to reach a peak.”

total foreign direct investment poured into the sector between 1999 and 2017.

Tom Sullivan, President and Director General of Toyota Motor Sales de México, shares González’s optimism. “Toyota set a

Yasushi Takase, Ambassador of Japan in Mexico and top

new sales record for the company in Mexico with over 105,000

representative of the Japanese government in the country,

units in that year and increased its sales by 1 percent in 1H18

says trade volumes between both countries have doubled

compared to 1H17,” says Sullivan. The brand added new

since the implementation of an economic partnership

vehicles to its lineup as a strategy to face the challenges that

agreement (EPA) between Japan and Mexico in 2005.

the Mexican market presented. The company launched the

“While Japan has always been Mexico’s top commercial

C-HR to enter the compact SUVs subsegment and the Prius C

partner, Japanese investments in Mexico grew rapidly thanks

to increase Toyota’s hybrid offering. Introducing these vehicles

to this treaty,” he says. The EPA established with Japan was

could prove a valuable strategy since SUVs and green vehicles

a turning-point for the Mexican automotive industry. Nissan,

are among the few segments that are growing despite the

Honda and Toyota, which already had assembly operations

market’s retreat, according to data from AMIA.

in Mexico prior to the treaty, inaugurated new facilities while others, such as Mazda, Hino, Isuzu and INFINITI, set up shop

Vehicle importer Subaru México has also increased its sales

for the first time in the country.

by betting on the right niches and growing aftersales services, says Dai Hosoya, President of Subaru’s Mexico subsidiary.

Despite the downturn in sales that the Mexican automotive

“SUVs will be key for Subaru to materialize its business

market is undergoing, Japanese light-vehicles have remained

concept in Mexico,” he says. The company plans to reach a

best-sellers in Mexico and have held onto their market shares.

1 percent share of the Mexican market by 2020 through a

Of the total 1.5 million vehicles sold in Mexico in 2017, Japanese

strategy that entails strong aftersales service, collaborating

OEMs together marketed 41.7 percent with a total of 638,989

with more professional dealership groups and sticking to the

units. In 1H18, these companies increased their share of the

strategic advantages that differentiate it in the market.

total sales in the Mexican market to 42.7 percent compared to the same period in 2017. Individually, however, the story

Not only are Japanese brands developing strategies to

unfolds differently. Of all Japanese brands present in Mexico,

brave the sales downturn, but Toyota’s Apaseo el Grande

only Toyota, Isuzu, Subaru and Suzuki increased their sales

assembly plant project and INFINITI’s recently established

between 2016 and 2017. Meanwhile, sales of Nissan, INFINITI,

line in Aguascalientes could mean more business for

Honda, Acura and Mazda dropped in the same period and

automotive suppliers in Mexico. Gonzalo Esparza, SEO for

the decrease continued for Honda, Acura and Nissan during

Americas Region of Japanese seat manufacturer Tachi-S

the first half of 2018. As Mexico’s top brand in the market in

RHQ, says the company sees opportunities to eventually

terms of sales, production and exports, Nissan has taken the

become a Tier 1 supplier to Toyota now that the company

largest hit from the downturn with a contraction in sales of 9.1

already supplies for INFINITI models in Aguascalientes.

percent between 2016 and 2017 and of 16.2 percent between

Similarly, Felipe Brondo, Corporate Vice President of

January and June 2018 compared to the same period in 2017.

DENSO México, says the arrival of new OEM investment to Mexico offers opportunities for local companies to grow

According to Mayra González, President and Managing

and become true automotive suppliers. As González puts

Director of Nissan Mexicana, the discontinuation of Tsuru

it, “Japanese automotive companies have found both a

in 2017 and Tiida in 2018 coupled with stabilization in the

strategic partner and a second home in Mexico.”

VIEW FROM THE TOP |

FRIENDSHIP, COOPERATION HELP TACKLE AUTOMOTIVE CHALLENGES YASUSHI TAKASE Ambassador of Japan in Mexico

Q: How are the Mexican and Japanese governments

of renegotiating NAFTA is to modernize the treaty. They

promoting trade between both countries?

pointed out that the Mexican government’s goal is to improve

A: Japan and Mexico have more than 400 years of friendship.

North America’s competitiveness, which is exactly what

anniversary of the

Japanese companies expect from this process. Japanese

Treaty of Amity, Commerce and Navigation between both

investors always invest following long-term perspectives.

countries. Mexico was the first country to sign an equal-

Once they decide to do so, companies come to stay. At the

footing treaty with Japan and other countries have followed.

moment, there are over 1,100 Japanese companies in Mexico

Before this, Japan had discriminatory treaties with the US

and while uncertainty stemming from NAFTA negotiations

and European countries. Both the Japanese and Mexican

makes companies cautious, we have not observed any

governments have promoted people and cultural exchanges

changes in the strategies of Japanese companies in Mexico.

In 2018, we will celebrate the 130

with each other, which added to Japanese immigrants’ hard work and support for Mexico’s development. This has also

Q: What is the Japanese government’s most important

resulted in Japanese companies enjoying the trust of the

contribution to the development of Mexico's auto industry?

Mexican people. The most significant trade-promotion

A: Development of human resources and local suppliers

project between both nations has been the Economic

are key issues that need to be solved in the automotive

Partnership Agreement (EPA) implemented in 2005. I

sector. The Japanese government has made several efforts

negotiated the EPA on behalf of Japan between 2001 and

to help Mexico beat these challenges, fostering what we

2003. Since its establishment, trade volumes have doubled

call “Supporting Industry” by sending experts and training

and investments have grown significantly. While Japan has

Mexicans in Japan to develop domestic suppliers. We also

always been the top Asian investor in Mexico, Japanese

support local players by matching them with Japanese

investments grew rapidly due to this treaty.

companies in Mexico and working with local governments to create new academic plans that meet the demands of

Q: What are your main objectives as the new Ambassador

the private sector. The Embassy of Japan participated in the

of Japan in Mexico, especially regarding the auto industry?

creation of a new course on automotive manufacturing in

A: Our main objective is to further improve the business

CONALEP San Juan del Rio, Queretaro, for example.

environment for Japanese companies so they can contribute to the development of the Mexican economy.

Q: How ready are Japanese companies to integrate local

Japanese players come to Mexico because of its

suppliers into their productive processes?

macroeconomic stability and positive open-trade policies,

A: Japanese companies must work with local manufacturers

as well as its young and skilled labor force. Business could

to satisfy local content rules established by NAFTA. These

still be improved by solving the challenges related to talent

companies are developing Mexican talent and working

development, security and infrastructure and for that

with local suppliers. As part of our academic exchange

reason, the Japanese and Mexican governments created

programs between Mexico and Japan, we send 50 Japanese

a committee under EPA to analyze these hurdles and how

youngsters to Mexico and receive 50 Mexicans in return.

best to tackle them.

Approximately 4,000 students have benefited from this program.

Q: What can Japanese OEMs and their local suppliers expect from NAFTA renegotiations? A: Both the Mexican Minister of Economy Ildefonso Guajardo

Yasushi Takase, with over 35 years of experience in diplomatic

and the Mexican Minister of Foreign Affairs Luis Videgaray

affairs, is the top representative of the Japanese government in

visited Japan in July and at the beginning of August 2017.

Mexico. He is responsible for overseeing diplomatic and trade

They explained to Japanese companies that the objective

relations between both countries

137

| VIEW FROM THE TOP

LEAVING COMFORT ZONE TO BE MORE INNOVATIVE, EMOTIVE MAYRA GONZÁLEZ President and Managing Director of Nissan Mexicana

138

Q: What main factors have allowed Nissan and other

the 37 percent growth in the SUV segment is still small

Japanese companies to gain a strong foothold in Mexico?

compared to the size of the compact segment. I do not

A: Japanese companies have found Mexico to be a

think this will change in the short term; both segments are

strategic partner and a second home. Though Japanese by

complementary and we will continue to offer innovative

origin, Nissan is a Mexican competitor with over 53 years in

proposals for compacts and SUVs.

the market. Quality is another factor that has given Nissan an additional advantage over competitors.

Q: What have been Nissan’s strategies to maintain its leadership in the market after a slight decrease in

Nissan vehicles are synonymous of quality, durability and

market share?

reliability and that has been one of our main differentiators

A: We ended 2017 with a 23.4 percent market share and

to established as sales leader in the country for nine

we could not be more pleased. We remain the market

consecutive years. That being said, we are now expanding

leader with a difference of 7 points of market share, or

this mindset by giving innovation and emotion much

more than 100,000 units, against our closest competitor.

bigger roles in our corporate image and products. We are

The year, however, was very different from what we had

present in most market segments and each of our vehicles,

experienced after nine years of continuous growth for the

from March to Kicks to GT-R, offers its own version of

industry, sometimes in the double-digit range.

technology, innovation and emotion along with quality and reliability.

The market is reaching a stabilization period and the challenge for Nissan was greater after halting production

Q: What is the “wow” factor that will ensure the brand’s

of Tsuru, which was a representative model and sales

continued growth?

leader for the brand in Mexico for over 30 years. Tsuru

A: Our strategy of innovation and emotion has been

gave much to Nissan and to Mexico and we ended its

a continuous process that started with the launch of

production after 2.4 million units sold. We also announced

GT-R and Nissan Motorsports (NISMO). We have also

Tiida’s exit from the market, so it was no surprise to see

made advances beyond our high-performance segment,

a decrease in market share. This was a necessary step to

including the development of the hybrid version of X-Trail

take the company to the next level and to implement the

launched in 2017 and the second generation of our full-

concept of Nissan Intelligent Mobility, our vision toward a

electric LEAF model launched in the end of summer 2018.

zero-emissions and zero-accidents future. Tsuru fulfilled

We are renewing our entire lineup and we also have new

its purpose and now we are betting on new models

releases. Murano, for example, was officially launched on

such as GT-R, Murano and X-Trail in its hybrid version,

June 18, 2018. This model will crown and complement our

as well as special editions such as Kicks Dark Light, a

SUV lineup, which is the sector with the most dynamic

commemorative edition that reflects our sponsorship with

development in the country.

the Star Wars franchise.

Q: Considering that the SUV segment is the only growing

Q: How have you recaptured those clients who preferred

segment domestically, how have your priorities shifted

and bought the Tsuru model?

regarding SUV and compact vehicle production?

A: We tried to offer more affordable versions of our entry

A: Beyond betting on a specific segment, what we want

models to attract customers that would normally go

is to offer different mobility options through innovation

for a Tsuru. We released Drive versions of Nissan Versa

and technology. Although the SUV segment is growing,

and other models, supported by an aggressive financing

Mexico is a compact-vehicle market and Versa is the best-

strategy and comprehensive marketing plans so clients

selling model in the industry. In terms of pure volume,

could understand the benefits of acquiring these models.

We had a very good response and the only reason we

Q: How is Nissan facing the changes in demand in the

could not supply as many Versas is because we could

international market and how is that impacting your

not produce more. Mexican clients appreciate our quality

operations in Mexico?

values, so we did not have to convince them to switch their

A: Our main export market is the US. That being said,

preference. They trust our products and we are thankful

Nissan is the brand that produces the most for the domestic

for their loyalty and preference.

market with 40 percent of our production destined for local sale. We cannot deny that we have seen a contraction

We have worked to improve our customer experience in

in the US market, particularly in certain segments, but we

terms of sales and aftersales services, which has been a

will keep sending the vehicles that the country demands.

key point in maintaining Nissan as sales leader for nine

At the same time, we have the opportunity to export our

consecutive years, supported by a strong financing

production to many more countries in South America,

offering and local production. Our ultimate goal is to

Europe and even the Middle East. If the US market keeps

remain leaders in the market and the preferred option

slowing down, we will seek growth opportunities in

for the Mexican consumer. We want to innovate the sales

the rest of the world. Nissan Mexicana has exported its

experience we offer at our dealerships through the newly

vehicles to 50 countries; we are a flexible company and

implemented NREDI 2.1 standard, an image that offers an

Mexico can offer us the trade backbone to support this

experience of innovation, technology and a more open

level of diversification.

and amicable approach for our customers. We started the implementation of NREDI in the southeast region and we

Q: What can local companies do to participate in

expect to cover the more than 230 dealerships we have

Japanese manufacturing chains?

in Mexico in the next two years.

A: There are still many opportunities for suppliers to collaborate in Nissanâ&#x20AC;&#x2122;s production processes. Even in raw

Q: What are your expectations for the development of

material supply including plastics, steel and aluminum,

the domestic market considering the recent contraction

there is an opportunity as long as the government offers

in light-vehicle sales?

the proper incentives for local companies to grow their

A: The domestic market grew to almost twice its size

operations and boost their quality. We understand that

since 2009. Since then, the industry grew nonstop and

localized sourcing leads to much more competitive costs

it is natural to reach a peak. This is not a crisis, only an

and an easier distribution process and we are in a constant

adjustment, and competition will only make us stronger

search to localize our supplier network. There have been

as a country. The industry will continue adjusting until it

cases in which companies have not been able to meet our

reaches its optimal point although the government should

quality requirements. Nevertheless, we believe that with

keep offering incentives to strengthen the market further.

the right incentives and support, supplier companies can

From our side, we are fully committed to working with

grow their participation in the global industry.

the government to make the country the automotive powerhouse it should be. The industry might not grow

Q: How will electrification impact Mexicoâ&#x20AC;&#x2122;s manufacturing

in the short term, especially considering the challenges

operations and how is Nissan adapting its Mexican

related to an election year, but it can maintain its

processes in favor of this new trend?

current levels.

A: Rather than impact, the industry will see evolution. Electrification is inevitable and we are already making the

I still believe that the market can reach the 2 million-unit

leap toward these technologies with the introduction of

goal, considering the size of the population. However,

the X-Trail Hybrid and the second generation of the Nissan

economic development is a must for this to happen, as

LEAF. Change will come gradually, not only to Mexico

well as strong regulation over used-vehicle imports.

but to the global industry. Today, we manufacture eight different engines at Aguascalientes and in the future, we

Q: How are you facing the competition of new arrivals

may also include electric or hybrid variations. Although

from Korea and China?

this still has not happened and we have not made clear

A: The arrival of more competitors has forced us to improve

plans to modify our production, we think the moment will

our technology and deliver more quickly on our promise

come when it will be unavoidable.

of innovation and emotion. New brands will arrive with new products and they will naturally grow until they reach their stabilization point. Nissan has more than 53 years

Nissan Motor Corporation is part of the Renault-Nissan-

in the market; we have watched every brand arrive and

Mitsubishi Alliance. Nissan Mexicana has been the top-selling

we understand that we must work to retain our position

brand in Mexico for nine straight years. It has four manufacturing

in the market.

plants in the country

139

140

VIEW FROM THE TOP |

GOING AGAINST THE TIDE MIGUEL BARBEYTO President of Mazda de México

Q: How is Mazda innovating to differentiate itself from

Despite its two-liter configuration, this new engine performs

other brands and attract new customers?

as a 2.5-liter and offers the advantages of both gasoline

A: Mazda is more interested in maintaining its market

and diesel, thus further reducing emissions while increasing

share than in higher sales volumes. Even though the

efficiency and performance.

market contracted in 2017 and continues to decelerate in 2018, we have protected our 3.5 percent market share. By

Q: What impact does demand for Mazda vehicles abroad

offering quality vehicles and covering all steps in the sales

have on Mazda’s assembly operations in Salamanca?

process we can ensure client satisfaction. It is crucial that

A: In terms of production, 140,000 units came out of

clients are treated well when they arrive to dealerships,

Mazda’s Salamanca assembly line in 2017. Though this

that they receive follow-up from salespeople and that

plant has the capacity to ramp up production to 250,000

they are presented with the various options to purchase

units a year, growth in production will largely depend on

vehicles either through cash or credit. Our whole business

demand in foreign markets. Demand for Mazda vehicles

is oriented toward our clients and they need to know all

in the US flatlined in the first two months of 2018 but

the advantages that Mazda offers in terms of service,

experienced slight growth in March. On the other hand, the

guarantee, spare parts and service. Since we consider our

European and Canadian markets have grown, so we expect

distribution partners as clients as well, we make sure they

Salamanca to keep ramping its operations. This facility is

are in the best condition to service the end consumer. Our

Mazda’s first manufacturing location outside of Japan and

aftersales collaborators must be able to welcome clients,

it is already functioning at optimal levels just four years

tell them when their vehicles will be ready for pickup and

after its inauguration.

follow up when necessary. Spare parts managers must keep tight control of stock, warranty managers must offer

Q: What opportunities exist for Mazda to grow its local

a solution that matches the client’s situation and technicians

content sourcing?

must repair Mazda vehicles well and at the drop of a hat.

A: Both foreign and local suppliers have developed well in the Bajio so the opportunity is there. Having a local sourcing

Q: Each brand has a unique perspective regarding

strategy will always prove advantageous due to the logistic

electrification. What is Mazda’s vision on the car of the future?

advantages this offers and there are still opportunities for

A: As part of its commitment to society and the planet,

more local companies to integrate into our supply chain.

Mazda strives to reduce its emissions and to improve vehicle

Quality, short response times and support are areas of

performance. We adopted the well-to-wheel strategy to

opportunity for new companies to compete against players

assess how much a vehicle pollutes from the moment it is

with more experience in the market. The industry is becoming

produced to the moment it is discarded. EVs and hybrids

increasingly demanding and suppliers must have enough

may pollute less than fuel-powered vehicles when driven

experience to not compromise OEM production or force

but are more harmful in the big picture because their

companies into a recall. Mazda is open to growing its local

batteries are highly polluting when they are discarded.

supplier base. That being said, in terms of product costs, having a local or a foreign provider makes little difference

Mazda still believes in the internal combustion engine and

considering that most components are priced in dollars.

we are investing in technology to boost engine efficiency. In 2012, Mazda launched its SKYACTIV technology, which included new engines, chassis structures, gearboxes and

Mazda de México is the local subsidiary of Japan-based

body frames. This platform helped us increase fuel efficiency

Mazda Motor Corporation. The company has manufacturing

and curb emissions without compromising our vehicles’

operations in Mexico in Salamanca, Guanajuato, where the

performance. In 2017, we delivered the SKYACTIV-X engine.

Mazda2 and Mazda3 models are produced

141

| VIEW FROM THE TOP

BETTING ON HYBRIDS DOES PAY OFF TOM SULLIVAN President and Director General of Toyota Motor Sales de México

142

Q: What strategies have propelled Toyota Motor Sales

market. This launch follows the success that Prius has had

to its 6.8 percent share in the Mexican automotive

in Mexico. The positive results of this strategy are palpable.

market in 2017?

We grew our vehicle sales by close to 1 percent in 1H18

A: Mexico’s automotive industry has experienced noteworthy

compared to the same period in 2017, which we consider

growth in terms of production, exports and domestic sales

a significant achievement given the contraction that the

in the last few years and the sector has played a key role in

market faced during this period.

the country’s economy. Toyota is pleased to be part of this process. We have reached this market share thanks to our

Q: What role will sustainable mobility have in Toyota’s

clients' preference in Mexico, the efforts of our distributors, our

long-term plans?

financial branch Toyota Financial Services and our associates.

A: This trend is very important to our operations. In Mexico, we have become leaders in the hybrid segment.

Toyota has become the fourth-largest brand in Mexico in

In 1H18 alone, Toyota marketed over 5,000 hybrid units in

terms of units sold by offering the appropriate product

Mexico and our sales target for 2018 is 10,000 hybrid units.

at the right price at the right moment. We have reached

Additionally, as part of our “Project Portal” strategy, Toyota

sustained growth in sales thanks to this strategy and

has taken its fuel-cell technology beyond light vehicles and

plan to achieve 1 million sold vehicles in the Mexican

implemented it in a cargo truck. This vehicle offers 670hp

market before the end of 2018 by covering all automotive

and torque of 1,796Nm. It has an autonomy of 320km and

segments with our vehicle lineup.

can carry 36 ton. The company also plans to build the first hydrogen and renewable-energy generation plant, called

Q: How has the deceleration in domestic sales impacted

Tri-Gen. By 2020, this plant will produce 1.2 ton of hydrogen

Toyota’s projections?

to support fuel-cell vehicles and 2.3MW of electricity.

A: In 2017, we set a new sales record for Mexico with 105,000 sold units. Despite the troublesome conditions

Toyota’s global vision is to reduce its vehicles’ CO 2

that the industry faces, Toyota has posted solid results.

emissions by 90 percent and by 100 percent in its

We have achieved sustained but conservative growth rates

manufacturing operations in accordance with the Toyota

that keep us moving forward. Reaching our sales target of

Environmental Challenge 2050.

107,000 units in 2018 will be a challenge but we are ready for it. We plan to increase our product offering in some

Q: What is Toyota’s strategy to strengthen its position in

segments to continue catering to the market’s demands.

Mexico’s green-vehicle market? A: Prius is the first mass-produced electrified vehicle.

Q: What other segments of the Mexican automotive

The main goal of this vehicle was to offer an intelligent

market is Toyota ready to explore?

mobility solution that respects the environment. Toyota

A: The launch of C-HR signals our entrance into the

has maintained the concept of Monozukuri and total

compact SUV subsegment. We have also launched Prius

harmony with the environment since its creation and

C, which is both the first hybrid subcompact in Mexico

during its production. Toyota’s goal is to remain the

and the most affordable hybrid option in the domestic

benchmark in hybrid technology. We are convinced that hybrid motorizations are a feasible electrified option for the short term.

Toyota Motor Corporation is a Japanese carmaker founded in 1937 and present in Mexico since 2002. The company has an

We decided to bring Prius to the Mexican market in

assembly plant in Tecate, Baja California, and will open another in

2010 with the hope that the country would eventually

Apaseo el Grande, Guanajuato in 2020

become ready to adopt it. The main challenge we faced

was creating a market for this type of vehicle and we advocated to make this technology more affordable for

Toyota Prius

Mexican markets. Today, Mexican consumers are willing to bet on intelligent and sustainable mobility. In 2017, Mexico became the third country with the most Prius sales after Japan and the US. The introduction of Prius C as a more affordable hybrid option and the launch of two more hybrids before the end of 2018 and in the first months of 2019 should help us underpin Toyota's position in this segment. Q: What are the main challenges that Toyota has faced to introduce electrified vehicles into the Mexican market? A: We are confident that hybrid vehicles will enter the mainstream over the next decades but the development and introduction of new technologies generally comes at a high cost and requires a strong effort to gain mass acceptance. While this is mainly between consumers and the automotive industry, many factors can support this process such as the incentives that governments offer to consumers to help them gain access to new technologies. Q: What future do you see for the internal-combustion engine vehicle? A: Toyota believes that hybrid technology will be the leader in decades to come, so we are working to meet our 2050 emissions goals in order to reduce the environmental impact generated by the automotive industry. The expansion of the hybrid market is also a priority for us because electric vehicles will gain importance in the medium term. Q: How will Toyota’s assembly plant in Apaseo el Grande impact the company’s share in the Mexican and NAFTA markets? A: The production of Tacoma pickups at this plant is expected to have a positive impact on our growth in Mexico. This plant represents a US$700 million investment and we expect to reach an annual production volume of 100,000 units there. The Apaseo el Grande assembly plant will complement the production of our plant in Tecate, Baja California. Toyota has invested close to US$1 billion since 2012 in our manufacturing operations in Mexico, which demonstrates its commitment to long-term investment in the country. Q: What are the main challenges that limit Toyota’s growth in Mexico and how are you attacking these? A: The NAFTA negotiations, federal elections and global economic issues offer several challenges but Toyota is and will continue to be committed to Mexico. Our plans to build an assembly plant in Apaseo el Grande, Guanajuato remain in motion and this project is already 50-percent complete.

143

| INFOGRAPHIC

STRENGTH IN NUMBERS With a share of over 40 percent of total domestic sales,

Quality, a strong product offering and world-class

Japanese companies have become the undisputed

manufacturing standards have been key to the success

leaders in Mexico's automotive market. Nissan alone

of Japanese OEM in the country, but as new competition

contributes with almost 24 percent of overall sales and

arrives from around the world, Japanese players will have

has remained unchallenged as the market's undisputed

to step up their game if they want to remain ahead of

leader for the last nine years.

the competition.

MARKET SHARE OF JAPANESE OEMs IN MEXICO’S LIGHT-VEHICLE MARKET 1H16

1H17

1H18

sold units

Nissan 144

180,937

INFINITI

Nissan

1,016

Isuzu

572

Honda

Isuzu

40,154

Honda

Acura

925

Mazda

25,300

Subaru

632

Suzuki

7,033

Toyota

45,930

2016

183,565

INFINITI

Nissan

153,822

988

INFINITI

646

Isuzu

1,047 845

43,727

Honda

Acura

1,022

Acura

831

Mazda

25,117

Mazda

26,293

Subaru

609

Subaru

624

Suzuki

7,765

Toyota

51,313

2017

721,856

Suzuki

11,433

Toyota

51,948

2018

743,051

Total vehicle sales

43,528

680,699

Total vehicle sales

Japanese OEMs in Mexico Japanese OEMs in Mexico 11% Mazapil 11% Mazapil 2% Sahuaripa 42.4% Japanese OEMs in Mexico 2% Sahuaripa 41.9% 42.7% % OF PARTICIPATION ON AUTOMOTIVE INDUSTRY IN 2015 Others Others 58.1% 57.64% Others 57.3% 9% Cananea 9% Cananea 2% Morelos 2% Morelos

7% Nacozari de Garcia

2% Eduardo Neri

Auto parts 5% Fresnillo 5% Fresnillo 2% Aquila JAPANESE OEMs' LIGHT-VEHICLE PRODUCTION AND EXPORT OPERATIONS IN MEXICO (thousand) 4% Ocampo 4% Ocampo 2% Alamos terminal production 900 4% Caborca 4% Caborca 1% Chinipas

2% Aquila

2% Sierra Mojada 800

47% other

2% Sierra Mojada

47% other

Source: CGM, Ministry of Economy With figures to March of 2015

700

500 400 300 200 100 2013

2012

Production

Nissan

Honda

Mazda

1% Chinipas

Source: CGM, Ministry of Economy 1 With figures to March of

600

2% Alamos

Toyota

Source: AMIA, Nissan Mexicana, ProMéxico, Mexico Automotive Review, Automotive News, Tasko Consulting Source: Source: CAAM, JAMA, VDA, KAMA, SIAM, AMIA, ANFAC, Automotive News, Data Center

2014

JAPANESE OEMs IN MEXICO

• Toyota (Tecate) • Honda (El Salto)

JALISCO

BAJA CALIFORNIA • Honda (Celaya) • Nissan (Aguascalientes)

• Mazda (Salamanca)

• Renault-Nissan/Daimler

• Toyota (2020)

Venture (Aguascalientes) AGUASCALIENTES

(Apaseo el Grande) GUANAJUATO

• Hino (Silao)

• Isuzu (San Martin Obispo)

• Nissan (Cuernavaca) MORELOS

STATE OF MEXICO

145

Light vehicles

Heavy vehicles

In 2017, Versa became Mexico’s best-seller again with a total 93,041 units sold JAPANESE KAIZEN MANUFACTURING STANDARD

TOP 10 JAPANESE SUPPLIERS

Global ranking (Top 100 suppliers in 2018)

Standardized work

Make problems visible

Determine root cause

Hypothesize solution

Test hypothesis

Implement solution

2015 Exports

——Nissan**

——Honda

*Data from January to June (annualized)

2016

——Mazda

DENSO

Aisin Seiki

Yasaki

Panasonic Automotive Systems

Sumitomo Electric

Toyota Boshoku

JTEKT

Calsonic Kansei

Hitachi Automotive Systems

Koito Manufacturing

2017

——Toyota

**Latest data available from January to April (annualized)

2018*

| VIEW FROM THE TOP

CLIENT SATISFACTION DELIVERS LOYALTY, RETURN CUSTOMERS PHILIPP HELDT Managing Director of INFINITI Mexico and Latin America

146

Q: What is INFINITI’s strategy to stand out in the Mexican

lineup. This is a unique SUV since it is powered by the

premium segment?

first variable compression engine in the world while also

A: We focus on designing products that offer clients a

keeping the equipment, comfort and luxury features that

satisfying experience from the sales floor to the aftersales

make INFINITI stand out. Our long-term vision is oriented

service while offering several benefits unique to INFINITI.

to building and selling more electric vehicles and e-Power

Rather than building cars, INFINITI’s goal is to create

technology by 2021. This latter technology consists of a small

experiences. In Mexico, the brand has been the leader in

gasoline engine that charges the battery pack that powers

customer satisfaction related to sales of new vehicles and

an electric vehicle.

aftersales service for three years in a row. To maintain this momentum, INFINITI Mexico has launched the INFINITI

Q: In terms of financing products, how will INFINITI’s

Black service. This is the most exclusive road assistance

SELECTIVITI program lead to a greater share in the

program in the Mexican market. It includes a pick-up and

premium segment?

delivery service during servicing at no cost and without

A: The SELECTIVITI program from our financial branch

limits. INFINITI’s strategy is to launch an aggressive product

INFINITI Financial Services has enabled the brand to

offensive compared to other competitors and to provide

capture new clients who we had missed previously. It offers

differentiated sensations of luxury and exclusivity.

convenient credit plans and a variety of financing options for clients. This program has gained a strong foothold in the

Q: What has helped INFINITI outpace the downturn in

Mexican market with a 20 percent share of the brand’s sales.

overall sales?

INFINITI is among the leaders in terms of vehicle leasing in

A: Our sales in Mexico have grown in parallel with the

Mexico. There is great potential in the lease segment and

premium segment. INFINITI remains attractive in this

we expect to continue conquering this market.

segment by offering competitive products. Moreover, INFINITI’s hybrid lineup has positioned the brand as a sales

Q: How will the brand’s Certified INFINITI used-vehicle

leader in the subsegment of premium hybrids. The hybrid

program help the company weather the contraction in

versions of our QX50 and QX60 SUVs represent 20 percent

new-vehicles sales?

of our total sales and we are convinced of the advantages

A: Certified INFINITI has the highest quality standards in

this technology offers. The brand is also a technical partner

Mexico’s premium segment. This program will help us to

of the Renault Sport F1 team and supplies all the energy

continue expanding our sales to different segments. It is an

recuperation technology for the team’s R.S.18 vehicle.

important program due to our high repurchase levels. Certified INFINITI helps us remain an attractive option for our clients.

Q: What role do SUVs play in INFINITI’s product strategy for the Mexican market?

Q: What new advances can customers expect in INFINITI’s

A: The SUV segment is a predominant area for us because

future vehicles?

of its consistent growth and these vehicles are playing a

A: Any new launches will be based on models such as the

central role in INFINITI’s product offensive. We recently

Q Inspiration that we believe represents the future of the

launched the QX50 2019 that completes INFINITI’s SUV

brand. This vehicle was launched at the Detroit Auto Show and was named the “Best Concept Vehicle” at the event. INFINITI has announced that by 2021 its lineup will have

INFINITI is Nissan’s luxury brand. Present in over 50 countries,

a complete group of vehicles powered by low-emission

the brand produces an SUV model in Aguascalientes at the

technology, such as electric and e-Power. INFINITI expects

COMPAS assembly plant operated jointly by that the Renault-

that half of its global sales will be electric vehicles by 2025

Nissan Alliance and Daimler

as a result of these technologies.

INSIGHT |

MAKING DRIVING FUN, SAFE IN THE RIGHT NICHES DAI HOSOYA President of Subaru México

Despite the contraction in vehicle sales that the Mexican

units offer space, safety and performance both on and off-

market has experienced since 2Q17, some brands have

road.” Safety priorities also led the brand to the development

maintained healthy numbers and even grown. Betting on the

of its boxer engines, chassis and AWD powertrains that are

right niches and growing aftersales services before boosting

the heart of its platform architecture. However, the company

sales can make all the difference, says Dai Hosoya, President

has gone a step further and equipped its newest vehicles

of Subaru México.

with a semi-autonomous system that employs two cameras to detect objects on the road, alert the driver, correct steering

Having a small market share in the country and focusing on

and even autobrake. “The EyeSight Driver-Assist Technology

the SUV and luxury segments has enabled the Japanese

is designed to mimic a pair of human eyes,” says Hosoya.

maker to continue growing despite low car sales in Mexico.

“This gives the system an edge over similar systems that use

“Market development will not deeply affect Subaru until the

radar or only one camera.” Subaru has tested these systems in

brand reaches yearly sales volumes of at least 5,000 units,”

several countries in Latin America with positive results.

says Hosoya. While 5,000 vehicles may sound like a low target for a company with a significant presence in other global

Looking ahead, Hosoya is targeting a 1 percent market share

markets, the brand has experienced constant growth since

in Mexico by 2020. This would be the equivalent of its global

the Mexican automotive market bounced back after the 2009

market share. “Subaru sells around 1 million vehicles per year

financial crisis. This as the SUV and luxury segments remain

globally, which represents 1 percent of the 100 million units

the only ones that have enjoyed continuous sales increases,

sold worldwide annually,” he says. To reach that sales volume,

according to AMIA data.

Subaru México has based its strategy on three pillars. First, the company aims to boost its aftersales services unit. “We

Subaru tallied a 17.7 percent sales increase in FY17 compared

need to deliver great service and then focus on growth,” says

to FY16, with a total of 1,370 units sold. Forrester and XV

Hosoya. “If we boosted sales first and neglected service, we

are the brand’s strongest models in Mexico, accounting for

would be generating problems for customers.” Since Subaru

almost 80 percent of its sales. “SUVs will be key for Subaru

has no manufacturing or assembly operations in Mexico, it

to materialize its business concept in Mexico,” Hosoya says.

faces the challenge of importing spare parts from Japan to

“We are not a high-volume brand but one more oriented to a

repair its vehicles as soon as possible. “We always bring spare

certain kind of luxury.”

parts by air when we do not have them in stock,” says Hosoya.

The brand targets Mexico’s medium-high and high-income

The second pillar in the brand’s strategy consists of choosing

population through its three SUVs, two sports cars and

the right dealership partners. Subaru pays close attention to a

a class-C sedan. “We offer high-quality models at a price

dealership’s attitude toward customer care and management

between that of a high-volume and a premium-brand car,”

structure before bringing it in as a partner. “We want to work

adds Hosoya. This factor and Subaru’s understated image

with professional dealerships that have a strong customer-

have helped the company build a niche for itself among

service mindset and enough know-how in both sales and

vehicle aficionados. While mainstream Japanese automakers

aftersales,” says Hosoya.

Toyota, Nissan and Honda have created their own luxury brands, Subaru considers itself a brand that attacks the

Finally, Subaru’s third pillar for growth is retaining the

premium segment without being a proper luxury brand.

characteristics that differentiate the brand from other Japanese automakers, thus gaining more fans to increase

Safety and a fun driving experience are the characteristics that

its presence in the country. “As an independent brand, we

make Subaru cars unique, according to Hosoya. “Our vehicles

need to play to our strengths to be seen as the safe and fun

are for people who want to go outdoors,” he says. “Subaru

alternative in the market,” says Hosoya.

147

| INSIGHT

SEGMENT SOPHISTICATION CAN TRUMP PRICE NOZOMU HARADA President and Director General of Hino Motor Sales México

148

While car buyers focus on the status, comfort and image

to grow 8 percent by the end of the year and 10 percent by

a vehicle provides, truck owners pay more attention to

2020. “We want to sell between 3,300 and 3,600 trucks in

durability, performance and resale value when shopping for

2018,” he says. The company already has 25 3s (sales, spare

units. Nozomu Harada, President and Director General of

parts, service) centers in Mexico and 47 service-only points

Hino Motor Sales México, says that focusing on these traits

where trucks receive maintenance. According to Harada,

is the key to a successful commercial vehicle offering.

the company wants to add 10 3s centers to its network for a total of 35 in 2018. “In 2018, Hino will reach 100 service

“Owner-operators and transportation companies are

points,” he says.

professional customers that need professional equipment,” says Harada. Despite the challenge of low heavy and

Hino is betting on the sophistication of Mexican clients in

commercial vehicles sales, Hino sees an opportunity as

the transportation segment to drive its growth. “Our focus

the Mexican truck and commercial vehicle market becomes

is on constantly improving the quality of our vehicles and

more sophisticated.

on deepening customer satisfaction through aftersales,”

“

Owner-operators and transportation companies are professional customers that need professional equipment to work”

says Harada. The company built its strategy on aftersales capabilities prior to boosting its sales. Harada thinks that delivering good service through well-qualified mechanics and ensuring product quality will secure loyalty from Hino customers and attract a larger customer base. “It is quality rather than price that drives this cycle,” says Harada. “Clients in Hino’s target segments want to receive quality service at our shops once they have purchased a unit.” The company plans to make truck operations in Mexico safer by adding more safety and comfort-related equipment, such as air conditioning, airbags and ABS brakes to minimize

The Japan-based commercial and heavy-vehicle brand that

damage. Additionally, Hino plans to include more pro-active

is part of the Toyota Motor Corporation holds a 50-percent

safety equipment such as automatic brakes, fatigue sensors

market share in its home country. Its participation is also

and lane-changing alarms to prevent traffic accidents.

strong in Asian markets such as Thailand, with 45 percent, and Indonesia, with 60 percent. In North America, the company

Hino is also delving into eco-friendly motorizations to

has achieved a market share of 40 percent in Canada and

reach businesses that have established an environmental

15 percent in the US but it still holds less than 5 percent in

awareness and which look for greater fuel efficiency. “The

Mexico. “Mexico offers a strong opportunity for growth as

hybrid version of the 300 Series has attracted the attention

the segment becomes more professionalized,” says Harada.

of businesspeople interested in protecting the environment and taking care of their corporate image,” says Harada.

Hino’s small share in Mexico, however, has also been an

Although hybrids have been Hino’s priority in Mexico, Harada

advantage, helping it weather a period of slack sales.

says the company could bring some of its CNG, fuel cell and

“Market deceleration does not affect Hino,” explains Harada.

electric trucks as well as more hybrid motorizations to the

“Having a market share under 5 percent protects us from

country. This, however, will depend on how ready the market

any fluctuation.” This does not mean that the company has

is to receive them. “Mexico needs more gas and charging

no growth expectations. Prior to 2018, Hino reached yearly

stations for Hino to offer these options and inflation rates

growth rates of 20 percent and Harada expects the company

will impact what products we choose to bring,” he says.

ROUNDTABLE | With the arrival of Mazda and INFINITI in recent years and reinvestments from companies such as Honda and Toyota, many opportunities have arisen for local companies to participate in Japanese manufacturing chains to supply OEMs directly or the Tier 1 suppliers accompanying them. However, Japanese players have identified several obstacles to grow their local supply chain at a faster pace, which forces them to still depend greatly on raw-material and component imports from their home country. Free-trade agreements and cost-competitive strategies show local supply as an advantage for international players, so strategies have to be implemented for Mexican players to raise their standards.

WHAT CAN LOCAL COMPANIES DO TO PARTICIPATE IN JAPANESE MANUFACTURING CHAINS? 149

Having a local sourcing strategy will always prove advantageous due to the logistic advantages this offers and there are still opportunities for more local companies to integrate into our supply chain. Quality, short response times and support are areas of opportunity for new companies to compete against players with more experience in the market. The industry is becoming increasingly demanding and suppliers must have enough experience to not compromise OEM production or force companies into a recall. Both foreign and local suppliers have developed well in the Bajio; the opportunity is there and Mazda is open to growing its local

MIGUEL BARBEYTO President of Mazda de México

supplier base. That being said, in terms of product costs, having a local or a foreign provider makes little difference considering that most components are priced in dollars.

There are still many opportunities for suppliers to collaborate in Nissan’s production processes. Even in raw material supply including plastics, steel and aluminum, there is an opportunity as long as the government offers the proper incentives for local companies to grow their operations and boost their quality. We understand that localized sourcing leads to much more competitive costs and an easier distribution process and we are in a constant search to localize our supplier network. There have been cases in which companies have not been able to meet our quality requirements. Nevertheless, we believe that with the right incentives and support, supplier companies can grow their participation in

MAYRA GONZÁLEZ President and Managing Director of Nissan Mexicana

the global industry.

We are working with local service companies and suppliers of spare parts for our equipment but we still do not have many partners in component supply. Unlike what happens in other countries such as Thailand, finding component suppliers in Mexico is challenging. The government should make supply chain development a priority. Availability of local suppliers will ensure that more OEMs and Tier 1 suppliers like us continue to invest in the country. At the same time, the new administration should create favorable conditions for companies to invest in technology and develop their human talent. Cost competitivity is also an area of opportunity for the country. Mexico is still at a disadvantage compared to other countries regarding energy costs. Meanwhile, lack of security has increased our logistics costs, mainly in shipments to the US.

FELIPE BRONDO Corporate Vice President of DENSO México

| TECHNOLOGY SPOTLIGHT

MISUMI MEXICO READY TO SUPPORT INDUSTRY 4.0 IMPLEMENTATION The Internet of Things (IoT) has affected the manufacturing industry in a variety of ways. The industrial revolution started with steam machines, evolved to programmed robotics and now is stepping into fully automated machines. IoT has truly opened the world of manufacturing to new levels. Industry 4.0 and the Industrial IoT work hand-in-hand, turning manufacturing plants into â&#x20AC;&#x153;smart factoriesâ&#x20AC;? with cyber-physical systems that make decisions based on what they learn and then communicating their findings to their human counterparts via the Internet. The automotive industry has led the charge in IoT implementation with advancements in robotics and programming. Soon factories will be able to assess the conditions of manufacturing equipment and make decisions based on those assessments, from repairing themselves to adjusting energy levels according to production demand. Machine learning is a key element in IoT because machines can learn from data collected and make decisions with very little human intervention. With the power of the IoT, customization can become the standard as it will change processes to make them more efficient. Increasing demand for highly customized and cost-efficient products is driving manufacturing into Industry 4.0 and IoT playing fields. Consumers want new, affordable products that make their lives easier, which means manufacturing must evolve to meet these demands. Continual investment in robotics, technologies and networks is a top priority for organizations and it will benefit their operations in the long term by providing increased quality production at a lower price, operational flexibility and cutting-edge technology. While certain skillsets may no longer be needed in the factory of the future, new technologies open opportunities at a higher talent level. The US Department of Commerce reported that manufacturing has added 945,000 jobs since March 2010. It is expected that more lives will be simplified with IoT and efficiency for the greater good. At MISUMI MEXICO, we are ready to help companies in the implementation of Industry 4.0 practices with all the industrial components needed for factory automation and interconnection.

151

| INSIGHT

DEVELOPING TALENT FOR A TECHNOLOGICAL FUTURE Shinichi Nakamizo President of DENSO México

152

Felipe Brondo Corporate Vice President of DENSO México

The industry may be moving toward a technological future

DENSO México’s work with the local labor force has even

but talent remains a key component in vehicle production.

won it recognition at an international level. In 2017, DENSO

Depending on the low-cost nature of labor, however, will no

México participated for the first time in the WorldSkills

longer be an option for companies wanting to be remain

competition, an event created by the international

competitive, according to Shinichi Nakamizo, President

organization WorldSkills focused on promoting vocational

of DENSO México. “To be competitive in manufacturing

education excellence among 75 countries through the

activities, we need to invest in technology and develop the

implementation of best practices. “DENSO Japan has

capabilities of our human talent.”

participated for many years in WorldSkills but this was the first time for Mexico,” says Nakamizo. The company took

As a Tier 1 supplier of electronic components, DENSO

one representative from Mexico to Abu Dhabi to compete

México is no stranger to technology developments

in the CNC turning division against 21 other countries,

impacting the industry. The company has already set

showcasing the capabilities of the Mexican workforce.

corporate goals to move toward electrification, automated

According to Brondo, participating in WorldSkills was

driving and connectivity. Similarly, Nakamizo says DENSO

a perfect way to evaluate DENSO México’s capabilities

has already implemented Industry 4.0 practices including

against other global players. Meanwhile, for Nakamizo it

Industrial Internet of Things applications and that has

was an opportunity to inspire the company’s workforce to

already permeated its Mexican operations. Overall, the

keep pushing for better skills and competitiveness.

company’s portfolio in Mexico includes 18 different products involving seven different business units, which means that

The company is not only working with the local workforce

for any new technology implemented, workers must be

in-house. According to Brondo, DENSO México shares its

familiar with its functionality. “Our workforce must be

best practices with partner suppliers and collaborates with

knowledgeable and capable enough to manage and control

universities and technical schools to boost the capabilities

advanced technology in electronics, mechanics and heat

of the Mexican supply chain. Although DENSO México is

treatments,” says Felipe Brondo, the company’s Corporate

constantly looking to grow its local supplier base, the lack of

Vice President.

competitiveness among these players has been a challenge. “We are working with local service companies and suppliers

DENSO México has strived to boost the competitiveness of

of spare parts for our equipment but we still do not have

its workers by offering training in new skills and the use of

many partners in component supply,” says Nakamizo.

advanced technology. Among the strategies the company implements is the development of Kaizen Circles. “Each area

The automotive industry relies heavily on globalization and

in the production plant creates a team in charge of finding

local companies must now compete with countries such as

new ways to boost efficiency,” says Nakamizo. “Instead of

Vietnam, Thailand, China and even suppliers in the US. This

being a top-down practice, Kaizen Circles are a bottom-up

means that Mexican players must learn to improve their

way of improving operations.” DENSO México has over 300

offering without relying solely on cheap labor. “The local

Kaizen Circles and every year it selects the best teams to

supply chain is very limited at the moment,” says Brondo.

compete in the National Kaizen Circle Competition hosted

Competitiveness is key for DENSO México and he says its

by the Mexican Association for Teamwork. The 2017 Kaizen

suppliers must be ready to implement the latest technology

Circles competition was held in Cancun and DENSO México

and manufacturing systems. Similarly, he believes there are

was awarded four gold medals for its improvement models.

many companies that still need to refine their manufacturing

“Kaizen Circles help our workers understand the concept of

practices and gain ISO, TS and other certifications. “Process

continuous improvement and let them reflect on the best

know-how, technology and engineering are key factors to

way to solve a problem,” says Brondo.

gain a place in the automotive market,” says Brondo.

VIEW FROM THE TOP |

MEXICAN OPERATION CERTIFIED FOR PREMIUM COMPONENT PRODUCTION TOMOAKI YOSHINO President and Director General of JATCO México

Q: How has JATCO evolved in its production capacity

follows an optimization strategy or monozukuri that

and what challenges do you see to grow your

seeks to strengthen our operations right at the production

operations further?

floor. We maintain a constant goal of kaizen or continuous

A: In 2017, JATCO reached production of 1.7 million

improvement, always keeping our personnel as a priority in

continuously variable transmissions (CVT), which is our

terms of training and talent development. In 2013, we also

maximum capacity at our Mexico plant. Our goal moving

started developing support personnel through a program

forward is to maintain that same level of production and even

called V-Up, which was created by Nissan in an effort to

surpass it if possible, reaching a total of 1.8 million units by the

strengthen the company’s continuous improvement.

end of 2018. Additionally, we will also introduce a new CVT transmission model starting in January 2019. As a company,

Q: What opportunities do you see for more local suppliers

we want to contribute to Mexico’s economy and help the

to participate in JATCO’s manufacturing chain?

industry reach its goals of fuel efficiency and performance.

A: Local suppliers wanting to participate in our production chain should be able to deliver the same level of quality

We export our products to China, Europe and even South

as JATCO to consider establishing an alliance. Moreover,

Korea. That being said, the US remains our main market.

these companies must also ensure they are capable of

We have to be aware of any changes in Mexico’s trade

delivering the right production volumes to support our

relationship with this country such as the current tariffs on

operations. Overall, local companies should focus on four

steel and aluminum, which could potentially represent an

key elements or JATCO’s 4Ms to grow their participation

increase in our costs.

with Japanese companies: materials, methodologies, machinery and manpower.

Q: How have OEMs embraced CVT technology in their vehicles?

Q: What opportunities did the arrival of INFINITI offer

A: This is a complicated topic. Nissan has been open to our

JATCO in Mexico?

technology because the company worked closely with us

A: We started production of INFINITI components in

to develop it. However, it has not been that easy to market

December 2017. Supplying components to this company

our products to other companies. Still, in recent years,

demands compliance with the highest quality standards.

more OEMs have become interested in CVT transmissions,

In 2017, JATCO went through several audits from Nissan

particularly for production of models destined to the

and the new COMPAS plant and we eventually were

European and the Chinese market.

cleared as a supplier for the new INFINITI production in Aguascalientes. Before these audits, we analyzed our

JATCO has tried to maintain open communication with

manufacturing process to find areas of opportunity, which

various vehicle manufacturers to show the benefits of its

resulted in a much more efficient operation for all our

products. We have also participated in shows and expos and

production lines. Although we have several plants around

we have given several presentations in the US and China to

the world, JATCO México is the second facility globally

ensure more clients understand what CVT can offer.

to receive a certification from INFINITI and the first in CVT production.

Q: What best practices has JATCO implemented to improve its Mexican operations? A: As a Japanese company, we implement global best

JATCO is a Japanese company focused on the production

practices that follow our corporate standards and we work

of automatic and continuously variable transmissions that

according to our own production system called JATCO

supplies OEMs such as Nissan, Mitsubishi, Suzuki, Renault

Excellent Production System (JEPS). This methodology

and GM

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| VIEW FROM THE TOP

NEW INVESTOR SEEKS AGGRESSIVE GROWTH JIMMY OTANI Director of Business Operations at MISUMI MEXICO

154

Q: What are MISUMIâ&#x20AC;&#x2122;s development plans for its new

Q: What opportunities will the recent OEM investments in

investment in Mexico?

the Bajio create for the company?

A: We analyzed the project for years and we finally decided

A: The arrival of new companies to the Bajio region presents

to pull the trigger on our investment in Mexico in 2018. We

an excellent opportunity for MISUMI, not only Toyota but

thought that the opportunities that incoming OEMs would

its suppliers as well. Choosing Queretaro as our preferred

bring to Mexico outweighed any possible complications in

investment destination was a strategic business decision.

the country. MISUMI has aggressive growth expectations

Our sister group Dayton Mexico had already established

for its new operations in Mexico. The automotive sector will

operations in the state, which gave us an insight on

be a key contributing driver for the company considering

Queretaro's industrial and logistics advantages. Similarly,

that most of our sales and products are oriented to this

we analyzed what the state could offer in terms of customs

market. Our challenge now is to strengthen our sales

operations. We have daily imports and having the support

to reach growth. Japanese companies are familiar with

of logistics companies, as well as access to the airport, was

MISUMI and our products but there is an enormous

a key issue.

opportunity with local companies as well. We have approached the State Minister of Sustainable We understand Mexico has strong manufacturing

Economic Development to understand what Queretaroâ&#x20AC;&#x2122;s

capabilities and its human capital is extremely competitive.

future development plans for the industry are and what these

Having local manufacturing capabilities to reduce our

could mean for MISUMI. Toyota will certainly be a motor

costs and our delivery times will be among our future

for the Guanajuato economy but all its suppliers will also

considerations.

boost the entire Bajio region. There are many new companies arriving to Mexico but we also see an opportunity to target

Q: What are the main advantages that MISUMI can offer

all players currently expanding their operations.

to clients in Mexico? A: MISUMI imports its components directly from Japan

Q: What opportunities do you see to expand beyond the

every day with a dedicated cargo. Customers can select

Bajio and into new industries?

from a wide portfolio of components depending on the

A: Presence of OEMs in the Bajio has certainly been an

tolerances, shape and materials they need. They can

advantage for Japanese companies. However, the north of

receive their purchase within days, which is one of the main

the country is also a greenfield for new investors looking to

advantages we can offer compared to other providers.

grow their participation in the global supply chain.

At the same time, we are aligned with the latest automation

We are at an early stage in our establishment in Mexico

and Industry 4.0 practices. As a global company, we are

and most of our clients are companies that already knew

capable to supply German and American players for

MISUMI from our operations in the US. These players are

their manufacturing needs. Right now, our challenge

now realizing the advantages of having local supply for

is to improve our marketing strategies to target more

their products. Moving forward, our plan is to start tackling

international players.

new companies not only in the Bajio but in the north of the country and to participate in other industries such as aerospace and medical devices. Aerospace is a big industry

MISUMI MEXICO is part of the Japanese company MISUMI

in Queretaro and Chihuahua and we have high hopes for

Group, which is focused on production and distribution of

our participation in this market. We are already planning

precision machine components, as well as auxiliary production

an expansion of our existing distribution center and the

materials and consumables

expectation is to grow to twice our current size to manage

20,000 SKUs by mid-2019. At the same time, we are growing our entire product portfolio and our goal is to have over 20 million SKUs available for our Mexico customers. Q: What can MISUMI bring to the table as a Japanese supplier in a global market? A: MISUMI does not compromise quality for cost. Our bet has always been to ensure quality products for our clients, while offering timely deliveries to support continuous manufacturing operations. As a Japanese company, we are also bringing best practices to the country that support our clientsâ&#x20AC;&#x2122; operations. We are experienced in just-in-time standards and we are committed to maintaining strict quality and delivery standards. Time is critical in all manufacturing operations and we are one of the few players that can meet strict requirements. Q: What role does digitalization play in your business development strategy? A: We have implemented an e-catalog and a system called WOS, which stands for Web Order System, that allows customers to draw and select components easier and faster, while avoiding clients having to send a purchase order to the sales department and then follow up with the request. Everything is managed digitally and automatically, thus reducing errors and delivery times. Digitalization is a key factor in todayâ&#x20AC;&#x2122;s industry and players that do not embrace this trend will have their operations obstructed and will not reach all the sectors they could hope to attack. Q: What are the main areas of opportunity you see in the die and mold market in Mexico? A: Demand for molds and tooling components is growing in Mexico. Most of these products must still be imported, making it difficult for clients to request maintenance and repairs. Now that MISUMI has operations in Mexico, we have been able to fill a gap in the industry that impacts many manufacturers and companies working in the metalmechanic sector. Q: What do you see as the main opportunities for Mexico to remain a key investment destination in the automotive sector? A: We hope the country maintains the same investment promotion strategy that has been in place over the last few years. Mexico has become a strategic partner for Japan and other countries looking to grow their industries beyond their borders, mainly because of its strategic geographic position and its specialized labor. The country should take advantage of that, incentivizing more investment to come.

155

| VIEW FROM THE TOP

TESTING, DESIGN SECURE BUSINESS GROWTH

Gonzalo Esparza SEO for Americas Region of Tachi-S RHQ

156

Armando Gómez Vice President of Tachi-S RHQ

Q: How will Tachi-S’ TSELA design and development center

Tachi-S is in talks with the companies that produce Toyota’s

support the Mexican automotive industry?

seats to try and become a Tier 2 supplier. It is unlikely that

GE: The TSELA design and development center is

Mazda or Toyota will stick to a single seat Tier 1 supplier once

already 100 percent functional, which means all design,

they ramp up their production and produce more models. We

development and testing for Tachi-S’ production can be

have an opportunity there.

completed locally in Aguascalientes. We have not yet engaged in advanced engineering processes or prototype-

AG: We have been working for three years with the goal of

designing operations in Mexico but we plan to do so soon.

inserting ourselves into Mazda’s local assembly processes.

Our main local client is Nissan and the fact that we can

We have the capacity to be a Tier 1 supplier for Mazda but

carry out these operations locally makes processes much

currently focus on negotiations with its direct suppliers to

faster and more efficient. Any testing and validation in our

become a Tier 2 that supplies components such as headrests

sector can be carried out locally rather than in Japan or the

and trim covers for seats. Similarly, Tachi-S owns a company

US, so TSELA has received a warm welcome from clients.

called Setex Automotive that has facilities located near the

Moreover, the center has an idle capacity that we want to

projected Toyota plant in Guanajuato.

occupy by servicing more automotive companies in the vehicle seats sector.

Q: What is Tachis-S’ strategy to insert itself into new supply chains?

Q: What is Tachi-S’ strategy to become the go-to seat

GE: We are integrating our processes to make sure we can

supplier for Mazda and Toyota in Mexico?

meet client needs within our market niche. Integration of our

GE: Tachi-S is ready to jump in and support any OEM that

capacities and processes and our ability to offer product

arrives to Mexico. We are already supplying seats for INFINITI

validation and certification processes locally are among our

vehicles being produced at the Renault-Nissan-Daimler

main differentiators. We pitch product ideas to clients and

COMPAS venture in Aguascalientes. We see an opportunity

offer them the possibility to certify these products locally

to eventually become a Tier 1 supplier for Mazda and Toyota,

so they can meet any international regulation. A key way to

although the former had defined which Tier 1 suppliers would

better respond to clients is achieving a greater integration

cater to its Salamanca assembly plant prior to its arrival to

of processes, which ensures greater control over our supply

Mexico. This reduces our opportunities to collaborate with

chain. By doing this, Tachi-S is able to adapt to the specific

the company until it starts producing new models. We have

needs of a Japanese, US or German OEM. A Tier 1 supplier that

tried to insert ourselves into Mazda’s local supply chain as

can only control the final links of a manufacturing process will

a Tier 2 by taking advantage of our well-integrated seat-

have a hard time addressing the needs of an individual OEM.

manufacturing processes and advanced manufacturing infrastructure.

AG: Creation of global alliances between OEMs, such as the Renault-Nissan-Mitsubishi Alliance, pushes Tier 1 suppliers to

The case of Toyota is similar to Mazda’s in the sense that

become cost-competitive at a global level. We need to be

it will come to Mexico with a series of previously agreed

able to compete locally, regionally and globally, so we need

commitments with its traditional suppliers. As with Mazda,

to look for the best suppliers in terms of costs. Q: What end-of-year results does Tachi-S expect for 2018?

Tachi-S is a Japanese seat manufacturer with a long-standing

A: The ongoing drop in sales limits our capacity to invest using

presence in the Mexican market. The company supplies to the

our own resources, so we may need to use external resources

local assembly operations of Nissan and Honda and offers

to continue investing. Aside from that, we expect to market

testing and design processes at its TSELA development center

around 900,000 vehicle seats for Nissan and Honda.

VIEW FROM THE TOP |

KEEPING SUPPLIERS CLOSE AND OEMs CLOSER JOSÉ CARRERA Purchasing Director of Calsonic Kansei Mexicana

Q: What are the main priorities and concerns of Japanese

Tier 1s in Mexico that manufacture the components and

suppliers related to the arrival of a new Japanese OEM

systems that Calsonic Kansei supplies.

to Mexico?

157

A: Our main priority is to increase our market share

Q: What growth opportunities has Calsonic Kansei

by growing our customer base and improving our

recognized in working with Japanese automakers?

competitiveness. This will help us reduce our costs and

A: Calsonic Kansei grows and expands its local capacities

increase our purchasing leverage. We are improving all

according to the demand of the customers it caters

our operations to become more competitive by boosting

to. We already supply thermal exchange and exhaust

our manufacturing efficiency and collaborating with our

systems, electronic components and interior parts to

suppliers so we can both become more competitive.

the Japanese OEMs in Aguascalientes and have aligned

We make constant audits and provide them with a clear

with these customers’ demand for just-in-time deliveries.

action plan for the short and long term.

The company is on the lookout for new customers as a strategy to increase its business.

Q: What are the main gaps that the Mexican automotive industry has yet to bridge?

Q: What best international practices is Calsonic Kansei

A: Cost-competitiveness, localization and development

sharing with its Mexican suppliers?

of Mexican suppliers and availability of raw materials in

A: We have developed several models and practices

Mexico are key challenges. Local procurement of some

specifically for our Mexico operations to improve our

raw materials for automotive manufacturing processes is

manufacturing processes, which have earned us the

difficult, which harms Mexico’s competitiveness compared

recognition of other suppliers in Aguascalientes.

to other countries. Aluminum, steel, resins and some electronic components are hard to find because there are

The know-how and practices that Calsonic Kansei has

not enough suppliers and the existing ones find it difficult

either developed in Mexico or imported from abroad

to supply the volumes the industry needs. Scarcity of

are shared with Tier 2 and Tier N suppliers so they can

these commodities forces automotive suppliers such as

increase their efficiency and competitiveness. We show

Calsonic Kansei to import them.

our suppliers how to identify gaps in their operations to improve their performance and product quality. We also

Additionally, it is common that validation and approval

help them find ways to build components more efficiently.

of locally-sourced raw materials takes too long.

Similarly, Calsonic Kansei shares its quality standards

Insufficient infrastructure and lags in Mexico’s technology

with local suppliers and works with them to meet the

development are issues that the automotive industry

company’s requirements when they face a problem.

needs to deal with.

Having local suppliers has given Calsonic Kansei an edge over competitors both in Mexico and abroad. We expect to

Q: What is Calsonic Kansei’s strategy to increase its

work with more local suppliers but prospective Tier 2s need

presence in the Mexican automotive industry?

to understand our processes and learn how to manage the

A: Calsonic Kansei constantly collaborates with OEMs

quality and cost that the company demands.

that have a global presence. This strategy has helped us become a global Tier 1 supplier with experience catering to the automotive industry in several markets, along with

Calsonic

our knowledge, the technology we use to manufacture

manufactures

our components, the efficiency of our operations and our

components, compressors, heat exchange and climate

cost-competitive sourcing strategy. There are not many

control systems for OEMs globally

Kansei

Japanese

cockpit

modules,

Tier

supplier

interiors,

that

electronic

| INSIGHT

EXCEED, NOT JUST MEET, EXPECTATIONS YASUSHI NISHIKAWA President of Sumitomo Corporation de México

158

Growing production volumes may be a clear sign of

their targets regarding sustainability and performance.

growth but for Yasushi Nishikawa, President of Sumitomo

Generally, introducing new technologies and replacing

Corporation de México, the real measure of a company’s

components demands investment and lighter materials are

success lies in finding new and better ways to cater to its

often more expensive than traditional solutions. However,

clients’ demands. “Only complying with the expectations

Nishikawa says that if the difference in cost can be justified

OEMs have is not enough for Sumitomo,” Nishikawa says.

through better performance and a lower cost in the overall

“We need to be stronger and more powerful to offer clients

production process, clients will prefer to go for the better

a counterproposal and exceed their expectations. By doing

option. “For us to truly understand the decision criteria of

so, we become more competitive and clients have the

our customers, we must maintain a close relationship with

confidence to choose us as their preferred option.”

them,” he says.

Sumitomo has a long history in Mexico after launching

While adapting to industry trends, the company also

operations in the country in 1954 and forming Sumitomo

has found key areas of opportunity in the local market.

Corporation de México in 1971. Today, the company has

Although steel production is among Sumitomo’s range of

21 subsidiaries in the country, 14 of them focused on the

expertise, most of the steel used and sold by the company

automotive industry, which according to Nishikawa is a

in Mexico is imported from Japan and other Asian countries.

clear reflection of Sumitomo’s commitment to Mexico.

The company is open to and considers supplier localization

However, as the new President of the company, Nishikawa

an advantage for any company. However, Nishikawa fears its

has outlined three key strategies that Sumitomo must follow

customers’ demands in terms of quality, cost and deliveries

to ensure ongoing success. “First, we must raise the value

are extremely high. “To meet and exceed expectations, we

of our existing operations. Second, we must innovate and

continuously make an effort to improve our operations and

develop our next-generation business. Third and most

we would like any potential partner to be on that same

important of all, we must develop a cross-business platform

wavelength,” he says.

between our subsidiaries and among our customers.” Rather than just bringing more business and increasing

Willingness to invest in equipment and modernization

production volumes, Sumitomo’s goal is to build synergies

is important for these companies to have a stronger

to better address its clients’ demands.

presence in the supply chain, according to Nishikawa. However, what he considers most important is investment

In Mexico, Sumitomo is a shareholder in Mazda’s operations

in best practices, methodologies and talent development

in Guanajuato and it has brought several subsidiaries to

through training and education. “Mexico is a great place

support the OEM’s growth, including providers of stamped

for manufacturing operations but not yet for engineering

body parts and aluminum components, as well as raw

and technology development,” he says. Sumitomo is

materials. Nishikawa wants to replicate the integration

exploring all opportunities to develop business beyond

strategy Sumitomo has implemented with Mazda in the

its current status. The company is analyzing startups in

rest of the company’s operations. The company already

Silicon Valley and new business opportunities where it can

has a good relationship with other OEMs, such as GM,

invest to support the growth of the industry and Nishikawa

Mercedes-Benz, Nissan and Honda, which Nishikawa sees

says that same strategy can be adapted to Mexico. “We

as an opportunity to expand Sumitomo’s business model.

are already investing in an electric-vehicle manufacturer

“Companies’ expectations regarding quality, cost and time

in the US and we think that same mobility vision should

of delivery are always increasing and we must find ways

be translated to Mexico,” he says. “In the meantime, we

to keep up,” says Nishikawa. Lightweighting is one of the

must continue strengthening our operations to be ready

most recent demands from OEMs as companies try to meet

for when that happens.”

INSIGHT |

CONSOLIDATE BEFORE EXPLORING NEW MARKETS

Oscar Ceballos Manager of Tokyo Boeki Techno-System de México

Shuichi Watanabe International Sales of Tokyo Boeki Techno-System

Understanding the Japanese way of working is not only

win situation for all parties involved; while TTS developed

a concern for suppliers wanting to participate in the

its technology further, its collaborators learned to target

automotive production chain. Technology providers must

the Japanese market. “Without our help, Carl Zeiss would

also be aware of the differences in work cultures if they

not be able to understand the Japanese work culture and

are to succeed in the market, according to Oscar Ceballos,

meet clients’ needs effectively.”

Manager of Tokyo Boeki Techno-System de México, and Shuichi Watanabe, International Sales of Tokyo Boeki

TTS has also worked to stay on top of new industry trends

Techno-System (TTS).

affecting the metrology segment to remain a competitive player. According to Ceballos, automation is the biggest

“Our core business is in the automotive industry and we

opportunity for the industry. “Clients need fast, stable

have a lot of support from Japan to develop in this market,”

and accurate measurements but they do not want many

says Ceballos. Being a Japanese metrology provider, TTS

cameras or sensors doing the job,” he says. However, due

is in an advantageous position to understand Japanese

to the many technologies that must come together —

clients and to cater to the growing investment coming

robotics, control systems, movement rails — automation

from this country. “We are a major player in the Japanese

represents a challenge for both manufacturers and

measurement systems market and we think that there

integrators. “Every element that you add to the system

is great opportunity to grow our presence in Mexico,”

puts measurement accuracy at risk so we must find a

says Watanabe.

way to maintain reliability while optimizing operations,” says Ceballos.

TTS started in 1960 and established operations in Mexico in 2013. The company has reached average yearly sales

Data processing and analysis is another disruptor in which

of over US$1 million and many leading companies such as

TTS is focusing. The company is working with software

Nissan, Mazda and Honda use its systems, according to

developer ATS to create a program similar to an ERP

Watanabe. Although he says that almost all companies use

but focused solely on manufacturing and quality-control

TTS technology back in Japan, in Mexico there are still many

operations. “We have also participated in Nissan and

companies, Japanese even, that do not know TTS and what

Daimler’s COMPAS project to collect all data from the

it can offer to their businesses. “Our goal at the moment is

body inspection process and upload it to the company’s

to target only Japanese companies and to grow our sales

internal network,” says Ceballos. “We continuously invest in

threefold in the next three years.”

technology development and that puts us one step ahead of our competitors.”

Ambitious as this objective may be, both Ceballos and Watanabe are confident in TTS’ almost 60 years of

The company may be focusing only on Japanese players

experience and the quality of its technology. According to

at the moment but its growth strategy will not always be

Watanabe, TTS is much more flexible than its competitors.

limited by nationality. By 2019, Watanabe says TTS plans

“Unlike other players that have always been focused on

to service any company regardless of its origin, including

equipment production, TTS started as a trading company,”

Mexican suppliers. The company understands the need

he says. “We used to import technology to Japan and one

for the industry to have more local sourcing, which is

of our suppliers focused on 3D measuring equipment.”

why it has already partnered with state governments to

Even though the company became a manufacturer too, it

support local players. “We are working on an agreement

maintained its openness to collaborate with other players

with the government of Aguascalientes to find the best

in the industry and now companies such as Carl Zeiss and

way to support small companies that want to purchase

Hexagon are TTS’ partners. This partnership has been a win-

our equipment.”

159

Kia Soul / Queretaro

ESTABLISHED LEADERS & NEWÂ ARRIVALS

New rising stars are battling their way into the market. South Korea has become a true contender in both the manufacturing and sales fronts and now China is following suit with its own production ventures supported by local partners. Meanwhile, from a sales and manufacturing standpoint, long-standing players are gradually shifting their strategies to appeal to a changing Mexican market.

Established Leaders & New Arrivals focuses on the growing automotive powerhouses coming from outside the three usual auto regions of the world. OEMs coming to Mexico share their perspectives as new entrants to a highly competitive market, while established players show how business strategies can change to grow a previously modest presence in the country.

161

CHAPTER 7: ESTABLISHED LEADERS & NEW ARRIVALS 164

ANALYSIS: Nontraditional Contenders Seek Automotive Success

165

VIEW FROM THE TOP: Guillermo Rosales, AMDA

166

INFOGRAPHIC: Asian Presence Expands

168

VIEW FROM THE TOP: Horacio Chávez, Kia Motors México

170

VIEW FROM THE TOP: Michel Kaim, Hyundai Motor de México

172

ROUNDTABLE: How Ready is the Mexican Market to Ditch Its Stigma Regarding Chinese Vehicles?

174

VIEW FROM THE TOP: Patrick Yang, BAIC de México

176

VIEW FROM THE TOP: Elías Massri, Giant Motors Latinoamérica

180

INSIGHT: Torben Eckardt, Volvo Car México

181

VIEW FROM THE TOP: Mario Olea, Bentley México

182

INSIGHT: Martin Josephi, Lamborghini, Aston Martin, Caterham & Morgan Mexico

183

VIEW FROM THE TOP: Martin Josephi, Lamborghini, Aston Martin, Caterham & Morgan Mexico

184

TECHNOLOGY SPOTLIGHT: OSRAM XLS, Revolution Through Standardization

186

VIEW FROM THE TOP: Enrique Enrich, Scania Mexico

188

VIEW FROM THE TOP: Gerardo Múgica, Alexander Dennis

189

VIEW FROM THE TOP: Moshe Winer, Volvo Group México

163

| ANALYSIS

NONTRADITIONAL CONTENDERS SEEK AUTOMOTIVE SUCCESS The US, Japan and Germany may be the three largest investors in the Mexican automotive industry but they certainly are not the only ones. Countries such as France, Sweden, Spain, the UK and Italy are present. But two stand out for going the extra mile and grabbing market share: South Korea and China

164

Of all the nontraditional companies present in Mexico, South

by the 2008 financial crisis were among the reasons why

Korean and Chinese brands may have the greatest opportunity

FAW light vehicles introduced by retail giant Grupo Salinas

to increase their share in the light-vehicle segment thanks to

failed miserably in the Mexican market. Less than two years

their local assembly operations. The start of operations of the

after the first models reached Mexican roads, the project

Hyundai Group in Nuevo Leon with Kia in 2016 and Hyundai in

to build an assembly facility to manufacture these vehicles

2017, BAIC’s operations in Veracruz in 2017, as well as the local

locally was dropped and sales were suspended indefinitely.

assembly of JAC vehicles by Giant Motors in Ciudad Sahagun are changing the landscape of automotive production in

Almost a decade later, two companies have taken it upon

Mexico and disrupting the status quo in the domestic market.

themselves to show the automotive quality that China can really bring to the table. “We are the first Chinese

SOUTH KOREA’S QUICK SUCCESS

automaker to come to Mexico in 10 years after FAW’s

South Korea was the fifth-largest investor in Mexico’s

failed attempt to enter the market,” says Patrick Yang,

automotive industry between 1999 and 1Q18, with 2.9

Director General of Chinese OEM BAIC de México. The

percent of the total foreign direct investment received

company started marketing BAIC light vehicles in June

in the automotive industry. Kia alone has achieved a

2016 and since then has obtained satisfying results. “In

significant share of the Mexican market only two years

2017, BAIC commercialized around 1,500 units and opened

after the Hyundai Group opened the Kia assembly plant

22 dealerships around the country,” highlights Yang. BAIC

in Nuevo Leon. The brand increased its domestic vehicle

expects to sell between 5,000 and 6,000 units in 2018 and

sales 49.2 percent between 2016 and 2017 to total sales

to assemble 1,000 vehicles at its manufacturing facility in

of 86,713 units and 10.7 percent in the first six months

Puente Nacional, Veracruz. Furthermore, the OEM is already

of 2018 from 41,055 units sold in 1H17 to 45,468 units in

looking for a location for a second facility in the country,

1H18. This swift sales growth made Kia the seventh-largest

according to Yang. “The whole country is aware of our

player in Mexico’s market with a 5.7 percent market share

intention and several state governments have contacted

in 2017. Horacio Chávez, Managing Director of Kia Motors

us to discuss the advantages they can offer,” he says.

México, says Kia arrived to Mexico as a vibrant alternative for the Mexican consumer and focused on differentiating

The partnership between Mexican automotive assembly

the brand. “For 2018, Kia’s objective is to sell 100,000 units

company Giant Motors with Chinese OEM JAC Motors to

in Mexico and produce 314,000 vehicles at the Pesqueria

introduce the JAC brand into the Mexican brand is China’s

plant,” he says.

second venture into the light-vehicle market. Elías Massri, Director General of Giant Motors Latinoamérica, says Giant

Although Hyundai has experienced less aggressive growth

Motors’ ability to adapt vehicles to various markets, coupled

rates than its sister brand, data from AMIA shows the

with JAC’s interest in building vehicles for the Mexican

company grew its sales substantially between 2016 and

market and making a long-term investment in the country

2017 reaching a 28.2 percent growth rate. The company

were the main reasons to target the passenger-vehicle

marketed 46,534 units in 2017 over the 36,287 it sold in the

segment. “JAC is a Chinese brand but all the vehicles that

previous year with the Creta SUV being Hyundai’s best-seller

Giant Motors produces for the Mexican market are made

in 2017 at 11,783 units. According to Michel Kaim, Managing

in Mexico, designed for the Mexican market by Mexican

Director of Hyundai Motor de México, Hyundai’s sales

people and using Mexican components,” says Massri.

target for 2018 is marketing 55,000 vehicles in the Mexican

According to Yang, other Chinese companies aiming

automotive market. “Hyundai is still in a growing phase in

to enter the Mexican market must learn to specialize in

Mexico,” he says.

the segment where their vehicles participate if they are going to prosper. He expects more Chinese automakers

THE CHINESE CHALLENGE

will eventually enter the market. “JAC is already in Mexico

Questionable quality, noncompliance with security and

and other Chinese companies are looking for partners to

emissions regulations and the economic difficulties caused

help them enter the country,” he says.

VIEW FROM THE TOP |

THE MORE BRANDS THE MERRIER GUILLERMO ROSALES Director General of AMDA

Q: What impact will the arrival of new brands have on the

Q: How much opportunity do you see for Korean brands

growth projections for the domestic market?

to grow their market share further?

A: The arrival of new brands to the market has been a

A: Based on the forecasts these brands have made, we

constant in the last 20 years. In the 1980s, there were only

expect them to keep growing their participation. However,

five brands in the Mexican market, all of them competing

new competitors keep arriving and we see more Chinese

with high prices and without true consideration for quality

and Indian companies interested in investing in Mexico.

standards as in other international markets. Today, we have

These players have scouted the country for many years

52 brands that operate under strict standards that favor

and although they have not made the decision, they could

the end consumer. To put this in perspective, vehicle prices

arrive at any moment.

in Mexico are below those in the US and Canada. In the luxury segment, for example, the difference might be up

Q: What future do you see for Chinese brands in the

to MX$100,000 (US$5,000). Competition has favored the

Mexican market?

development of the market, fueled by a stronger aftersales

A: Under the current business model they have presented,

service offering and improved financing schemes.

we expect these brands to have low-volume sales. Disrupting the status quo like some companies have done demands

Today, seven of the 52 brands present in Mexico represent

aggressive investment strategies, as well as local manufacturing

approximately 76 percent of the total light-vehicle sales.

operations that can complement the company’s portfolio with

However, we still see an opportunity for new brands to

a made-in-Mexico option that targets the country’s specific

enter the market, albeit targeting a specific niche. There

design and functionality requirements.

has not been much variation in the ranking of best-sellers in past years but companies have seen their market

Q: Overall, what are your projections for the industry in

share decrease as new companies arrive to the country,

the short and medium terms?

especially in this contracting market. There are still several

A: As of June 2018, we have seen 12 months of sustained

Chinese and Indian brands that could explore the country

drops in sales, mainly in the subcompact segment, but

and even though they will not conquer a massive market

we expect the demand curve to stabilize. We hope the

share, they will carve out a space among the rest of the

second half of 2018 will yield better results, considering

competition.

the base of comparison set in 2017 is lower. Inflation is also receding and financing interest rates in the automotive

Q: How have consumer preferences impacted the

market remain at relatively low levels. The ideal scenario

performance of different brands?

would be to stop further drops in demand and reach an

A: In an extremely competitive environment, clients can

equilibrium point at 1.5 million units by the end of 2019 and

choose what best suits their needs. Contrary to other

approximately 1.48 million by 2018. Although this result is

Latin American markets, Mexican consumers are much

certainly below the country’s true potential demand of 2

more sophisticated in their evaluation before purchasing

million units, it is enough to sustain foreign investment and

a new vehicle. Considering that now there are many

employment while the country moves to greater economic

different options in the same price range, clients can

growth by 2021.

look for the best design, safety, comfort, performance and maintenance proposal. The average vehicle price in the Mexican market is approximately MX$300,000

The Mexican Association of Automotive Dealers (AMDA)

(US$15,000) and brands that participate in this segment

was founded in 1945 and it now represents over 1,800

have strived to improve their portfolio in favor of the

dealership groups located in more than 210 cities throughout

Mexican consumer’s demands.

the country

165

| INFOGRAPHIC

ASIAN PRESENCE EXPANDS As the seventh-largest light-vehicle manufacturer and

rapidly becoming leading players in an already competitive

with a domestic market of 2 million vehicles sold per year,

field. However, Chinese players have also eyed Mexico and

Mexico has become an attractive investment destination

the potential opportunities this market offers. After FAW's

to target the Mexican consumer, as well as the US market

unsuccessful venture into the light-vehicle market, two new

and even Latin America. Until 2016, Korean companies were

brands have decided to enter Mexico. Industry leaders expect

the latest entrants to the market, gaining a large share and

these companies will take the industry by storm.

TOP LIGHT-VEHICLE EXPORTERS

GLOBAL OEMs IN MEXICO

4,400,000 2013

4,540,000 2,420,000 3,040,000

166

4,530,000 2014

4,320,000

KOREAN MANUFACTURING PRESENCE

2,640,000 3,020,000

4,650,000 2015

4,440,000

Hyundai

Hyundai Truck & Bus

CHINESE MANUFACTURING PRESENCE

2,760,000 2,920,000

4,650,000 4,500,000

2016

Kia

BAIC

FAW

JAC

Foton

9 3

4 7

OTHER GLOBAL MANUFACTURERS

2,770,000 2,580,000

Volvo

Scania

4,590,000 2017

4,590,000 3,100,000

CHINESE LIGHT-VEHICLE INVESTMENT IN MEXICO

2,490,000 0

Germany Japan

Mexico Korea

2006

2008

ZX Auto partners with CHAMCO Auto to invest US$400 million in Baja California

ZX Auto breaks partnership with CHAMCO Auto

Grupo Salinas and FAW reach an agreement to sell vehicles in Mexico and start local production by 2010

TOP LIGHT-VEHICLE MANUFACTURERS (million units) 30 25 20 15 10 5 0

2010

——China

2011

——US

2012

——Japan

2013

—— Germany

2014

—— Korea

Source: INA, Mexico Automotive Review, AMIA, Proméxico, Consumer Reports, Expansión, Reuters, México Automotriz, Milenio

Source: Source: CAAM, JAMA, VDA, KAMA, SIAM, AMIA, ANFAC, Automotive News, Data Center

Q: What opportunity do you see for Chinese vehicles to grow their penetration in the domestic market?*

Q: In the event of a change in the commercial relationship between Mexico and the US, do you see China growing its presence in the Mexican automotive industry?*

50.9% Slight opportunity 38.2% Strong opportunity 10.9% No answer 0% No opportunity

71.5% Yes

10.3%

64.8% Kia sales

017 r2

7 20 1 ay M

20 ,4

14,

83 6

14,8 57

10 ,83 5

12,866

11,3 99

Sep 2017

22,294

16,601 18,879

24,327

Oct 2017

16,6

40 21,70

14,

0 No v 20 17

,18

24 ,

89 ,7

20 18

Apr

182 21,

2 ,97 20

Fe b

017

76 ,3

201

2018

—— Hyundai sales ——Kia sales —— Kia exports —— Kia production

TOP 10 BRANDS IN MEXICO

2015

—— India

2016

——Mexico

*Mexico Automotive Review 2018 interviewee survey

2017

May

Jun 2018

JAC also enters the market with the help of Giant Motors

Aug

,588

60 17,0

BAIC enters the Mexican market in partnership with Grupo Picacho and starts local assembly

167

17 20

u 78 J ,9

15,

8,0 80 13, 7,9 810 30

5 24,4

Grupo Salinas announces suspension of FAW sales in Mexico

2 ,99

2017

7,815

22,585

2010

5,2

1 18,51

17,630

35.2% Hyundai sales

33.4% Hyundai sales

70,104 cars sold

66.6% Kia sales

7,603

8 60 7, 63 7,6 3 7,50

61,616 cars sold

5,011

1H18

7,353

1H17

30 7,4 4 5 7,2 110 3 3, 7,40 7 3,33 7,503

4, 00 7

7,441

of total light-vehicle sales

4,317

of total light-vehicle sales

12,693

4,5

8.3%

n Ju

95 ,4 16

6,8 11 7,2 10 7, 40 6

65% Kia sales 35% Hyundai sales

61.6% Kia sales 38.4% Hyundai sales

8,804

133,247 cars sold

7,201

94,399 cars sold

3,110

2017

of total light-vehicle sales

2016

2 01

8.7%

of total light-vehicle sales

3,2

5.9%

KOREAN PRODUCTION AND EXPORTS

Mar

Feb 20 17

KOREA'S PRESENCE IN THE DOMESTIC MARKET

Jan 2017

17.6% No answer 10.9% No

Brand

Units sold 1H17

Units sold 1H18

Nissan

183,565

153,822

General Motors

123,250

104,129

Volkswagen

95,269

74,868

Toyota

51,313

51,948

Kia

41,055

45,468

FCA

48,424

43,710

Honda

43,727

43,528

Ford

40,113

35,602

Mazda

25,117

26,293

Hyundai

20,561

24,636

| VIEW FROM THE TOP

BRAND AWARENESS PAYS OFF FOR RELATIVE NEWCOMER HORACIO CHÁVEZ Managing Director of Kia Motors México

Q: What key challenge did Kia face as a new entrant in the

in Mexico must be ready to adapt to the needs of our

Mexican market?

customers and what they want from us as a brand.

A: The biggest challenge has certainly been brand 168

awareness. Two years ago, we were an unknown player

Digitalization has been a key part of our strategy from the

but now we are among the 10 most popular brands in the

beginning. We are among the three main companies in

market. We came into the market as a vibrant alternative

Mexico in terms of Facebook followers and we are among

for the Mexican consumer and we had a strong focus

the Top 5 regarding Twitter. Most of our marketing efforts

on differentiating our offering. Still, we did not expect

are oriented toward social media. As an Official Partner

this kind of welcome since our initial objectives were

to the Russia World Cup 2018, we have organized several

conservative compared to the results we have obtained.

activities to take clients, journalists and partners to the

We implemented an aggressive marketing strategy to

event and we have done all this through social media.

make people aware of our products before we launched

We organized a kids’ soccer tournament featuring 90

them. We created high expectations and when people

teams. The final was held at the Azteca Stadium and the

arrived at our dealerships, they were surprised at what

winning team travelled to the World Cup. We also held

they found.

the Champ to the Arena contest in collaboration with Anahuac University, in which several teams played against

We have not let our guard down and we are relying on our

each other to select a winner that played against other

strong offering. Our cars have an attractive design, they

international teams in Russia.

are well-equipped, price competitive and offer high quality supported by our seven-year or 150,000km warranty.

Q: How are you navigating the global change in preference

Furthermore, we listened to our customers through social

toward SUVs and larger vehicles?

media and we adapted our strategy based on their opinions.

A: The Mexican market is changing along with the rest of

We moved many of our launches up some months or one

the world. The compact segment, however, is today the

year in an effort to keep up with market demand. Our

largest in Mexico. The volume opportunity is there and we

dealerships have also played a crucial role in building our

are pleased to have local production of two of our compact

reputation in Mexico. We wanted to have big, attractive

models: the Kia Forte and the Kia Rio. The former began

showrooms that represented our image as an important

production in 2016 and the latter in 2017. By the end of

brand and a key competitor in this market.

February 2018, Rio stood in first place of the hatchback B segment, while the sedan version made it to the fifth place

Q: What role does innovation play in your market strategy,

in the B segment. Forte, on the other hand, reached third

both in your portfolio and operations?

place in the hatchback C segment, while the sedan version

A: Our mid and long-term plans are focused on innovation,

ended in fourth place in the sedan C segment.

both with our products and our strategy for the market. Kia manufactures its vehicles in several locations around

Having said that, the SUV market is the one that is growing

the world and the company is looking to be one of the

in Mexico, especially in the B and C segments, and we have

main innovators in the industry. Meanwhile, our operations

a strong offering with the Kia Soul, the Kia Sportage and the Kia Sorento. The latter was originally our best-selling model, but it has been displaced by Rio. Soul is among the

Kia Motors was founded in December 1944 as Kyungsung

Top 5 best-sellers in its segment, Sportage is in second

Precision Industry, initially manufacturing bicycles. The company

place and Sorento leads the C segment. Our strategy with

began producing cars in the 1970s. It has since joined forces

Sorento was to offer what no other brand had brought to

with Hyundai to create the Hyundai-Kia automotive group

the market before, which was a four-cylinder C-segment

SUV. We intend to keep strengthening our position in the market and in 2018 we will also introduce a minivan. Q: How well did the market embrace the Kia Stinger, now that the brand is participating in the high-end segment? A: Mexico was the second market globally to receive the Kia Stinger. Korea made this distinction as a way to recognize the efforts we have made and the brandâ&#x20AC;&#x2122;s acceptance in the country. We initially expected to sell about 50 units per month but we have already surpassed that target. The response from the public has been incredible and we are confident we will end the year with over 500 Stingers sold. Q: In 2017, Kia in Mexico reached a 5-percent market share and growth in sales of 50 percent compared to 2017. What comes next?

169

A: We still have ambitious projects for the Mexican market. Our goal for 2018 is to reach the 100,000-vehicle mark in terms of sales. Regarding production, we expect to end the year with 314,000 cars manufactured at our Pesqueria facility, which would be a considerable increase compared to the 221,000 units we produced in 2017. We are already present in 98 percent of the national market through our distribution network but we think there is still an opportunity to build five more dealerships and to grow our penetration. At the same time, we are developing our distribution model for certified used vehicles. Kia is still a young brand in Mexico so growing this service has been a challenge. However, we think it is the best way to keep advancing in the market. We started the Konfidence

Kia Optima

program with five pilot dealerships and we expect to close 2018 with a total of 15 Konfidence distributors focused on certified used units. indefinitely. The elections were another risk factor. It is Q: How much of a risk do you consider the current NAFTA

unclear how much this will impact the market by the end of

negotiations for your production operations?

the year but we sensed more caution from clients. However,

A: There is much uncertainty and things change every day.

looking at sales records from previous election years, the

Every company makes investment decisions based on the

market always suffers some sort of disruption. We do not

current conditions of the market but flexibility is important

know what will happen by the end of the year but we hope

to adapt to conditions such as these. Our head office has

the market is mature enough to maintain its stability.

been preparing for different scenarios and in Mexico we are participating in all the negotiation rounds together

Q: What are your overall short and long-term goals

with AMIA to provide our feedback on how the industry is

in Mexico?

moving. We have faith in our negotiators and we are certain

A: We closed February 2018 as the fifth-largest brand in

they will do their best to get the best deal for the industry.

terms of sales in the domestic market. In 2015, our goals

Our hope is that conditions remain unchanged as much as

for 2020 were to reach sales of 100,000 units and a 5

possible so we can continue with our domestic sales, as

percent market share. We have already achieved one of

well as our production and export operations.

those targets and now we want to become one of the Top 3 brands in the country. However, we do not want to

Q: How much do you think the elections will impact

focus solely on volume. As a leading brand, we have the

consumer confidence and end-of-year sales results in 2018?

opportunity to take care of the customer in a way that other

A: There are many factors behind the deceleration in

companies have neglected to do. The market has become

light-vehicle sales. We enjoyed uninterrupted year-on-

extremely competitive and Asian brands have learned to

year growth for several years, which cannot be sustained

take advantage of this niche.

| VIEW FROM THE TOP

STRONG CONTENDER UNFAZED BY MARKET CONTRACTION MICHEL KAIM Managing Director of Hyundai Motor de México

170

Q: What are your top goals as the new Managing Director

Q: How is Hyundai dealing with the current contraction in

of Hyundai Motor de México?

domestic sales?

A: Hyundai operates based on three pillars that are the

A: We expect 2018 to be a difficult year. Domestic sales

bases of our strategy: commitment, quality and customer

have contracted since the second half of 2017, resulting in

service. We have an obligation to our stockholders and

an overall drop of over 8 percent. Having said that, Hyundai

our distribution partners to make our business profitable.

has managed to grow over 20 percent and we think 2018

But, at the same time, our biggest commitment is to our

will be an excellent year for the brand. Our initial goal for

customers and to Mexico in general. Although we have

2018 was to sell 55,000 units and we remain on track.

only four years selling vehicles under the Hyundai brand, our investments in the country go back 30 years. We

We are still in a growing phase. We realized there was

opened our first manufacturing plant in 1989 in Tijuana

demand for our vehicles in areas where we were not present

as Hyundai Translead and today this site employs 7,500

so we opened new dealerships to be close to our clients.

Mexicans. Many of our subsidiaries have now invested in

At the same time, we have grown our representation in

Mexico, including Hyundai MOBIS and Hyundai GLOVIS,

the different market segments competing in Mexico. In

two vehicle brands and a final-assembly plant in Pesqueria,

2017, we covered 55 percent of all market segments with

Nuevo Leon.

our portfolio. After the introduction of Accent, Ioniq and the seven-seater version of Santa Fe, that rate grew to

In terms of quality, all brands try to support their customers

80 percent.

but few can do it for five years. We are so confident about our product offering that we provide five-year bumper-

Q: Which models will drive Hyundai’s growth in this

to-bumper warranties and even protect the vehicle’s

challenging environment?

tires even though we do not manufacture them. This also

A: Based on how the Mexican market behaves and the

links to our goals regarding customer service. We are a

expectations we have for its future development, we think

new brand in the market and we selected our dealership

Creta is a key vehicle for Hyundai. This was our best-selling

network based on the quality they could provide in sales

model in 2017, with over 11,500 units of the total 46,500 we

and aftersales operations. Rather than partnering with

sold. Creta competes in the small SUV segment, which was

aggressive distributors, what we wanted was a distributor

previously nonexistent in Mexico but now has the highest

that could create a unique sales experience.

growth rates in the country.

We have been ranked three times in terms of customer

Accent has also become a strong contender in the country.

service and the lowest score we have received is fourth

This model targets the B segment, which in Mexico

place. Our best year we were ranked in second and in 2017

represents approximately 30 percent of total domestic

we took third place. We have remained among the Top 5

sales. Just by participating in this segment, this model has

players in the market for three years and we are always

been a great success for the brand. Together, Creta and

trying to innovate to offer an excellent client experience

Accent represent close to 35 percent of our total sales.

both in the dealership and through our digital channels.

In June 2018, we also launched Starex as our bet on the cargo segment. This is a 100-percent utilitarian vehicle and we hope to see great results both in the cargo and

Hyundai Motor is a South Korean OEM founded in 1967. The

passenger markets.

company started selling its vehicles in Mexico in 2015 and is now the 10th-largest brand in the market with a 3.6 percent

Q: What is your position on vehicle ownership and how it

market share as of July 2018

will impact sales in the near future?

Hyundai Sonata

171

A: Although there is a shift in consumer preference, we

A: We already have the capacity to sell our vehicles digitally

still see ownership as an important factor driving sales in

but always through a dealership. For Hyundai, distributors

the country. We do think ownership will gradually become

will still play an important role in our value chain, not only

less important for clients but so far it is not a risk for the

in terms of sales but in the customer satisfaction they can

brand. Still, we have an attractive offering for car-sharing

provide. Someone has to attract clients to our vehicles and

companies and ride-hailing drivers who have contributed

offer all the information to make an informed purchase and

greatly to our sales results.

that will be our distribution network.

Q: What role does digitalization play in your marketing

Q: What is Hyundaiâ&#x20AC;&#x2122;s vision regarding electrification and

and sales strategy?

the introduction of alternative motorization?

A: Digitalization is increasingly important for the client.

A: There is a global trend toward greater fuel efficiency and

We have tried to integrate this trend into our operations

that has favored Hyundai thanks to its focus on sustainability

and provide our dealerships with the right tools to support

and performance. Our internal combustion engines have

clients digitally. Previously, sales people had to do an online

improved drastically compared to our technology from 10

search to find Hyundaiâ&#x20AC;&#x2122;s rankings in terms of satisfaction

years ago but we have also delved into new motorization

and safety. Now, they all have that information available

schemes including hybrid and fuel-cell technologies.

through software engineered by the company. Beyond providing a faster response to clientsâ&#x20AC;&#x2122; inquiries, this has also

In Mexico, we are already marketing Ioniq as our hybrid

helped to increase customer satisfaction. Potential buyers

alternative. As a company, we think full-electric models are

find the right support from our sales-floor advisers and even

not an end solution due to the pollution problems related to

if they are not around, clients can consult the information

energy generation and battery disposal. Approximately 80

by themselves in a friendly format.

percent of the electric energy in the world is still produced with fossil fuels, which means that an electric vehicle still

Hyundai also strongly supports digital marketing because

pollutes even if it does not use gasoline. Our bet is on

we know clients conduct their research online before visiting

hybrid units and even fuel-cell powertrains as the cleanest

a dealership. We integrated a new tool called Hyundai Live,

alternatives.

where clients can watch a livestream of someone at the dealership showing the vehicles and highlighting their

Q: Overall, what is your projection for the industry and

features and capabilities. Potential buyers can even interact

how do you expect sales to behave by the end of 2018?

with this person, which means they no longer have to visit

A: There is still much uncertainty. The market is in a

the dealership to resolve specific inquiries. The sales person

downward trend that will be impacted by how the

can use a camera to show clients the inside of the vehicle

political and economic environment evolves. Mexicans

and provide a much more complete first impression of

will continue to buy cars but we still expect further

the vehicle.

contraction for the rest of the year, at least in certain segments. The luxury market, for example, has enjoyed

Q: As the industry moves toward a digital future, what will

years of continuous growth and the uncertainty of 2018

be the role of distributors regarding digital sales?

has not really affected it.

| ROUNDTABLE

HOW READY IS THE MEXICAN MARKET TO DITCH ITS STIGMA REGARDING CHINESE VEHICLES?

After FAW’s failed attempt to conquer the Mexican market, consumers were left with a bad taste of mouth regarding Chinese vehicles and overall Chinese automotive quality. However, as the domestic market grows and Mexico becomes a much more attractive automotive destination, Chinese companies see an opportunity to once again try and win over the Mexican client. Time may have passed and Chinese companies may not be the same as before but the question is, how ready are Mexican consumers to ditch their preconceptions regarding Chinese production and embrace these new brands as real participants in the domestic market?

We are the first Chinese automaker to come to Mexico in 10 years after FAW’s failed

172

attempt to enter the market. BAIC is now an example of the quality of Chinese vehicles. The fact that our units are now part of rental car operator Europcar’s fleet is evidence of our quality and competitive price standards. Working in a fleet means meeting quality and price standards or rental companies will not adopt these

PATRICK YANG Director General of BAIC de México

vehicles. BAIC started selling cars in Mexico in June 2016 and 22 dealerships across the country have opened since then. JAC is already in Mexico and other Chinese companies are looking for partners to help them enter the country. I think up to two new Chinese automotive companies will enter Mexico by 2H18. We assembled 500 cars in 2017 and our plan for 2018 is to finish another 1,000 and bring more vehicles ready for assembly.

Emerging brands have shown massive improvement in terms of quality and design. Moreover, the size of the Mexican market allows for a niche to attract new competitors. As long as these companies can offer an attractive option based on a price-to-quality rate, they will grow their presence and conquer part of the share currently held by other companies. This, however, is easier said than done considering

GUILLERMO ROSALES Director General of AMDA

the number of brands competing in Mexico and the constant efforts these players make to constantly introduce new technologies. Under the current business model they have presented, we expect these brands to have low-volume sales. Disrupting the status quo like some companies have done demands aggressive investment strategies, as well as local manufacturing operations that can complement the company’s portfolio with a made-in-Mexico option.

Consumers need to ask themselves whether a vehicle made in China is necessarily low-quality. The best way to ditch this stigma is to drive these cars and to consider that renowned dealership groups, financing institutions and insurance companies would not risk their image and prestige by selling vehicles without a solid warranty. There is no place for half-good or half-bad vehicles in the automotive industry. The

ELÍAS MASSRI Director General of Giant Motors Latinoamérica

level of sophistication and quality enforcement common to the global automotive industry means OEMs either comply with the minimum quality standards and are present in the market or they do not. Regardless of their origin, brands that arrive to Mexico have all the technological, endurance and quality needed to compete in the global market.

This is a cross that Chinese brands will have to bear and shake. Mexican consumers have already proven they are no fools and they are demanding, at least with the brands already established in the country. Some clients might have had bad experiences with Chinese vehicles but the future of new brands will depend on how they present themselves to the public. If these companies decide to invest and participate as actively as any other brand in the market, the result will be positive. It will definitely take time to eradicate previous ideas regarding image and quality but Mexicans are willing to invest in good cars regardless of their origin. These brands will definitely grow but maybe not at the rhythm they do in China.

GERARDO SAN ROMÁN Head of Latin America at JATO Dynamics

These brands have a great opportunity to grow in the market and all other industry competitors must be careful of how these companies evolve. The market is in a downward trend that will be impacted by how the political and economic environment evolves. Mexicans will continue to buy cars but we still expect further contraction for

173

the rest of 2018, at least in certain segments. Chinese OEMs have a huge production capacity and they have the flexibility to update their models at the drop of a hat. All this helps them be extremely aggressive not only in Mexico but in all international markets. Mexico did have a bad experience with previous Chinese ventures but these newcomers

MICHEL KAIM Managing Director of Hyundai Motor de México

have worked extensively to ensure quality at an extremely competitive price.

Many dealerships are already betting on these models and we expect to enter this business before the end of 2018, although we are still considering who to partner with. Clients are gradually trusting these companies and it helps that they have the support of large distribution groups. The big advantage of Chinese companies is that they have an attractive design and extremely competitive prices, even though they pay high percentage import tariffs. Right now, Chinese brands are approximately 10 percent below their competitors in terms of price. If we conclude a free-trade agreement with China in the future, the difference might reach 30 percent. There will be no further discussion of these brands’ success after that.

CARLOS LÓPEZ DE NAVA Director General of Grupo Alden

One of the Chinese brands entering the market is a massive company globally and the distributor of the best-selling electric vehicle in the world. The OEM is not that well-known in Mexico but in the short time it has been in the market it has grown its sales considerably. The company was extremely careful when selecting its distribution partners, some of whom were already Scotiabank’s clients. We were surprised about the level of research this OEM did before entering the market and it gave us confidence regarding the company’s opportunity to grow. We see great potential in this and other Chinese companies because they have improved their quality significantly both in terms of product and service.

AURELIANO GARCÍA Automotive Financing Director and CFA of Scotiabank

This will depend on the marketing efforts these companies implement. The average customer is not aware of whether a brand is Chinese, Korean or Japanese. As long as the company offers an attractive design at an affordable price, coupled with a good financing strategy, the market will embrace its vehicles regardless of their origin. Having said that, the image of Chinese manufacturing is changing and companies are now betting on innovation and electrification. Our perception is changing accordingly and we now have many Chinese brands that exemplify technology development. I see a good opportunity for these players to grow their presence in the market.

FERNANDO ENCISO Automotive Director of Grupo Surman México

| VIEW FROM THE TOP

THINKING GLOBALLY, PARTNERING LOCALLY PATRICK YANG Director General of BAIC de México

174

Q: What main challenges has BAIC faced as a newly

customer. Right now, we focus on sales, aftersales service,

arrived Chinese OEM to distribute its vehicles in the

warrantees and spare part availability. We have partnered

Mexican market?

with Banorte and other financial institutions to provide

A: We started selling BAIC cars in June 2016 and

adequate financial plans for the Mexican market and BAIC

we are satisfied with our results so far. In 2017, BAIC

plans to launch its own financial branch, BAIC Finance, in

commercialized around 1,500 units and opened 22

Mexico with the help of these and other partners.

dealerships around the country, with three in Mexico City. We are the first Chinese automaker to come to Mexico in

Q: How will BAIC meet its ambitious goal of reaching a 3

10 years after FAW’s failed attempt to enter the market.

percent market share in Mexico by 2020?

BAIC is now a representative of the quality of Chinese

A: In 2017, we were focused on structuring our internal

vehicles. The fact that our vehicles are now part of rental

systems and processes, so we did not push our partners

car operator Europcar’s fleet is evidence of our quality and

to sell a certain number of vehicles. We are optimistic

competitive price standards.

about selling between 5,000 and 6,000 vehicles in 2018. After that, we should be able to achieve

Q: What can Chinese automotive companies looking to introduce their vehicles to the Mexican market learn from BAIC? A: Several companies have come to visit our dealerships to see how our

500

cars assembled by BAIC in 2017 in collaboration with AT Motors

sales volumes of 20,000 vehicles by 2019. If we double that figure, we can reach annual sales of 40,000 vehicles by 2020. There are many steps to be taken before reaching this goal. Besides retail, BAIC sells in large volumes to fleet companies and is

business model in Mexico works.

looking to introduce its electric cars to the

These brands have vehicles that

Mexican market.

participate in the same segment as some of ours, so it is the fastest way for them to learn about the business.

In terms of new products, BAIC looks forward to

BAIC, however, focuses on the off-road segment with its

introducing the X35 compact model and the BJ20 and

BJ40 vehicle. Therefore, other Chinese companies must

BJ80 off-roaders to Mexico. We plan to launch BAIC

learn to specialize in the segment where their own vehicles

Finance in 4Q18 or 1Q19. This new financial branch will

participate. JAC is already in Mexico and other Chinese

help BAIC customers find the best solution to acquire

companies are looking for partners to help them enter

their vehicle. We have worked with Banorte since BAIC’s

the country. I think up to two new Chinese automotive

first dealership in Mexico opened. We now look forward

companies will enter Mexico by 2H18.

to signing an alliance agreement with this company and other banks to launch BAIC Finance. BAIC needs to

Q: After entering the market with Grupo Picacho,

achieve higher returns in the Mexican market before it

what opportunities have you identified to build more

can introduce more business.

relationships with other distributors? A: We understand that no distribution group can cover

Q: In 2017 you said the Mexican market was not ready for

the entire country, so we must find the best partner in

BAIC’s electric vehicle offering. What made the company

each region. Although we built our presence with the help

change its position?

of Grupo Picacho, we established BAIC de México as an

A: Cars were previously limited to an autonomy of only

independent company owned by BAIC Motor Corporation

200-250km and battery charging times that took eight

in Beijing. We are trying to manage the entire value chain

hours at home or 40 minutes at a quick-charge station.

by ourselves, understanding both the market and the

In 2H17, BAIC contacted several distribution companies in

Mexico to provide a better alternative that addresses these

have developed mature policies or a strong automotive

issues based on battery replacement services. Clients will

industry. Finally, we look for readily available labor that is

drive to swapping stations and change their dry batteries

amiable toward our operations. We cannot make a decision

for charged substitutes in under three minutes. Under this

based on only one factor, we must analyze the state’s whole

scheme, clients will not need to buy their batteries but

offering. Today, we must even consider the advantages of

lease them and only go to stations to swap them when

operating in or near a free-trade zone. The government has

depleted. This will not only prove an advantage in terms of

highlighted two initiatives, one in Veracruz and the other

charging times but also as a way to reduce electric vehicle

in Oaxaca, so we are considering them in our decision-

costs. Batteries are among the highest costs in electric car

making process.

production, which means that by leasing them they will become more affordable. Q: How have BAIC’s growth projections been affected by the slight decrease in auto sales that Mexico suffered in 2017? A: Each company’s strategy must adapt to the market but BAIC does not see an overly negative impact considering the sales drop only amounted to 5 percent. The Mexican economy can be trusted because it has matured. Most

BAIC is the first Chinese light-vehicle manufacturer to venture into Mexico after FAW

of the country’s income came from oil revenue five to 10 years ago, but today more money comes from

Q: Is BAIC looking to build this project on its own or are

activities such as automotive manufacturing and tourism.

you looking for a partnership?

Furthermore, we think the cancellation of NAFTA or a

A: Partnering is an intelligent way for companies to

modification of its basic rules are unlikely to have a

enter markets, so we work with local companies, share

particularly negative impact on Mexico. Most countries

business and get feedback from local players. In Mexico,

will work together to make the global economy stronger

we are not looking to have a 100-percent BAIC-owned

and regardless of the recent protectionist views in the

facility; we are interested in having local partners. BAIC

US, China will not shy away from its preference for an

collaborates with governments and companies wherever

open economy.

it is present. For instance, BAIC is an exclusive partner of Daimler in China. Daimler has been present there for

Q: How have your manufacturing operations in

over 30 years and continues to work with BAIC as we

Veracruz advanced?

help them manage their business in the Chinese market.

A: Last year, we brought the components to build around 1,500 cars and BAIC started assembly operations in June

Q: How ready is the Mexican market to overcome the

2017 after training its employees. We assembled 500 cars

stigma regarding Chinese vehicles?

in 2017 and our plan for 2018 is to finish another 1,000 and

A: We are the first Chinese automaker to come to Mexico

bring more vehicles ready for assembly. BAIC’s partner,

in 10 years after FAW’s failed attempt to enter the market.

AT Motors, is purchasing new components and equipment

BAIC is now an example of the quality of Chinese vehicles.

for its production line, leading to increased efficiency and

The fact that our vehicles are now part of rental car

productivity since May 2018.

operator Europcar’s fleet is evidence of our quality and competitive price standards. Working in a fleet means

Meanwhile, we are looking for a new location to build

meeting quality and price standards or rental companies

a second production operation in Mexico. By now, the

will not adopt these vehicles. BAIC started selling cars

whole country is aware of our intention and several state

in Mexico in June 2016 and 22 dealerships across the

governments have contacted us to discuss the advantages

country have opened since then. JAC is already in Mexico

they can offer. By the end of 2018, we expect to have made

and other Chinese companies are looking for partners

a decision on where our new plant will be located.

to help them enter the country. I think up to two new Chinese automotive companies will enter Mexico by 2H18.

Q: What does BAIC prioritize when looking for a place to set up shop? A: Logistics costs are crucial for us, as well as port

BAIC is a Chinese OEM that started operating in Mexico in 2016.

accessibility to either Manzanillo, Lazaro Cardenas or

The company assembles two models at its Puente Nacional

Veracruz. The investment environment is also significant

plant in Veracruz and plans to open a new facility in Mexico.

for us; BAIC looks for regions where local governments

BAIC specializes in the commercial and off-road segments

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| VIEW FROM THE TOP

CHINESE ORIGIN, MEXICAN DESIGN, ENGINEERING, ASSEMBLY ELÍAS MASSRI Director General of Giant Motors Latinoamérica

176

Q: What prompted Giant Motors to partner with JAC and

On the other hand, assembly and component integration

introduce a new Chinese brand to the Mexican passenger

are labor-intensive activities that require product

vehicle market?

development processes and tropicalization of products

A: We understood there was demand for SUVs and decided

in their target markets. Giant Motors adds value in these

to target young people and new families with vehicles

areas, which is why we invested in the renovation of

that offered high connectivity. Giant Motor’s previous

our facility in Ciudad Sahagun to assemble passenger

investments in Mexico and its ability to adapt vehicles to

vehicles.

different markets, coupled with JAC’s interest in building products for the Mexican market and making a long-term

Q: What is Giant Motors’ strategy to grow the participation

investment in the country, prompted us to choose JAC as

of Mexican companies in its supply chain?

our partner brand to attack the passenger-vehicle segment.

A: We have an R&D center solely focused on product

Today, all vehicles leave Giant Motors’ facility in Ciudad

tropicalization and development of local suppliers. We

Sahagun, Hidalgo, with a Mexican Vehicle Identification

have been working for a decade with Mexican suppliers

Number (VIN), the “Made in Mexico” seal and the necessary

and distributors, as well as with Chinese companies,

local content to compete in the Mexican market.

which has enabled us to accelerate the integration of local suppliers. Giant Motors has gone the distance to develop

Q: What challenges has Giant Motors faced when

local suppliers’ capabilities and to help them participate in

introducing JAC vehicles to the Mexican market?

our manufacturing chain. Entering the passenger-vehicle

A: We are focused on developing products specifically

market has brought new opportunities for our suppliers

designed for the Mexican market rather than just

and our already developed truck assembly operations have

importing vehicles from abroad and pushing consumers

made this integration much faster.

to adopt them. This entails significant challenges for Giant Motors and JAC in terms of investment and market

Q: What advantages has Giant Motors found in the state of

research. It took us around two years to introduce the

Hidalgo compared to other automotive-intensive regions

JAC brand to Mexico because the goal was to work with

in Mexico?

the best distributors in the country and to develop the

A: We established in Hidalgo over a decade ago because

infrastructure necessary to compete with the best brands

the state had developed a strong manufacturing industry

already present in the market. Our competitors are not

oriented to heavy vehicles and had a population with a

other Chinese brands in Mexico such as BAIC but all light-

vocation for truck production that reduces training costs.

vehicle brands in the market.

Additionally, Ciudad Sahagun has good railroad connectivity with the rest of the country, as well as a privileged

Q: How do Giant Motors and its Chinese partners

geographical position that puts us at roughly the same

complement each other’s operations?

distance between the Pacific and the Atlantic. The Ciudad

A: There are five general steps in an automotive

Sahagun city government is also engaged in attracting and

manufacturing and assembly plant: metal pressing,

retaining investment. Local academic institutions and the

component welding, painting, assembly and component

public and private sectors are well-aligned to make Hidalgo

integration. On the one hand, metal pressing, component

an attractive destination for vehicle production.

welding and painting are highly-automated processes that require little labor but need high production volumes to

Q: How do you think Mexican consumers and vehicle

be profitable. Our suppliers and partners in China have

distributors will react to JAC vehicles?

experience in these areas as China is the largest automotive

A: We expect to reach our sales target of 10,000 JAC

market in the world.

vehicles ahead of time because sales have exceeded our

initial expectations. As of 1H18, 17 JAC dealerships are

and diesel fleets with eight and four-cylinder vehicles

operating and by 4Q18 we expect to have 30 dealerships

to smaller options that cater exactly to their needs.

up and running. All 17 distributors involved in JAC vehicle

Furthermore, these vehicles have the warranty and service

sales have done their part in developing a strong dealership

support that FAW distributors deliver. Giant Motors has

network in the country.

also started manufacturing buses. We construct most of the chassis and we are allied with Mexican body

Q: What milestones has Giant Motors reached in its project

manufacturers to deliver vehicles adequate to the needs

to develop electric vehicles for the Mexican market?

of Mexican customers.

A: The first prototypes are finished. They deliver the necessary autonomy and have the specific battery,

Q: How has the Mexican commercial-vehicle segment

construction, dealership support and security standards

reacted to FAW vehicles?

that drivers require. The acceptance of this vehicle among

A: FAW commercial vehicles are leaders in the light-cargo

taxi drivers will depend on our ability to deliver a monthly

segment. Our main niches are gasoline vehicles with a

cost similar to what they currently pay, plus additional

capacity of up to 1.3 tons and diesel trucks of between

savings in fuel costs.

3 and 7 tons. Among our clients are SMEs and mobile billboard companies. The next step for Giant Motors is

Giant Motors has the vision of offering users an alternative

entering 2ton niche by introducing vehicles with smaller

to fuel vehicles in the commercial passenger and cargo

engines that deliver 50-percent better fuel-efficiency than

transportation segments that substitute the country’s aging

the market average.

vehicle park. The idea is that people can make a living off these vehicles but the government needs to truly commit to

Q: How ready is the Mexican market to ditch its stigma

the introduction of electric technologies for these products

regarding Chinese vehicles?

to succeed. A national plan with clear objectives toward

A: Consumers need to ask themselves whether a vehicle

green vehicles is critical for the public to adopt these units.

made in China is necessarily low-quality. The best way to

This entails charging stations, easier access to subsidies

ditch this stigma is to drive these cars and to consider

for electric-vehicle acquisition and lower electricity costs,

that renowned dealership groups, financing institutions

among other advantages.

and insurance companies would not risk their image and prestige by selling vehicles without a solid warranty.

Q: What is JAC’s innovation strategy regarding

There is no place for half-good or half-bad vehicles in the

green vehicles?

automotive industry. The level of sophistication and quality

A: JAC recently signed an association with Volkswagen

enforcement common to the global automotive industry

in China to create a feasible electric vehicle that can

means OEMs either comply with the minimum quality

substitute a gasoline car. Most brands in Mexico have

standards and are present in the market or they do not.

an electrification strategy in place but the growth of

Regardless of their origin, brands that arrive to Mexico

the Mexican green vehicle park will depend on the

have all the technological, endurance and quality needed

competitiveness and affordability of these vehicles. If the

to compete in the global market.

focus is only on the premium sector, the participation of green vehicles in Mexico’s vehicle park will be minimal.

JAC is a Chinese brand but all the vehicles that Giant

Electric vehicles built by Tesla and German OEMs that are

Motors produces for the Mexican market are made in

sold in Mexico tend to be recreational units for drivers who

Mexico, designed for the Mexican market by Mexican

also own gasoline-powered cars.

people and using Mexican components. All our JAC vehicles are designed to support a five-year bumper-to-bumper

Q: How can Giant Motors’ FAW commercial vehicles add

warranty, so all components must meet this standard. In

value to your clients’ operations in the cargo segment?

terms of safety, all JAC vehicles sold in Mexico have a five-

A: Our goal is to produce and market vehicles with the

star NCAP certification. Additionally, we manufacture and

lowest fuel consumption, depending on the amount of

have spare parts available in Mexico so no car has to stay

cargo they carry. Giant Motors also places a high priority

in the shop for a month because the component needed

on safety and a long vehicle life cycle. Commercial vehicles

is not there.

are rational purchases, so we need to meet expectations on vehicle safety, cargo capacity, durability, torque and fuel consumption to add value to clients’ operations.

Giant Motors is a Mexican automotive assembly company focused on production of commercial and passenger vehicles for

Giant Motors has developed pure-leasing and financing

the Mexican market. The company partnered with JAC Motors to

schemes that allow companies to move from gasoline

assemble and market passenger vehicles in Mexico in 2017

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178

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| INSIGHT

WORKING SWEDISH, GROWING MEXICAN TORBEN ECKARDT Former Managing Director of Volvo Car México

180

Adapting products and services to the Mexican market can

customers a homier experience by using imported furniture

be a difficult challenge for foreign automotive companies

from Scandinavia and covering the dealerships’ glass

looking to increase their market share. Despite the hurdles,

façade to invite the clients in and see our vision of luxury

the outcome warrants the effort, according to Torben Eckardt,

for themselves,” he points out. Only in March 2018, Volvo

Former Managing Director of Volvo Car México.

Car México opened five new dealerships simultaneously in Guadalajara, Puebla, Monterrey, and two in Mexico City: on

Sweden-based auto maker Volvo Car has gone down that

Masaryk Avenue and in the Santa Fe neighborhood. The Santa

road and after a difficult 2017 the brand is starting to harvest

Fe location combines the Volvo showroom with its corporate

the results. However, Eckardt says the company must still

offices and training centers. According to Eckardt, keeping a

overcome several challenges to implement the Volvo culture

dealership close to Volvo’s offices enables the company to

in Mexico and maintain the 18 percent growth rate it posted

speed up processes. “This is a great form of integration as

in 1Q18. “Our internal organization is changing, as well as the

we can now go downstairs to learn the perspective of our

way we communicate and do marketing,” says Eckardt. “We

salespeople,” he says.

need to work with the best partners, strengthen the brand’s image and reorganize ourselves internally to fit Volvo’s global

As the final pillar in its renovation strategy, Volvo is also

corporate culture.”

changing the way the company communicates its brand and how it markets its vehicles. Eckardt points to the launch of

Along with opening new offices in Santa Fe, part of Volvo’s

the XC40 as a turning point in the company’s history. “It was

changes to its team involved bringing in fresh blood with new

the first time for Volvo Car and for Mexico that a vehicle was

ideas, perceptions, knowledge and networks, says Eckardt.

launched simultaneously in all showrooms in the country,”

He points out that collaborators who had been with the

he says. “The XC40 launch was both a turnaround for us as

company for some time had the most difficulty dealing with

a brand and something new in marketing,” he says.Although

the company’s changes. Those who succeeded are valued.

these corporate changes are proving beneficial for the

“The people who stayed at Volvo Car México carry the brand's

brand’s position in Mexico, their implementation has caused

heritage, experience and knowledge,” he adds. Volvo’s goal

Volvo Car México’s growth to take slightly longer. Eckardt

is to be an organization wherein various viewpoints coexist

says the company’s sales were on the low side throughout

rather than clash, says Eckardt. “This involves both modern

2017 because the company canceled its largest dealerships

leadership and modern employees,” he says. “Millennials

in Mexico City and Puebla. “These dealerships accounted for

cannot demand that leaders be modern and proactive if

23 percent of our sales,” he points out. “We expected to find

they are not modern and proactive themselves.” Change

a dealer to recover in the second half of the year but it took

also reaches beyond Volvo’s walls. Eckardt says dealers

us longer to find the right partner.”

and distributors must also be open to the changes that the company is implementing in the country. “Partners interested

The company established a relationship with Grupo Picacho

in making processes better, faster or stronger are attractive to

for its dealership on Masaryk and Volvo’s growth rate hit 58

Volvo,” he says. Differences in work cultures between Sweden

percent in March 2018 and 18 percent for the entire first quarter

and Mexico have been difficult and Volvo has worked to

of the year, compared to 1Q17. “This 18 percent growth in 1Q18

overcome this challenge.

is close to the initial forecast we had of 15 percent growth for FY17,” Eckardt adds. “We are three to four months late in our

Part of Volvo’s strategy is to create a different customer

projection but we hope to end 2018 with growth of at least

experience where dealerships, rather than being mere

20 percent.” This task will now fall onto Raymundo Garza,

parking lots surrounded by glass, are spaces that recreate

who has replaced Eckardt as the new Managing Director of

the atmosphere of a Swedish living-room. “We offer

the brand in Mexico.

VIEW FROM THE TOP |

REMOVE THE MIDDLEMAN, GROW SALES MARIO OLEA Director of Bentley México

Q: How has Bentley advanced in its establishment as an

These, however, were the prices we had under the previous

independent brand in Mexico?

scheme and they are valid until 2018.

A: Bentley México is now owned by Grupo Surman, after it acquired the rights to become a direct importer for

Q: How is Bentley innovating in terms of motorization in

the brand. We still have a relationship with Volkswagen

its vehicles?

Group in Mexico but they mostly help us with our logistics

A: We will start receiving 2019 models in October 2018 and

operations, homologations and other legal issues. Bentley

these vehicles will arrive with the new motorization scheme

globally is still part of the Volkswagen Group but in Mexico

the brand will implement. Bentayga, for example, will feature

Volkswagen has given up its importer rights and is now just

a new V8 configuration that, thanks to cost efficiencies

supporting us with certain services.

and our new price structure, will lead to a starting price of approximately US$250,000. The vehicle will have a more

Grupo Surman is a concessionaire for all of Volkswagen

sportive frame with less weight thus maintaining a similar

Group’s brands in the country and has participated as

performance of 550hp from the original 600hp. By mid-

concessionaire for Bentley for the 12 years the brand has

2019, Bentley is also planning to introduce a hybrid engine

been in Mexico. Our relationship has now evolved to a closer

configuration with an electric motor coupled to a V6 engine

integration because our concession no longer comes from

for Bentayga.

the Volkswagen Group in Mexico but from Bentley in the UK. Grupo Surman now has the entire responsibility over

Q: What is the brand’s position regarding electrification?

the Bentley brand in Mexico. The priority at the moment is to

A: Bentley is following the industry’s trend and will make this

strengthen our operations now that we are no longer under

a priority for the brand as part of the Volkswagen Group’s

the wing of the Volkswagen Group. We already signed an

commitment to sustainability. Having said that, we will not

agreement for a new showroom in Monterrey and our plan

ditch our signature W12 engines and they will still be available

is to open another one in Guadalajara. Moreover, we have a

for those clients that prefer an extra edge in their vehicles. This

project of itinerary exhibitions in different cities throughout

engine configuration is particularly attractive for armored cars,

the country such as Merida and Cancun that will start in 2019.

although V8 models will also deliver a powerful performance.

Q: How did this process impact your results in 2017?

Q: How has the introduction of Bentayga disrupted your

A: This transformation entailed an improvement in our

sales results?

distribution model and in our prices. We started negotiating

A: Our all-time best-seller in Mexico has traditionally been

directly with Bentley in Crewe, England, which led to

the Flying Spur, a four-door model with a W12 engine based

reductions of 10 to 15 percent in the prices we were offering at

on the Continental platform that later evolved to have its

the beginning of 2017. We also started managing our aftersales

own. However, after the introduction of Bentayga, this

service directly, reducing delivery times for spare parts.

model rose to 50 percent of our sales in the country. We

Additionally, we renovated our lineup. By the end of 2016,

expect good results for 2018 and we are forecasting sales

we presented Betayga, Bentley’s SUV with a W12 engine that

of 22 to 25 units by the end of the year, which will represent

delivers 600hp, torque of 900Nm and acceleration from 0 to

growth of almost 50 percent compared to 2017.

100km/h in 4.1s. This model complemented our four existing families that included Mulsanne, our top-notch model with a starting price of US$450,000; Continental, priced between

Bentley Motors is a luxury OEM based in the UK. The company

US$330,00 and US$350,000 and Flying Spur that has the

is now part of the Volskwagen Group and managed in Mexico

same price range as Continental. Bentayga now becomes our

by distribution group Grupo Surman, which represents all of

fourth model and participates in the US$350,000 price range.

Volkswagen Group’s brands in Mexico except for Lamborghini

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| INSIGHT

NEW BET, NEW SALES

“

Everything shows that Urus will become a flagship model for Lamborghini, more than doubling our sales results” Martin Josephi, Director General of Lamborghini, Aston Martin, Caterham & Morgan Mexico

the re-inauguration of Lamborghini’s dealership in Mexico City. “Globally, all our dealerships are going through a renovation process to fit our new corporate image,” he says. Although Josephi was optimistic about this model, Urus surpassed all expectations. “Everything shows that Urus will become a flagship model for Lamborghini, more than doubling our sales results,” he says. The company expects 15 units to come to the country between August and December. By 2019, that number should escalate since the brand will receive orders throughout the year, leading to sales of between 25 and 30 Urus units by the end of the

182

Globally, client preferences are changing and SUVs have

year. Overall, Lamborghini will maintain its air of exclusivity.

become the bread and butter of every major automotive

In 2017, the automaker manufactured 3,900 vehicles, up

market. The exotic, super-sports car market has not been

from its original goal of 3,500 due to increased global

immune to this trend and several brands have already

demand. The idea is for Urus to duplicate the company’s

released their bet on the SUV market to reach new clients.

total manufacturing volume but not produce as much as the market demands. “We want to maintain our image as a

“Families cannot fit in an Aventador or Huracán but that all

coveted brand,” says Josephi. “Although it is okay to have

changes with an SUV,” says Martin Josephi, Director General

some units available for on-the-spot sales, having too many

of Lamborghini, Aston Martin, Caterham & Morgan Mexico.

does not generate a sense of exclusiveness,” he says.

“Lamborghini is a truly successful and aspirational brand but some people would like to enjoy their passion with their

Urus will represent a further milestone in the brand’s

whole family, rather than with just one person at a time.”

history. Lamborghini does not believe in turbocharged engines, having oriented its entire production toward

Given the huge technological improvements in recent years,

naturally aspirated engines, explains Josephi. Urus does

the downside of SUVs’ size and weight can be offset with

feature a turbocharged engine to support its off-road

extra power, technology and enhanced braking capabilities,

capabilities given the high level of torque needed early in the

giving vehicles not only comfort and daily usability but

acceleration process. But Josephi does not think traditional

almost matching performance with sports cars. The brand

models will go in that direction. Instead, they will feature a

acknowledged this and in December 2017, it unveiled the final

hybrid configuration. Even if there is still no date, everything

design and price of its Urus SUV to compete in this previously

points to Lamborghini releasing a hybrid version of Urus

uncharted market. Urus arrived to Mexico at the end of August

in the future, according to Josephi. “Companies normally

and so far, the production destined for the country in 2018 has

expect the hype in a certain model to recede after the launch

already been sold. “Any new clients will receive their vehicles

of a new version but that seems unlikely to happen anytime

by March or April 2019,” says Josephi. The car will be officially

soon, which means that the introduction of a hybrid version

presented in Mexico in September 2018, which will also mark

could be delayed,” he says.

Lamborghini Urus

VIEW FROM THE TOP |

SUSTAINED GROWTH DESPITE A DECELERATING MARKET MARTIN JOSEPHI Director General of Lamborghini, Aston Martin, Caterham & Morgan Mexico

Q: How have your results evolved considering the overall

the brand releases its DBX SUV in 2019 or 2020, results will

growth of the luxury market?

again be similar between Lamborghini and Aston Martin.

A: The exotic super-sports car (ESSC) market has enjoyed continuous growth for the past five years. Between 2012 and

Regarding our Caterham and Morgan brands, they are part

2013, this segment was controlled by Lamborghini, Ferrari,

of an even more exclusive niche for clients that are looking

Bentley, Porsche’s high-end line and Maserati. Since then, new

for something very classic. Although models have evolved

brands have entered, including Aston Martin, McLaren, Rolls-

in terms of under-the-hood technology, they have remained

Royce, Lotus and other smaller brands such as Caterham

true to their origins in design. These brands have much

and Morgan. Practically all brands are now competing in the

more reduced sales than Lamborghini or Aston Martin but

ESSC Mexican market but still, we are selling more than in the

even so, both Caterham’s and Morgan’s offices have been

early days. We do not know how long this trend will last but

surprised to see such acceptance in the Mexican market.

in the case of Lamborghini and Aston Martin, we have our entire stock sold through December 2018 and we will have

Q: What are your priorities for Aston Martin in 2018 and

considerable growth compared to our sales results from 2017.

what new models are you bringing to the market? A: Currently, our volumes depend mostly on the DB11. This

Q: What reasons are behind the growth in the overall

model was originally launched with a V12 engine and it then

luxury segment?

moved to a V8 configuration. Now, we are unveiling the DB11

A: Economically, Mexico is going through a favorable period.

AMR version that goes back to the original V12 engine but

There are still problems but the country has improved

adds 300hp of power and a convertible version as well. At

greatly in terms of infrastructure, not only in Mexico City

the same time, we are launching the new Vantage, which

but in other states. Security remains a concern but that has

will be our most important release in 2018. This model

been compensated by the support of a growing upper class.

arrived in August 2018 and we already have several presold

Having said that, there are still areas of improvement that

units. Vantage will become our entry model, allowing us to

if addressed would help the ESSC market grow threefold.

compete with brands such as Porsche and McLaren.

Stability has been a key factor in helping clients gain more confidence, particularly in the luxury segment. It is true that

By the end of the year we will receive the first units of the

worries regarding the elections and Mexico’s relationship

DBS Superleggera, which was just unveiled in June 2018

with the US affected the peso but even then, the country has

and substitutes our previous Vanquish family. This model

managed to stay within certain levels of stability.

will be our top-of-the-line unit and a new flagship vehicle for Aston Martin. The car has a carbon fiber body and an

Q: How does sales performance compare in each of

engine that delivers 715hp and torque of over 900Nm. With

your brands?

the introduction of DBS Superleggera, the brand marks a

A: Even though both Lamborghini and Aston Martin participate

specific differentiation between families. This vehicle is

in the same market segment, they are completely different

Aston Martin’s most radical offering, DB11 is the core of

brands. Lamborghini is the exotic and performance-driven

the brand and a more refined alternative, while Vantage is

end of the market, while Aston Martin is more oriented to

firmly positioned as the sports car of the brand.

style and luxury. Only 30 percent of our clients go for both. In terms of sales, we had very similar results until 2017. However, with the introduction of Urus, we expect to see a much more

Lamborghini, Aston Martin, Caterham and Morgan are

defined difference after a probable growth of 100 percent in

distributed in Mexico through DB Imports, managed by

Lamborghini’s sales. We forecast significant growth for Aston

Martin Josephi. The company has three dealerships in

Martin as well, but more in the 30 percent range. Maybe when

Mexico City

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| TECHNOLOGY SPOTLIGHT

OSRAM XLS, REVOLUTION THROUGH STANDARDIZATION Over the past few years, LED technology has brought many benefits in terms of design and has led to greater energy efficiency. However, many different vehicle-oriented solutions have been created. To reduce this complexity, OSRAM has developed an innovative standardized LED light source for signal light applications. With the XLS product family, OSRAM is launching a signal light portfolio that offers all the innovative benefits of LED technology while maintaining the proven benefits of traditional lamps, such as standardization and exchangeability. The UN/ECE R128 standardized lamps will be available in four types for different signal applications in yellow for the LY5, white for the LW5 and L1 and red for the LR5. The yellow LY5 lamp with 280 lumen and a life of up to 4,000 hours is used for turn indicators. LW5 is a white signal lamp for reversing and DLR applications with 350 lumen and a life of up to 5,000 hours. The two other members of the XLS product family currently in planning are a red LR5 brake, rear and fog light that provides up to 4,000 hours of light with a luminous flux of 120 lumen and a white L1 high-precision fog light with up to 350 lumen and a life of up to 5,000 hours. With protection against electrostatic discharge, polarity reversal and over-voltages, OSRAM's XLS products comply with all standard requirements for modern vehicle electronics. The company also uses chip-on-board technology for its XLS light sources. This enables the LED chips to be spaced very close to one another with common optics.

OSRAM's XLS family offers standardization for reduced costs The XLS product family delivers a wide range of benefits for consumers, headlight manufacturers and automakers. A standardized platform for LED signal lamps reduces the number of individual solutions for vehicle models. Meanwhile, integrating the heat sink and electronics in the light source eliminates design costs and approval for each individual solution. Reusing design modules and similar platforms also cuts down time, effort and costs of development. For workshops and car owners, a standardized solution means light sources can be directly replaced when damaged, which leads to lower repair costs and greater road safety.

185

| VIEW FROM THE TOP

MARKET EVOLUTION BRINGS NEW OPPORTUNITIES ENRIQUE ENRICH Managing Director of Scania Mexico

186

Q: What challenges does Scania face in boosting the presence

are willing to accept a higher initial cost if it comes with

of its cab-over trucks in the Mexican heavy-vehicle park?

greater benefits such as fuel efficiency and aftersales

A: Clients that adopt our cab-over vehicles tend to have

service. Scania also sells some of the most expensive trucks

US-style trailers in their fleet because it is hard to come

in Mexico. European brands only hold about 3 percent of

across longer European-style units. This forces companies

that segment but I expect this share will increase thanks

to couple European-style cab-over trucks with US-style

to NOM-012 and the rising price of diesel. This is a trend

trailers, which leaves a space between the back of the

we have seen in other countries. Markets where US and

driver’s cabin and the front of the trailer. When the truck is

European alternatives competed tend to adopt more

moving, this space causes a negative aerodynamic effect

European technology over time.

that makes fuel efficiency only 6 percent greater when it could be up to 15 percent greater.

Q: How has Scania evolved regarding its aftersales operations and what advantages does this offer

Q: How has Mexico’s demand for Scania’s alternate

to clients?

motorization configurations evolved?

A: Scania has opened four new maintenance shops in 2018

A: Most public-transportation systems in Mexico use diesel-

in Mexico and we want to open two more in Chihuahua

powered, 7m units but as cities look for more efficient vehicles,

and Tuxtla. These shops can cater to vehicles circulating

Scania’s CNG-powered BRTs have become a good alternative.

in the region as well as the local Scania fleets. We open

We are building and about to deliver 12 CNG articulated units

seven shops per year on average, with the majority

and 25 CNG 12m buses for the city of Puebla. Yet, the Mexican

being located at client yards. When a client purchases a

market has difficulties adopting this type of truck. Compared

significant number of Scania vehicles, we take our service

to California where around 70 percent of all new inner-city and

operations to their facilities.

interurban buses sold in 2017 were CNG-powered, Mexico’s CNG vehicle sales only amount to 2 percent of total bus sales.

Scania has marketed more than 4,000 maintenance

The market would adopt these solutions more easily if there

policies for its buses. About 68 percent of the Scania fleet

were a larger natural-gas station network.

in circulation has its maintenance directly with the OEM while most heavy vehicle brands only have a 6-percent

Q: How are Scania’s body manufacturing partners evolving

rate on average. When clients hire their maintenance from

to cater to local bus demand?

us, they can be confident their units will be in good hands.

A: Our main body manufacturing partners are growing their capabilities. We work with several companies present in

Q: How has global demand for increasingly fuel-efficient

Mexico including Irizar, Marcopolo, Beccar, Ayco, Ayats and

heavy vehicles impacted Scania’s assembly operations?

Busscar. When building a bus, Scania works with the body

A: In the early 2000s, Europe accounted for 80 percent

manufacturer that clients choose. We build and deliver the

of Scania’s sales and Latin America accounted for only

chassis at these companies’ assembly line so they finish it

20 percent. This has changed and in 2018 we saw greater

according to the client’s specifications.

demand for our vehicles in Asia than in Latin America as the company enters new regions. China has become one

Q: What is Scania’s strategy for top-of-the-line heavy-

of our most important markets.

vehicles equipped with advanced safety and comfort technology in Mexico’s price-sensitive market?

Scania reached a global backlog of around 100,000

A: We offer some of the most expensive products in

trucks in 2018, which is a record for the company. We

Mexico’s heavy-vehicle sector. Scania sells the costliest

are increasing our sales as the global market develops

and best-selling vehicle in the interurban segment. Clients

a taste for our New Generation Scania vehicles. Being

Next Generation Scania

187

the most fuel-efficient models in Europe, demand for

Q: How do you expect new emissions regulations to impact

these vehicles has increased. However, this has also put

the Mexican heavy-vehicle market?

pressure on suppliers to deliver components faster as

A: The adoption of European emissions norms in Mexico

delivery times have lengthened due to the saturation of

in 2014 opened the door for European OEMs to sell their

production lines. In Mexico, we have a record-breaking

vehicles in Mexico. Before this, only US trucks that met US EPA

backlog of more than 800 vehicles. Though delivery

emissions standards could be purchased in the country. There

times have extended, clients continue to order Scania

are some differences between EPA and Euro standards in

trucks as they recognize their advantages.

terms of emissions of particulate matter and gases but these standards generally work as a barrier against foreign vehicles.

Q: What challenges are electric buses facing to grow their presence in the market?

Generally, European trucks have greater fuel efficiency than

A: While Scania and Volvo already offer all-electric

their US counterparts. On average, Scania trucks have 6 to

buses in Sweden, the total electric fleet of both brands

15-percent greater fuel efficiency than the brands of US and

is no more than 30 units. The Swedish market prefers

other European units in the market because they need fewer

gas-powered buses because electric versions are too

RPMs to generate similar torque. Since fuel is expensive in

expensive while gas-powered units offer both price

Mexico, fuel efficiency makes a difference for clients looking

and environmental advantages. In terms of initial and

for new trucks.

operative costs, electric buses are still the most expensive option by far. Scania has electric, hybrid, ethanol, CNG,

Q: What are the advantages of being a Swedish company

diesel and hydrogen fuel-cell motorization technologies.

in Mexico?

We expect hydrogen fuel cells to become the motorization

A: Compared to German or Japanese companies, Swedish

technology of the future.

companies are less hierarchical. Scania has a more inclusive management form where hierarchies exist on paper but

Q: What advantages can the implementation of

interactions can happen directly. All collaborators at Scania

new norms such as NOM-044 deliver in terms of

must spend at least one day a year helping our fellow

vehicle safety?

mechanics servicing Scania vehicles at the shop. This

A: City governments around the world have moved toward

gives us the opportunity to generate knowledge about

banning conventional cab configurations where the

our product. Some of us are mechanics while others are

truckâ&#x20AC;&#x2122;s engine and hood are placed in front of the driverâ&#x20AC;&#x2122;s

managers, engineers or analysts but at the end of the day

cabin because of the poor visibility and maneuverability

we are a service-oriented company that builds and services

they offer. In Mexico, it is sad to see so many long-nosed

trucks and buses.

trucks used within cities for waste collection and similar activities. These units do not meet visibility regulations of virtually any country as children, animals and shorter

Scania is a Swedish heavy-vehicle OEM part of the Volkswagen

people are harder to see. Blind spots and other safety

Group. In Mexico, the company assembles bus chassis and cab-

concerns are generally not discussed in Mexico and long-

over trucks at its plant in Queretaro and has a network of 61

nosed trucks are still out there.

aftersales points

| VIEW FROM THE TOP

NEWCOMER MAKES A GOOD IMPRESSION GERARDO MÚGICA Partner México of Alexander Dennis

188

Q: What challenges did Alexander Dennis face as a

North America, best suited to individual customer and/

newcomer to the Mexican heavy-vehicle sector?

or market requirements. Therefore, our exposure to risk

A: Our project with Line 7 of Metrobús helped us start

is minimum. Although we are a UK company, we have

our operations in Mexico with a bang. The challenge to

developed a strong local team in Mexico, supported by

grow in the market is yet to come but this project has

our colleagues in UK.

helped us build a strong and visible image from the very beginning. Thanks to this, we are already well-known in

Overall, we had good support from the British Foreign

the bus sector and we believe it was a good choice to

Service Office. Our Ambassador in Mexico, Duncan Taylor,

start with import operations. It would have been very

and his team were of great help while we entered the

risky to bring an assembly line in the hopes this venture

country and we also had the advantage of bringing a quality

would work. However, we now can start thinking about

product that reflected the image and standards of the UK.

taking the next step and developing a manufacturing

Double-decker buses are an icon in the UK and it was a

presence in Mexico. We still want to develop import

coincidental added value that Metrobús chose a red image

projects and especially for small volumes this is our best

some years back because it was sort of a nod to the iconic

and most profitable option. We want to close new deals

London buses. Our buses are now part of the personality

in other parts of the country and eventually grow into

of Reforma Avenue, hopefully for a long time.

new operations as we introduce other products or our clients demand more customization.

Q: How important is Mexico for Alexander Dennis’ global operations?

We did, however, face a political challenge in our venture

A: We have operations in various cities in the UK, Hong

with Metrobús. At the point when Mancera was planning

Kong, Singapore, Malaysia, New Zealand, Europe, the US

to run as a presidential candidate, he could use Line 7 as a

and Canada. Mexico is our third venture in the Americas

success in its administration. However, his opponents could

and we expect to have many synergies with our partners

also use that same project to discredit him. Bus projects are

in North America. Although we are growing our global

commonly used as political tools because they are a good

presence, we still do not have the same footprint as other

example of things that can be somehow easily done and

OEMs, which means that our venture in Mexico is extremely

inaugurated by the administration.

significant for the company. The country is our first contact with Latin America and it could potentially be an opening

Q: What impact did being a UK company have on Alexander

to service other countries in this market as well.

Dennis’ entrance to the Mexican market? A: We started this project in the middle of the Brexit

Q: What conditions should be met for Alexander Dennis to

negotiations, which has created uncertainty for all

bring manufacturing operations to Mexico?

organizations. However, Alexander Dennis has a

A: Cities keep growing and we have no doubt that local

diversified global manufacturing footprint and sourcing

demand will suggest at some point that we have to explore

strategy which allows us to source materials and build

alternatives. We do not want to participate in this market

vehicles in various locations across Asia Pacific and

with a commodity product; we want to offer an added value to the industry and we think there is potential for other competitors to also raise their standards in the products

Alexander Dennis is a British bus manufacturer with branches

offered in this market. Less than 1 percent of the buses in

in the UK, US, Canada, Europe, Hong Kong, Singapore, Malaysia,

Mexico City are low-entry units with good technology, while

New Zealand and most recently Mexico. The company is currently

the majority are primitive, high-entry units that discriminate

the world’s leading manufacturer of double-decker buses

against part of the population.

VIEW FROM THE TOP |

SUPPLIER LOCALIZATION KEY TO MINIMIZING UNCERTAINTY MOSHE WINER Commercial Director of Volvo Group MĂŠxico

Q: How successful has Volvo been regarding its

components in small volumes at more competitive rates

manufacturing operations?

than international companies. That has been the main

A: We are now manufacturing what we sold by the end of

challenge in building a strong supplier network in Mexico.

2017 and we are pleased to have almost all our production

189

slots taken. 2018 will be a good year in terms of production;

Q: What benefits has creating a separate chassis division

we closed several deals from the beginning of the year

brought to Volvo?

through May. We have some free production slots but we

A: Creating a separate chassis division was a complete

intend to use them for potential sales during the year. So far,

success for the company because it allowed us to compete

we have seen good results for the brand in Mexico.

in a segment where we were previously not present. Our complete buses were well-positioned in the top-tier

Q: How is the company advancing in terms of sales

segment of the industry but moving down to a more

considering the difficult political and economic conditions

volume market, our units were too expensive. Now that

that have unfolded?

we sell our chassis with bodies from other manufacturers,

A: There was much uncertainty during the first half of

we have become much more competitive, growing our

the year because of the federal elections in July and we

customer base without neglecting our original clients.

expect many changes as we move forward. Globalization

Thanks to our chassis business we are growing our market

is key in our industry and we do not think focusing all our

share. We ended 2017 with a 31 percent share and our goal

resources on developing the domestic market is a good

for 2018 is to reach the 35 percent mark. We are already

strategy moving forward. However, the true plans of the

working with Irizar and Beccar, which represent the bulk

new administration are still unknown, which slows our

of our business with body manufacturers, and we are also

clientsâ&#x20AC;&#x2122; decision-making process as a result.

partnered with Marcopolo.

We think 2019 will be a difficult year, although not as

Q: How is Volvoâ&#x20AC;&#x2122;s electromobility strategy going to impact

catastrophic as many believe. We expect the peso to

your sales and growth projections in Mexico?

continue depreciating and foreign investment to slow.

A: Mexico has enormous potential to take the next step

Having said that, Mexico will not become a closed market.

toward electrification. Urban transportation will be the first

There will be some challenges in the beginning but

segment to tackle to eventually move toward interurban

eventually the market will stabilize.

and coach applications. In Mexico, Volvo is still working with diesel technology, although as a brand we have hybrid,

Q: What strategies are you implementing to minimize the

plug-in hybrid and full-electric units. We have already

impact uncertainty has on your company?

introduced Euro V engines to the country even though the

A: We have tried to adjust our manufacturing capacity

law requires only Euro IV standards, and we are lobbying

according to our expectations for the size of the market

with the authorities to show the benefits that electrification

in the coming years. At the same time, we have worked

might bring. We understand initial investments are higher

on our supplier localization strategy. We depend greatly

with electrified units but governments must see this as a

on components coming from Europe and the US that are

long-term strategy for improving the city.

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

Volvo

oriented like the light-vehicle market. Sales in the coach

headquartered in Gothenburg. The group has production

Group is

Swedish

vehicle

manufacturer

segment amount to 1,500 units per year on average, which

facilities in 18 countries and has been producing buses in

means suppliers must be prepared to offer specialized

Mexico for 20 years

The new government will maintain financial and fiscal discipline” Andrés Manuel López Obrador

INDUSTRY WISH LIST FOR THE NEXT 6 YEARS After two unsuccessful attempts, Andrés Manuel López Obrador will take the helm of government as Mexico's next president for the 2018-2024 term. Although his campaign rhetoric sparked doubt as to whether his administration would strongly support the automotive industry and its development as a cornerstone of the Mexican economy, since winning the election the presidentelect has shifted to a more positive stance in the eyes of investors.

López Obrador's Nation Project has outlined his approach to some issues but sector leaders also have a clear idea of what is needed to remain a key competitor in the global automotive market. The industry hopes for a dialogue with the new administration to foster an air of collaboration that can move the sector forward.

191

| A LOOK BACK

PEÑA NIETO’S LEGACY Mexico's automotive industry developed successfully between 2013 and 2018, achieving consecutive record levels of production, exports and sales, while maintaining a steady flow of foreign investment. However, there are still areas of opportunity to strengthen Mexico’s position as an automotive destination During President Enrique Peña Nieto’s administration,

to move along with the treaty without the US. The decision

the automotive industry enjoyed unprecedented and

was favorable and a new agreement was negotiated known

undisrupted growth in both production and sales in the

as the Comprehensive and Progressive Agreement for

domestic market, the latter until the second half of 2017.

Transpacific Partnership. Mexico was the first to ratify the

Peña Nieto has been a champion for foreign investment

agreement, followed by Japan and Singapore.

attraction and incentivizing Mexico’s position as an open economy for trade and manufacturing operations.

The Peña Nieto administration is also renegotiating the NAFTA agreement with the US and Canada and Mexico has

192

In 2012, the automotive industry represented approximately

maintained a position in favor of open trade and doing what

3.5 percent of the national GDP and 20.2 percent of Mexico’s

is best for the industries in all three countries. Although

manufacturing GDP according to the Ministry of Economy.

the agreement was expected to be finalized by the end

By the end of 2017, the industry’s participation in the national

of August, the task will most likely fall to Peña Nieto’s

GDP had risen to 2.9 percent, while contributing 18.3 percent

successor Andrés Manuel López Obrador, who has already

of manufacturing GDP. The industry is now the second-most

designated Jesús Seade as Chief Negotiator to replace

important contributor to manufacturing GDP, only behind the

Ildefonso Guajardo, Minister of Economy.

food industry, which represents 22.4 percent of the country’s total manufacturing revenue. In terms of production facilities,

In terms of domestic policies, Peña Nieto's administration

the administration of former President Felipe Calderón

was also an active supporter of the development of the

ended with 27 assembly plants of light and heavy vehicles.

automotive industry albeit not as successfully in some areas

Peña Nieto’s administration will end with 40 manufacturing

as expected. According to Rogelio Garza, Deputy Minister

facilities, including BMW and Toyota’s operations that will be

of Industry and Commerce, the goal of this administration

operational by 2019 and 2020, respectively.

was to enforce a “light” industrial policy that ensured the government’s intervention only in matters where the market

As mentioned, Peña Nieto was an active supporter of foreign

demanded it. “Our focus has been on four pillars: generating

direct investment in the country, which was one of the goals

world-class talent, promoting innovation, supporting supply-

established by his administration in the National Development

chain development and creating synergies between clusters.”

Plan 2013-2018. Peña Nieto’s goal was to make Mexico the leader in Latin America regarding trade and commercial

In the National Development Plan 2013-2018, Peña Nieto

agreements. During his administration, investment only in the

established a goal to invest 1 percent of national GDP in

automotive industry grew by 125.6 percent, totaling US$32.1

science, technology and innovation to align with the minimal

billion between 2012 and 2017, according to the Ministry of

standards outlined by the OECD. “Our goal is to design more

Economy. This represented approximately 12 percent of the

cars and more auto parts locally and have more prototyping

total foreign direct investment received by the country. At

and testing centers,” said Garza. The country’s current

the beginning of his administration, the country received

expenditure on R&D activities amounts to 0.9 percent of GDP,

US$3.5 billion in new projects. Meanwhile, 2017 was the most

although R&D center directors from CONACYT-led facilities

successful year with US$7.1 billion in investment.

say there have been cuts to CONACYT’s budget of up to 30 percent. The National Development Plan 2013-2018 also

Although NAFTA was and still remains Mexico’s most

considered education a priority for industrial development,

important trade agreement, during Peña Nieto’s

highlighting that academic institutions were not in line with

administration the country entered negotiations for the

what industries demanded from local talent. Although there

Transpacific Partnership Agreement that could have opened

has been communication between the public and private

the doors to the Asia-Pacific market with Australia, Brunei,

sector, Mexico still faces a lack of talent availability that is

Malaysia, New Zealand, Singapore and Vietnam. Negotiations

expected to worsen as more projects arrive to the country.

were advancing favorably until Peña Nieto’s fourth year in office when Donald Trump was elected US president. Trump

Looking at projects with a more successful outcome,

pulled the US out of the agreement, which put negotiations

together with the National Bank of Foreign Trade

on hold until the member countries decided whether or not

(Bancomext), AMIA, INA and the automotive clusters

across the country, the government developed the ProAuto

In 2016, the light-vehicle domestic

Integral 2014-2018 program to offer support for SMEs

market reached record sales of 1.6 million units. In terms

looking to participate in automotive production chains.

of production, 2017 numbers

“ProAuto is the specific program we have developed for

reached a record 3.9 million units in production and 3.1 million

help SMEs develop in the automotive sector,” says Garza.

in exports. The country is the

“This administration implemented a ‘precise-shot’ strategy

seventh-largest light vehicle

to give priority to companies that focused on areas of opportunity for the country. We no longer hold massive events hoping to find one or two suppliers to develop. Instead, we go directly to OEMs and large Tier 1 suppliers and ask them to identify potential local suppliers.” Through ProAuto, the government established seven main areas of development for the local supply chain: forging,

POSITIVE

the automotive industry, aligning several public policies to

manufacturer and the thirdlargest exporter. By the end of 2017, the automotive industry represented 3.5 percent of the national GDP and 20.2 percent of the manufacturing GDP. The industry generates over 1.9 million direct jobs and generates a surplus of US$70.8 billion.

stamping, machining, plastic injection, molding, pressing and die forming. After identifying companies that can offer an added value in any of these sectors, the ministry helps them pinpoint what they need to improve to become part of the production chain. “We are encouraging supplier

193

The automotive industry is the main receptor of foreign direct investment in the country with US$7.1 billion in 2017 and US$60.7 billion between 2000 and 2017.

development and we are in touch with all the OEMs and Tier 1 suppliers coming to the country,” says Garza. “We have already approached FCA, GM, Bosch and Continental with this strategy.” According to Eduardo Muñiz, Head of Automotive, Aerospace and Logistics Financing of Bancomext, by the end of 2017, the bank had already channeled approximately MX$100 billion (US$5 billion) in funding to the automotive industry, providing liquidity and enabling capital expenditure

WHAT WAS THE POSITIVE AND NEGATIVE?

for investment projects in the sector. “Bancomext has achieved an average annual growth of 9.8 percent in the last five years in its automotive-oriented credit portfolio,” he says.

Mexico’s vehicle park’s average age remains at 13 years in the light-vehicle sector while 36

age of the domestic vehicle park. In the light-vehicle segment, stricter measures were implemented regarding the

percent of the units in the heavyvehicle segment are over 21 years. The country has the potential to sell 20 new vehicles per 1,000

restriction of used-vehicle imports, which led to a significant

inhabitants but today that rate is

reduction of these units’ participation in total domestic sales.

13 vehicles per 1,000 inhabitants.

In 2012, 458,114 used vehicles were imported from the US. In 2017, that number fell to 123,638, a reduction of 73 percent. In the heavy-vehicle segment, the government’s vehiclerenovation programs were not as effective considering the

The country needs a better renovation strategy for heavy vehicles that ensures safety and better performance, industry

reality of the market. The government implemented the

leaders say. The scrappage

scrappage scheme to incentivize vehicle renovation mainly

scheme ended on Dec. 31, 2017

among owner-operators and to combat the average age of 21 years in the heavy-vehicle market. Owners could take their old unit for scrapping and receive a monetary incentive of up

and now the industry is lobbying for green incentives to promote modernization.

to MX$336,000 (US$18,970) to purchase a newer unit. The

Mexico still has not ditched

program, however, allowed only 6,000 units to be scrapped

i t s p o s i t i o n a s a l ow- co st

per year due to budget restrictions. “It is not enough to scrap

manufacturing center in favor of

6,000 units per year. At that pace, it would take us 30 years to replace the 180,000 vehicles of 21 years of age or older,”

higher value-added activities. The country spends less than 1 percent in R&D activities and there is still

says Miguel Elizalde, Executive President of ANPACT. “To

no legislation fully oriented to

reduce the average age of the fleet, we should be scrapping

the development of the national

up to 20,000 units yearly.”

automotive industry.

NEGATIVE

Peña Nieto’s administration also addressed the advanced

| ELECTION RESULTS

THE SHIFT IN POWER The July 1 elections brought the biggest change in the

President-elect López Obrador, held less than 3 percent of

history of Mexico’s federal executive power. The country

the chairs in the Deputies chamber for the 2012-2015 period

now has for the first time ever a president that is not from

and had no representation in the Senate for the 2012-2018

one of the biggest and oldest parties PRI or PAN. But the

period, it has now jumped to holding over 40 percent of each

legislative power has also seen a tremendous shift. That

chamber. The Mexican people have spoken and it remains to

same day, Mexicans also voted for the Senators and Deputies

be seen how the President-elect will act for the benefit of the

that would represent them. While MORENA, the party of

country wielding the power in both chambers.

Mexico’s benchmark

BIGGEST WINNERS

stock index, the S&P/BMV IPC,

Company

Opening July 2

Closing July 2

Variation

Company

Opening July 2

Closing July 2

Variation

plummeted 7.6

LACOMER UBC

20.77

21.77

4.81

CIE B

20.80

18.90

-9.13

AEROMEX

26.99

27.94

3.52

VITRO A

61.00

57.85

-7.50

GSANBORN B-1

19.00

19.53

3.33

PE&OLES

355.24

331.38

-6.93

GENTERA

17.67

18.13

3.19

CIDMEGA

43.00

-6.91

SARE B

0.035

2.94

PINFRA

141.00

136.35

-5.31

percent in May, marking its biggest one-month decline since February 2009.

Source: BMV

SENATORS IN THE CHAMBER IN 2012-2018

42 RELATIVE MA JO RIT Y

194

BIGGEST LOSERS

55 PRI 34 PAN 19 PT 8 Independent candidates 7 PRD 5 PVEM

8 7 6

HOW ARE MEXICAN SENATORS ELECTED?

5 5 1 N/A

The Mexican Senate is composed of 128 seats. Of those, 64 are elected by simple majority. Every state is represented by three senators. Each party or coalition nominates a “formula” composed of two senators. The formula that earns the most votes earns two seats in the Senate for its two candidates. Another 32 senators are elected by the “first minority” system. The party that earns the second-highest

number of votes can send one of the two senator candidates it nominated. The remaining 32 seats in the Senate are assigned according to the principle of proportional representation and are dubbed plurinominal senators.

PLURINOMINAL SEATS

13 MORENA 6 PAN 6 Social Encounter 2 PRI

2 PRD 2 PT 1 Citizens' Movement

Source: Mexico's Senate, INE

2018 STATE GOVERNMENT ELECTION RESULTS

MORENA-PT-PES Citizens' Movement PAN-PRD-MC PAN-MC PAN-PRD-MC-PSI-CPP

2018 PRESIDENTIAL ELECTION RESULTS AND PERCENTAGES 195

53.19% AMLO

Source: INE

DEPUTIES IN THE CHAMBER IN 2012-2015

212

22.27% Anaya

16.40% Meade

214 PRI 113 PAN 99 PRD 27 PVEM 12 Citizens'

5.23% Rodríguez

12 MORENA 11 PT 10 New Alliance 2 Independient candidates

Movement

12 8 5 2

HOW ARE MEXICAN DEPUTIES ELECTED? There are 500 seats in the Mexican Chamber of Deputies. Each of the 300 uninominal deputies that occupy them are elected by simple majority. They each represent one of the 300 electoral districts into which Mexico is divided. The remaining 200 deputies are elected by proportional representation and are dubbed plurinominal deputies. No

200

party can have more than 300 deputies in total. In some districts, individual parties field their own candIdates outside of a coalition.

Together We Will Make History coalition (MORENA, PT, Social Encounter Party)

For Mexico in Front coalition (PAN, PRD, Citizens' Movement) Everyone for Mexico coalition (PRI, PVEM, New Alliance)

200

PLURINOMINAL SEATS

85 MORENA 41 PAN 37 PRI 12 PRD

11 PVEM 10 Citizens' Movement

4 PT Source: Mexico's Chamber of Deputies, INE

| PROFILES

ANDRÉS MANUEL LÓPEZ OBRADOR President-elect of Mexico

Andrés Manuel López Obrador (AMLO) started his political career in 1976 by supporting the candidature of Carlos Pellicer as Senator for the state of Tabasco. The next year he became the Director of the Indigenous Institute of Tabasco. After the creation of the Democratic Revolutionary Party (PRD) in 1989, AMLO 196

was named president of the party in Tabasco. He was PRD’s President from Aug. 2, 1996 to Apr. 10, 1999, a period during which the party gathered the widest national presence since its creation in 1989. On Dec. 5, 2000, AMLO became the Mayor of Mexico City. Among his achievements are the creation of programs to support the elderly, single mothers, unemployed, rural producers and micro-businessmen, together with major infrastructure projects such as Periferico’s second floor. His first attempt to become President of Mexico began on Aug. 11, 2005. He was supported by PRD, the Working Party (PT) and the Convergence Party. After his defeat, he published a document called Nation Project on March 20, 2011. After that, on Dec. 9 of the same year, he registered as pre-candidate to run for the presidency for a second time, supported by the same parties. Again, he was unsuccessful. After creating MORENA, AMLO became President of the party’s national council on Nov. 20, 2012. He held that position until Dec. 11, 2017. One day later AMLO registered as precandidate for the presidency for the third time, representing the coalition MORENA, PT and the Social Encounter Party (PES). On the evening of July 1, 2018, AMLO registered a consistent lead during the ballot counting process, leading to his opponents recognizing him as President-Elect and offer their congratulations. On July 3, 2018, President Peña Nieto met with AMLO in the National Palace to discuss the transition plan of both administrations.

“Maintaining uncertainty could slow down investment in the mid to long term, which clearly impacts Mexico’s economic development and thus the government strategy I am looking to spearhead, which is based on generating employment and improving life conditions for all Mexicans” Andrés Manuel López Obrador, July 12, 2018

GRACIELA MÁRQUEZ COLÍN Incoming Minister of Economy Graciela Márquez Colín, AMLO’s choice to be the country’s next Minister of Economy, is an economist and academic. She graduated from UNAM with a degree in economics, has a master’s in economics from Colegio de México and a Ph.D. in the history of economics from Harvard. Márquez Colín has lectured at UNAM, ITESM, the Autonomous Metropolitan University, the University of Guanajuato and the Autonomous University of Baja California. She was also a guest professor at the University of Chicago and has given various seminars at Harvard University and Stanford University. Márquez Colín is part of the National Researcher System and author of many articles on commercial politics, industrialization, inequality and economic development. She has also edited and co-edited books on economics history in Mexico and Latin America. Currently, Márquez Colín is on sabbatical at the Center for US-Mexican Studies of the University of California in San Diego.

“I do not think there should be unrest. During the (presidential) campaign and over the past weeks, we have shown our conviction toward integration and free trade” July 24, 2018

197

| POLICY PRIORITIES

AMLO’S FIGHT AGAINST UNCERTAINTY With 53.6 percent of the votes, Andrés Manuel López Obrador (AMLO), candidate of the Juntos Haremos Historia (Together We Will Make History) coalition, won Mexico’s presidential elections on July 1, 2018. Much like US President Donald Trump’s presidential campaign, AMLO based his bid on what is seen by the business community as largely populist rhetoric. He talked about favoring

198

the Mexican industry and closing the country to foreign investment and “corrupt” alliances. The most controversial topics were the Energy Reform and the construction of the New Mexico International Airport (NAIM). However, unlike Trump, AMLO measured his rhetoric as the campaign advanced, leaving many unsure about his true intentions and policies. To try and clear the air on his plans as president, in May AMLO published a basic outline of his economic program in a small document he called Pejenomics (alluding to his nickname, Peje) which was based on his Nation Project 2018-2024. In his government objectives, AMLO stated his administration will not be against globalization. During his campaign, the president-elect said he was not opposed to NAFTA and that he was open to continue with its negotiation once he entered office. However, AMLO sees great potential in the domestic market, particularly in sectors such as agribusiness, which is why one of the objectives outlined in the Nation Project is to increase and diversify exports. “Instability in the world’s economy forces us to rethink our economic politics in the hope of strengthening the domestic market. A strong national economy can offer greater stability and mitigate the effects of global volatility,” the document says. Overall, AMLO’s objective is to boost national production in key sectors without resorting to protectionism. AMLO has signaled his support for the current negotiating team of President Source: Oraculus, X-RATES

Enrique Peña Nieto’s administration. After

the elections, talks resumed between Ildefonso Guajardo,

industry, considering that in Mexico Automotive Review

Minister of Economy and Chief Negotiator, and his

(MAR)’s 2017 survey, 29.3 percent of automotive industry

counterparts in the US and Canada. AMLO has actively

leaders interviewed mentioned security concerns as

participated in these talks and has designated Jesús

the main internal obstacle for the national industry to

Seade as Guajardo’s successor. AMLO has already met

develop further.

with Chrystia Freeland, Canada’s Minister of Foreign Affairs, to discuss the continuation of NAFTA and he also addressed the issue directly with US President Donald Trump after winning the election. AMLO had a call with Trump on July 2, 2018, which he followed up with a letter to Trump on July 12, 2018 in which he urged the US president to move along with the negotiations. “I think it is worth it to make an effort to finalize the renegotiation of NAFTA,” he wrote. “Maintaining uncertainty could slow down investment in the mid to long term, which clearly impacts Mexico’s economic development and thus the government strategy I am looking to spearhead, which is based on generating employment and improving life

“Wages are too low for Mexican workers. They are one of the lowest in the world and there cannot be a commercial agreement where salaries in the US are 10 times higher” 199

April 9, 2018

conditions for all Mexicans.” MAR’s survey in 2018 also highlighted talent development

NO RISK OF EXPROPRIATION

with 15.2 percent and R&D development with 35.1 percent

Among the main private-sector concerns is that AMLO

as key obstacles for the industry to move past its status as

would reject the advances the country has made regarding

a low-cost manufacturing destination and transform into

industrial development and openness to investment.

an added-value hub. AMLO’s Nation Project also covers

However, during his first speech as President-elect, AMLO

those elements. Among his proposals, the president-

said the new government will prioritize financing and

elect wants to delve into new sectors, such as 3D

fiscal discipline. “We will acknowledge the commitments

manufacturing and nanotechnology, while incentivizing

to companies, national banks and foreigners,” he said.

investment oriented to research and development. He

“We will not act randomly; there will be no confiscation

also will move to create new innovation centers and

or expropriation of assets. The transformation will be to

boost development of high-tech sectors, including

unearth corruption in our country.”

programming and robotics.

“We will not act randomly; there will be no confiscation or expropriation of assets. The transformation will be to unearth corruption in our country”

During his campaign, AMLO’s adviser, Luisa María

July 12, 2018

Alcalde, said in an interview with El Universal that AMLO’s administration would grant MX$108 billion (US$5.4 billion) in scholarships to 2.3 million students through resources that would come from budget cuts in government expenses and a general reduction in publicsector salaries.

TACKLING THE SALARY DISCREPANCY Salaries were also a hot topic during AMLO’s campaign since they were considered as a leverage factor in the negotiations for a new NAFTA. AMLO was open to considering this as part of the negotiation. “Wages are too low for Mexican

Corruption was a key element of AMLO’s campaign.

workers,” he said in April. “They are one of the lowest in

The president-elect said this, along with insecurity, was

the world and there cannot be a commercial agreement

part of what was wrong in the current and previous

where salaries in the US are 10 times higher.” Alcalde said

administrations, referring to what he called Mafia del

the new administration would implement a plan to raise the

Poder (Power Mafia). In his Nation Project, AMLO says his

minimum wage to approximately MX$176.72 (US$8.8) by

objective to improve the national economy is to guarantee

2024, carefully planning the process to avoid impacting the

fair conditions for competition, while eliminating the roots

national economy. “Everything will be implemented through

of investment uncertainty: corruption and insecurity.

dialogue, not as an imposition,” she said. “It will not be risky;

This is also among the concerns within the automotive

it will be stabilizing.”

| THE NATION PROJECT

THE NATION PROJECT: A BREAKDOWN The Nation Project outlines Andrés Manuel López Obrador’s (AMLO) goals and expectations for the next six years. Regarding policies for the manufacturing and industrial sectors, his proposals are mainly focused on strengthening Mexico’s position as a productive country while moving toward a higher value-added offer At the beginning of his campaign, AMLO’s rhetoric caused much uncertainty among investors who were not sure if his government would be founded on a purely socialist perspective. However, as the campaign advanced, the president-elect moderated his rhetoric, providing much more peace of mind to current and future investors.

• Support local companies in talent development to generate higher value-added sources of employment. • Offer financial support to companies looking to strengthen their position in the manufacturing market. • Special priority will be given to companies with at

200

While still maintaining a vision toward the strengthening of Mexico’s domestic industry, AMLO’s Nation Project shows willingness to support the ongoing development of leading industries like automotive and it addresses issues like technology and local production-chain development that many companies have already highlighted as prevailing areas of opportunity to increase Mexico’s competitiveness as an automotive hub.

INCREASE AND DIVERSIFY EXPORTS

• The project establishes a goal to grow production with cost competitiveness and global quality standards. • Exports will diversify to new markets and new products will be added to the country’s portfolio.

PROMOTE REGIONAL INTEGRATION AMONG

least three years of operations, with mostly Mexican capital and focused on strategic and high-technology sectors. • For newly established companies, preference will be given to companies in strategic sectors or focused on high-technology activities that can boost national exports and national content production.

GROW LOCAL CONTENT IN STRATEGIC SECTORS

• The goal is to increase the national participation in global manufacturing chains without imposing tariff barriers, focusing on a reduced number of strategic sectors. • This program will give preference to sectors with national integration lower than 80 percent and rawmaterial imports higher than 20 percent and those that have the greatest impact on economic growth and employment generation. Both vehicle and auto-parts manufacturing are considered priorities in this project.

MEXICO, CANADA AND THE US

• The objective is for all three countries to collaborate

on regional competitiveness, introducing expertise where each is most experienced. • The government looks to collaborate with its

CREATE CONSORTIA AND ASSOCIATIONS OF MEXICAN SMES

• Grouping these companies will help them generate economies of scale in production, technology

counterparts to foster the creation of new

development, raw-material sourcing, marketing and

companies and more sources of employment.

logistics thus guaranteeing quality and world-class

• Compete with China and create economic benefits for the North American population. • Use the experience from the success in the automotive industry to develop strategic industries

competitiveness. • Financial support will also be provided through these associations boosting technology and talent development.

in all three countries.

6. DEVELOP THE LOCAL SUPPLY CHAIN

• Part of the Nation Project plan is to incentivize more

PROMOTE TECHNOLOGY DEVELOPMENT AMONG MEXICAN AND FOREIGN COMPANIES

• The Nation Project looks to incentivize R&D and

companies to invest in Mexico to boost development

technology development through the establishment

of local companies.

of research centers with national and foreign talent.

• Help local suppliers to become part of global Tier 1 and Tier 2 companies’ production chains.

• Greater integration in the scientific community will also be key for the development of the industry.

• Participating in higher value-added activities will also

for US citizens with special qualifications and

help smaller companies participate more actively

granting of visas to countries with expertise in

in global production chains and increase the local

infrastructure development, manufacturing and use

content of Mexican production.

of resources.

• Promote development of high-technology in

• The program has a goal to attract between US$5

key sectors, including mechatronics, robotics,

billion and US$10 billion in foreign direct investment

automotive components and nanotechnology.

in the next three years and between US$20 billion

• The project will give preference to cities and regions with an already developed industrial base, such as Mexico City, Monterrey, Guadalajara, the Bajio, Puebla and Tijuana.

DEVELOP PRODUCTION CENTERS IN MARGINALIZED AREAS

and US$30 billion in the next five years.

FIGHT CORRUPTION AND IMPROVE ADMINISTRATION

• Transparency will be prioritized in the use of public resources. • The administration will match its services to

• In industrially developed regions, the government will stimulate the establishment of production centers in

the needs of the population thus eliminating bureaucratic barriers.

marginalized zones to fight poverty and low quality of life. • These centers will include nursery services, schools,

201

10. IMPROVE WORKING CONDITIONS THROUGHOUT THE COUNTRY

training centers and other activities to improve quality of life. • The government will financially support the development of these centers in collaboration with state and municipal governments.

ESTABLISH THE FREE ECONOMIC ZONE PROJECT IN THE NORTHERN BORDER

• The objective of this program is to incentivize

• The Nation Project wants to centralize all professional training through a transversal policy managed by the Ministry of Labor and Social Security, allowing the government to address the needs of the private sector. • Strengthen and widen the existing certification and training programs for people with no access to education institutions. • Improve collective employment conditions through

economic development in the border states and

dialogue with unions and companies to improve

prevent migration.

salaries, benefits and overall working conditions.

• Provide security in border cities and incentivize infrastructure development for manufacturing activities. • Bring foreign investment to the region and develop

• Creation of a digital platform to connect companies with potential hires. • Increase the minimum salary to the minimum standards for social welfare. The project proposes

a solid economic environment with competitive

gradual increments of 15.6 percent per year to reach

prices and taxes.

MX$171 (US$8.9) by the end of the administration.

• Establish special conditions in the region, such as programs with development banks, free migration

• Support the integration of migrants to the Mexican labor market.

| INDUSTRY PRIORITIES

A DETAILED OUTLINE FOR THE NEW ADMINISTRATION President-elect Andrés Manuel López Obrador (AMLO) needs not look much further to understand how to best support the automotive industry. The leaders from the most important associations in the industry have already laid their case bare and the ball is now in the new administration’s court

202

Even though the Mexican automotive industry has yielded

implementation of new programs toward the renovation

significantly positive results in recent years, there are still

of the vehicle park. The last one also addresses the light-

clear areas of opportunity for the country to strengthen its

vehicle sector but so far, the most important scrappage

position as a manufacturing and technology destination. As

scheme has been oriented toward the heavy-vehicle sector.

the new administration prepares to enter office the heads

“The scrappage scheme ended on Dec. 31, 2017. What

of AMIA, INA, ANPACT and AMDA, the auto industry’s four

we are now pushing for is to have differentiated green

most significant associations, prepared a document called

incentives depending on the type of company applying for

Dialogue with the Automotive Industry 2018-2024 that

financial support,” says Miguel Elizalde, Executive President

outlined their priorities for the country to remain an attractive

of ANPACT.

investment destination and to maintain a healthy automotive market. These are not new demands but especially in the

The last topic addressed was the implementation of

midst of the current trade difficulties between Mexico and

incentives for the acquisition of hybrid and electric vehicles,

the US and the current downturn in sales, it is important

together with a desire for the implementation of the

for the industry to highlight factors the government has

necessary infrastructure to support these units. “Overall,

neglected and areas of opportunity to ensure further growth.

we see a definite trend to embrace new technologies in the Mexican market but these should be more affordable to have

A STRONGER DOMESTIC MARKET

success in the country,” says Guillermo Prieto, Chairman of

Boosting domestic sales not only represents economic

AMDA. “At the same time, the government should continue

dynamism, it can also be an opportunity for further

working on incentives that boost sales of these vehicles such

investment to come to the country. Chinese ventures from

as toll discounts and tax breaks.”

BAIC and JAC are the perfect example. These companies understood the attractiveness of the Mexican market with

BETTER BUSINESS ENVIRONMENT,

a potential to sell approximately 2 million vehicles per year.

MORE INVESTMENT

Once here, companies like these can use Mexico’s logistical

Mexico is in 51st place out of 137 countries, according to the

position as a platform to expand into Latin America and

Global Competitiveness Report of 2017-2018. Corruption

even the US.

stands out as the most problematic factor for doing business in the country, followed by crime and theft and inefficient

In Dialogue with the Automotive Industry 2018-2024, the

government bureaucracy. These, among other factors, were

industry specified six key tasks to tackle the domestic

also discussed by industry representatives in Dialogue with

market more effectively. First, financing must continue to

the Automotive Industry.

be a priority to boost new-vehicle sales. “Financing must remain a pillar for the industry, mainly in the number of

Overall, the document highlights 12 areas of opportunity

units that are financed out of total sales,” says Eduardo

for the country to improve its position as an automotive

Solís, Executive President of AMIA. “Leasing also presents

destination. Security for transportation of merchandise via

an opportunity for the domestic market, considering that

road and rail is No. 1, followed by transparency, fighting

this product represents only 10 percent of the total financing

impunity and corruption and prevention of contraband and

solutions offered.” Control of used-vehicle imports is the

informality. “Insecurity is an issue that plagues the entire

second priority that the industry outlines to maintain similar

country, not only Guanajuato or the Bajio,” says Fidel Otake,

levels of growth, followed by adjustments to the applicable

President of CLAUGTO. Ensuring timely deliveries is a key

regulations to vehicles in circulation and auto parts.

issue, especially for transportation companies.

Two of the points touched by the industry refer specifically

In terms of logistics operations, the industry also asked the

to the heavy-vehicle sector, one is the professionalization

government to eliminate barriers that prevent seamless

of SMEs in the transportation sector and the other is the

transport of vehicles and auto parts in and out of the country,

which for most logistics operators is still one of the biggest

of information for clients, as well as financing companies,

hurdles in the country. “We are operating with fiscal precincts

insurers and distributors.”

that have technology from the last century,” says Miguel Muñoz, Managing Director of Geodis México. Utility access

OPEN TRADE FOR THE WIN

is also addressed, putting particular emphasis on the need

Regarding Mexico’s trade relationships, industry

for competitive energy costs at an international level.

representatives urged the government to maintain a strong position and defend the benefits that NAFTA has brought

Two other elements discussed refer to permanent

not only to Mexico but to the entire North American region.

communication both with chambers and associations,

“NAFTA is a growth engine for the region’s automotive

research centers and academic institutions, as well as

industry and the new administration should maintain the same

between federal and state governments to ensure proper

line of negotiation that the current administration followed,”

development of the country’s capabilities. The simplification

says José Pescador, Director General of Fast Autopartes.

of the legal framework is also highlighted to avoid overregulation and implementation of differentiated criteria

However, the document also showed the importance of

among different governments.

negotiating new agreements that allow Mexico to diversify its exports and lessen its dependence on the US. “Mexico has

“Mexican states compete not only against themselves but also against US southern states” Guido Vildozo, Nov. 29, 2017

not been quick enough to consider other destinations, such as Africa or Eastern Europe, and to find ways to compete against manufacturing hubs like Morocco, Turkey, Romania, Poland and Hungary,” says Vildozo. “Understanding how these countries export to other regions is critical for Mexico to be more competitive and to diversify its operations beyond NAFTA.”

INNOVATION FOR A BRIGHTER FUTURE Unsurprisingly, education and talent availability, as well as

Finally, the last topic addressed in Dialogue with the

strengthening the capabilities of the local supply chain also

Automotive Industry 2018-2024 was research, technology

figure in the industry’s list for a more competitive country.

development and innovation. The country has attracted

These two elements remain the bane of the industry,

several engineering projects from leading OEMs and suppliers

especially as more companies arrive to the country looking

but it still maintains an image of a low-cost manufacturing

to settle down in the state that offers the best advantages.

country instead of a technological automotive hub. However,

In this vein, industry leaders are urging the government to

the industry is ready to move past that and both the public and

continue offering competitive incentives for both national

private sectors are invested in making this a reality. “Mexico

and international players to bolster investment-attraction

has everything it needs to be successful in this area. Mexico’s

strategies. “Mexican states compete not only against

human capital is well-trained, specialized and young, which

themselves but also against US southern states,” says Guido

is fundamental for technological innovation. Additionally, the

Vildozo, Senior Manager, Americas Light Vehicle Sales

country is positioned as an advanced-manufacturing country,”

Forecasting of IHS Markit. “These regions have historically

says Armando Cortés, Executive Director for Industrial

provided an incentive of approximately 30 percent

Development at ProMéxico.

on investments that are over US$1 billion. If that is the benchmark against what Mexico needs to compete, then

Demands to the new government from industry leaders

the government should keep playing a role in attracting

include the creation of globally competitive fiscal incentives

investment.”

for technology development and research, the creation of a fund destined specifically for the promotion of investment

The last point addressed was the implementation of better

in research and development activities and greater

normativity regarding the registration of vehicles and auto

interaction between the industry and academia to foster an

parts. This is an especially problematic factor given that

innovation and technology-development environment. “The

after vehicles are sold, there is no registry of whether the

only way to remain competitive is to increase productivity.

vehicle is still in circulation or who the owner is. “Mexico

That can only be achieved by increasing the added value

City has a good registration system but many other states

that the country can offer and the capabilities of its local

do not pay enough attention to this situation. There is no

talent,” says Ricardo Haneine, Partner at A.T. Kearney. “The

synergy between vehicle registration agencies in different

percentage of engineering activities currently done by

states,” says José Gómez, Director General of Grupo Gocar.

OEMs in Mexico is minimal but we have enough capable

“A good registration system could be an important source

talent to participate more actively.”

203

| INDUSTRY WISHLIST

204

WHAT IS ON YOUR WISH LIST FOR THE NEW ADMINISTRATION TO STRENGTHEN MEXICO’S AUTOMOTIVE INDUSTRY?

ILDEFONSO GUAJARDO Minister of Economy

important

for

the

new

administration to maintain an openmarket policy and strengthen the capabilities of the national industry in terms of infrastructure and human capital availability. The industry’s readiness to move toward Industry 4.0 practices will also be a critical step in its development. It is crucial for the country to capitalize on fast-paced technological advances, translating them into a more competitive and robust productive platform.

MIGUEL MÁRQUEZ MÁRQUEZ Governor of the State of Guanajuato Creating and maintaining the trust of new investors should be a priority. Our

205

administration was built on trust and delivering on our promises regardless of the contracts we might sign. Especially in an uncertain environment, the best thing we can offer companies is confidence regarding their investment, no matter what. Furthermore, we must consider ourselves as account managers, which means that we must follow up on any relationship we establish with new investors. We are allies and partners throughout the lifetime of their investment and not just while the plant is being built.

EDUARDO SOLÍS Executive President of AMIA One priority should be to strengthen the domestic market. We need a healthy domestic market to keep boosting the industry and so far, 2018 has seen a deceleration in sales of almost 10

ROGELIO GARZA

percent. Just like Chile and Argentina, what we need is to sell 20

Undersecretary of

new vehicles per 1,000 inhabitants and today, that rate is at 13

Industry and Commerce

vehicles per 1,000 inhabitants. Controlling used-vehicle imports from the US is also critical because it has been one of the main

The new government should be aware

contributors for domestic sales growth. Even though this has

that trade openness and our focus

not been an excellent year, for the past three years domestic

on generating world-class talent,

sales have thrived thanks to strict controls at the border and a

promoting innovation, supporting

strong financing strategy.

supply chain development and creating synergies between clusters

The Mexican industry must advance its position in the value

have been the main attractors for

chain. We must also bet on local engineering by investing more

foreign investment. The country

in R&D activities. Today, we are the industry that demands the

should keep investing and be aware

most resources from CONACYT.

of the impact that Industry 4.0 trends will have in the evolution of

The government must continue working to create an

the industry. Five years ago, the

environment that fosters business. The new administration’s

term Big Data was unheard of and

involvement is key for the transition in the NAFTA process,

now it is crucial for all manufacturing

considering the treaty has been a cornerstone in the

processes. The new government can

development of our industry. Automotive is a sector that

bring new ideas to the table but it

exports around 84 percent of what it manufactures; we are an

should maintain a policy closely linked

industry focused on international markets and we must ensure

to Industry 4.0 and all new trends

market access for companies establishing in Mexico.

impacting the industry.

| INDUSTRY WISHLIST

ÓSCAR ALBIN Executive President of INA The Mexican automotive industry was the real winner after NAFTA was enforced. Our industry has grown the most thanks to this trade agreement and there is still a great deal of room for more. By 2020, Mexico will be assembling 25 percent of NAFTA’s total vehicle production. As vehicles continue to commoditize, the region’s automotive production will concentrate in Mexico and in the southern US as making vehicles in Canada and the US Midwest will not be competitive because of salary levels and workers’ unions. The next federal administration should understand this and prepare the country to engage in innovation, develop technology and invest in education to reach its automotive potential. It is also necessary for the government to invest in its people and offer competitive fiscal schemes to

206

attract new investments. If southern US states offer better ROIs thanks to tax regulations, investment will move there.

GUILLERMO PRIETO Chairman of AMDA

GUILLERMO ROSALES Director General of AMDA

The government must provide the right conditions to boost purchasing power and consumer confidence, which go hand-in-hand with economic growth and stability. At the same time, regulations

The government must maintain whatever practices have

must be enforced to keep restricting the entrance

worked for the industry so far. Controlling used-vehicle

of imported used vehicles, while boosting

imports is a clear example, as well as boosting vehicle

financing and the domestic used-vehicle market.

financing, boosting investor confidence and maintaining

The new administration must also understand

free-trade agreements with our different commercial allies.

that the distribution industry is over-regulated,

At the same time, the growth the industry has seen in past

with many added costs for dealerships that work

years demands larger investment from the government

against them due to the extreme competition

in infrastructure. There have been advances but we must

in the country. We are an important source of

double our efforts to modernize highways, ports and

employment and tax income, and distribution

airports. In the end, companies must know there will be

groups are family companies betting on Mexico

no changes in the management of public finances and

and its growth. The Public Vehicle Registration is

investment promotion and that there will be a stronger

an area of opportunity as well, considering that it

focus on security, transparency and corruption.

has offered next to no value for the country so far.

207

HORACIO CHÁVEZ Managing Director of Kia Motors México Kia is here to stay and regardless of the administration, we will continue doing business and looking to become a key player in the Mexican market. Still, there are some conditions that could improve with the government’s aid. One is the market’s reliance on vehicle financing and the impact that interest rates could have on this. The other is the acceptance of alternative energy sources for automotive applications. Kia has an available offering of hybrid and electric units but we think there is

MIGUEL BARBEYTO President of Mazda de México The government must ensure that new employment sources are created. Automotive is the most important industry in Mexico, so governments must also invest in adequate infrastructure. Ports and railroads are already saturated, while some highways need to be repaired or expanded. Although this might entail costs, in the end it will attract more companies and boost automotive exports.

a need for more infrastructure.

MÓNICA FLORES President of AmCham The next federal administration s h o u l d re p re s e n t t h e i d e a l o f democracy in Mexico. As a citizen, I would like to see strong steps taken against impunity, corruption and informality. I also want to see changes in the educational system. These steps will attract investment, creating employment as a result.

| INDUSTRY WISHLIST

MICHEL KAIM Managing Director of Hyundai Motor de México We n e e d a st ro n g p o l i t i c a l framework that offers certainty to p o te n t i a l i nve s to r s . T h e government must also promote economic stability, while working toward openness in foreign trade.

208

GERARDO SAN ROMÁN Head of Latin America at JATO Dynamics We need strength in our institutions, rule of law and certainty on the well-being of investors and the population in general. As long as the government ensures justice and strength in its operations, investment will continue to come. We need an assertive administration that works with continuity and consistency.

ELÍAS MASSRI Director General of Giant Motors Latinoamérica It is necessary to ensure economic stability that enables companies to plan for the long term. By preventing major economic variations through stability, security and feasibility, all players can plan and invest. Long-term planning is the name of the game in the automotive industry since a project’s return is normally seen three to four years after its establishment. Legal

MAYRA GONZÁLEZ President and Managing Director of Nissan Mexicana

certainty and rule of law are needed not

The main priorities should be economic development,

only to reduce security costs but also

security and healthy relationships with other governments.

to attract more foreign investment. The

We need to work hand-in-hand with the government,

government must also support the “Made-

regardless of the party in power. At Nissan, we are open and

in-Mexico” brand and promote the purchase

ready to establish a partnership with the new administration

of Mexican products abroad. This would

to keep pushing the industry forward and to develop the

enable Mexico to not only be a country

local supplier network. Our common goal should be to

that exports to Latin America but also to

make Mexico an extremely competitive market, even more

become a stronger ally to Asian companies.

so than it is today.

FELIPE BRONDO Corporate Vice President of DENSO México The government should make supply chain development a priority. Availability of local suppliers will ensure that more OEMs and Tier 1 suppliers like us continue to invest in the country. At the same time, the new administration should create favorable conditions for companies to invest in technology and develop their human talent. Cost competitivity is also an area of opportunity for the country. Mexico is still at a disadvantage compared to other countries regarding energy costs. Meanwhile, lack of security has increased our logistics costs, mainly in shipments to the US.

209

EDUARDO TAMER CEO of Mikel’s

MIGUEL AVALOS

The new government should act as the new administration in

Director General

any company. New directors must identify good practices in

of Air Design

the company to maintain successful results, introducing an innovative vision but never compromising what is already

Certainty should be a must, as well

delivering strong numbers. At the same time, areas of

as allocating resources to education

opportunity must be exposed so the new administration can

and the necessary infrastructure

focus most of its efforts and resources to improve them. The

to support Mexican talent. All

new government must realize that offices such as the Ministry

other investment related to the

of Economy and ProMéxico have yielded good results and

development of the industry should

that it would be better to focus on eradicating bad practices

be left to the private sector. The

in other areas. That would strengthen Andrés Manuel López

government should establish norms

Obrador’s new government in the eyes of investors and thus

and regulations but all operational

boost Mexico’s position in the international market.

aspects should be in the hands of private companies.

Hyundai Sonata hybrid engine

GLOBAL SUPPLY CHAIN

Germany, Japan and the US may be the biggest automotive hubs in the world but the industry has evolved to become a true international effort. Leading suppliers have emerged all over the world to support automakers in their international development strategies. From raw materials to advanced technology developments, the production chain has grown its footprint across borders.

Global Supply Chain showcases success stories and development plans from suppliers with an international footprint. Best practices are showcased along with growth projections as the industry becomes more integrated and globalized. Mexicoâ&#x20AC;&#x2122;s position as an investment destination is also revisited as companies share their expansion plans.

211

CHAPTER 8: GLOBAL SUPPLY CHAIN 214

ANALYSIS: NAFTA Vehicle Production Backs Mexico’s Auto Parts Success

216

VIEW FROM THE TOP: Óscar Albin, INA

218

VIEW FROM THE TOP: Daniel Sandberg, Brembo North America

220

VIEW FROM THE TOP: Alejandro Veraza, TI Automotive

221

VIEW FROM THE TOP: Luis Palomé, BOSAL Mexico

222

INFOGRAPHIC: A Global Effort

224

VIEW FROM THE TOP: Sergio Álvarez, Hankook Tire de México

225

INSIGHT: Vinod Miranda, Cheersson México

226

VIEW FROM THE TOP: Fernando Leite, Controlar

Guli Lima, Controlar North America

227

INFOGRAPHIC: Mexico's Auto Parts Strength

228

ROUNDTABLE: How Can Local Players Participate in Global Manufacturing Chains?

230

PROJECT SPOTLIGHT: Next Generation Scania: Renovated Sustainability

213

| ANALYSIS

NAFTA VEHICLE PRODUCTION BACKS MEXICO’S AUTO PARTS SUCCESS Mexico is not only a strong manufacturer of light and heavy vehicles but also a top producer of auto parts, supporting OEMs and the aftermarket in NAFTA and other markets. According to INA data, Mexico is well on its way to becoming the fourth most-important manufacturer of automotive components worldwide by 2020 OEMs need thousands of components to assemble a

Mexico,” says Óscar Albin, Executive President of INA. He

finished car or truck and car owners eventually need spare

highlights that in 2017 the Mexican automotive industry

parts to keep their vehicles on the road. This demand

accounted for 3 percent of total GDP and around 20

coupled with the advantages that Mexico offers as a

percent of the country’s manufacturing GDP with auto

manufacturing hub for world-class component suppliers

parts contributing half of these percentages.

translates to a top-flight domestic auto parts industry that supports domestic and international demand. 214

As in other automotive sectors, Mexico’s auto parts production is largely export-oriented. In 2017, 83.7

The auto parts sector received the most foreign direct

percent of the total auto parts production value was

investment between 1999 and 1Q18 and it is the second

destined to foreign automotive markets while only 16.26

most-important automotive segment in Mexico in

percent catered to the domestic industry, according to

terms of production value. According to data from the

data from INEGI. Still, the production value oriented to

Ministry of Economy, Mexico’s auto parts sector was the

the domestic market increased 71.06 percent between

recipient of 63 percent of the total investment in Mexico’s

2016 and 2017 from US$8.3 billion to US$14.25 billion. This

automotive industry between 1999 and 1Q18, totaling

sudden growth is likely related to the arrival of new OEMs

US$38.074 billion, which highlights the importance of

to Mexico, coupled with increasing vehicle production

Mexico’s auto parts production capabilities for foreign

from already established players.

automotive companies. Although a wide variety of parts and systems ranging

Between 2016 and 2017, the production value of Mexico’s auto parts sector increased 12.1 percent

from tires to gasoline, diesel engines and mufflers are produced in Mexico, the country stands out in the production of electrical automotive components. In 2017, that subsector held the largest share of the country’s auto parts production value with 22.4 percent of the total, followed by carpets and automotive seats (16.2 percent) and transmissions, clutches and other drivetrain parts (10.1 percent). Mexico also has significant production of engine components, complete engines and stamped

In 2017, the total value of Mexico’s automotive production,

components, among other subsegments.

including heavy vehicles, light vehicles and auto parts, amounted to MX$2.28 trillion (US$119.7 billion) compared

ASIAN IMPACT

to MX$1.93 trillion (US$101.4 billion) in 2016. Light-

All the Top 25 automotive component suppliers that

vehicles accounted for 48.5 percent of that amount

Automotive News lists in its Top 100 global OEM parts

(US$58 billion), followed by auto parts at 38.7 percent

suppliers supplement have at least one manufacturing

(US$46.4 billion) and heavy vehicles with 12.8 percent

facility in Mexico and some already engage in component

(US$15.3 billion). Between 2016 and 2017, the production

design and engineering operations locally. Among the

value of Mexico’s auto parts sector increased 12.1 percent,

key companies with R&D and product development

from US$41.4 billion in 2016 to US$46.4 billion in 2017.

operations in the country are Germany’s Bosch and Continental, France’s Valeo, Japan’s Tachi-S and Mexico’s

Growth in Mexico’s auto parts production value is not only

Katcon. While in most cases local design operations focus

related to an increment in local OEMs’ demand for original

mostly on adapting products designed abroad for the

equipment and in the Mexican aftermarket but in North

Mexican market, some companies such as Continental are

America as a whole. “Mexico’s auto parts competitiveness

working on cutting-edge technology development and

is based on the 17 million vehicles produced in the

engineering solutions for new trends such as self-driving

NAFTA market rather than on the 3 million produced in

vehicles in Mexico.

A wide network of free-trade agreements including

FILLING GAPS

NAFTA, direct access to the US, cost-competitive and

Two key gaps that exist in Mexico’s automotive supply

qualified labor and a manufacturing industry with high-

chain are tooling systems and specialized raw materials.

quality standards are only a few of the advantages that

“Mexico needs to grow its supplier base at the second

have attracted OEMs as well as their suppliers. Mexico’s

and third levels of the value chain, prioritizing providers

Tier 1 supplier base is composed in its majority by US,

of raw materials and tooling components,” points out

German and Japanese companies supporting their

Ildefonso Guajardo, Mexico’s Minister of Economy. By

conational clients present in Mexico. However, there is

procuring raw materials like engineering resins, steel,

also a smaller participation of Mexican, UK, Chinese,

aluminum and electronics locally, automotive companies

Italian, Swedish, Canadian, Indian and Korean players

could increase their cost competitiveness since they could

among others that cater both to domestic demand and

avoid importing costs when shipping these commodities.

“

to OEMs and aftermarkets abroad.

Mexico’s auto parts competitiveness is based on the 17 million vehicles produced in the NAFTA market rather than on the 3 million produced in Mexico” Óscar Albin, Executive President of INA

Luis Palomé, Managing Director of Belgian exhaustsystem manufacturer BOSAL México, underlines that while the country offers competitive labor costs, raw materials are between 5 and 10 percent more expensive than in Europe. The main issue is the absence of suppliers. “There are not enough (raw material) suppliers and the existing ones find it difficult to supply the volumes the industry needs,” says José Carrera, Purchasing Director of Japanese auto part manufacturer Calsonic Kansei Mexicana. Albin adds that semi-finished components and raw materials are the segments that offer the most areas of opportunity in Mexico’s supply chain. “This is the segment that could improve the most either from a national-development or from a foreign-investment standpoint,” he suggests.

The arrival of Asian players such as Hyundai Group to Monterrey or BAIC to Veracruz has enticed larger Korean

At the same time, the absence of companies focused

and Chinese investment to establish new ventures or

on producing or repairing molds, dies and other tooling

increase their local presence. Hankook Tire, for example,

systems forces metal-mechanic companies to import

has taken advantage of Kia’s growth to increase its

these systems from abroad. Mexico’s automotive industry

presence in the country, according to Sergio Álvarez, the

could substantially increase its auto parts competitiveness

company’s Commercial Director in Mexico.

by ensuring local procurement of the materials used in operations such as metal pressing or component

Similarly, Vinod Miranda, COO of Cheersson México,

welding operations, reducing tariffs levied on imported

says the Chinese Tier 2 supplier of precision stamped

tooling systems or supporting the growth of a domestic

components and tooling systems was attracted to Mexico

tooling industry. Armando Cortés, Executive Director

because of the presence of most of its international Tier

for Industrial Development at ProMéxico, says Mexico

1 customers, which prompted the company to open a

imports around US$2.6 billion worth of tooling systems

manufacturing plant in Queretaro in 2016. “Mexico’s

per year and is the second-largest importer of molds

automotive industry is growing, which results in

worldwide. “Producing these molds in Mexico rather than

opportunities for us to jump in and provide the goods

importing them offers a great opportunity,” he says.

and services in which we specialize,” he says. Several organizations have taken steps to fill the gap. The Going forward, there will be several opportunities for

Nuevo Leon Automotive Cluster (CLAUT) is in the process

more parts manufacturers to jump in and increase their

of launching a tooling cluster in the state to reduce the

supply of original equipment to OEMs, for both global

dependence of Mexico’s automotive industry on imports.

and Mexican players. According to IHS Markit, slightly

Meanwhile, in Aguascalientes, Grupo Sypeisa addresses this

under 17.23 million light vehicles will be produced in

demand through the production, maintenance and repairing

2018 globally and this figure is projected to increase to

of tooling systems and molds used to produce auto parts.

17.38 million by 2022. However, to take advantage of the

“Our goal is to substitute imports of these products to deliver

opportunities this might create, the Mexican supply chain

a better cost-benefit balance for the automotive industry,”

must increase its competitiveness.

says Sergio Andrade, Executive Director of Grupo Sypeisa.

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| VIEW FROM THE TOP

SOLID AUTO PARTS PERFORMANCE SUPPORTS ECONOMY ÓSCAR ALBIN Executive President of INA

216

Q: What are the main drivers behind the growth of the

unlike Mexico, their governments offer tax incentives to

Mexico’s auto parts industry?

companies that do R&D. Mexico is missing out on the

A: Mexico’s auto parts industry grew between 4 and 5

attraction of R&D centers because of the lack of similar

percent in 2017 to a total value of US$87.7 billion. This

incentives.

includes production of auto parts for the domestic and expoting markets, including original equipment and the

Q: What are the main challenges that Mexican companies

aftermarket. This result was possible thanks to US vehicle

face to become world-class suppliers?

production reaching 12 million units, contributing to

A: While some Tier 1 companies merely supply their

North America’s overall light-vehicle production of over

components to OEMs, others also collaborate with OEMs on

17 million units. In 2017, the Mexican automotive industry

technology development. There are five or six Mexican Tier

accounted for 20 percent of Mexico’s manufacturing GDP

1 suppliers that fall into the second category and engage

and 3 percent of the total GDP, with the auto parts industry

in technological advancements oriented to self-driving

accounting for half of these percentages. The Mexican

systems, electrification and other trends. Meanwhile, there

auto parts sector is also responsible for the creation of

are around 100 Mexican companies that supply directly

810,000 direct jobs in 25 states.

to OEMs but do not break any technological paradigm in the automotive industry, which

Q: How on track is Mexico to become the world’s fourth-largest auto parts manufacturer by 2020? A: Mexico is on the right path. The country is only US$10 billion behind

810,000

jobs generated by the auto parts industry in 25 states

means there is still an opportunity for further growth. Regarding international suppliers, these companies generally need to

Germany in this sector. Increased

import semi-finished components

production of vehicles in the US

and raw materials for their operations.

strengthens Mexico’s chances to reach this ranking,

This is the segment that could improve the most,

but rising interest rates in Mexico and the US can be a

either from a national-development or from a foreign-

challenge. Higher interest rates mean consumers pay

investment standpoint. Better programs are still needed

more each month for their car loans and they postpone

to link international suppliers with the local supply chain,

replacing their vehicle or they go for less-equipped

since foreign companies are often unaware of Mexico’s

units. This reduces demand for some auto parts as OEMs

capabilities.

produce fewer vehicles. Q: How can North America grow its competitiveness in Q: How can Mexico continue promoting foreign investment

the global automotive market?

in an uncertain business environment?

A: North America is a large importer of raw materials,

A: The country is making important advancements in

automotive components and vehicles. Yet, its exports

manufacturing and R&D operations but there are issues

outside the region are low. The NAFTA market produces

that need to be addressed. Mexican labor needs to grow in

the vehicles it consumes rather than the vehicles that the

quantity and quality as some regions face difficulties hiring

world demands. On the contrary, Asia and Europe produce

enough employees capable of working on production

vehicles that cater to both their domestic demands and

lines. In terms of investment oriented to R&D, Mexico

those of the rest of the world. North America is missing

is competing with other emerging markets such as

out on the opportunity to produce and export the

India, Eastern Europe, Brazil and China. These countries

compact and low-consumption vehicles that the rest of

have quality engineers and competitive labor costs but

the world wants.

Q: How will the arrival of BMW, Mercedes-Benz and Toyota

the vehicle they would manufacture and training the staff

impact the local supply chain?

they would employ. By the second generation of made-

A: The arrival of new OEMs will lead to the construction

in-Mexico Kia vehicles, we will see greater participation of

of new auto parts plants and the expansion of production

Mexican auto parts.

lines. Companies that came to San Luis Potosi and Aguascalientes to cater to BMW, INFINITI or MercedesBenz are already working on prototypes and components to start supplying these OEMs. BMW chose to set up shop in Mexico because of the German Tier 1 suppliers already in the country. Most of the suppliers opening plants in San Luis Potosi to cater to this OEM are not new to Mexico but have operations elsewhere in the country. Around 90 percent of the Top 100 global auto parts suppliers are present in Mexico. The rest are Chinese companies catering

Around US$300 million worth of investment from auto parts manufacturers will arrive to the Bajio region to supply Toyota

to the Chinese market. Entering the supply chain of a Korean manufacturer is Component manufacturers that have yet to set up shop in

challenging and the best strategy is to approach Kia’s and

Mexico in the short to medium term will supply Toyota at

Hyundai’s purchasing departments in South Korea. Mexican

its plant in Guanajuato, currently under construction. We

components manufacturers need to go to Korea, present

expect the Bajio region will attract auto parts investments

their manufacturing capacities and persuade Korean

worth around US$300 million to support the region’s

automakers to promote local joint ventures between Mexican

already-developed Japanese supplier base. The fact that

companies and their traditional Korean suppliers.

Nissan, Honda and Mazda are present in the Bajio will help Toyota have a soft landing as most of the supplier base it

Q: What auto parts sectors will see their business grow once

needs is already there.

green vehicles conquer the roads? A: An electric, self-driving vehicle will require fewer

Q: Are Mexican automotive component suppliers ready

components than today’s cars and demand for parts such

to meet stricter requirements to service premium brands?

as electric harnesses will increase. An average internal-

A: Mexican auto parts companies are more than ready to

combustion vehicle requires around 1.5km of cable while an

supply premium companies and have done it for a while

electric, self-driving vehicle will need between 3.5km and

now. Mexico’s auto parts competitiveness is based on the

4km. This increased demand is good news for Mexico as

17 million vehicles produced in the NAFTA market rather

the country is a global leader in the production of electric

than on the 3 million produced in Mexico.

harnesses for automotive applications. Furthermore, the most important manufacturers of sensors and electric

Mexico produces all the seatbelts used in North American

motors are already present in the country. Commodities such

vehicle production, including Cadillac, Mercedes-Benz and

as pistons will fade away and their manufacturers will have

BMW. Even Tesla uses a variety of components produced

to migrate toward other components. We are only seeing

in Mexico by Mexican companies. Rassini, for example,

the dawn of this migration.

produces special braking pads that transform kinetic energy into electricity that charges Tesla’s electric-vehicle

Q: What are the main market challenges that electrified

batteries. Mexican suppliers could face a greater challenge

vehicles face?

producing components for cheaper Chinese models than

A: Reaching mass-production of hybrid and electric vehicles

for premium vehicles.

will depend on the technology developed. As long as electric vehicles lack the average 500km of autonomy that today’s

Q: What new opportunities will the arrival of Korean

combustion engines offer and charging times similar to the

and Chinese brands provide to local auto parts

10 minutes it takes to fill a gasoline tank, it is unlikely that

manufacturers?

consumers will adopt them. Once electric models improve in

A: These companies are not particularly open to new

both of these elements, consumers will change their mindset.

suppliers or technologies. Both Korea and China prefer to stick to their national suppliers. Still, it is just a matter of time before these companies follow the example of

The National Auto Parts Industry (INA) is an association

Japanese OEMs and start opening to local suppliers. When

that represents auto parts manufacturers before the Mexican

Kia and its suppliers arrived to Monterrey, they focused all

government. It promotes growth and development of its member-

their attention on building their assembly plants, developing

companies in the original equipment and aftermarket segments

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| VIEW FROM THE TOP

NO STOPPING BRAKE COMPONENT SUPPLIER’S GROWTH DANIEL SANDBERG President and CEO of Brembo North America

Q: What is Mexico’s role in Brembo’s global operations?

consumers to acquire Brembo’s replacements while also

A: Brembo’s business in Mexico has grown substantially

improving our online presence in North America due to

over the past five years, which has enabled us to

growing sales of Internet-based aftermarket purchases.

remain close to our customers and to stay competitive 218

throughout North America. In Mexico and the US, Brembo

Q: What is Brembo’s strategy to introduce its technology

is focused on ramping up its facilities, ensuring that the

to the volume market?

company’s best manufacturing practices are implemented

A: Our growth has been driven primarily by the

quickly and that all our customers’ programs are launched

introduction of our products into mainstream automotive

flawlessly. We have operated for over three decades in

markets to the point that volume cars are now fitted

Mexico and are impressed with the level of commitment

with Brembo brakes. This has prompted us to employ

and general attitude of our associates in the country.

the best manufacturing processes to ensure a supply of

Brembo has hired and developed in Mexico a world-class

top-quality brake systems at the high volumes that our

level of talent that has and will continue contributing to

customers require. Our foundry operations in Mexico and

Brembo’s success.

the US are state-of-the-art facilities that use the latest in high-volume manufacturing processes and quality control

Q: What opportunities does Brembo see from premium

and our machining and assembly operations use creative

vehicle brands starting assembly operations in Mexico?

automation and process control technologies. We have

A: Brembo’s braking systems are standard equipment in

taken all of the best practices that we have developed

many premium vehicles around the world and we strive to

in our facilities around the world and implemented

remain close to customers both in the development and

them there.

manufacturing phases of a product. As premium OEMs establish production facilities here in Mexico, Brembo

In cases such as the Chevrolet Corvette, Brembo not

will be ready to produce and supply brake components

only supplies the brake components but also assembles

from our new manufacturing facilities in Escobedo and

the complete corner of the vehicle and delivers it to the

our recently expanded disc-machining plant in Apodaca.

customer’s final assembly plant. If our client is building

Our first priority is to be located near our customers so

a black car equipped with a yellow Brembo caliper, we

we can provide a fast and reliable service and eliminate

will be notified about it hours before so that we deliver

high transportation costs. Brembo’s components are

that vehicle’s brake system at the exact moment that

heavy and sometimes delicate because they rust in high

that car is close to rolling off the assembly line thanks

humidity, so the company places great importance on

to our just-in-time deliveries. This system helps both

location.

Brembo and its customer eliminate idle inventory in the manufacturing process.

Q: How has the Mexican aftermarket responded to Brembo’s braking solutions?

Q: How feasible is it to integrate sports-grade

A: Brembo has been producing brake components in

components such as carbide-ceramic disks into mass-

Mexico for over three decades. Many vehicles in the

production models?

country employ our components and we offer replacement

A: The carbon ceramic manufacturing process is time and

parts that meet original equipment specifications. Our

resource-intensive, so these components carry a higher

aftermarket family of products is available for purchase

price over similar, traditional components such as cast-

through Mexico’s wholesale, retail and e-commerce sales

iron parts. This means these types of brake components

channels. We also have expanded our distribution network

are reserved primarily for high-performance vehicles sold

and retail outlet network in Mexico to make it easier for

at premium prices such as the Acura NSX, Ford GT or

Chevrolet Corvette. Having said that, the price premium

a brake part was never the goal for us. Brembo develops

of these components has decreased over the past years

and designs brake components that provide maximum

thanks to Brembo’s manufacturing processes becoming

stopping power with style. Our components not only stop

more efficient.

super-cars but we also contribute to the exciting look of those cars with a stylized brake system that lends itself to

Drivers who have carbide-ceramic brake systems in their

the unique design theme of each vehicle. Brembo designs

vehicles notice a superior brake performance since they

its braking components to both perform and stand out.

can take a large amount of heat for an extended period of

The last time we counted, Brembo’s caliper color palate

time without deformation or loss of actuation compared

included over 100 different colors.

to cast-iron systems. Q: How has the introduction of lightweight and mixedmaterial solutions impacted your manufacturing and testing process? A: The introduction of new lightweight materials is a trend that Brembo has explored since its foundation and Brembo has pioneered their introduction into brake systems. We invest over 5 percent of our annual turnover

Brembo invests over 5 percent of its annual turnover in R&D operations and 10 percent of its technical workforce is devoted to technological development

in R&D operations and have 10 percent of our technical workforce devoted to technological development. The

Q: What are your goals regarding sustainability and a

company is always looking to the future of braking, most

more environmentally friendly operation?

recently pioneering brake-by-wire (BBW) technology and

A: In 2017, Brembo established a dedicated environment

experimenting with new materials such as cement brake

and energy department with the specific aim of defining

pads. We are perfecting a BBW system that eliminates

the company’s strategies in this area, such as the

the need for brake fluids. The expansion of the electronic

steady reduction of its plants’ environmental impact.

parking brake system is gaining a foothold in the volume

We also provided more than 195,000 hours of training

vehicle market. These systems are standard equipment

on environment, health, safety and compliance in 2017.

in most supercars and are becoming more popular in the

Brembo continues to invest in projects to reduce energy

mid-premium and performance segments.

consumption and emissions, minimize industrial waste and improve waste reuse and recycling. We have been

Q: What challenges have you found in integrating

recognized as one of the top companies worldwide

electronics to your products while maintaining the same

committed to reducing the causes of climate change by

weight and performance?

the Carbon Disclosure Project and were included on the

A: As with any new technology, our customers and

“A List” of the Climate Change program with particular

consumers should feel comfortable with a new system

reference to CO2 emissions.

in their vehicles. This is particularly true when it comes to brakes because they are a safety component. We believe

Q: How does Brembo plan to increase its operations both

that implementation of BBW systems coupled with

in original equipment and the aftermarket?

mechatronic actuation is the future of brake systems and

A: North America is Brembo’s largest market with a

will provide a faster, more reliable and fully customizable

turnover above US$600 million and this growth is

braking system. This technology should be lighter than

attributable to Brembo’s expansion to seven production

existing brake systems because the hydraulics and brake

facilities that support the North American vehicle market.

fluid lines in the vehicle will be eliminated.

The region’s projected production of 17 million vehicles in 2018 in addition to the growing aftermarket should ensure

The spherical tire technology driven by magnetic

Brembo’s continued strength. We continue to ensure

levitation is interesting for us. It poses challenges for

that not only OEMs but also consumers have access

brakes systems that Brembo is working to overcome

to our products by establishing partnerships with new

through new technologies.

customers such as Canadian Tire and AutoZone.

Q: What is Brembo’s strategy to stand out in the global brake system market?

Brembo is an Italian supplier of brake systems. The company

A: Design is what differentiates Brembo from most

has been present in the Mexican market for more than three

suppliers in the market. The combination of functionality

decades. Brembo supplies brake components to the Ferrari

and design has driven Brembo’s success. Just producing

Formula 1 team and all vehicles racing in the Formula E category

219

| VIEW FROM THE TOP

NEW PROJECTS DEMAND SPECIALIZED LABOR ALEJANDRO VERAZA Managing Country Director of TI Automotive

220

Q: How has TI Automotive taken advantage of the latest

Q: How is TI Automotive preparing for the technological

OEM investments in the country?

changes coming to the industry?

A: TI Automotive’s operations have grown thanks to

A: We have made material-technology development

new OEM projects coming from the NAFTA region and

a priority, mainly focusing on increasing our products’

Europe and our expectation is to maintain 5 percent year-

flexibility. This has helped us become more competitive

on-year growth for the next years. Our focus on quality

and be more attractive for potential clients and has given us

production of fuel and brake lines has helped us gain new

an opportunity to participate in hybrid and electric-vehicle

projects with our existing client base with companies

production.

like Volkswagen, Audi and Chrysler and it has opened the doors for us with new clients that we had previously

We have also tried to increase our efficiency both in labor

not had in Mexico such as Mercedes-Benz. We have also

and technology. Mexico is still highly competitive in terms

grown our operations as a Tier 2 company and we have

of human labor, which means that automation should be

incremented our production destined for exports with

a priority but only to a certain extent. The goal should be

Honda, Volvo and BMW. All these different projects give

to increase precision in our operations without incurring

us enough flexibility to not depend on a single client

in added costs. We have found that training can lead to

and to learn about new technology trends from different

extremely specialized labor that can yield better results

companies to grow our own lineup.

and more flexibility than automation.

Q: How important is Mexico for TI Automotive’s global

Q: What challenges do you see regarding talent

operations and how have you ensured positive results at

development and availability?

all your facilities here?

A: Talent development is a priority for the company at all

A: Mexico is a key contributor in TI Automotive’s global

levels. We still see lack of specialized labor as a challenge

strategy and a country with positive growth levels. For the

for the industry. Recent graduates are excellent for new

industry in general, North America has yielded moderate

operations but during this growing phase, we need people

growth in recent years but Mexico remains a fast-growing

who already have experience in production operations. In

manufacturing hub and that is also true for our company.

the center of the country, people are highly specialized but

We have diversified our operations between the domestic

there is little availability, which means we must train our

and the international market and that has helped us

new hires as fast as possible. In the north of the country

deliver healthy results. Our plant in the State of Mexico,

we face a problem of constant migration. People who

for example, destines 80 percent of its production to the

wanted to move to the US but stayed close to the border

domestic market. San Luis Potosi, on the other hand, sends

are now returning to their states of origin because work

80 percent of its products to the US and Canada, while

opportunities are blooming. Finally, in San Luis Potosi we

Reynosa exports 70 percent of its production to the US.

face the problem of an overall lack of talent, specialized or

Moreover, with our growing operations with new clients,

not, due to the saturation in the entire Bajio region.

Reynosa is now expecting to increase the production share that will stay in Mexico.

The Bajio faces a second problem related to talent and work culture. While people in the north of the country have grown accustomed to a maquila or manufacturing

TI Automotive is a supplier headquartered in the UK. The

mindset, in the Bajio there are still people that grew up

company provides fuel, brake and powertrain components

doing agricultural activities. This means that instead of

to both OEMs and Tier 1 suppliers and has presence in 28

focusing on continuous labor of a technical nature, they

countries

are accustomed to seasonal work.

VIEW FROM THE TOP |

TWILIGHT OF INTERNAL COMBUSTION SPURS INNOVATION LUIS PALOMÉ Managing Director of BOSAL Mexico

Q: How do you expect vehicle electrification to impact

Q: What new opportunities has BOSAL found in the arrival

BOSAL Mexico’s operations?

of more OEMs to Mexico?

A: We expect exhaust systems to disappear between 2038 and

A: Our main clients in Mexico are GM and Volkswagen but

2043, so we need to take advantage of our experience and

the arrival of new OEMs can be an interesting opportunity.

R&D capabilities to develop new technologies and introduce

We have advanced our collaboration projects with BMW

new products to our lineup. We still have time to move

in Mexico thanks to BOSAL engaging in R&D processes for

away from emission-control systems and toward the energy

exhaust systems with that brand in Europe. The incoming

recuperation systems used in hybrid vehicles. In Mexico,

assembly operations of BAIC and JAC in Mexico are

BOSAL produces a heat exchanger for hybrid vehicles that is

also attractive for BOSAL since we already collaborate

exported to the US, China and South Korea. We look forward

with them in China. We need to focus on attacking more

to producing more components for electrified vehicles like this

markets. Our Mexico operations have targeted mostly the

in Mexico but have not landed those projects yet.

US and Europe but Asia is also attractive because of the large volumes it handles. Our strategy to enter new markets

Q: What opportunities did BOSAL identify that prompted

such as Japan or South Korea consists of creating alliances

the company to bring an R&D center to Mexico?

with companies that are already present there.

A: Engineering labor costs in Mexico are more attractive than in other countries. Cost is a major factor in the decision-making

Q: What is your strategy to supply exhaust systems to

process of OEMs and suppliers. Having said that, companies

Japanese automakers in Mexico?

are now interested in the quality levels that Mexican engineers

A: BOSAL Group has no R&D operations in Japan, which

can deliver. The fact that companies such as Continental are

limits our ability to work with Japanese OEMs because

opening design and engineering centers in the country says

they require suppliers to have R&D centers in their home

a lot about what Mexico has to offer. It is time for Mexico to

country. We are exploring several options to become a Tier

stop being solely a manufacturing hub and for R&D operations

2 to Japanese OEMs by supplying components to other

to take place in the country. BOSAL has reached the second

companies that produce exhaust systems for them. This

stage of four in its project to bring an R&D center to Mexico,

strategy can help us to eventually find our way to become

which should open by 1Q20 and will focus on developing

a Tier 1 for Japanese OEMs.

technology for heat exchangers and exhaust systems. Q: How has the ongoing sales downturn and small increase Q: What are BOSAL Group’s priorities when developing

in vehicle production affected BOSAL Mexico’s operations?

technology for more efficient exhaust systems?

A: Despite the uncertainty in the first months of 2018, our

A: Because BOSAL’s headquarters are located in Belgium, the

performance has not been affected. We are viewing 2018 as

company focuses on meeting European emission standards,

a year of consolidation, focusing on landing several projects

which gives us an edge when complying with US regulations.

that were in our pipeline. BOSAL’s Queretaro plant is the

Moreover, we are not fazed by changes in US regulations like

second most important manufacturing facility for the group

the ones declared by the Environmental Protection Agency

because of its size and we expect to reach sustained growth

because we already follow standards that are one step ahead.

rates of 20 to 25 percent in the next four years in Mexico.

For instance, the group develops products that meet Euro VI C standards and has already started working to meet Euro VI D standards. This process trickles down from BOSAL Group’s

BOSAL Group is a global leader in the production of emission-

headquarters to its overseas manufacturing operations, so

control systems. Based in Belgium, the company focuses on

BOSAL Mexico manufactures products that meet these

the development of more efficient and lighter exhaust systems

standards and ensure reduction of vehicle emissions.

for light and heavy vehicles and stationary motors

221

| INFOGRAPHIC

A GLOBAL EFFORT Mexico has attracted investment from all over the world

TOP GLOBAL SUPPLIERS BY SALES

in the auto parts sector, mainly from Tier 1 and Tier 2

Magna

Canada

companies looking to support OEM operations, leading

Hyundai MOBIS

Korea

to an industry worth US$87.7 billion by the end of 2017.

Valeo

France

However, there is still opportunity for the country to develop its global supply chain, mainly in the lower tiers of production. Areas such as raw-material supply and electronic-component assembly, as well as die and mold manufacturing and maintenance remain areas of opportunity where more local and international companies can grow.

Faurecia

France

Yangfeng Automotive Trim Systems

China

Aptiv

Ireland

Samvardhana Motherson Group

India

Autoliv

Sweden

Plastic Omnium

France

Gestamp

Spain

MARKET VALUE AND INVESTMENT OPPORTUNITIES IN MEXICO’S SUPPLY CHAIN (US$ billion) 12

10.7

Market opportunity Current production

10.1

10 8.5

8.8

8 6.1

6 5.8

4.9

1.9

1.6

Others

0.8

0.5

0.7

0.2 Embeded software

0.8 Electric components

Interiors

Plastic injection

Design and engineering

0.3

Semiconductors

Machining

Forging

Foundry

TIER 1 SUPPLIERS AND THEIR PARTICIPATION IN VEHICLE PRODUCTION

1.9

1.5 0.7

Cable and wires

1.3

0 0

2.4 1.5

Die casting

2.5

2.9

Mechanical assembly

2.5

2.7

Surface finishing

3.7

3.6 2

Stamping

222

10 16

Leather interiors

Wipers

Exhaust systems

Sunroofs

Bader, Eagle, Ottawa

FederalMogul, Bosch

Meritor, Katcon

Inalfa

Seatbelts Autoliv

Seats Brose, Tachi-S, Johnson Controls

Lighting OSRAM, HELLA, ZKW, Hyundai MOBIS

Sensors and under-the-hood components

Engine components

Paint and coatings

Bosch, Continental, Hitachi, DENSO, Valeo, Aptiv

Arbomex, MACIMEX, MAHLE, DANA

PPG, Henkel, BASF

Suspension components TRW, ZF

Body parts Gestamp, Plastic Omnium

AUTO PARTS PRODUCTION (Jan-Mar) 6

US$22.98

billion in total auto parts sales (1Q18)

4 3 2

1Q17

1Q18

Cooling

Glass and windshields

Oils, lubricants and fluids

Tires

Rubber products

Bodies

Brakes and parts

Diesel engines

Suspension, steering and parts

Stamping and parts

Accessories and parts

Gasoline engines

Engine parts

Transmission, clutches and parts

Other

Electric parts

Carpets and seats

223

YEARLY AUTO PARTS PRODUCTION (US$ billion)

1.5%

Dashboard and instrument clusters

Glass and windshields Vitro, SaintGobain

Visteon, Preh

GKN, Draxlmeier, American Axle

TRW, Takata, Autoliv

Monoblock Nemak

Cables Leoni

0.5 0.1

0.2 0

0.1 0 Print material

79.16

0.7

Fiberglass

0.8

2017

Dielectric material

81.63

2016

0.3

Axles and transmission components

Airbags

2015

Sintering

0.4

0.2

0.5

83.25

51.27 0.3

0.6

2014

Ceramic

0.8

2013

Electric assembly

0.2

2012

Display

0.3

0.7

2011

Metal extrusion

0.8

2010

Plastic extrusion

Printed circuit board

0.3

0.8

Turbing

0.2

Heat treatments

0.1 Electronic components

1.3

Electronic assembly

1.5

59.8

70 60

Glass

1.9

68.19

participation of the auto parts sector in national GDP

77.1

87.72

100

HOW POSITIVE IS YOUR COMPANY ABOUT INVESTING IN MEXICO?*

165 Total

62.4% Very positive 25.5% Positive 0% Not positive 7.3% No answer 4.8% N/A

Carpet

Brakes

Interior systems

Brembo, Akebono

Faurecia, Yangfeng

Tires Goodyear, Michelin, Pirelli

Electric harnesses Delphi, Samvardhana Motherson

Lear Rims

Steering column

Zanini

Thyssenkrupp

Transmission TREMEC, JATCO

Source: INA, Automotive News 2017, ProMéxico, INEGI 2014 *Mexico Automotive Review 2018 interviewee survey

| VIEW FROM THE TOP

SUCCESS SPURS NEW PROJECTS SERGIO ÁLVAREZ Commercial Director of Hankook Tire de México

224

Q: What strategies have you implemented to strengthen

Q: How has the growing manufacturing presence of

your presence in the original equipment market?

Kia and Hyundai helped you build your position among

A: We opened a new distribution center in Monterrey in May

other OEMs?

2017, which has increased Hankook’s presence considerably

A: Kia is a South Korean company like Hankook and has

in the north of the country, particularly in Nuevo Leon,

helped us grow our presence in the country, mainly following

Tamaulipas, Coahuila, Chihuahua, Sonora and part of San

its own increment in sales. Having said that, we continue our

Luis Potosi. This new facility has been beneficial mainly for

work with other brands such as Ford, Chrysler, Chevrolet and

our aftermarket operations, allowing us to store between

Volkswagen and we also have incoming projects with Nissan

60,000 and 80,000 tires, but it has also helped us supply

and BMW at its new facility in San Luis Potosi. Our goal is for

Kia’s and Chrysler’s plants and develop new distributors.

one out of every 10 vehicles manufactured in Mexico to leave the plant with Hankook tires and we have almost reached that

We have another distribution center in Queretaro that caters to

target. We are strengthening our partnerships with OEMs and

the center, south and southeast of the country. This is our main

we are participating in the volume and premium segments.

facility in Mexico with a storage capacity for approximately 180,000 to 200,000 tires. This center supports our operations

Q: How can you grow your presence in the heavy-vehicle

in the light and heavy-vehicle segments for both original

segment beyond the aftermarket?

equipment and the aftermarket. Together, Queretaro and

A: The heavy-vehicle segment is highly specialized and

Monterrey cover most of the country and the next step for the

companies’ priorities can be narrowed to two key elements:

brand is to target the region of Baja California, Baja California

save fuel and reduce tire replacements, thus reducing cost

Sur, Sonora and Sinaloa, as well as the Yucatan Peninsula.

per kilometer. Although low-priced products are still present in this market, the trend has been to limit this offering.

Q: What are your priorities for this market in both the light

The Mexican market has become much more mature and

and heavy-vehicle segments?

Hankook has built a portfolio that favors innovation and

A: We have an aggressive growth strategy in original

safety above everything else. In this segment we are already

equipment for both the light and the heavy-vehicle segments.

working with fleets such as Grupo Toluca, Tres Guerras,

We have already approached trailer manufacturers and

Autolíneas Regiomontanas and Servicios CAD and we have

distributors and our distribution center has been a great

seen double-digit growth in recent years for our Hankook

advantage to assure these companies that we have the

and Aurora brands.

capacity to supply their operations. We already have a key account with a trailer manufacturer in the north of the country,

Q: As a South Korean company, what challenges or

which will also help us grow our presence further. Additionally,

opportunities do you see to maintain your growth in Mexico?

we opened a distribution center in Puebla solely dedicated

A: We have seen great support for Korean companies,

to supply Volkswagen and Audi. We do not discard the

especially after the arrival of Kia and Hyundai, and there

possibility that this center might one day also support our

are even talks about a potential trade agreement between

aftermarket operations in this region but currently, our priority

Mexico and South Korea. For companies such as Hankook

for this center is the original equipment sector.

to remain successful, these strategies must continue. Korean investment in Mexico is growing and we expect that a treaty between the two countries will open new

Hankook Tire is a South Korean tire manufacturer with corporate

opportunities to reduce costs and optimize operations.

presence in 30 countries and manufacturing facilities in eight.

So far, our growth expectations as a company and as

The company has close to 22,000 employees globally and a

part of the Korean investment front are positive for the

production capacity of 104 million units as of 2017

foreseeable future.

INSIGHT |

QUERETARO’S SUPPLIER BASE ATTRACTS CHINESE ATTENTION VINOD MIRANDA COO of Cheersson México

The presence of a strong Tier 1 supplier base in Queretaro is

to supply components, which means Cheersson has to work

not only an advantage for OEMs in the Bajio region but also

well in advance to supply future vehicle models. “Building

for lower-tier suppliers that see an opportunity to support

production equipment or tools takes seven to nine months.

their global customers in a new market, according to Vinod

Then it is necessary to have these tools validated, produce

Miranda, COO of Cheersson México.

validation samples, measure them, get the customer’s approval and only then we can start production,” he adds.

Cheersson, a Chinese Tier 2 supplier of precision stamped components and tooling systems, went the distance to

Cheersson México has already doubled its production

establish and start production in Queretaro in 2016 to

capacity within its first year of operations as it prepares

cater to its global clients. “The presence of most of our

to ramp up production. Participation of Mexican

international customers in the state was the main driving

companies in Cheersson’s local supplier base has also

force behind this project,” says Miranda.

helped the company overcome the challenges that a new manufacturing operation entails. According to Miranda,

Cheersson is already doing business with key Tier 1 players

most of the products that Cheersson México needs are

in China and other countries. According to Miranda,

procured locally with the exception of some commodities.

companies that need high volumes of precision stamping

“We have to rely on suppliers in China, Japan and the US for

components are Cheersson México’s ideal customers. “We

some raw materials and components because suppliers of

have a solid business relationship with the procurement

these products are not found locally,” he says. Bringing in

departments of some Fortune 500 automotive companies

local suppliers helps the company avoid imports and added

in several locations around the world,” he says. Cheersson

tariffs as well. “We need to find a solid cost-benefit balance

takes advantage of these global relationships to showcase

between the parts we procure from abroad and our local

the advantages of the stamping products and services

sourcing operations,” says Miranda.

it offers. Quality suppliers do not come easy and Cheersson has gone “Mexico’s automotive industry is growing, which results in

the distance to ensure Mexican companies meet its needs.

opportunities for Cheersson to jump in and provide the

“We hired the best talent that would help Cheersson México

goods and services in which it specializes,” says Miranda. The

reach out to the Mexican supplier base,” says Miranda.

company does not only want to focus on the Bajio region but

The company then put in place a qualification process

plans to cover all of Mexico and the US from its Queretaro

that screens suppliers. “This ensures that prospective

plant. The company already caters to certain manufacturing

suppliers have the necessary quality management systems,

operations in border town Ciudad Juarez, Chihuahua.

technology and financial capacity to deliver the products and quality demanded by Cheersson México,” says Miranda.

Cheersson’s operations in Queretaro already have strong presence with global OEMs such as Tesla in the US, but

The company sees a gap in tooling development in

international clients in Mexico mean more opportunities and

Mexico but Cheersson has waded through this obstacle by

Cheersson México is preparing to ramp up its component

producing tooling systems in-house. “Tooling suppliers in

production. “We are working with our clients in Mexico

Mexico are not very good due to lack of precision tolerance

in the development stage of some components, adding

capabilities and less competitive costs,” he says. “It is

machines, tools and preparing to boost production,” says

more cost-efficient to produce tooling and equipment in

Miranda. Automotive companies generally develop their

Asia and import it than building it locally, so Cheersson

components two to three years in advance of production and

designs, fabricates and develops its tooling and automation

take longer to start producing when awarded a new contract

equipment at its headquarters in China.”

225

| VIEW FROM THE TOP

TESTING IS GREENFIELD AREA FOR GLOBAL SUPPLIER Guli Lima Director of Controlar North America

Fernando Leite Co-founder of Controlar

Q: How are Controlar services divided in relation to Mexico’s

companies understand the standards we work with. However,

automotive industry?

most other global companies in Mexico still have made no

FL: Globally, the industry represents 90 percent of our

decision on which testing equipment they can source locally.

activities, given the strength of this sector in the countries 226

where we are present: Mexico, Spain, Portugal and Malaysia.

Q: What factors could help the company increase its

In Mexico we service solely the automotive industry.

market share? FL: Controlar’s penetration in the market will grow in Mexico

GL: We work with Visteon as their global suppliers for

inasmuch as R&D operations evolve in the country. We

print circuit board (PCB) testing and we also collaborate

see the arrival of more R&D centers attached to leading

locally with Aptive. We also have a strong collaboration

Tier 1 suppliers as a positive for our company and for the

with Bosch globally. Our focus is mostly on infotainment

industry. The country must evolve toward a technological-

systems including radios, GPS solutions, dashboards and

development future because its position as a low-cost

instrument clusters. At the moment, our operations are

manufacturing destination will not last forever.

40 percent focused on developing testing solutions and 60 percent on automation equipment and services. Half

GL: Companies investing in R&D operations need assurance

of the testing solutions we have marketed in Mexico were

that they will be able to complete their design and

designed and brought directly from Portugal. The rest have

manufacturing processes locally. Otherwise, they have to

been specifically designed for our local clients and have

send those components abroad for validation at OEMs'

been developed along our automation integration services.

headquarters, which only delays the process. That is the main advantage that a company such as Controlar can offer.

Q: Being a recent investor, what opportunities do you see for Controlar to develop in the Mexican market?

Q: How have you ensured both large Tier 1 companies and

FL: Data has become a key element in vehicles. Cars now

smaller suppliers can access Controlar’s solutions?

include more electronic components and they need to manage

GL: We are a system integrator and our goal is to build

more information to be connected with other vehicles and

automation systems that meet the clients’ needs at the

with satellite communication. Controlar’s value proposition

fairest cost possible. The cost of the solution depends on the

is to build testing systems that can verify and validate all

type of equipment the client needs and it is true that robotic

components related to data management are built properly.

equipment can be expensive. Having said that, robotic solutions have become much more accessible in recent years.

GL: Mexico still has enormous untapped potential in the testing market with companies that do not have testing operations

Q: What are your growth expectations in Mexico for the

in Mexico. However, there is also massive opportunity to

near future?

collaborate with global Tier 1 companies like Bosch or Magneti

GL: Our first year in Mexico focused on building our

Marelli that still source most of their testing equipment from

operational infrastructure and training our people to work

abroad. Our relationship with companies like Bosch has been

according to Controlar’s global standards. Our goal now is

possible thanks to our global presence and the fact that these

to evolve our operations in Mexico to the point where they represent between 5 and 10 percent of our global revenue. We do not have plans to expand our facilities yet but we

Controlar is a Portuguese supplier of testing equipment and

do need commercial, technical and engineering teams in

automation solutions founded in 1995. Controlar supplies

different regions. Chihuahua, Ciudad Juarez, Guadalajara,

innovative

Monterrey and San Luis Potosi will be our priorities to

and

technological

solutions

for

aerospace and defense and electronics companies

automotive,

establish a commercial link by the end of 2018 or early 2019.

INFOGRAPHIC |

MEXICO'S AUTO PARTS STRENGTH GLOBAL LEADERS IN AUTO PARTS PRODUCTION (US$ billion)

Although Mexico is internationally known as a light-vehicle manufacturer, the country is also a leading player in auto parts production, a position that will only strengthen as OEMs ramp up

China

their operations. Mexico is ranked fifth in this segment, behind China, the US, Japan and Germany, with production of US$87.7 billion in 2017. Thanks to its strength in this segment, Mexico has grown its trade balance in the automotive industry to US$70.8 billion in 2017,

which is almost three times greater than the trade balance value on remittances. Japan

STATE CONTRIBUTION TO AUTO PARTS PRODUCTION IN MEXICO

Germany

19.6% Others

227

Mexico

South Korea

50.6% Northern

India

border

Canada

Brazil

29.8% Bajio region Italy

Thailand 0

The northern border contributes 50.6 percent of Mexico's total auto parts production

100 200 300 400 500 600 700

2015

2016

2017

TITLE MEXICO'S TRADE BALANCE (US$ billion) 80

70.8

70 60 50 40

28.8

30 20

10.5

10 0 -10 -20 -30

-18.4 2006

——Automotive Source: INA, AMIA

2007

2008

2009

——Oil and gas

2010

2011

2012

2013

——Remittances

2014

2015

2016

——Tourism

2017

| ROUNDTABLE

HOW CAN LOCAL PLAYERS PARTICIPATE IN GLOBAL MANUFACTURING CHAINS?

Just as Mexico's clusters showcase the strength of different automotive regions, country blocks have also formed globally in an effort to increase regional competitiveness and Mexico is a key participant in the North American supply chain. Automotive has become a truly globalized industry where companies from around the world participate and compete for dominance in quality, design and costcompetitiveness. The challenge for Mexican companies is to find ways to stand out and be recognized as reliable partners in automotive production.

Building a national supplier base is an institutional priority for ProMéxico. We cater to 228

advanced-manufacturing industries such as aerospace, automotive and electronics, which usually share a supplier base. Mexican suppliers are evolving. Rather than catering to a single industry, they are supplying several and diversifying their portfolio. This is a positive step in the development of the country’s advanced-manufacturing

ARMANDO CORTÉS Executive Director for Industrial Development at ProMéxico

industries. ProMéxico focuses on identifying the productive capacities of SMEs so they can join these industries’ supply chains and on raising Mexican content in these industries through business meetings focused on strategic industrial processes. Tooling is perhaps the area that offers the most opportunities. All industries need tooling solutions such as molds and dies but Mexico imports around US$2.6 billion in tooling annually and is the second-largest importer of molds worldwide.

Companies should make continuous improvement a priority, both in quality of products and processes. Certifications are equally important. Becoming a certified company is a complicated process that implies changing paradigms within the business itself and requires a strong economic backbone to support the necessary investment to align the company to international standards. Similarly, players looking

ELISA CRESPO Vice President of the Automotive Cluster of the State of Mexico

to join the production chain must be willing to invest in implementing the latest technology in their processes. Talent development should also be one of the utmost priorities, together with technology integration, particularly as it relates to Industry 4.0 applications. We understand these difficulties, which is why we have opened a dialogue with the state government to boost financing programs for companies wanting to participate in the automotive chain.

Regardless of political issues such as the renegotiation of NAFTA, there are huge opportunities for Mexican suppliers to integrate into American production chains. However, local players must deliver quality, achieve cost competitiveness and implement adequate technology to meet the requirements of suppliers and OEMs. EVCO Plastics is completely integrated into the US automotive supply chain, as well as with household

HUMBERTO GARZA President of EVCO Plastics

appliances, health and other sectors, and we have grown thanks to these kinds of opportunities. The US and Mexico are complementary economies, much like Germany and Turkey. We can improve this collaboration through innovation centers and several US companies are already bringing innovative projects and R&D branches to Mexico. If this collaboration continues, the region can increase its competitiveness.

Integrating technology and growing the capabilities of local companies is crucial, particularly in filling the holes of the current supply chain. Vehicle production is certainly important considering the country produces approximately 3.5 million light vehicles per year. However, auto part production is equally if not more important since every year this industry accounts for over US$80 billion in production. In plastics, for example, there are not enough mold manufacturers in the country. Many plastic component providers are working at full capacity and they are looking for companies to subcontract part of their production. The challenge now is finding those companies that are willing to make the effort to become true members of the automotive production chain.

JUAN JOSÉ ZARAGOZA Mexico Country Leader of Transportation and Advanced Polymers at DowDuPont

The main challenge for Mexican companies is investment. Many companies are focused on developing innovative manufacturing processes since Mexico can no longer be competitive due to low labor costs alone. Mexican companies should face fewer difficulties to integrate into US productive chains once the region is 229

strengthened. We also look forward to having more flexible US-Mexico trade that incentivizes investments in the medium and long term. Sourcing cost-competitive raw materials has now become a challenge due to the increased prices in steel and aluminum. Most raw materials are not produced in North America but imported from

JUAN ALCIDE Vice President and General Manager of Gill Industries

Asia and Europe, so the challenge is finding a way to produce locally.

When we first invested in Mexico, we only focused on component manufacturing operations. Now, we also engage in machinery and product development. Brose opened a center for machinery development in Queretaro and now builds equipment to cater to Brose’s needs in the US, Mexico and Canada. Brose brought the necessary technology from Germany to build laser welders in its El Marqués plant and this will be the first time Brose designs and builds equipment outside Germany. Having trained workers has enabled us to engage in these advanced activities. Our new goal is to start a project with the Polytechnic University of Queretaro (UPQ) in March 2018. Brose will have its own area within the university where the company will engage in technological innovation.

MANUEL GUEVARA General Manager Queretaro – El Marqués Plant at Brose México

There are already over 2,000 German companies operating in Mexico generating more than 150,000 jobs, which clearly shows Germany’s belief in Mexico´s potential as an investment destination. BASF values self-learning and individual training with coworkers as the optimal tools to raise the Mexican workforce to the same level of any country. We have created several mentoring and development programs for our employees and trained Mexicans outside of Mexico to gain international experience, implement it in their everyday activities and share it with their peers. We believe that talent exists in Mexico. We are investing in training for our customers and by the end of 2018 we will re-inaugurate our training center for automotive refinishing in Toluca.

FRANK HEZEL Vice President of BASF’s Coatings Division in Mexico, Central America & Caribbean

The biggest challenge is building confidence among Tier 1 suppliers. Most of these players are foreign and they have to be convinced about the advantages of trusting a Mexican supplier. We understand that companies look for solid, trustworthy partners with the financial backbone to meet their clients’ demands. For this reason, we have worked with the state government to offer financial support to SMEs looking to work with a foreign company. Additionally, we have worked on a strategy to combine efforts from several SMEs to become a unified front that can meet OEMs’ requirements in terms of volume and delivery times.

EFRAÍN MATA President of GIRAA Automotive Cluster

| PROJECT SPOTLIGHT

NEXT GENERATION SCANIA: RENOVATED SUSTAINABILITY Scania is a Swedish OEM focused on the production and sale of trucks and buses and related services. With 20 years of presence in the Mexican market, Scania’s network includes 11 dealerships, 48 service points and an assembly plant in Queretaro that produces all Scania vehicles circulating on Mexico’s roads. As part of its commitment to sustainability, Scania focuses on providing the market with solutions that reduce carbon footprints in transportation, operating sustainably in terms of its product manufacturing processes, the wellbeing of its collaborators and the company’s social impact. 231

With this in mind, Scania has launched its new generation of heavy vehicles that facilitate the adoption of sustainable transportation. According to a press release posted by the company, the new range of trucks and buses are the result of 10 years of development and an investment of approximately US$2.2 billion to ensure that Scania’s customers can always carry out their work in the most sustainable and profitable way. The company underlines that all Euro VI engines powering Scania’s new truck range have received new management systems. Additionally, the improved cooling capacity in the cabs of these new trucks allows clients to save an average of 3 percent more fuel. According to Enrique Enrich, Director General of Scania Mexico, the new range of trucks and buses were launched in Europe in 2016 but will reach the Mexican market as the country embraces Euro VI regulations. “The new vehicles are more fuel efficient and clients will be pleased with the results they offer,” he told Mexico Automotive Review in 2017. Among the advantages that set apart the new generation of Scania trucks is its modular system that improves performance, provides greater connectivity and include a comprehensive set of productivity-enhancing tools and sustainable solutions. According to Henrik Henriksson, President and CEO of Scania, the company did not only launch a new truck range but also a unique, ingenious toolbox of sustainable solutions. Scania underlines that its new truck generation can easily run on hydrogenated vegetable oil (HVO), conventional diesel or a combination of both without losing performance. The company highlights that in the best-case scenario, a new generation Scania truck can reduce CO2 emissions by up to 90 percent.

Next Generation Scania

LOGISTICS, CONNECTION, INFRASTRUCTURE

As a natural logistics hub, Mexico has the advantage of being connected to the second-largest market in the world and having access to both the Atlantic and the Pacific oceans. This position is strengthened by Mexicoâ&#x20AC;&#x2122;s free-trade agreements with 46 countries. However, companies agree there is a lack of proper infrastructure and adequate processes to support further growth for the automotive industry. With new investments coming, the country faces the challenge of growing its logistics infrastructure to satisfy the needs of new OEMs and suppliers.

Logistics, Connection, Infrastructure focuses on the relationship between logistics infrastructure and providers to offer expedited shipments for importers and exporters. Companies share their views on the most pressing issues impacting the industry, such as incomplete infrastructure and too much red tape at customs, while leading players showcase their advantages in supporting a growing supply chain.

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CHAPTER 9: LOGISTICS, CONNECTION, INFRASTRUCTURE 236

ANALYSIS: Logistics Progress Made but More Needs to be Done

237

INSIGHT: Arlette Lua, Crane Worldwide Logistics

238

VIEW FROM THE TOP: Miguel Muñoz, Geodis México

239

INSIGHT: Miguel Trejo, Agility Logistics

240

VIEW FROM THE TOP: Edgardo Hamon, Dachser Mexico

241

VIEW FROM THE TOP: Manuel Eslava, TIBA

242

VEHICLE SPOTLIGHT: Volkswagen’s Delivery 6.160: the New Addition to the Family

244

VIEW FROM THE TOP: Alexander Katsouris, Europartners México

245

VIEW FROM THE TOP: Massimo Paolotti, Ventana Serra

235

Francesco Petrelli, Ventana Serra

246

VIEW FROM THE TOP: Manuel Díaz, Seko Logistics

247

INSIGHT: Kevin Schoberth, Dietrich Logistics

248

VIEW FROM THE TOP: Rubén Imán, Onest Logistics

249

INSIGHT: Carlos Canseco, PELT

250

ROUNDTABLE: Do You Consider Mexico a True Logistics Hub?

252

INSIGHT: Ramiro Delgado, Solistica

253

INSIGHT: Rafael Mora, Corrubox

254

VIEW FROM THE TOP: Luis Manuel Quiroz, Guanajuato Puerto Interior

256

VIEW FROM THE TOP: Efraín Arias, SCT Centro Querétaro

258

INSIGHT: Mauricio Garza, Interpuerto Monterrey

259

INSIGHT: Yoav Megged, Traffilog

260

VIEW FROM THE TOP: Enrique Segovia, SAKTËSI

261

Fernando Segovia, SAKTËSI

INSIGHT: Alfredo Lozano, LIS Software Solutions

| ANALYSIS

LOGISTICS PROGRESS MADE BUT MORE NEEDS TO BE DONE An increasingly globalized manufacturing industry calls for efficient logistics processes that ensure competitiveness. Despite the challenges that logistics operations in Mexico face, the country’s geographical position, diversified freetrade network and privileged location highlight Mexico's logistics potential Insufficient infrastructure, security risks and an outdated

key role in this process. Ramiro Delgado, Global Commercial

regulatory framework for the logistics sector are just

and Marketing Director at Solistica, says logistics operators

a few of the hurdles logistics operators face in Mexico.

in Mexico also need to work with the public sector to

However, the implementation of digital solutions and

guarantee that investments in infrastructure are aligned with

best international practices can help companies increase

the industry’s needs. “Construction of multimodal logistics

their operational efficiency to the customers’ benefit. The

centers is key,” he says.

World Economic Forum’s Global Competitiveness Report 236

2017-2018, ranked Mexico 71st of 137 countries in terms of

Security has also become a major concern for companies

the quality of its infrastructure, with railroad, port and air

in Mexico. According to data from CANACAR, over 10,200

transport infrastructure as the areas where the country

truck robberies were reported in 2017 compared to 5,435

has lagged the most.

robberies in 2015, which means an 87.7 percent increase in

“

Digitalization has been a key element in bridging the gap between clients and forwarders” Alexander Katsouris, Automotive Logistics Director at Europartners México

What to address first is a topic of discussion. Arlette Lua,

two years. The association highlights that the sum of direct and indirect costs of truck robberies in 2017 amounted to MX$92.5 billion (US$4.9 billion), which equaled more than 0.5 percent of Mexico’s GDP in that year. State of Mexico, Puebla, Michoacan and Tlaxcala concentrated 75 percent of all truck thefts. Train robberies also increased in 2017. Mexico’s Railroad Transportation Regulatory Agency (ARTF) reported a total 1,278 incidents where cargo was stolen in 2017 and at least 135 cases of train robberies involving automotive products, particularly assembled vehicles. Close to 50 percent of all these robberies took place in Veracruz, Puebla, Guanajuato and Queretaro.

Director of Automotive Industry Vertical – Mexico at USbased operator Crane Worldwide Logistics, says Mexico’s

Alexander Katsouris, Automotive Logistics Director at

roads are the most important area of opportunity for the

Europartners México, says security is a key concern for both

country to improve its logistics competitiveness. On the other

automotive companies and freight-forwarders. Muñoz agrees:

hand, Miguel Muñoz, Managing Director of Geodis México,

“Security issues in Mexico are a factor that should not be

says the country’s logistics infrastructure presents a similar

overlooked since logistics operators help automotive clients

challenge for all industries and underlines that Mexico’s port

transport goods that are highly susceptible to theft.” Moreover,

infrastructure has been overwhelmed.

according to Francesco Petrelli, Automotive Specialist at Ventana Serra, security issues along Mexican railroads have

President Enrique Peña Nieto’s administration laid out an

disincentivized their use among logistics operators.

action plan to develop the country’s infrastructure but this support has fallen behind. The Mexican Chamber of the

Several technology companies have identified the needs of

Construction Industry (CMIC) estimates the country will have

logistics companies in terms of security and efficiency and

advanced 80 percent of Mexico’s National Infrastructure Plan

have developed digital solutions to support these players.

2014-2018 by the end of the Peña Nieto government in the

“Being unable to effectively control costs can prevent carriers

communications and transports sectors, including ports,

from offering competitive prices,” says Fernando Segovia,

airports, roads and railroads. President-elect Andrés Manuel

Operations Director at Mexican software company SÄKTESI.

López Obrador has vowed to allocate resources equivalent to

Several global freight-forwarding and logistics players have

around 4.2 percent of Mexico’s GDP to financing infrastructure

also developed their own platforms as a strategy to offer

projects with regional impact as well as priority social

clients in the automotive and other industries transparency.

programs in his Nation Project 2018-2024. The construction,

“Digitalization has been a key element in bridging the gap

modernization and preservation of Mexico’s roads will play a

between clients and forwarders,” says Katsouris.

INSIGHT |

TRANSPARENCY, TECHNOLOGY: A WINNING LOGISTICS MIX ARLETTE LUA Director of the Automotive Industry Vertical - Mexico at Crane Worldwide Logistics

Growing trade volumes and increasingly complex logistics

In the case of international shipments, Crane’s strategy is

processes in North America pose challenges for the

twofold. On the one hand, the company prepares in advance

region’s automotive industry. However, an operation based

to deal with customs procedures by sitting with both the client

on transparency and cost optimization through effective

company and its customs agent to understand the applicable

relationship building and technology implementation can

procedures to the client’s goods. This includes assessing how

help clients maximize their resources and avoid delays in

documents must be presented to reduce waiting times. Crane

key shipments, says Arlette Lua, Director of the Automotive

also sends the customs agent a pre-alert when a shipment is

Industry Vertical - Mexico at Crane Worldwide Logistics.

sent so the team is ready to process it. With some automotive clients, the company has integrated sea terminals, such as

“Being transparent with clients, explaining all logistics

Contecon and SCA Manzanillo, to maximize efficiency.

processes and teaching them how logistics operations are handled is how we earn their trust and improve operations,”

The other side of the strategy consists of implementing

says Lua. “Some logistics operators might not be transparent

digital technology to help clients track their cargo and

about their processes out of fear of losing clients, but Crane

speed up the customs process. “Our C-View digital

believes in transparency and accompanying clients step by

interface makes logistics processes more transparent by

step in their international logistics processes.” Founded in

showcasing information on shipments in a user-friendly

2008, Crane Worldwide Logistics takes advantage of its global

way,” says Lua. This system offers clients visibility on the

presence and consolidated weekly slots in cargo aircraft to

logistics solutions they bought and how operations are

compete in the Mexican market. Although the company’s

running. Among other features, the software shows when

Mexico operations have been traditionally oriented to the oil

a shipment reaches a milestone, such as when it leaves port

and gas industry, Lua says automotive grows in importance

or is picked up. “C-View displays real-time information on

since 1Q17. “We are present anywhere there is automotive

how likely shipments are to be delivered on time,” says Lua.

cargo to be transported,” says Lua.

“Moreover, we make an effort to ensure our shipments are on time at least 95 percent of the time.”

Crane keeps its clients close to maximize the efficiency of logistics processes. When the company starts working with a

According to Lua, while automotive companies share some

new client or production line, Crane focuses on implementing

demands in common with logistics operators such as

its Standard Operating Process (SOPs) to make sure setbacks

punctuality and relationships with sea, land and airborne

are reduced. Similarly, the company trains its clients in the

transportation companies, there are some areas where they

use of Crane’s C-View software to track down shipments so

differ. “The automotive industry generally demands Crane’s

they can fully harness the advantages of an advanced user

service suppliers to hold C-TPAT and BASC certifications,”

interface with immediate tracking. “Crane offers a variety of

she says. Availability is also a key decision-making element

logistics services paired with technology at a competitive

for Crane’s automotive clients that often call on a weekly

price to curb costs and processing times,” says Lua.

basis to know whether the company has available slots for transportation. Lua says Crane’s alliances with sea carriers

The company also helps clients improve their operations by

have been attractive for automotive companies. “They look

training their staff in key shipping such as labeling or route

for direct routes and spaces within shipments that guarantee

optimization. According to Lua, small services such as pallet

their products will not stay still,” she says. Lua underlines that

wrapping and repalletizing can go a long way when it comes

Crane’s relationships with different transportation companies

to preventing shipment losses or damage to merchandise.

enables the operator to offer the much sought-after levels of

“Once clients understand these advantages, they adopt them

security and quality that automotive companies demand from

and improve their operations,” she says.

their logistics partners.

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| VIEW FROM THE TOP

R&D IS NOT ONLY FOR COMPONENT PRODUCTION MIGUEL MUÑOZ Managing Director of Geodis México

238

Q: How has Geodis built a name for itself in the Mexican

and the north of the country has been a priority. Our first

automotive sector?

two years in Monterrey have been quite slow but after

A: The automotive sector has been the cornerstone

adjusting our business strategy and providing further

of Geodis’ growth in Mexico for the past 10 years. Our

training for our personnel, we expect to gain a much

specialization in the industry has helped us build tailor-made

stronger position in the region.

solutions for our automotive clients and also to translate our knowledge into other industrial sectors. Although our

Nationally, we have grown at a double-digit rate year-

growth today is not that reliant on automotive, this sector

on-year for the last six years. In 2017, Geodis grew its

still represents 25 percent of our business. We understand

operations by 17 percent and we are estimating an increase

that we cannot neglect our operations in this segment and

of 15 percent for 2018.

we are continuously working to establish new partnerships both with suppliers and with OEMs.

Q: What is Geodis’ experience in non-emergency operations?

The biggest advantage we can offer clients with our

A: We participate in our clients’ planned logistics and we

build-to-suit approach is our response immediacy in

have an internal business intelligence division, which we

the event of any logistics emergency with the use of

refer to as our R&D division, that helps us operate based on

special charters or even onboard-courier services. Our

a company’s demand forecasts and inventory capabilities.

team is highly trained in the industry’s language and we

We analyze our clients’ operations based on a long-term

can help our clients track cargo not only by shipment

plan. Our business intelligence unit, coupled with our

but by part number. Even though suppliers may place an

procurement division, creates an implementation plan that

order for a specific product along with the rest of their

guarantees we will be able to meet our clients’ demands

materials, thanks to Geodis’ system OEMs can track a

for the duration of the project at the price we originally

single part to know exactly when it will arrive to their

specified. We dedicate whatever time and resources

door. We know what components are in each container,

are needed to build a solution that meets all our clients’

resulting in a much more efficient logistics solution with

requirements.

absolute visibility. Q: Emergency services are becoming a standard offering Q: In which automotive regions does Geodis see the most

in the logistics sector. How can Geodis take this service to

opportunity to grow its operations?

the next level and stand out from its competitors?

A: The Bajio and central Mexico are the main regions

A: It is true that logistics companies might have a

where Geodis has developed a strong presence. We have

similar service lineup, which means that the only true

recently opened new offices in Leon and we already had

differentiator can be the experience and reliability

presence in Queretaro and San Luis Potosi. Monterrey is

that we offer to the client. Our team is in many cases

also one of the last offices that Geodis inaugurated back

multilingual or at least bilingual and is up to date with

in 2015. Over the last 18 months, the company has favored

the latest needs and trends in the industry. We have even

regionalization as a key strategy for further development

developed a Center for Automotive Competitiveness based at our headquarters in Mexico City and with branches all over the country. The center serves only our

Geodis is a French supply chain operator part of the SNCF Group.

automotive clients. Many of our competitors split their

The company is the leading transport and logistics operator in its

business according to type of freight (air, sea or road)

home country and No. 4 in Europe. It has direct presence in 67

but we chose to build a single cell solely focused on the

countries and operates within a global network of 120 countries

development of our automotive partners.

INSIGHT |

UNDERSERVED SMEs A SIGNIFICANT OPPORTUNITY MIGUEL TREJO Sales Director of Agility Logistics

While big logistics operators with global presence

To this end, the company released in 2018 its Shipa Freight

developed solutions to cater to OEMs and large Tier 1

platform as a way for companies to use digitalization to

suppliers, SMEs in emerging markets such as Mexico

boost their logistics operations. “Clients can enter this digital

are being underserved, according to Miguel Trejo, Sales

platform, quote their seaborne or airborne shipments in a

Director of Agility Logistics. Operators are missing a clear

complete or consolidated container, book it immediately and

opportunity, he says.

pay online,” says Trejo.

“Not all companies have the same access to a logistics

“Shipa Freight is a simple, technology-driven answer

operator,” Trejo says. “We have found great business potential

for small and medium-size businesses trying to take the

among SMEs that the big fish have left unattended.” As a

complexity out of their international shipping,” said Tarek

Kuwait-based logistics operator with presence in over 100

Sultan, CEO of Agility at the company’s release of its

countries, Agility Logistics focuses on offering support to

newest platform. “It gives them the transparency, flexibility,

small and medium importers and exporters, in addition to

competitive pricing and customer service that the industry

some of the world’s largest corporations. The company takes

offers only to multinationals and high-volume customers.”

advantage of its experience in international trade, its global

The company has a database with millions of quotes so

presence and technological prowess to help foreign clients

that whenever users access the platform, they can know

come to Mexico and local clients to participate in global trade.

exactly how much they will pay for a shipment according to weight, origin, destination and the type of commodity

In a country where up to 52 percent of the GDP is generated

that will be transported. “This gives clients complete clarity

by SMEs, according to INEGI data, the importance of helping

throughout the shipment process,” Trejo says. “Clients can

these companies to integrate into global supply chains cannot

further mitigate their risks by buying insurance for their

be stressed enough. More so when it comes to the Mexican

shipments straight from the platform.”

automotive industry, which contributes with approximately 3 percent of GDP and 18 percent of the country’s manufacturing

The introduction of Shipa Freight is Agility Logistics’ effort

GDP, according to ProMéxico. Trejo says Agility Logistics is

to make logistics in Mexico a more streamlined process.

in an excellent position to boost Mexico’s GDP thanks to its

Trejo, however, still sees other obstacles that the country

32 years of experience in the country and its origins as a

must overcome to consolidate its position as a logistics hub.

company from an emerging market.

“The 2012-2018 federal administration made a significant effort to develop logistics infrastructure with great-scale

While logistics operations have achieved significant

projects such as NAIM and improvements to ports and

milestones globally, Trejo underlines the gap in logistics

railroads.” Improved operations in the Manzanillo, Veracruz

between developed and developing economies. “Logistics

and Lazaro Cardenas ports have been crucial for the

generally are more advanced in economies such as the US

company’s results but there is still much to do for Mexico

or Europe while less-developed Latin American countries

to reach its true logistics potential.

often have fallen back,” he says. Yet, automotive FDI keeps pouring in and Agility Logistics has found a niche

Offering greater certainty to logistics operators and

among suspension and seat component providers that

transportation companies while increasing security should

seek to grow their business in Mexico. The company has

be top priorities for the 2018-2024 federal administration,

advocated itself to developing technology that eases

according to Trejo. “We cannot forego the development

logistics processes for international trade. According to

and specialization that Mexico’s automotive industry

Trejo, the company wants to be seen as a technology

has reached and that includes logistics processes and

company that collaborates in the area of logistics.

infrastructure.”

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| VIEW FROM THE TOP

DEVELOPING DIRECT TRADE LANES INTO MEXICO EDGARDO HAMON Country Manager of Dachser Mexico

240

Q: What are automotive companies demanding from

Being a family company also gives us an edge in terms

logistics operators?

of flexibility and adaptability when compared to larger

A: Automotive companies look for someone that can respond

corporations that cannot meet very specific needs due to

to urgent demands. We have a dedicated team that works

the size of their operations. Large 3PL providers normally

24 hours a day, seven days a week so we can be aware of

focus on OEM operations, while we target Tier 1 and Tier 2

whatever problems our clients might have. We already have

companies where we can offer dedicated and much more

two shifts working nonstop to support the industry and we are

specialized solutions. We are already working with several

in the process of adding a third shift that will start operating

important automotive companies and 70 other companies

in September to follow up on shipments during the night.

with operations in Mexico. Our priority is to target more of these transnational suppliers, offering support through our

Improving delivery times is critical for this industry because

presence in over 396 locations around the world.

it leads to cost reductions in terms of warehousing. Our large presence in Europe has helped us build confidence

Q: How is the company innovating in its offering to boost

among automotive clients by being able to respond to

its clients’ competitiveness?

their demands in a timely fashion, regardless of the type of

A: Traditionally, Dachser Mexico was mostly focused on

company we are serving. This strength has also opened doors

imports. Now, our goal is to balance our operations between

for Dachser with European companies that are investing

imports and exports, mostly because of Mexico’s economic

in Mexico. Today, we have extensive delivery capacity in

growth in recent years. Having said that, we still need

Europe, which combined with our local and international

to strengthen our domestic offering. We already have a

warehouses allows us to guarantee delivery times that few

considerable volume of automotive operations but we can still

other companies can match. Together with our European

go further, not only focusing on port-to-port transportation but

road logistics capabilities, we follow a strict global policy

also offering supply chain solutions. Dachser is now creating

regarding sea and air carrier selection that puts cargo safety

consolidated air and sea freight services to Germany and

and delivery times above everything else. We implement that

Brazil, both of which are markets with significant automotive

same strategy to the selection of road freighters in Mexico

operations and a strong relationship with Mexico. Specifically

to ensure maximum quality in our service.

with Germany, we are building a consolidated service from Germany directly to Queretaro to supply the entire Bajio

Q: What would you consider Dachser’s main priorities as a

region thus reducing delivery times and boosting savings

logistics provider for the automotive market?

for our clients. This logistics hub in Queretaro is completely

A: I am a firm believer in personalized service as a

innovative and will be a key advantage for Dachser against

differentiator and this has been our main focus. We

other local and international logistics providers.

have solidified our customer service area and we have designated a specific team dedicated to the automotive

Q: How important is the automotive sector for Dachser

industry. Today, we have over 15 people solely focused on

Logistics in Mexico?

this sector, offering specialized services. Some of them even

A: The automotive sector already represents a significant

worked previously for automotive companies.

percentage of our total operations in terms of revenue and cargo volume. This industry is a cornerstone of Dachser Logistics’ development. We are focused on warehousing

Dachser is a family-owned German supplier of logistics services

and distribution activities within the country and we

worldwide. The company offers comprehensive transport logistics,

want to reinforce our contract logistics services with

warehousing and customer-specific services in two business

in-bound facilities that can offer an added value to our

fields: Dachser Air & Sea Logistics and Dachser Road Logistics

automotive clients.

VIEW FROM THE TOP |

SPANISH CUSTOMS BROKER EVOLVES WITH THE INDUSTRY MANUEL ESLAVA CEO North America, Central America and Caribbean of TIBA

Q: What are your priorities as the new head for

Q: How have Mexican automotive companies reacted to

Mexico of TIBA?

TIBA customs brokerage services since last year?

A: We plan to stabilize our operations in the regions where

A: We are relatively young in this sector and cannot yet

we have opened new offices to develop our capacities.

cater to automotive companies on a global level, so we

Mexico and Spain are the two most important markets for

are focusing on providing local logistics solutions where

the company and Mexico will play the role of reinforcing

needed with specialization as our main differentiator. When

TIBA’s network in the Americas. We expect this to increase

TIBA finds a niche, it develops a level of sophistication that

the company's visibility in trade lanes oriented to Mexico

enables the company to grow in specialized sectors where

where growth potential is tremendous.

we can generate an added value.

We expect our revenue to increase between 15 and 18

Of all the markets in which TIBA operates, we have advanced

percent in Mexico in 2018. TIBA’s representatives’ network

the most in Mexico toward catering to the automotive industry

around the world has helped the company increase its

by delivering tailor-made logistics and customs solutions. Our

participation in the automotive industry. This network will

OEM and Tier 1 clients in Mexico have developed a special

also help us move from offering services as a local partner

taste for the customs services TIBA offers. Customs services

to offering freight-forwarding solutions at a global level. The

have been a fundamental part of our service portfolio since

arrival and start of operations of new OEMs in Mexico offer

the company was founded in Spain in the 1970s. Finding

several growth opportunities for TIBA. We have worked

appropriate customs solutions that work to the advantage

with worldwide automakers in the past and we expect that

of the various players across the industry is fundamental for

experience to be a great cover letter for us to collaborate

the operations of the many players across the value chain.

with these companies locally. Q: How is catering to the automotive industry different Q: How have logistics services evolved since the arrival of

from the other industries where TIBA is present?

TIBA to Mexico?

A: In the automotive industry operations are only either urgent

A: Logistics operations have transformed greatly since

or critical. We classify our clients according to how time-critical

the 1990s when the sector was largely reactive rather

their needs are. For instance, Tier 1s are the most sensitive to

than proactive to clients’ needs. When logistics operators

the needs of OEMs and have more complex logistics demands

simply react to an emergency if forces them to invest

to respond at a moment’s notice. To improve its solutions

resources to solve the client’s problem. Having an

for these clients, TIBA has focused on developing digital

advanced automated process that anticipates needs

platforms that provide real-time information regarding their

pushes operators to optimize their structures to boost

shipments. TIBA’s digital platform is designed to personalize

efficiency and reduce operative costs for both the

the level of information according to a company’s interests,

operator and the client.

from the most to the less critical information depending on the amount and type of data they want. This platform also

Clients have developed a taste for information and continue

enables clients to communicate with us directly to reduce

to demand data that lets them know the geo-location

redundant communication and lower response times.

and general status of their shipments at any given time so they can deal with undesirable situations. Ensuring the traceability of all movements of products and being able to

TIBA is a Spanish-based logistics operator that offers customs

access a user-friendly platform and download any necessary

brokerage and specialized freight-forwarding services for

information are attractive elements to any industry client

several industries including automotive, food and beverage

but even more so for automotive companies.

and pharma

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| VEHICLE SPOTLIGHT

VOLKSWAGEN’S DELIVERY 6.160: THE NEW ADDITION TO THE FAMILY Looking to strengthen its position in the truck segment, Volkswagen Truck & Bus launched its new Delivery 6.160 chassis at ExpoTransporte in November 2017. This unit was designed for urban deliveries regardless of the equipment needed, be it a dry or refrigerated box, a pipe, a crane, a platform or any other application. The chassis can hold a load of up to 3.381kg and offers increased performance in maneuverability and fuel consumption, as well as a wide, comfortable and modern cabin. The new Delivery 6.160 also brings operating advantages thanks to its technical features. The unit equips a Cummins ISF, 2.8L engine with four cylinders and 2,800cm3 with Euro V technology and selective catalytic reduction (Urea) for emissions post-treatment. The engine delivers a maximum torque of 430Nm at between 1,500rpm and 2,400rpm and a maximum power output of 152hp at 3,200rpm. The engine is coupled to a cable-powered manual Eaton ESO-4206 six-gear transmission. The Delivery also features an independent front suspension with telescopic, double-action hydraulic dampers and a rear suspension with a fixed Hotchkiss axle and double-

“

action hydraulic dampers for greater comfort.

The introduction of this model to our product portfolio reinforces our offer as a full-liner brand” Miguel Vallejo, Commercial Director of MAN Truck & Bus

The Delivery 6.160 complements Volkswagen’s 9.170 and 11.180 models. “The introduction of this model to our product portfolio reinforces our offer as a full-liner brand. The model is already available at our dealerships and our aftersales team is qualified to address our cients' needs,” says Miguel Vallejo, Commercial Director of MAN Truck & Bus. Besides a capable maintenance and repair operation, once clients acquire any Volkswagen Truck & Bus model from the Delivery family they also have access to other aftersales services such as VOLKS Assist, a 1-800 highway-rescue phone line; VOLKS Telematics, a system to track the company’s fleet operations and VOLKS Training, a program to train new operators so they get the most benefits from the vehicle.

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| VIEW FROM THE TOP

NATIONAL FREIGHT FORWARDER CROSSES THE POND ALEXANDER KATSOURIS Automotive Logistics Director of Europartners MĂŠxico

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Q: What is Europartnersâ&#x20AC;&#x2122; vision regarding its development

A: Our company offers two types of shipments: one more

in Mexico, particularly in the automotive sector?

focused on regular supply chain operations and the other

A: The automotive sector represents approximately 45

for time-critical emergency services. The latter is available

percent of our cargo. With the significant growth and

24/7 and we select our carrier partners according to our

foreign investment in automotive in Mexico, our forecast is

philosophy of fast responsiveness and availability. All our

that this industry will grow to become 60 percent of our

carriers must offer uninterrupted service and ideally should

business by 2020. We will continue to invest in new offices

be knowledgeable regarding the market we are tackling

in 2018 in Mexico, the US and Latin America (specifically

and have a similar client base. We also look for C-TPAT

in Argentina, Brazil, Honduras, Nicaragua) in order to fulfill

and ISO-certified companies and members of WCA and

requirements related to automotive supply chains. Ten of

the International Air Transport Association.

our 15 offices in Mexico have sales and operations personnel with an automotive industry focus. Similarly, many of our

Q: What opportunity do you see to incorporate rail services

international branches in Germany, the US, Canada, Costa Rica

into your portfolio?

and Colombia for example, relate to our automotive business

A: Rail is definitely a developing trend in the automotive

and have had considerable growth through their collaboration

industry in Mexico thanks to the investment of both

with our Mexican operations. We expect more business

companies and the public sector. We see significant

through our current relationships with European OEMs and

investment in terminals such as that in San Luis Potosi,

Tier 1s bringing further investment in various regions, as well

which makes rail much more accessible to clients. That

as trade lanes from Asia thanks to the extensive automotive

being said, as a company we favor the full-truckload

investment coming to the Bajio region in recent years.

model because we think it can offer better control of our operations with much more flexibility. If a client requires

Q: How can Europartners compete against international

something urgently, it is not advisable to send the cargo

freight forwarders with experience in the automotive sector?

by rail or it will be trapped and subject to scheduled stops

A: Our brand promise is based on three principles: to be fast,

in fixed terminals. Furthermore, although rail operations

friendly and dedicated. We try to be the fastest company in

are growing, they still lack security and the service is still

the logistics sector, which the automotive industry values

managed by few operators, thus restricting competition.

greatly. Delivering a quotation swiftly can help companies make faster decisions, which in turn helps the client keep

Q: What are the main demands of automotive clients to

its operations up and running. We also found that having

logistics providers?

Mexican roots is an excellent presentation letter for the

A: Digitalization has been a key element in bridging the gap

company. Potential clients learn about our fast growth and

between clients and forwarders in recent years. The challenge

our stability as a Mexican company and they open their door

we face as a company is on the one hand the clientsâ&#x20AC;&#x2122; demands

to us, no matter if they are Japanese, German or Mexican.

for a more digitalized service, while on the other maintaining a personalized service and giving information first hand of

Q: As a freight forwarder with international operations,

what can often be complex and sensitive issues, especially

how do you choose your partners?

when dealing with time-critical cargo. We understand that we cannot neglect the digital side of the business and we have invested thousands of dollars to modernize our operations

Europartners is a Mexican freight forwarder with over 15 years

and align to the needs of the market. However, our goal will

of experience in logistics operations and 34 offices around

always be to maintain a direct link with the customer so

the world. The company offers air, sea, road and time-critical

when a problem arises, they know they can count on us for a

freight services

personal response with alternative solutions 24/7.

VIEW FROM THE TOP |

SPECIALIZATION KEY FOR CONSISTENT GROWTH Massimo Paolotti Managing Director of Ventana Serra

Francesco Petrelli Automotive Specialist of Ventana Serra

Q: What advantage can you offer as an Italian forwarder

economies of scale between regions and within a country

in the Mexican automotive industry?

itself is what allows companies to reduce costs.

MP: Every freight forwarder needs to establish a proper network to do business and requires a specific strategy to

Q: What are Ventana Serra’s operational growth numbers

develop. Specialization is key and we have established the

and who are your main partners in Mexico?

automotive industry as one of our vertical priorities in Mexico

MP: Ventana Serra tripled its operations between 2015 and

due to our company’s background. The history of the group

2017, mainly due to our focus on specialization. Opening

gave us the experience to be a leader in the automotive

local offices has also been beneficial for connecting with

market and grow Ventana Serra’s position as a forwarder for

our clients. In the last three years we opened new branches

the entire automotive industry. We have also chosen specific

in Queretaro, Guadalajara and the Mexico City International

trade lanes on which to focus our Mexican operation. Being an

Airport. We are starting a new project with several OEMs

Italian company, we were in a natural position to support trade

and that will lead to better results for Ventana Serra.

operations between Mexico and Italy. We also chose Brazil, the US, China and Spain due to their importance in Mexico’s trade.

Q: What do you see as the main opportunity for automotive companies to improve their logistics operations and how

FP: As a global company, we are certainly capable of

are you planning to address those needs?

supporting companies that want to send shipments anywhere

FP: One of our main goals at the moment is to develop

in the world. However, the experience of the company

an integrated logistics platform, which is something

makes Arcese Group a partner constantly in tune with the

that automotive companies sorely need. Clients used to

times, with innovative solutions tailored to the specific

outsource their sea or air shipment to one company, their

needs of every client. That makes us a suitable partner for

customs operations to another, transportation to warehouses

thousands of companies across the world, operating in all

with a third, and so on. Trends are changing and now clients

kinds of sectors: from automotive to paper, textiles, fashion,

want a single partner that can handle all these activities.

chemicals and technology. We have a solution for all kinds of transport and integrated logistics requirements. Competition

We are constructing a portfolio that will help us offer

in the logistics market is fierce and prices can only change

material transportation to docks and airports, international

so much. Therefore, what makes a company unique is its

shipments, customs operations at the destination,

dedicated service and the specialization it can offer through

transportation, insurance, pick and pack and warehousing

its operations and human capital.

before reaching distributors and the end client. We have already received requests for these services and we see

Q: How can specialization help you boost clients’

an enormous opportunity to develop. The company has

competitiveness?

established a much more aggressive client attraction

MP: Automotive companies trust in Ventana Serra because

strategy and we expect to take advantage of all the new

they know they can speak with us in their language. Moreover,

OEM projects arriving to the country. Each new plant brings

our know-how in the industry helps us offer advice to

tens of new suppliers and we are in an excellent position to

improve our clients’ logistics based on their goals, while our

support their new operations.

specialization in trade lanes can help companies understand how logistics processes work in countries like Italy. We work with the same airlines and shipping lines as any other

Ventana Serra is part of the Arcese Group, specialized in

forwarder in the market so our offering is actually on the

worldwide sea and air shipping. It is one of the Top 10 IATA

same level as our competitors. However, the experience we

freight forwarders and has consolidated relationships with

offer our clients and the advice we provide them on creating

major maritime and air carriers worldwide

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| VIEW FROM THE TOP

BIG BET ON FLEXIBILITY AND DIFFERENTIATED SERVICES MANUEL DÍAZ Managing Director of Seko Logistics

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Q: What opportunities did Seko Logistics identified to set

supply of flexible logistics solutions. We are against storing

up shop in Mexico?

goods close to the border, so we use consolidation centers

A: Mexico has already developed its most basic logistics

located all over the US to open containers and apply logistics

offering but it is still not engaging in fourth-generation

technology to ensure goods arrive straight to production lines.

logistics services. Logistics operators in Mexico offer little

This often means doing subassemblies and full repackaging

flexibility. While some companies engage in transportation

so components can reach production lines on time. Seko

processes, they are not interested in other added-value

Logistics receives brake discs from India and brake pads from

services such as container-filling, subassemblies, relabeling

China, for example, and puts them together and delivers them

or repackaging. Seko Logistics identified the opportunity

to the client’s production line.

that these differentiated services could bring and we decided to step forward and invest in the country. This investment

Q: How is Seko Logistics collaborating with automotive

project was possible through US capital provided by

suppliers to improve the efficiency of their logistics

Seko Logistics, Mexican capital provided by Grupo Ei and

operations?

additional funds delivered by the Greenbriar Equity Group.

A: We engineer logistics solutions based on nontraditional services for automotive suppliers. Seko Logistics is

Q: How does having offices on both sides of the US-Mexico

constantly looking for ways to reduce stock, increase cash

border enable Seko Logistics to improve clients’ logistics

flow for maquila companies and guarantee solutions against

operations?

legal risks related to customs processes. These services

A: The company has a wide global network. Seko

may not reduce the direct prices we offer to companies but

Logistics did not arrive in Mexico to tell its clients that

they eventually cut down the global costs of their logistics

it has certifications, an advanced technology or a global

operations.

network because that is not our true differentiator. Our value proposal is oriented toward flexibility and financing

Automotive companies generally demand that their

and the adoption of best international practices for logistics

logistics operators be highly flexible and have an in-house

services. Seko Logistics has brought in best practices from

IMMEX department that supports suppliers that are not

India, the UK and the US to ensure we are at the forefront

interested in setting up shop in Mexico. Clients also want us

in terms of differentiated services.

to focus on eliminating stocks so their distribution centers can be transformed into production lines. By meeting

Q: What is the company’s strategy to compete against

these demands, Seko Logistics has managed to take care

large, world-class logistics operators present in Mexico as

of an OEM’s reverse logistics, work with a Tier 1 supplier in

well as small, local transportation companies?

brake systems, help another manage various suppliers and

A: We focus on identifying the intangible opportunities in the

collaborate with other companies.

market and sticking to niches where we can add value. Rather than competing in segments where global operators are the

Q: What milestones does Seko Logistics plan to achieve in

top contenders, such as basic customs brokerage, air cargo

its first year of operations in Mexico?

and container transportation, we focus on the integration and

A: We plan to open 20 offices in Mexico in our first year. As of June 2018, Seko Logistics had inaugurated six offices in the country. We have identified the areas in Mexico

Seko Logistics is a US-based logistics provider that entered the

where industries such as automotive, aerospace, steel

Mexican market in 2018 supported by Grupo Ei and the Greenbriar

and electronics are growing the most and our next step

Equity Group. The company has offices and distribution centers

is opening offices there. As a newly arrived company, we

in Nuevo Leon, State of Mexico and Tamaulipas

expect to double our annual revenue every year up to 2023.

INSIGHT |

LOCAL FOCUS, DIVERSIFICATION TO HEDGE RISKS KEVIN SCHOBERTH General Manager of Dietrich Logistics

Although companies tend to focus their business on other

The company also stopped focusing only on airborne

players from their home country when they invest in Mexico,

and seaborne logistics to integrate customs procedures.

Kevin Schoberth, General Manager of Dietrich Logistics,

“We added these services to become a freight-forwarder

says these businesses are missing an opportunity to grow

that can support its clients in all variety of logistics

in a fast-developing market.

situations,” he says. For Schoberth, a key issue in Mexico is that logistics companies often do not collaborate

“When we first started operating in Mexico, most of our

with customs agents nor do they send alerts to clients

business came from our Germany-based headquarters

when their products arrive at ports or airports. Dietrich

and the tenders in which the company participated,” says

Logistics always notifies its clients when and how their

Schoberth. Being a German company, Dietrich Logistics has

products will be delivered. In addition, the company helps

traditionally worked with German automotive companies.

its clients with their customs processes when needed

The company managed freight-forwarding needs for

to make sure their products are cleared swiftly and are

Continental, Volkswagen, Porsche and Daimler but

not fined by the Mexican Tax Administration Service. “By

eventually, relying solely on these companies appeared to

going the extra mile, Dietrich Logistics has earned the

be a bad business call. “Depending on tenders is dangerous

trust of big players in the Bajio area, supporting them

because losing one can mean running out of work,” he says.

with aerial exports as well as seaborn and land-based freight-forwarding,” says Schoberth.

To counter this risk, Dietrich Logistics started approaching local companies to diversify its source of business. “As of

Dietrich Logistics has taken advantage of its expertise in

June 2018, Dietrich Logistics generates around 80 percent of

Mexican laws and norms, as well as its personalized service

its business locally,” says Schoberth. The company reached

to stand out in the Mexican logistics market, according to

this level of diversification by delivering quality services

Schoberth. “We do not see ourselves as a logistics service

regardless of the size of its client, while including new services

supplier but as a company that operates as the in-house

in its logistics offering. “Most logistics companies only focus

logistics department of its clients,” he says. “Most large

on the volumes clients manage and often lose interest with

logistics players usually cannot offer such personalized

shipments under 50 seaborn containers and 20 ton for aerial

attention due to the substantial amount of work they have.”

transportation,” says Schoberth. Dietrich Logistics, on the

The company bets on transparency and flexibility to remain

contrary, did not shy away from these clients.

competitive, as well as close collaboration with customs agents to make sure all products are classified and ready

Dietrich Logistics also relied on the good relationship it

to be processed prior to their arrival at a port or airport.

had established with airlines to ensure flexibility in case of

As a result, they can be cleared once they cross the border.

emergency shipments. Variations in aerial transportation tariffs, however, can make contract negotiations

“Being transparent in customs processes is important so

challenging. “Aerial transportation tariffs are normally low

clients do not face problems if they are audited by Mexico’s

when contracts are awarded and these usually last three

fiscal authorities,” says Schoberth. Mismanagement of a

years without changes in the initially accorded costs,” says

shipment in a customs office can mean having past,

Schoberth. While this scheme offers logistics operators

present and future shipments revised by the Mexican

security in their operations for some time, it also puts

Tax Administration Service, as well as fines for the client.

financial pressure due to variations in the price of airborne

“Dietrich Logistics offers clients an integral service where all

cargo. In those cases, logistics operators must ship goods

customs clearing processes are taken care of either directly

on flights that fit the assigned budget, which rarely happens

or by connecting clients with our partner customs agent to

without connections.

prevent problems,” he adds.

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| VIEW FROM THE TOP

TEXTILE LOGISTICS PROVIDER SEES GREENFIELD OPPORTUNITY IN AUTOMOTIVE RUBÉN IMÁN President of Onest Logistics

Q: What is Onest Logistics’ strategy to penetrate the

grown domestically far more than its competitors. Onest

automotive industry?

Logistics enjoys solid organic growth and we are working

A: Onest Logistics wants to tackle Tier 2 and 3 automotive

to associate with another logistics company, which could

suppliers with subassemblies, maquila, storage and just-

possibly lead to reaching DHL’s size in Mexico by 2019.

in-time (JIT) deliveries. The company operates almost 248

400,000m2 of storage space, which has helped us build

Q: How is Onest Logistics’ client portfolio distributed

expertise on inventory control and maquila operations. The

across markets?

company can establish operations centers to service Tier 2

A: About 53 percent of our sales are in the textile market

and 3 companies in any part of the country where we can

while the consumer market accounts for 22 percent. The

receive primary resources and manage their transformation

rest is divided among the cosmetics and perfumes markets

and quality control before delivering the final product.

and our services to manufacturing plants. The automotive

Onest Logistics can work directly on the assembly line or

industry presents a huge opportunity for Onest Logistics

make JIT delivery.

and we expect that between 10 and 15 percent of our sales will come from the automotive market by the end of 2018.

Q: What advantages made large end consumer companies

If we play our cards right, this percentage could grow to 30

select Onest logistics as their logistics provider?

percent or even 50 percent by 2019 and 2020. There are

A: Our main value is a highly flexible model that adapts to the

only a handful of 3PL suppliers in the automotive industry

needs of each client. We understand that some may want a

and most are small, local companies. Onest Logistics’ size

fee per piece or per box, a storage place with or without racks

and greater infrastructure can help us manage the entire

and equipped with more or less sophisticated systems. The

supply chain of a certain region, starting with operations of

company designs tailored solutions and enables clients to use

5,000-50,000m2. We are interested in playing a good role

storage space and manage the numbers of workers they need

in the development of Tier 2 and Tier 3 suppliers.

according to their requirements throughout the year. Capacity is what differentiates Onest Logistics from the rest. Contrary

Q: How has e-commerce affected Onest Logistics’

to our international competitors, our capacity reinforces any

operations and how is the company harnessing this trend?

operation when support is needed. International logistics

A: Onest Technologies is ready for the e-commerce boom.

suppliers have the support of massive capital but do not

E-commerce allows the dissemination of inventory across

necessarily have enough experience. Onest Logistics’ team

the most important commercial points of the country to

has worked in logistics for over 27 years; we have seen and

ensure regular stocking and better services for our clients.

transformed the third-party logistics (3PL) sector in Mexico.

This accounts for less than 10 percent of our sales despite our large investment in this trend in the past four years.

Q: What is Onest Logistics doing to become the leading

However, Onest Logistics expects this share to eventually

logistics company in Mexico?

grow to half of the company’s sales since e-commerce

A: There are huge differences between Onest Logistics and

represents between 40 and 60 percent of the company’s

other providers, mostly in terms of capital and the number

sales volume in several markets. With the biggest fashion

of international contracts. Despite this, Onest Logistics has

group in the world, for example, we deliver between 10,000 and 12,000 daily orders. Our goal with e-commerce is to develop inventory poles and provide deliveries through

Onest Logistics is a Mexican supplier of logistics services,

specialized shipping companies. At the same time, we have

including storage, distribution, reverse-logistics and cross-

stablished a strong reverse logistics operation to reduce

docking. The company also offers maquila services such as

costs and optimize our shipments to and from distribution

repackaging and labeling

centers, especially in under-24-hour deliveries.

INSIGHT |

GUIDING COMPANIES THROUGH TROUBLED LOGISTICS WATERS CARLOS CANSECO Director General of Profesionales en Logística y Transporte (PELT)

Choosing the right logistics partner can make all the

value chain approach that considers customer service, optimal

difference between success and failure among automotive

inventory levels, accuracy of market forecasts and appropriate

companies. As the needs of these companies become

logistics costs enables us to plan our operations in terms of

increasingly complex and more enter the transportation

volumes, frequency and resources.”

market, guidance when choosing the best option can save manufacturers headaches, says Carlos Canseco, Director

Automotive companies can use both the supply chain and

General of Profesionales en Logística y Transporte (PELT).

the value chain approach in logistics but that depends on the vehicle being produced and its total demand. “In the case of

“Logistics is all about managing the purchasing,

Volkswagen, Jetta can benefit from the supply chain scheme

transportation, storage, manufacturing and distribution of

while Golf R might find the greatest advantages in a value

products,” says Canseco. PELT’s role in this process consists

chain solution,” says Canseco. Jetta is a well-received vehicle

of assessing the needs of its clients, putting together service

with larger sales volumes, making its logistics processes

packages and inviting logistics suppliers to bid and offer

more suitable for a supply chain model. On the other hand,

these services. “All OEMs present in Mexico have participated

a vehicle that is more expensive, and rare, such as Golf R, is

in at least one of PELT’s customer care, consultative selling,

more suitable for a value chain model because it is harder to

demand planning or sales administration courses.” As

sell and sometimes is only produced on demand.

examples of its successes, Canseco says the company has helped manufacturer MAF Muelles to lead Mexico’s

Regardless of the model, Canseco says choosing a

automotive springs sector and logistics supplier Grupo

logistics supplier can be a thorny topic because of the

Ditrans to better care for the Bajio automotive industry.

many mitigating factors. “It makes more sense to hire local logistics operators to manage local supplier bases

Although untrained eyes might see logistics as mostly

because they know their home market the best,” says

moving products from point A to point B, Canseco says the

Canseco. “Global operators such as DHL, Panalpina or DB

automotive industry’s needs have led to modern logistics

Schenker, meanwhile, are the best option for international

schemes that forecast demand to manufacture and market

logistics because they have global presence and offer

products accordingly, taking legal, political, sustainability

global processes and market prices.”

and other factors into account. “Logistics chains must have a robust IT and human resources backbone that considers

Despite the challenges that logistics suppliers must face

safety, sustainability, legal, political and quality matters in

as part of the automotive supply chain, Canseco says the

their processes,” he says.

industry is an attractive sector as long as logistics suppliers deliver on their promises. “Automotive is a noble, yet

Prior to 2007, most logistics processes were managed through

demanding industry,” he says. “Companies pay competitive

a supply chain scheme where assembly plants took most

prices for transportation services, provided that operators

decisions according to Canseco. “This model had the problem

meet their needs. If this is not the case, OEMs may charge

of plant managers deciding on production regardless of

fines should production be halted. Canseco identifies

whether there was a demand for products, which caused high

international purchases as the most promising area of

inventories of unsold wares.” Once demand planners came

opportunity for Mexican automotive companies to improve

into the picture and new efficiency measurement parameters

their logistics. “Previously, companies would place an order

were adopted in 2007, a new form of logistics oriented to

from a supplier online and hope it would arrive at some

the value chain was created. “Demand planners have become

point,” he says. “Visits to suppliers in Asia or elsewhere to

logistics wizards; they read what the market demands and

negotiate prices, monitor their logistics and ensure they have

channel the value chain accordingly,” he says. “An appropriate

enough production capacity is the new strategy.”

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| ROUNDTABLE

DO YOU CONSIDER MEXICO A TRUE LOGISTICS HUB?

As the third-largest light-vehicle exporter in the world, companies expect Mexico to be the ultimate logistics hub to support current operations and expected growth. This, however, is debatable considering the opportunity to improve the existing infrastructure in the country as well as regulations related to importing and exporting operations. As more companies arrive to Mexico with the goal of supplying not only the US but the entire world, logistics operators are faced with a question and a potential challenge: is Mexico really the logistics hub the industry is demanding? Mexico Automotive Review addressed that issue with national and international companies to get a clear perspective on the matter.

Mexico’s geographical position has been a crucial element in the country’s development as an automotive investment destination. However, beyond exports 250

to the US, companies are gradually growing their trade operations with European and Asian countries. Both OEMs and suppliers keep bringing new projects to the country and they still trust in Mexico’s capabilities as a logistics hub. In my opinion,

ALEXANDER KATSOURIS Automotive Logistics Director of Europartners México

with or without NAFTA, Mexico will maintain its position as a true logistics hub and an automotive powerhouse for years to come. One of the main concerns for both clients and forwarders is security and I think we will continue facing these issues in the foreseeable future. If we focus on areas of opportunity, digitalization could help strengthen national logistics operations. An automated customs service could help operations be much faster and seamless especially addressing inbound issues.

Mexico’s advantages cannot be understated but if we want to talk about true logistics hubs, we must also consider the country’s deficiencies in infrastructure. Having an advantageous geographical position, the best human capital and attractive incentives for new investment is not enough if these elements are not supported by a strong infrastructure network of ports, airports and railways. The current Mexico City

MASSIMO PAOLOTTI Managing Director of Ventana Serra

International Airport is now 100-percent saturated. Companies cannot send more airplanes and airlines are even concerned due to the risk of landing on an old runway that has deficiencies. Mexico is a logistics hub but it could be so much more. The country has boosted its industrial growth but it has not matched that with adequate infrastructure development. Exports are increasing, both of terminated vehicles and auto parts, and the country can no longer manage this level of growth.

After Mexico’s commercial aperture during the administrations of Miguel de la Madrid and Carlos Salinas de Gortari, the government worked on building the necessary infrastructure to support trade relations not only with the US but with Europe and the total 46 countries with which we have trade agreements. Modernization has been an ongoing effort but we cannot deny that there is still much to be done. If we want to

MIGUEL MUÑOZ Managing Director of Geodis México

diversify our trade beyond the US, we will need to invest in our infrastructure and in better regulations for all transport operations. The biggest challenge we face is the regulatory framework for the transportation sector. If we compare Mexico to the US or Europe in technology advances or safety regulations, we are far from operating under state-of-the-art conditions.

Mexico is in a privileged position being so close to the US market. This country is one of the largest vehicle manufacturers in the world and that has helped us grow as one of the most important vehicle and auto parts manufacturers in the world. As a result, we are also evolving into a true logistics hub for the entire world. That being said, a lot of investment is coming and states are not ready for it. Roads are insufficient and industrial parks are growing in areas with where there are not enough people to support these operations.

RAFAEL MORA CSO/Sales Box Leader of Corrubox

Mexico faces the challenge of insufficient logistics infrastructure, with roads being the most important area of opportunity. That being said, some areas with strong automotive activity have become regional logistics hubs. The Bajio and the center of Mexico have more strongly developed logistics capacities. Meanwhile, OEMs and automotive companies located next to the US-Mexico border such as Coahuila and Nuevo Leon not only have easier exports to the US but also have greater access to air transportation to the US and Mexico at a lower price. Regarding logistics services, an operation based on transparency and cost optimization through effective relationship building and technology implementation can help clients maximize their resources.

ARLETTE LUA Director of the Automotive Industry Vertical – Mexico at Crane Worldwide Logistics

Being close to the US and having stable governments are among the most important strengths Mexico has as a logistics hub. The country has greatly improved its port infrastructure, although it could still work on its roads and increase security of shipments. Mexico’s manufacturing hubs tend not to be safe areas. Mexico has already developed its most basic logistics offering but it is still not engaging in fourth-generation logistics services. Logistics operators in Mexico offer little flexibility. While some companies engage in transportation processes, they are not interested in other added-value services such as container-filling, subassemblies, relabeling or

MANUEL DÍAZ Managing Director of Seko Logistics

repackaging.

The industry has continuously reached production and export records in the automotive industry. However, approximately 80 percent of all automotive production goes to the US and there is much uncertainty regarding the negotiation of NAFTA. There is still a significant opportunity to diversify into other markets in Europe and Latin America. China, in particular, offers a critical trade lane for logistics operations due to the growth of Asian companies in Mexico. Dachser has a large presence in China but we still need to strengthen our operations further. At the same time, we must not neglect other important trade lanes such as Germany-Mexico, Brazil-Mexico

EDGARDO HAMON Country Manager of Dachser Mexico

and Spain-Mexico, which we are developing.

Logistics operations have transformed greatly since the 1990s when the sector was largely reactive rather than proactive to clients’ needs. When logistics operators simply react to an emergency, it forces them to invest resources to solve the client’s problem. Mexico is a logistics hub but there is a need to make improvements in the Mexican logistics sector. The Mexican land transportation market is undergoing a transformation related to the enforcement of norms that regulate safety standards for operators; companies have not adapted to these new standards. Having more advanced railroad nodes would also help Mexico further develop its capacities as a logistics hub.

MANUEL ESLAVA CEO North America, Central America and Caribbean of TIBA

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| INSIGHT

MAKING THE BEST OUT OF CROSS-INDUSTRY EXPERIENCE RAMIRO DELGADO Global Commercial and Marketing Director of Solistica

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Given the high level of sophistication that automotive

of international trade, Solistica has advocated to improve

supply chains require from logistics operators, it is no

customs processes so that shipments can cross borders

surprise that not every company can enter this game.

without facing major delays. The company has a history

However, experience in other sectors could help a company

of working with the US and Mexican authorities to remain

take advantage of the vast opportunities this market has

updated on the systems and technologies needed to meet

to offer, says Ramiro Delgado, Global Commercial and

all specifications on both sides to reduce crossing times.

Marketing Director of Solistica.

“We offer clients the option to manage customs processes in a way that delivers transparency,” says Delgado. The

As the logistics subsidiary of multinational beverage

company makes sure all players involved in customs

and retail company FEMSA, Solistica has 20 years of

processes are aware of the regulations and documentation

experience in offering logistics services to several Mexican

needed to ship products across borders.

industries, including automotive. “We take advantage of the sophistication that working across several industries

Solistica’s long-standing relationships with heavy-

requires to deliver solutions that include best practices from

vehicle OEMs allows it to understand the challenges that

all sectors,” says Delgado. Aside from storage, full-truck

automotive companies face. It uses this knowledge to add

load transportation and primary and secondary distribution,

value to its logistics solutions while also servicing fleets

Solistica offers integrated international logistics and fleet

at more than 475 vehicle-maintenance shops in Mexico,

maintenance services.

Colombia, Nicaragua, Costa Rica and Panama.

Delgado says it took a complex expansion plan for Solistica

The company also collaborates with heavy-vehicle OEMs to

to become a key player in the Latin American logistics

build trucks that improve its overall operations. “We engage

market. Solistica is the result of FEMSA’s expansion of

in the development of vehicle technology for primary and

its logistics business into more industries and areas.

secondary distribution, as well as for commercial vehicles,”

“Previously known as FEMSA Logística, Solistica grew both

says Delgado. This focus on innovation has translated into a

organically and inorganically to offer improved solutions to

reduction of accidents and carbon emissions, improvement

the industry,” says Delgado. The company looked into its

of efficiencies and a boost in ROI. “We trust technology to

operations to find the business components it needed, to

guarantee the wellbeing of trucks,” he says.

either develop them or purchase companies that could fill the gaps. Expresso Jundiaí and Atlas in Brazil, Open Market

According to the 2017 Solistica Sustainability Report, the

in Colombia and Zimag in Mexico were the companies that

company has reached key milestones toward its 2020

Solistica acquired to boost its logistics capacities, storage

sustainability goals. In 2017, Solistica reduced its accident

capacity and to bring new added-value services and to

rate by 1.9 percent against 2014 in primary distribution

increase its presence in Latin America. “A client based in

and 25 percent in secondary distribution, while producing

Colombia or Brazil can now be serviced in Mexico or any

10.9 percent less hazardous waste compared to 2015. The

of the other countries where we are,” he says.

introduction of CNG-diesel hybrid trucks has also enabled the company to reduce its carbon footprint, save on fuel

The company places great importance on the automotive

costs and deliver less costly solutions to its clients. “We

industry as it is a growth pillar for the Mexican economy.

reduced our emissions by 4.9 percent, which equates to

“Solistica’s objective is to align with automotive supply

the CO2 emissions captured by 4,643ha of pine trees per

chains to eliminate waste and shorten idle periods for

year,” Delgado says. The company plans to eventually

resources and maximize capacities,” Delgado adds. Given

introduce electric trucks to its fleet to continue making

its presence in several markets and the complex dynamics

road shipments more efficient and eco-friendly.

INSIGHT |

GROWING INVESTMENT BRINGS OPPORTUNITY FOR ALL RAFAEL MORA CSO/Sales Box Leader of Corrubox

Component suppliers are not the only ones burdened with

a strong supplier base has been particularly challenging for

meeting the ever-increasing demands from OEMs. The bar

the company to ensure a quality service. Corrubox has already

has also been raised for logistics providers who now depend

worked with different shipping companies and Mora says one

on a continuous innovation strategy to keep up with their

of the key elements to consider when selecting a new provider

clients, says Rafael Mora, CSO/Sales Box Leader of Corrubox.

is to make sure it has the necessary infrastructure to ensure a continuous operation. The Mexican industry is growing at an

“New-vehicle launches, which were previously scheduled

accelerated pace and there is still opportunity for more players

every four years, are now being accelerated and that puts a

to participate as logistics and service suppliers to cater to the

strain on the whole manufacturing chain,” says Mora. “Stricter

demand of arriving automotive investors.

response times generate complications at an operational level, including logistics operations.” Originally a packaging provider,

Mora projects similar growth for Corrubox in 2018 but to

Corrubox evolved to a logistics provider after recognizing the

manage that, the company will have to keep innovating in

pressing needs of its clients and the growing opportunity in an

its service portfolio and its own operations. The company

industry with uninterrupted growth. “Our experience already

has operated according to just-in-time standards for over 20

makes us stand out as an excellent alternative for packaging

years, which is what led it to open eight branches in different

solutions,” says Mora. “However, we have gradually attracted

states. “We offer clients emergency stock and just-in-time

more clients with our logistics offering, providing an integral

deliveries,” he says. “With our logistics services, we are now

service that includes packaging and logistics.” The company

even participating in just-in-sequence operations and material

covers everything from design of packaging solutions, to

administration of both packaging and auto parts that we store

component packaging and storage and even exports if the

and deliver in the order the client wants them in its plant.”

client demands it, transforming Corrubox into a 3PL provider with a core business in packaging. That being said, packaging

However, just like in any other industry segment, there is

remains the core of the company.

always room for improvement. In packaging, Mora says the company has researched new designs to reduce costs and

The company works with OEMs, Tier 1 and Tier 2 companies

provide more environmentally-friendly solutions to the client.

but its logistics offering has been particularly attractive to

Corrubox’s innovation strategy has helped it optimize logistics

OEMs. Mora’s strategy has been oriented toward establishing

operations by designing packages that make the best use of

corporate accounts, focusing on large production consortia

the available space in a shipment or container. “Optimizing

instead of going after individual plants. The business model

space results in cost benefits for the client and helps us be

has paid off, delivering growth in sales of approximately

more sustainable by reducing use of raw materials and fuel

70 percent by the end of 2017. Although the company has

consumption in transportation,” says Mora. “We already have

not approached clusters with a regionalization strategy, it

over 8,000 packaging solutions that have been tested in the

has participated in industry events related to clusters and

industry for different makes, models and part numbers.”

associations, which has opened the doors to Corrubox in new markets such as the US and Canada. “We are now in

Digitalization has also been an innovation focus for

negotiations with several companies in these countries to

Corrubox. The company has worked on systems to help

develop new business in the north of Mexico and the south

clients access their inventories at any moment of the day,

of the US,” says Mora.

providing real-time information on the production and delivery times of their components. “These platforms

Evolving into a logistics provider has not been easy but

function like an internal ERP that we can link to clients’

flexibility has been a key factor in adapting to its clients’

management systems, whether those are SAP or Oracle,”

needs and supporting growth, according to Mora. Developing

says Mora.

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| VIEW FROM THE TOP

A SUCCESS STORY IN INDUSTRIAL DEVELOPMENT LUIS MANUEL QUIROZ Director General of Guanajuato Puerto Interior

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Q: How has Guanajuato Puerto Interior advanced in its

Guanajuato Puerto Interior Bodies (OGPI). We created

logistics capabilities?

this association in 2016 to have an entity in charge of

A: One of our goals was to have a free-trade zone (FTZ)

Puerto Interior’s maintenance and its members decided

within Guanajuato Puerto Interior to help SMEs make their

to also appeal to the Guanajuato government to ask for

transport operations more efficient and today, this FTZ is a

permission to manage the complex’s own services. As a

reality. At the same time, we rearranged Ferromex’s work

result, we now have 99 percent operability in our lighting,

layout, helping the company grow its transportation capacity

water, and electricity services, which means tenants are

to 80,000 containers per year from 38,000 containers. Lastly,

pleased with the results. Today, we have 120 companies

we started operations at the Logistics Research Center

from 18 countries operating in 1,500ha with 17,000 workers,

in collaboration with ITESM, which will allow us to create

along with the IPN training 2,427 students in five different

better synergies between the center of the country and ports

engineering majors. Investors have found advantages in

such as Manzanillo. As a result, all customs operations will

Puerto Interior that they cannot find anywhere else in

be performed directly at Guanajuato Puerto Interior instead

the country, even though other municipal governments

of at the border. Our priority at the moment is to work with

might give away the land so companies establish their

the government in Colima to digitalize our process and avoid

operations.

fines to companies for lock violations in containers that have not been liberated by the customs office.

Q: What strategies have you implemented to attract potential tenants?

Q: How have you advanced in terms of occupation and what

A: We do not sell land lots unless there is a clear development

are your expectations regarding client attraction?

project for the short term. Companies might have future

A: We are already showing signs of over-capacity. So far, two

expansion plans and buy the land in advance but they must

of our four parks are working at 100 percent capacity, the

have a defined project in mind from the start. Additionally,

third is at 80 percent and the last is now 50-percent booked.

we only allow for construction projects that cover up to 50

The Sky Plus aerospace park is also advancing according

percent of the company’s allotted space. We do not allow

to schedule; the company in charge of its development has

cars to park on the public roads and this regulation ensures

already laid out the drainage and electrical infrastructure

the company has more than enough parking space for its

and is now working on pavement installation. From our side,

visitors while dedicating 10 percent of its space to green

we already constructed a bridge that connects Sky Plus’

areas. These are harsh measures but they have ensured the

80ha with the rest of Puerto Interior and we expect to begin

functionality of the project.

offering the available slots at this park by the end of 2019. In terms of projects, besides our own subdivision, we also Q: How has Guanajuato Puerto Interior developed its

have industrial park managers, such as Vesta, Vynmsa and

operations to ensure tenant satisfaction?

Advance Real Estate that sublet their facilities. This has

A: We have a clearly defined retention strategy. Guanajuato

helped many Tier 2 and Tier 3 companies to establish their

Puerto Interior tries to continuously improve its working

operations at Guanajuato Puerto Interior thanks to a soft-

standards in collaboration with a civil association called

landing program. We also have a build-to-suit portfolio for more specialized companies that demand facilities with clear specifications. Just-in-time demands have also been a crucial

Guanajuato Puerto Interior is one of the two dry ports in the

factor in attracting more companies to Guanajuato Puerto

country, located in Silao, Guanajuato. It has 1,500ha of space

Interior. Many of our latest tenants have had to move their

and currently hosts 120 companies from 18 countries in five

operations from the north of the country to more effectively

industrial parks

supply the OEMs in Guanajuato.

Q: What is your role in attracting more investment to Guanajuato Puerto Interior and to Guanajuato? A: Guanajuato Puerto Interior is not acting alone in the promotion of Guanajuato’s industrial capabilities. Thanks to the strategy implemented by the state government, there are now 35 parks throughout the state that offer an attractive option for investors to bring their operations. Unlike other states, our industrial activities are distributed among several cities because thanks to Guanajuato Governor Miguel Márquez Márquez, the industry has tried to take work to where the population needs it. The government has its own investment promotion agency but Puerto Interior has served as an example of good practices and the results that this industrialization strategy has yielded in Guanajuato. Q: What would you consider the main advantages Guanajuato can offer to potential investors? A: One of the main advantages in Guanajuato has been continuity between state administrations. This has instilled investors with confidence that even without a signed agreement, the government will fulfill its obligations regardless of the person in charge. Infrastructure has also proven a huge benefit, considering that most of the best highways in the country are in Guanajuato. Additionally, we are strongly integrated with the rest of the Bajio region, which means that whatever areas of opportunity exist in Guanajuato can be covered by Queretaro, San Luis Potosi or Aguascalientes and vice versa. Companies that invest in Guanajuato know that they can supply Nissan in Aguascalientes and BMW in San Luis Potosi. Q: What is your position on the potential saturation of the Bajio? A: We do not think the region is saturated. Companies need to be where their clients and suppliers are and the challenge for the region is to supply enough talent to meet the industry’s demands. The state will have to attract people from other regions and develop housing complexes close to where companies are opening new sites. At the same time, these people will have to undergo a training process to understand how automotive companies work and how each player manages its own operations. The Federal Government’s strategy of developing Special Economic Zones (ZEEs) has been attractive for some investors, but automotive companies are still afraid of moving to areas that have no experience with their culture and way of working. Investors prefer to keep investing in developed automotive hubs and bringing human capital from unindustrialized regions. We have to see this as a regional development strategy that will result in migration and economic development for the entire country.

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| VIEW FROM THE TOP

QUERETARO’S GROWING ROAD NETWORK EFRAÍN ARIAS Director General of SCT Centro Querétaro

256

Q: What sparked Queretaro’s need for more road

resources and distribute them throughout the entire state.

infrastructure development in the past years?

Highway MEX 57, for instance, is the main artery that

A: Given Queretaro’s fast-growing industries such as

interconnects the state to the rest of the country but it has

aerospace, manufacturing and industrial development,

reached its maximum capacity. This is one of the reasons

transportation of goods is important. Our highways’ capacity

why the capacity of the Paseo de la Republica section was

is reaching its limits and that is why we must coordinate

expanded to its full capacity to 12 lanes and the Queretaro-

with local and state authorities to determine which projects

Mexico section is being expanded to six lanes.

should be developed. The only highway that existed 15 years ago was Highway MEX 57, which interconnected Laredo

Although the macrobeltway has been in operation for only

to Piedras Negras. Later, the Palmillas-Apaseo El Grande

a year, it already has traffic volume of 11,000 vehicles a

macrobeltway was constructed to ease traffic on Highway

day, which means it should be expanded to 12 lanes. The

MEX 57. Vehicles headed to the Bajio region would use this

northwest and southwest beltways could also be expanded

macrobeltway to avoid crossing the city. Then the northeast

to increase capacity. The State of Queretaro is also analyzing

and southwestern Queretaro beltways were created to also

the development of another circuit toward the Queretaro

ease traffic. These three beltways have been the result of

International Airport.

real-estate and industrial evolution in the Bajio region. Queteraro sees constant interaction between the federal

Q: How are most road and highway projects funded in the

road network and the state network and SCT works to

state of Queretaro?

follow trends of how the industry and its needs are evolving

A: Most projects are funded through public financing from the

in the state.

Federal Expenditure Budget (PEF). SCT receives an annual budget that then distributes among states for different

Q: How does SCT Centro Querétaro identify the state’s

projects. Nevertheless, public budget varies greatly each year.

road infrastructure needs?

Five years ago, we would construct MX$22 billion (US$1.2

A: SCT collects data and analyzes information such as

billion) in federal roadways and in 2018 we constructed only

transit volumes and vehicle classifications to carry out

MX$16 billion (US$850 million) due to Congress’ policies.

cost-benefit analyses. These analyses are then given

Throughout 2018, the State of Queretaro will use MX$1.07

to the Ministry of Finance to approve the budget for its

billion (US$57 million) to develop the new road network

development. When the Ministry agrees that the project

that includes presidential government commitments such as

is greatly needed and is viable, then it is presented in the

Bernal-Higuerillas (CG-091), Portezuelo-Palmillas (CG-082)

Federal Expenditure Budget Proposal (PEF) for the next

and Paseo de la Republica (CG-092).

year. Before Congress approves the budget, the project must comply with the economic, social and technical

When we do have highways that are profitable, then the

requirements. The information SCT Centro gathers for the

private sector is invited to participate. There are many

projects proposed to the Ministry of Finance ensures that

projects in Mexico that are not necessarily profitable but

these bring benefits to as many people as possible and offer

they are socially important. The country always wants

a social and economic solution to the country.

to make sure there is balance. Each state proposes its projects and the Ministry of Finance approves the resources.

Q: What new needs has SCT Centro Querétaro identified

In Queretaro we currently do not have public-private

to boost the competitiveness of its road network and

associations (PPA), although our neighbor San Luis Potosi

industries?

has a PPA for the maintenance and conservation of a of the

A: Conservation and maintenance is an important part of

MEX 57 highway. The macrobeltway was also constructed

a road network. SCT Centro Querétaro’s role is to optimize

under a PPA scheme.

Queretaro City

Q: What is the main challenge SCT Centro Querétaro

process could take more than half a year as it goes through

encounters when developing new or improving already

the various entities and levels of government.

existing road infrastructure projects in Mexico? A: The country has the financial capacity to construct

Work unions also play an important role in the sector. The

but there are other factors that are causing projects to

macrobeltway Palmillas-Apaseo el Grande is 86km long and

increase in costs and time. One of the main problems

it crosses through various municipalities in Queretaro and

transport-infrastructure projects face is right of way (ROW),

Guanajuato. Each municipality has its own construction work

especially when developing projects in the Mexican highway

union that has its own rules and demands regarding the type

network. When a highway is modernized and expanded,

of materials they want to use and where they should be

for example, the project may need to adjust its path. Years

purchased from. The country is not able to make the advance

ago, modifications were far more modest and roads were

it wants due to the lack of commitment of some people.

constructed with high slopes for a much faster and cheaper

Whenever there is a change in the path, the government

construction. Nowadays many communities are claiming the

pays communities for these changes.

historical ROW from highways that already exist. ROW has the power to derail a project, especially since many ejidos

Q: How should the public and private sectors work together

do not even have the proper documents to accredit the

to accelerate the development of transport infrastructure?

property.

A: Highways detonate economic growth and development and the National Infrastructure Plan wanted to transform

An example in Queretaro is the Toyota manufacturing plan.

the country into a logistics hub. In the six years of President

The company had problems with the ROW for the El Castillo

Enrique Peña Nieto’s administration, 80 new highways and

elevated highway crossing. Companies must hire large teams

26 beltways were constructed, of which most interconnected

of lawyers and technical experts to obtain the rights. There

Mexico’s rural and urban areas.

are communities that are noble and cooperate but there are also many that want to abuse the system. The government

As the construction industry continues to diversify, so do

allows us to tender projects if a certain percentage of the

companies that have built Mexico from the ground up. An

ROW has been liberated but projects are forced to a halt

example of a great Mexican construction company is ICA.

when the remaining ROW cannot be obtained. Construction

Whenever extra tasks or problems arose during projects,

teams must have a great deal of conviction to overcome

ICA always pitched in help to get the project moving and

all of the obstacles that they will face to finish the project.

back on track. The industry is now composed of hundreds of smaller companies that want everything done for them when

Environmental permits are also playing a crucial role in the

they win the tender. If the public and private sectors worked

development of highway projects, which does not only

together, we would advance much faster as an industry.

include environmental impact studies but also changes in land use. To obtain the change in land use, the Ministry of Environment asks for the land purchase to be accredited.

SCT Centro Querétaro (SCT State Office Queretaro) is

There are many laws that do not allow for progress in the

responsible for the planning, design, construction and

development of infrastructure in the country. For example, to

conservation of transport and communications infrastructure

obtain an explosives permit to create a tunnel for a road, the

throughout the state of Queretaro

257

| INSIGHT

BOOSTING DOMESTIC AND INTERNATIONAL TRADE MAURICIO GARZA CEO of Interpuerto Monterrey

258

A developed supplier base, skilled labor, as well as road,

In terms of utilities, Interpuerto already has an operating

railroad and airport connectivity are among the advantages

electrical substation and is contemplating a cogeneration

that make Nuevo Leon an attractive region for possible

project to supply its clients with cheaper, cleaner and more

automotive investors. Add price-competitive utilities, logistics

reliable energy, as well as steam if necessary. “A natural gas

advantages and trade-oriented amenities and you have a

pipeline is planned to cross Interpuerto Monterrey, which

bulletproof investment-attraction strategy, according to

will provide this resource at a price that is 20 percent

Mauricio Garza, CEO of Interpuerto Monterrey.

cheaper than the average market price,” says Garza.

“Adding extra advantages such as a customs office, a Free-

The park has also reached several milestones in its logistics

Trade Zone (FTZ) and competitive utilities have been key in

development plan. Located directly next to Kansas City's

marketing spaces at Interpuerto Monterrey,” says Garza. All

railroad container terminal and several highways, Interpuerto

automotive companies demand amenities like optical fiber,

Monterrey offers both railroad and road transportation

water, electricity and sometimes natural gas, but Interpuerto

capabilities. “Trains are the most efficient transportation

Monterrey has gone one step further to offer amenities the

means in distances over 700km,” says Garza. “For shorter

market wants to boost efficiency and cut costs. “We have

distances, it makes more sense to employ trucks.” Offering

industrial plots ready for automotive companies so they

both transportation means adds to Interpuerto Monterrey’s

need only focus on producing when they arrive,” says Garza.

attractiveness for companies interested in both exporting

Located in the heart of one of Mexico’s key automotive

and serving the domestic market.

regions, Interpuerto Monterrey is a 1,400ha industrial park in Nuevo Leon. It caters to businesses that supply both the US

Up to 85 percent of Mexico’s cargo is transported using

market and automotive companies located in Central Mexico.

trucks, so Interpuerto Monterrey invites clients to take

Although Interpuerto Monterrey works with tenants from

advantage of railroad transportation when convenient.

various industries, automotive dominates the park’s operations

“Companies that ship few containers use mostly trucks,

with 65 percent of its business related to this market.

due to the fact that in most cases rail transport frequency and delivery times do not fit companies’ needs” he says.

Interpuerto Monterrey has worked extensively to improve

“The challenge is finding ways to implement small-volume

its offering for automotive companies and a customs office

trains to help companies efficiently transport their goods

will open in August 2018. “The idea is for all of our clients’

over long distances so they can benefit from the price

imports and exports to be be processed through this office,”

advantages that rail transportation offers over those

says Garza. The project will reduce companies’ costs and

distances.”

processing times since products will no longer stop at the Mexican border for processing. “Pre-validation processes will

Garza says that although 2018 has been a challenging year

also be carried out within the park so Mexican authorities

for Interpuerto Monterrey because of the impact from

do not stop goods for revision prior to crossing the border.”

NAFTA 2.0 negotiations, domestic elections and the US

Moving forward, Interpuerto Monterrey will seek to have

tax reform, the park expects to sell 30ha and lease a few

binational customs operations between Mexico and the US.

industrial warehouses in 2018. “We have around 350ha under negotiation but companies are waiting to see what

Interpuerto Monterrey is also pushing for more trade-oriented

happens with the new Federal Government and NAFTA

strategies, including the creation of an FTZ and digitalization

prior to moving on,” he says. Still, Interpuerto Monterrey

through the implementation of the Customs Technological

expects NAFTA to modernize successfully to the advantage

Integration Project established by the Federal Government

of all member countries. Consequently, investments will be

to support clients in its customs processes.

boosted and the market will reactivate.

INSIGHT |

DEMAND SPURS EQUIPMENT STANDARDIZATION YOAV MEGGED President America of Traffilog

In a price-oriented market such as transportation in Mexico,

deeply affect the Mexican transportation industry. “We can

maximizing truck efficiency while ensuring constant uptime

effectively reduce fuel consumption by up to 15 percent in

through telematics is key for carriers. The need for these

the first months of using our solution.”

systems has evolved to the point where manufacturers such as Navistar understand the value of these systems for their

Security for cargo and operators has also been a key factor

customers and for their own engineering needs, says Yoav

for Traffilog’s success. According to Nacional Security

Megged, President America of Israel-based telematics

Commission data, there were 4,546 robberies of trucks

solutions provider Traffilog.

during 2017 on Mexican roads. “Our solutions can help companies keep operations under control by authorizing

“The market has understood the value of these systems

only company drivers to open the truck doors and start

and how they can reduce maintenance costs and accident

the engine or preventing the unit from stopping at certain

rates,” says Megged. The company allied with Navistar in

locations,” says Megged. “These measures have taken

2013 and since November 2017, it is installing its equipment

the recovery rate of stolen trucks equipped with Traffilog

on all Navistar trucks and buses at the OEM’s plant in

systems to 85 percent.”

Escobedo. In 2018, Traffilog also started working with Mercedes-Benz to incorporate its solutions into heavy

By 2017, 20,000 vehicles in Mexico and 300,000 units

vehicles for the Mexican market. “Our technology goes in

worldwide had Traffilog systems installed. The company

every bus and truck leaving Navistar’s production line,” he

expects its business to keep growing in the heavy-vehicle

says. “Traffilog will also supply for Mercedes-Benz’s Bus

market but also wants to increase its presence in Mexico by

Connection telematics system, which will be installed in

attacking the light and commercial-vehicle segments. “We

some of the buses destined for the Mexican market.”

are looking for one or two manufacturers in this segment to partner with,” Megged says. “This will make us the largest

Traffilog’s success among automakers, fleet managers and

telematics company in Mexico.”

insurance companies, however, did not happen overnight. According to Megged, when the company entered Mexico

Traffilog has already started a project called Connected Car

in 2012, these companies did not know what to make of

with a Volkswagen distributor in Scandinavia. The project’s

Traffilog’s proposal. “Clients used to think a simple GPS

goal is to gather data generated by vehicles that will be later

would do the job but the market has developed a demand for

used by insurance companies, workshops and toll roads

these systems,” he says. Traffilog also faced the obstacle of a

to offer better services to car owners. “We have already

Mexican market that is highly price-sensitive. The company

installed 75,000 Connected Car devices in Volkswagen

partnered with fleet management systems developer

Group vehicles and our plan is to implement our technology

TomTom and now is the largest supplier of TomTom Bridge

in 200,000 more vehicles in 2018,” says Megged. Predictive

worldwide. However, it has been difficult to permeate the

maintenance and performance tracking are important to

Mexican market. “Our alliance with TomTom has worked well

automakers, he adds. These features prevent component

internationally,” says Megged, “but it has not penetrated

failure and enable companies to improve their engineering

Mexico yet because the market is more sensitive to price.”

capabilities. The company is also launching a product called MDAS that consists of a Traffilog product combined with an

Quick returns of less than 12 months have attracted

Advanced Driving Assistance System. The system measures

attention to Traffilog, nonetheless. Megged says the

the distance between vehicles and alerts the driver when

company’s systems enable businesses to save on mechanical

the car is leaving its lane. “We will start this program with

elements, including engine, gear and brake wear as well as

a 500-vehicle pilot and we will release it for the volume

fuel consumption, a key input with price variations that

market in 2019.”

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| VIEW FROM THE TOP

OPTIMIZING TRANSPORTATION THROUGH INTEGRAL SOLUTIONS Enrique Segovia Director of SAKTËSI

260

Fernando Segovia Operations Manager of SAKTËSI

Q: What do you see as the main problem for logistics and

Q: What solutions can SAKTËSI offer and what

transportation companies and how can SAKTËSI help

opportunities do you see in the market?

to solve it?

FS: Our SAK-CONTROL technology, for example, tracks the

FS: Being unable to control costs effectively can prevent

fuel depletion process. It gathers information on fueling,

carriers from offering a competitive price to their clients. While

consumption and even siphoning with 99 percent accuracy.

a five-vehicle fleet can be easily controlled, data generated

SAKTËSI has integrated SAK-CONTROL with other software

by 500-unit fleets is difficult to handle and this process

solutions and can now offer expenditure projections for

is generally not done in real time. When SAKTËSI starts

trips based on previously registered information. We are

working with a client, we become their technological partner.

also about to launch our Gasolineras Confiables (Reliable

Furthermore, clients gain access to any new development at

Fuel Stations) solution. It will categorize fuel stations and

no charge because this enables SAKTËSI’s solutions to grow

tell clients which one provides the best yield according to

and address common problems in the industry.

the carrier’s operation and its clients’ needs.

ES: A key problem for companies is that they usually equip

SAKTËSI is also developing a solution for assembly plants.

several localization devices to keep a level of operation

A common problem for automotive OEMs is that production

that offers them certainty. SAKTËSI can reduce the cost

line managers only find out a worker is absent when products

of additional devices. We recently launched an app called

start piling up in their section of the line. We want to counter

Punto a Punto (Point to Point) that makes it easier to track

this problem by offering a solution for transportation

fuel consumption, arrival and departure times and even

companies that move workers to and from assembly plants.

helps in the calculation of road tolls. Fleet owners were

These companies will be able to notify the HR person at the

suffering because there was no easy way to manage their

plant when a worker did not board the bus so managers can

costs but our solution enables them to make fast decisions.

make decisions on how to cover that section.

Q: What are transportation companies’ priorities when

Q: What are SAKTËSI’s growth plans for 2017 and 2018?

looking to ease logistics operations?

ES: Some companies including Kenworth have noted the

ES: Fuel, tires and operator salaries represent the largest

certainty that SAKTËSI can offer. We want to collaborate

costs for transportation companies. SAKTËSI offers

with these players so our solutions are installed in their

software solutions and technological units that prevent

vehicles before they leave the dealership. We are also in

clients from reaching a stagnation point where buying new

the process of developing an industrial plant equipped

units is impossible due to lack of liquidity. We potentialize

with top-of-the-line technology in Guanajuato, which will

resources to materialize savings both in economic terms

enable SAKTËSI to install its solutions in an easier and

and in harnessing human resources. We are not interested

more professional manner. Additionally, in an effort to

in replacing people with systems but in strengthening their

grow throughout the country, the company has approached

potential. Offering a single integral solution to control costs

several clients with fleets of more than 100 units to offer

enables SAKTËSI’s clients to focus on their core business

our services.

once holes in their operations are plugged. FS: We have a growth goal of 1,000 percent for 2018. Many clients have recommended us and we have identified SAKTËSI is a 100-percent Mexican, family company focused

new business opportunities mainly in Torreon, Monterrey,

on creating software solutions for transportation companies

Guadalajara, Queretaro, Puebla and Aguascalientes.

to make strategic fleet management decisions based on

Logistics operations concentrate in these hubs and our goal

information their vehicles generate

is to be close to areas where trucks move.

INSIGHT |

INFORMATION MAKES FOR BETTER DECISIONS ALFREDO LOZANO Director General of LIS Software Solutions

Trucking robberies and a lack of skilled operators are

shipments live. Routech enables transportation companies

neuralgic issues for transportation companies trying to

to approach their clients through LIS’ customer-care module

stay afloat. While telemetry solutions have been there to

to know exactly where their freight is at any given moment.

counter these problems, live information and data analysis

“Trucks usually carry one or two GPS-powered devices from

are poised to become the next best thing to address these

a variety of brands and LIS displays the information they

issues, according to Alfredo Lozano, Director General of

generate on a single screen, thus offering transparency to

software developer LIS Software Solutions.

clients,” says Lozano.

“Big Data is an unexploited area in transportation,” says

Efficiency is another critical matter for transportation

Lozano “Less than 10 percent of all transportation companies

companies and LIS has developed a comprehensive

in Mexico use telemetry to make decisions.” Seeing this

solution called ZAM that has 22 different modules

opportunity, LIS Software Solutions focused on optimizing

focusing on operational, maintenance, administrative

transport through business intelligence obtained from

and information management to improve operations.

data analysis. “Competition has forced new generations to

Lozano says the company has also created apps for

analyze information and we help our clients make informed

tracking inventories and is introducing maintenance-

decisions.” LIS Software Solutions offers products for anyone

control solutions that will allow heads of maintenance

from an owner-operator to small and medium carriers and

departments to authorize any preventive or corrective

large companies. The company may offer supply chain,

measures. “We recently developed a solution called LIS

route optimization and route planning solutions to large

TMS that is designed for small carriers with fleets of four

companies, for instance. The difference between LIS and

to 45 units and costs approximately MX$250 (US$13.2)

other companies that offer security and information through

per vehicle,” he says. This solution is designed for carriers

telemetry, according to Lozano, is LIS Software Solutions’

to better control their operations. According to Lozano,

capability to deliver live information on how operators drive

about 1,200 vehicles belonging to 85 of LIS Software

and even whether they over-rev engines or brake roughly.

Solutions' clients are using this system.

Lozano points out that large freight companies usually have

Lozano adds that regulatory changes have also led more

teams that analyze telemetric data but common carriers

carriers to look for LIS Software Solutions. “Transportation

are more empiric and do not compare information to make

companies used to be able to buy engines and other

decisions. Considering that 29.3 percent of Mexico Automotive

resources in cash and avoid taxes by only paying an annual

Review 2017’s interviewees saw security concerns as one of

rate per truck,” he says. “President Carlos Salinas, however,

the main obstacles for the national industry, having real-time

built more controls around the industry, making it more

data on the location of every unit in a fleet can be a major

competitive.” The lack of such fiscal loopholes pushed

advantage. “Carriers are robbed often, which is a problem

carriers to look for companies that offered management

for both these companies and their clients,” explains Lozano.

solutions, such as LIS’.

He explains how one of LIS’ modules manages information related to robberies and accidents and produces statistics

LIS Software Solutions has a client portfolio comprising

based on that data that are later uploaded to a database

650 companies and Lozano’s goal is to promote the

that warns operators not to go through or stop at risky areas.

company among owner-operators and both middle and large carriers so they see LIS’ solutions as an opportunity.

Another LIS solution, the Routech app, enables operators

“We now work with CANACAR and CONATRAM to attract

to receive information on where to go and how many

more clients and expect to grow between 20 and 25

deliveries to make. Meanwhile, delivery recipients can track

percent in 2018,” says Lozano.

261

Harness assembly / Germany

FACTORY OF THE FUTURE

Companies are transitioning from labor-intensive to automation-intensive operations. This demands investments both in automation equipment and solutions to make processes more energy-efficient and sustainable, as well as productive. Although OEMs and large suppliers have already made advanced manufacturing a standard, smaller players face the challenge of optimizing their operations without compromising their entire working capital.

This chapter focuses on how Mexico is transforming its manufacturing operations to incorporate the idea of the Factory of the Future. Equipment manufacturers showcase solutions to remain affordable for smaller suppliers. At the same time, leading companies present alternatives to make processes more cost and resource-efficient.

263

CHAPTER 10: FACTORY OF THE FUTURE 266

ANALYSIS: Technology Implementation, a Gradual Process

267

VIEW FROM THE TOP: Víctor Fuentes, Mitsubishi Electric Automation Mexico / Latin America

268

VIEW FROM THE TOP: Manuel Sordo, Universal Robots

269

INSIGHT: Jorge Cosio, Yaskawa México

270

INSIGHT: Miguel López, Rockwell Automation

271

VIEW FROM THE TOP: Antonio Mendoza, Balluff

272

VIEW FROM THE TOP: Adrián Salinas, ATC Automation

273

VIEW FROM THE TOP: Steffen Zörn, Dürr México

274

VIEW FROM THE TOP: Leonardo Romero, Helmut Fischer

276

VIEW FROM THE TOP: Bradford Bartmess , Nikon Metrology

277

INSIGHT: Jorge Escarcega, Mahr Corporation de México

278

VIEW FROM THE TOP: Rafael Lelo de Larrea, ZEISS de México

279

VIEW FROM THE TOP: Salvador Icazbalceta, Heller Machine Tools de México

280

TECHNOLOGY SPOTLIGHT: PHASCOPE PAINT: Accurate Measurement in the Palm of Your Hand

282

VIEW FROM THE TOP: José Figueroa, Marposs México

284

VIEW FROM THE TOP: Alfonso Ramírez, Grupo Kopar

285

INSIGHT: Constantino de Llano, Domino Printing Mexico

286

VIEW FROM THE TOP: René Gronau, KOMET MÉXICO

287

VIEW FROM THE TOP: Alonso Acevedo, HAIMER México

288

VIEW FROM THE TOP: Arturo Robles, CIMATIC de México

289

INSIGHT: Rafael Funes, LOVIS

290

VIEW FROM THE TOP: Gunther Barajas, Dassault Systèmes de México

291

INSIGHT: Gabriel Alvarado, Kronos

292

INSIGHT: Robert Weber, Euklid México

293

INSIGHT: Miguel Arias, PolyWorks México

265

| ANALYSIS

TECHNOLOGY IMPLEMENTATION, A GRADUAL PROCESS The automotive industry has been one of the main boosters of manufacturing innovation. Automation became essential for processes to become more efficient and less prone to human error. Now, Industry 4.0 has created a new opportunity for companies to develop their capabilities beyond just increasing efficiency

266

Process digitalization and the move toward Industry 4.0

the companies surveyed by MAR have a 75-100 percent

and a Big-Data reality are essential for companies to remain

level of digitalization. Almost 30 percent of the companies

competitive. Yet, not all companies are ready or willing to

have a 50-75 percent level of digitalization, while 23 percent

embrace this due to different factors.

are at 25-50 percent.

Mexico Automotive Review (MAR) 2018 surveyed its

“There will always be processes that must be completed

interviewees and found that out of 165 companies,

by humans,” says Manuel Sordo, General Manager for

80 percent consider digitalization or automation very

Latin America of Universal Robots. Even though the future

important in the development of their current activities.

may seem fully automated, there are tasks that robots

This is in line with the growth of Industry 4.0 as a megatrend

are still unable to perform. Moreover, supervision is still

impacting the industry. However, when it comes to the

needed even when a process is fully automated. Having

actual implementation of processes, only 32.8 percent of

said that, the advantages of technology implementation in manufacturing processes cannot be denied. Especially

HOW IMPORTANT IMPORTANTDO DOYOU YOU CONSIDER HOW CONSIDER DIGITALIZATION DIGITALIZATION AUTOMATION IN THE AND AUTOMATIONAND IN THE DEVELOPMENT OF YOUR DEVELOPMENT OF YOUR CURRENT ACTIVITIES? CURRENT ACTIVITIES?*

in repetitive or dangerous tasks, automation has become a key element to ensure productivity and safety of operators. For example, welding and painting processes in vehicle manufacturing are 100-percent automated because there is no need for a person to handle such materials or to deal with heavy components that can be easily maneuvered by a robot. Automation can also help companies face their issues regarding talent availability. It is no secret that due to the rapid growth of the automotive industry, Mexico now faces a lack of specialized labor at a technical and operating level that has even led to a talent war in areas like the Bajio,

80% 11.5%

Very important Mildly important

No answer

1.2% Not important No answer 7.3% Mildly important

ON A SCALE OF 0-100%, WHAT WOULD YOU SAY ISOF THE LEVELWHAT OF DIGITALIZATION Not important Very important ON A SCALE 0-100%, WOULD YOU SAY IS IN YOUR THE LEVEL COMPANY? OF DIGITALIZATION IN YOUR COMPANY?* Mexico Automotive Review 2018 interviewee survey

where there is a large concentration of companies that offer similar salaries and working conditions. “Weighing issues such as staff turnover, which forces companies to hire and train people regularly, prompt clients to automate their operations,” says Adrián Salinas, General Manager of ATC Automation. The challenge for companies is identifying where to implement automation and up to what point in order to increase productivity without compromising costcompetitiveness. In Mexico, labor costs still outweigh costs of technology implementation, especially for companies that are just entering the production chain. “Mexico is a country of SMEs, which means that technology implementation is always a challenge,” says Manuel Nieblas, Partner and

1.8% 0-25% 25-50% 23% 50-75% 29.7% 50-75%

32.8% 75-100% answer 12.7% No answer No

25-50%Review 2018 interviewee 75-100%survey *Mexico Automotive 0-25%

Manufacturing Industry Leader at Deloitte Mexico. “What would help is for the government to offer more clarity on the kind of support it can provide to companies that want to grow their technological footprint.”

VIEW FROM THE TOP |

THE MANUFACTURING ROLLER-COASTER VÍCTOR FUENTES Director General of Mitsubishi Electric Automation Mexico / Latin America

Q: Automation practices are being increasingly implemented

consolidation as a world leader in technology development.

in Mexico. What are the potential associated risks?

There are five great technology suppliers on the planet.

A: I do not see risk in this process as much as I see opportunities

General Electric thrives in America, Siemens, Schneider and

for the industry to achieve a more agile competitiveness.

ABB do so in Europe while Mitsubishi Electric has Asia. China

Automation implies challenges, including the development

is our main market as it is the largest consumer of technology

of more local technologies and the training of specialists

and components, Europe is our second-largest market and

in products and solutions that boost productivity, process

America is the third. Mexico’s significance for Mitsubishi

optimization and cost reductions. It also has an impact on

Electric lies in it being an emerging country with a planned

jobs — or more accurately, the transformation of jobs — but

and potential yearly growth of between 2 and 2.8 percent that

Mexican companies are willing to change their production

could make it the eighth-biggest world economy. Mitsubishi

processes and make use of the workforce.

Electric’s automation division’s sales have grown on a doubledigit basis for six years in a row. The market share of this

Automation is a large field in which we can advance in terms

division amounts to 5 percent with a little more in the segment

of integral automation of productive processes. This means

of reversing gears and movement controls. There is still plenty

having fully automated plants where, for instance, production

of room to grow and improve in the Mexican market.

lines that are usually controlled by 10 to 15 people will only need two operators. Process transformation implies greater

Q: How much does Mitsubishi Electric expect to

investments in the personnel that will design, produce and

grow by 2020?

operate these lines, but will also result in the development

A: The company’s main objective is to reach between 8

of specialized talent. It is no longer about having a worker

and 10 percent of the market between 2020 and 2025. The

tightening four screws eight hours a day but having a person

company’s strategies are helping us approach this level but

who is designing new products and instrumentations to

we did not expect the turbulence that has slowed down

optimize the process adapted to a machine.

a few investments. Some companies have placed their capital investments on standby and are focused on keeping

Q: How is Mitsubishi Electric making equipment more

a running production until there is a clearer vision about

affordable for companies?

what is going to happen. One of the strategies is targeting

A: The company focuses on making our clients’ ROI tangible

the domestic market. For instance, Mitsubishi Electric has

and achievable from the moment a proposal is presented.

several projects with a significant 100-percent Mexican

Our value proposition is the lowest total cost of ownership.

client. This company wants to increase its production

In simple terms: amortizing expenses at a lower cost during

and reduce its costs related to personnel. Automation is

the useful life of a project or the components of the acquired

replacing jobs but two factors must be considered on that

equipment to positively impact asset management. Mitsubishi

matter. First, where a leader wants to take his company

Electric supports its clients and advises them to take the

and the personnel he wants to train. And second, that

best possible decision about automation-related investment

this leader would prefer not to make such a considerable

costs. The keys to success are an assessment of production

investment in automation had he not had problems with

processes and the positive impact of automation investments,

employee turnover.

a lower ROI time and a lower total cost of ownership. Q: How important is Mexico for the growth of

Mitsubishi Electric is a global company with over 40 years in

Mitsubishi Electric?

Mexico. It develops and manufactures electric products and

A: Mitsubishi is about to turn 100 years old. 2020 represents

systems including industrial robots, motion control systems,

an important milestone because it reflects the company’s

operator interfaces and computer numerical controls

267

| VIEW FROM THE TOP

ROBOTS THAT PUT AUTOMATION BACK INTO THEÂ HANDS OF OPERATORS MANUEL SORDO General Manager for Latin America of Universal Robots

268

Q: How is the Universal Robots+ platform helping Universal

There are still many manual-labor processes that could be

Robots innovate in the area of collaborative robotics?

automated and our goal is to offer flexible and affordable

A: We want to put automation back in the hands of operators

solutions that boost productivity in players of any size. We are

through our integration platform Universal Robots+. This

collaborating with state governments to promote Universal

might be against what Industry 4.0 stands for but the basis

Robotsâ&#x20AC;&#x2122; solutions and many of them are pushing for greater

of collaborative robotics is to create solutions that work

implementation of automation and Industry 4.0 technologies.

hand-in-hand with human operators. There will always be processes that must be completed by humans and we

Q: How do you choose the best partners to integrate into

want to operate along that line where automation ends and

the Universal Robots+ platform?

human labor begins. We want to create an operator-friendly

A: We focus on their level of leadership in the industry and

environment that involves not only our robots but all the

the importance they place on innovation. You do not need

peripherals and add-ons that must be integrated into a full

to be the biggest company in the market if you can offer

automation solution. In the end, what we want is a seamless

something different to your clients that can effectively

operation for the operator similar to what users find in an app

cover their needs. We are working with large automation

store. What makes smartphones so versatile is the number of

and accessory leaders and also with entrepreneurs who

apps available and how easy it is to use them. We are working

have fresh ideas for the industry.

together with technology developers to develop peripherals that are easy to use and that do not require programmers or

Right now, we are working with a small company in Houston

added engineering processes to set them up.

that has developed a collaborative welding application. Normally, welding robots are big, fast and hard to program

Q: How well have companies embraced the idea behind

so they are limited to repetitive tasks in the automotive

Universal Robots+?

production line while human operators take care of the more

A: We have made significant progress with the platform.

complicated and changing welding processes. What we are

We expect to close 2018 with over 50 partner companies

doing with this company is making welding programming

and we expect to keep integrating more companies as we

easier, so companies need minutes instead of days to

go. In terms of clients, there has been significant demand

program a new welding line. Operators need only enter

but our biggest challenge has been promoting the idea

basic welding parameters and the points where the robot

of Universal Robots+. Although this development might

will begin and finish for the robot to complete the process.

be an added advantage for large companies, our focus is still in the SME market. Large companies have been quick

Q: If robots take over activities that are exclusive to human

to embrace our solutions but there is still room to grow

operators, how can Universal Robots+ put automation

with smaller companies that might not be aware of the

back in the hands of operators?

latest automation advances or that think these solutions

A: Although every robotic application implies the

are out of their reach. We want to support companies that

substitution of human labor, our applications are

need to grow and want to keep up with the giants in the

collaborative in nature so they will always need someone

manufacturing industry.

to supervise and reprogram them. Unlike traditional robots, our solutions work in a changing environment where operators must be aware if there needs to be a change

Universal Robots is a Danish company that aims at integrating

in the way the robot is acting. In the end, our equipment

collaborative robotic technology into all types of manufacturing

is a tool that operators use to make their activities more

companies, regardless of their size. The company is the market

productive. If productivity grows, the company grows and

leader in collaborative robot applications

so does its labor force.

INSIGHT |

LOCAL ENGINEERING A VALUE ADD FOR SYSTEMS INTEGRATORS JORGE COSIO General Manager of Yaskawa México

Building and implementing automation and collaborative

robot market lies in the ability to keep systems running. “Our

robot applications is no longer a game just for foreign

goal is to provide fast response for robot service issues to

players. As smaller, local manufacturing companies

minimize production downtime,” he underlines.

improve their processes, opportunities arise for automation companies to integrate Mexican engineering into their

While the company wants to boost its presence in more

solutions and to target SMEs.

OEM assembly plants in Mexico, smaller manufacturers are also an attractive market. Cosio says the company’ strategy

Jorge Cosio, General Manager of Japan-based robot

to target automotive SMEs in Mexico is threefold: “We

supplier and technology integrator Yaskawa México, says the

offer competitive prices, look for leverage among Mexican

automotive industry’s mindset toward Mexican engineering

financial institutions and participate in the market for used

is changing as distrust in the country’s capabilities fades

robots.” Competitive prices are Yaskawa México’s strategy

away. “Competitive design and engineering processes for

to close the gap between Tier 1s and OEMs that demand

automotive applications can be made in Mexico,” he says.

large robot volumes and smaller players that only buy one or two units. The company looks for support from banks

Yaskawa México’s core business is the sale of industrial

willing to offer SMEs credit to buy automation solutions. “If

robots and integrated robotic solutions for arc welding,

clients lack liquidity, we bring in financial institutions that

material handling, palletizing, adhesive and coating

can help them,” says Cosio. In the secondary robot market,

applications. According to Cosio, the company has achieved

the company buys back robots with five to seven years of

a strong position in the arc welding and coating segment

use from previous clients. It then refurbishes and resells

as a medium-sized integrator. Yaskawa México is using this

them to smaller companies.

momentum to introduce its turnkey projects to the Mexican automotive industry. “Aside from the robots we sell, Yaskawa

As Industry 4.0 storms into Mexico’s manufacturing

México adds value to its integrated offering by incorporating

industry, Yaskawa strives to include more self-diagnostic,

local engineering and proven solutions,” he says.

communication and cloud capabilities to its solutions. “Yaskawa products will be able to communicate wirelessly

Cosio enumerates project management and the complicated

with a network or cloud, as well as obtain robot production

way turnkey projects are marketed as key challenges that

information and send alerts when there are problems,”

technology integrators face. “Project management can

says Cosio. Yaskawa expects to shake the robotics market

sometimes be difficult and integrators need to improve

through new products. “We will change the way robots

communication with clients and to stick to partial and final

are programmed and introduce a new solution that could

delivery dates,” he says. Yaskawa México addresses this

represent a breakthrough in robotics,” he says. The company

issue by integrating local engineering. “This gives us the

has already launched the CHC10 collaborative robot, which,

advantage of controlling projects from start to end,” says

according to Cosio, is fast for its segment and can carry up

Cosio. “Our goal is to sell products with 50 percent local

to 10kg. “This robot can increase collaboration between

engineering content and even more when possible.”

man and machine,” he says.

Yaskawa México already works with several automotive

Although Yaskawa has a strong presence in the automotive

OEMs with presence in Mexico. Many of these companies, as

sector, Cosio expects to have a balance across more

well as their main suppliers, have corporate agreements with

sectors. The priority for the company is to grow its market

robotics suppliers from their headquarters. “We need to offer

share. “We need to focus on the robotic systems that

these players appropriate service and customer support,”

are implemented in Mexico, attack the most attractive

says Cosio. The importance of customer care in Mexico’s

segments and reach our target users,” Cosio says.

269

| INSIGHT

ADVANCED ANALYTICS KEY FOR A CONNECTED ENTERPRISE MIGUEL LÓPEZ Regional Director of Rockwell Automation

Digitalization has opened the doors to enormous banks of

Rockwell Automation’s goal is to be the connecting platform

information that track the development of manufacturing

for all of the clients’ equipment. Instead of receiving tons

processes. Companies are learning what to do with this data

of unsolvable data, through The Connected Enterprise the

but the next step for the industry is to gain the capacity to

company can filter information according to what users need

make accurate decisions based on this information, according

to make decisions at the right time. This is not restricted to

to Miguel López, Regional Director of Rockwell Automation.

Rockwell Automation’s technology. According to López, an

270

open network is also crucial for efficient communication “We strongly believe in software-hardware integration,”

between devices. Companies have moved from individual

he says. Being the world’s leading player in industrial

private networks to open standards normally following

automation and information, Rockwell Automation

Ethernet protocols and Rockwell Automation has an alliance

understands the importance of data and its compilation

with CISCO that allows its equipment to communicate with

to develop proper analyses. However, as López puts it,

any device from any brand that follows Ethernet/IP standards.

“without someone or something to interpret it, data by itself cannot generate knowledge.” For this reason, the company

The Connected Enterprise is a growing project for Rockwell

is investing heavily in advanced analytics technology.

Automation and along with investments in its own technology, the company has favored inorganic growth to innovation

According to the company’s Automation Perspectives for 2017,

through collaboration and investments in third parties. In

presented at the Automation Fair in 2017 by Frank Kulaszewicz,

November 2017, the company announced its investment in

Senior Vice President of Architecture and Software, and

the Silicon-Valley-based innovation fund The Hive to support

Andrew Ellis, Manager of Commercial Engineering and

artificial intelligence developments focused on industrial

Information Software at Rockwell Automation, manufacturers

automation. Similarly, in July 2017, Rockwell Automation

looking to be more competitive and to maximize asset

established a collaboration with Foxconn to develop Smart

utilization must embrace advanced analytics tools. According

Manufacturing solutions at Foxconn’s facilities.

to data science, analytics can be classified as descriptive, diagnostic, predictive and prescriptive. The first two refer to

Although Rockwell Automation has maintained an open

historical data while the latter two are related to forecasts

mind toward inorganic growth, it has not put at risk its long-

based on previous results and behavior analysis.

term plans and growth projections. The company received two unsolicited proposals from technology leader Emerson

“Companies need technology capable of offering predictive,

in October and November 2017, and both times Rockwell

as well as prescriptive analyses that can prevent processes

Automation’s Board rejected the offer. “We believe that

from reaching a stagnation or a deterioration point without

continuing to execute Rockwell Automation’s successful

relying on the accumulated experience of operators,”

strategy, which is generating extraordinary returns for the

says López. All components from sensors and frequency

company’s shareowners, will create greater long-term value,”

converters to control units are sources of information, he

said Blake Moret, President and CEO of Rockwell Automation,

adds, and that is what has allowed Rockwell Automation to

to David Farr, Chairman and CEO of Emerson Electric.

build its vision of The Connected Enterprise. “Digitalization is key for the industry’s development and Rockwell

López is optimistic regarding the future of Rockwell

Automation is leading by example in its implementation,”

Automation. “We are growing and proof of that is the

López says. “We have three manufacturing sites in Mexico,

good results we have delivered locally and globally,” he

two in Monterrey and another in Tecate, and by embracing

says. “Growing outside the US has become a priority

digitalization we have been able to show our clients what

for Rockwell Automation and Mexico is one of the most

new technology we can offer.”

important markets for the company internationally.”

VIEW FROM THE TOP |

BOOSTING MEXICO’S TECHNOLOGY BASE ANTONIO MENDOZA General Manager of Balluff

Q: How has Balluff helped its clients adapt to the growing

mobility segment, which is one of our three core businesses

Industry 4.0 trend?

along with plant automation and packaging and food and

A: We consider ourselves as enablers of Industry 4.0

beverage. All the experience we had in the automotive

solutions. We do not sell components, we sell complete

sector is now being translated to other applications in

solutions supported by the most knowledgeable sales

the aerospace and construction industries, as well as the

force in the market. Our goal is to solve whatever problem

production of new vehicle platforms. We were traditionally

our clients might have, whether it is low productivity,

paired with combustion engine and transmission

unscheduled downtime, overproduction or ineffective

manufacturers but today all of Tesla’s production lines

inventories. We have also placed high importance on

include Balluff components. We also expect to eventually

connectivity and its role in advanced industrial processes.

participate in the battery market, helping companies enter the Industry 4.0 era.

Over five years ago, we started participating in the development of an industrial subnetwork called IO-

Q: What do you see as the main areas of opportunity

Link. This network was created by a consortium of

regarding talent in Mexico?

European companies and has been a key element in

A: Although there is capable talent in Mexico, students

making connectivity a reality in industrial spaces, helping

are sorely lacking in training regarding new technologies.

companies effectively reduce operational costs and to

Schools are working with obsolete programmable logic

run diagnosis of how processes and components are

controllers and they are teaching concepts that are

working. When a sensor fails in a traditional production

10 or even 15 years old. As a result, students leave the

line, it normally takes operators two to three hours to find

classroom without any knowledge of what is really out

out where the malfunction is. With an IO-Link network,

there in the industry.

detection is immediate. We have created two new divisions in the company: one IO-Link is an open protocol and this is what has driven its

is focused on training for our users in the use of IO-Link

success in the industry. Previously, companies had to adopt

and our own components, while the other is oriented

a Siemens or Allen-Bradley network, which limited the type

toward engineering and the implementation of any

of components that could be connected to their systems.

solution that we might propose. We offer customized

Although we use the backbone of these proprietary

trainings for our corporate clients, guaranteeing that our

networks, through IO-Link we can connect any compatible

clients’ engineers have both the theoretical and practical

sensor regardless of its manufacturer.

knowledge to carry on with their activities. We have established training programs with Nemak, Metalsa and

Q: How have you evolved to face the rapidly changing

GM and they have led to positive results. We are also

nature of the technology market?

working with institutions such as UNAQ, CECyTEQ, IPN,

A: One of our strategies has been oriented toward inorganic

ITESM and UNAM at several events and recruitment fairs,

growth. In 2017, Balluff acquired MATRIX VISION to

and we are donating equipment to help them raise their

complement its portfolio with vision systems and ISS to

academic level.

strengthen its software offering. Our bet is that sensors must become more intelligent and improve their selfdiagnostic capabilities.

Balluff is a German company with 95 years of experience in the automation market. The company has over 60 global locations

Market segmentation has also become one of our priorities.

and nine manufacturing sites that offer support for clients in

Our automotive division has now become part of our

Europe, Asia, North and South America

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A TRANSITION BETWEEN LABOR AND FULL AUTOMATION ADRIÁN SALINAS General Manager of ATC Automation

Q: What opportunities did ATC Automation detect to open

ATC Automation’s core business is solution design. Our

a new branch in Mexico?

concepts are focused on maximizing a client’s investment

A: ATC has been in the market for 40 years and has

without selling overly complex solutions that go beyond the

developed solutions for customers in Mexico for the past 10

company’s needs.

years. Our clients in the country usually are companies with 272

presence in both the US and Mexico. Eventually, we reached

Q: Why should small Mexican manufacturers invest in

a critical point in the number of machines we supplied in

implementing automation technology?

Mexico leading to difficult challenges in our aftersales

A: In terms of costs, there is no comparison between

service and rendering our operations unsustainable to

employing a certain number of workers against the costs of

maintain local growth.

having an automated line. But weighing issues such as staff turnover, which forces companies to hire and train people

We opened our official branch in Mexico in January 2018

regularly, prompt clients to automate their operations. High-

and even though our market penetration is still small,

quality requirements, large-volume orders and the need for

ATC Automation wants to grow with its clients and enter

traceability throughout the entire assembly process are also

new markets. ATC Automation’s goal is not to assemble

key features that can only be achieved through automation.

manufacturing systems in Mexico and send them back to

The decision to migrate to automated processes is a need

the US but to design and integrate automation solutions

rather than a financial decision.

exclusively for the local market. Sometimes companies approach ATC Automation asking to replicate a solution

Q: Why are hybrid systems more attractive to manufacturing

they have acquired before from another company.

SMEs in Mexico than fully-automated solutions?

However, the area where we can generate the most value

A: In the case of companies that employ manual assembly

is in designing automation solutions. ATC Automation’s

processes, it is not recommendable to implement a fully-

ideal clients are companies open to learning, growing and

automated process right from the start. Hybrid solutions — a

listening, which allows us to present them with a specific

combination of manual processes and automation — enable

design that suits their needs.

clients to continue employing workers who can cultivate new skills, while countering variables such as turnover. Additionally,

Q: How does ATC Automation support SMEs looking to

these processes provide an opportunity for companies to

adopt automation in their operations?

become acquainted with automation as the staff in charge

A: There are several public programs that help these

of maintenance becomes familiar with the equipment on the

companies take the next step toward more advanced

line. Hybrid lines are highly popular in Mexico but we expect

practices in their operations. For instance, the Nuevo Leon

an imminent migration to the next automation level.

government launched a program called Nuevo Leon 4.0 to allocate funds to support companies that want to migrate to

Q: How important are collaborative robots and additive

Industry 4.0. ATC Automation can be a good option for these

manufacturing solutions in ATC Automation’s portfolio?

companies once they capitalize through such public programs

A: Collaborative robots are part of our business expertise.

because we can work hand-in-hand with them.

These systems are an excellent option for repetitive tasks, thus boosting a plant’s ergonomics and safety. Having more automated equipment will require less supervision

ATC Automation is a 40-year-old technology integrator based

from managers, allowing companies to focus on their

in the US that recently started operations in Mexico. It focuses

core business instead. In terms of additive manufacturing,

on the design and implementation of engineering solutions for

we are in contact with solution providers for machined

manufacturing process automation

components but this technology is still at an early stage.

VIEW FROM THE TOP |

RESOURCE OPTIMIZATION THROUGH HIGH-TECHNOLOGY IMPLEMENTATIONS STEFFEN ZÖRN Managing Director of Dürr México

Q: After the installation of Dürr’s paint shop at BMW’s

pretreatment. Paint consumption could also be reduced by

facility in San Luis Potosi, what new opportunities have

almost 50% through efficient application products such as

arisen for Dürr with other OEMs and suppliers?

Dürr’s atomizer family EcoBell3, dosing pump EcoPump9

A: In the field of paint application technology, Dürr has been

and color changer EcoMCC3. Besides lower costs and less

the worldwide leading supplier for years. Dürr has achieved

paint consumption this also means fewer residual materials

excellence in painting quality, application stability, transfer

and solvent emissions. Sustainable automotive paint

efficiency, emission reduction, as well as minimization of

finishing is not a vision, it has become a reality. Numerous

color change losses and life-cycle costs through constant

individual solutions, products and systems contribute to

technology development. Most vehicles produced in the

this achievement.

world are painted with Dürr technology. We have won new projects from different OEMS and Tier 1s in Mexico

Q: What new technologies are you bringing to the Mexican

and US in the last 12-18 months. Business volume slightly

market to boost your position in the country?

declined in that period but our current project pipeline

A: We deliver technology following common worldwide

looks promising. Moreover, we are in contact with different

standards. Mexico has built the most modern manufacturing

OEMs and suppliers to discuss further projects.

plants in the global automotive industry and Dürr is proud to play a major role in this process. For the first time ever,

Q: How is Dürr ensuring sustainable and efficient energy

Dürr installed its new painting robot generation and cloud-

consumption in manufacturing operations?

enabled control at a plant outside Europe. This system

A: We work on constant optimization of material balance

allows a multitude of sensors ensure networking of the

in the painting process. Projects begin with the design

robot’s data with higher-level maintenance software and

of an intelligent plant layout. We consider all areas, from

control systems.

pretreatment, electro-dip painting, modern paint booth concepts with robots and application technology, to

Q: Being leaders in the implementation of Industry 4.0

new methods of oven heating. We round out the process

practices, how are companies like Dürr helping local

with powerful exhaust air purification applications. These

companies in their technology integration processes?

technologies are implemented in plants such as Audi’s and

A: The digital transformation has already reached the

BMW’s where Dürr has presence.

industry, making intelligent products, services, processes and factories possible. Dürr actively promotes digitalization

Q: How can automation and sustainability combine to offer

with its digital@DÜRR strategy, which looks to increase

better results and cost efficiency to clients?

productivity and availability of machines and plants. We are

A: For the past 30 years, automotive finishing has

offering applications such as our EcoScreen Maintenance

transformed from a largely manual, empirical task with a

Assistant software, which determines the plant’s condition

high environmental impact to an efficient, fully automated

based on the number of switching cycles of the valves or

production process with a clear focus on environmental

the load profiles of the servo motors in the robots at the

compatibility. Today, a car body painted in an automated

painting line. This enables preventive maintenance planning

process ideally requires 400 kWh of power. A few years ago,

and reduces unscheduled downtime.

even more than three times that amount was sometimes needed. Volatile organic compound emissions can now be pushed well below the permissible value of 35 g/m3. Water

Dürr is a supplier of paint shops, final assembly and air

consumption has also been reduced by almost 60 percent.

purification systems part of the German Dürr Group. The

This was achieved mainly by dry overspray separation and

company has presence in 40 countries and generated sales of

the use of the Ecopaint RoDip rotation dip technology in

US$1.37 billion in 2017

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| VIEW FROM THE TOP

METROLOGY SOLUTIONS GO NANOMETRIC LEONARDO ROMERO Senior Sales Manager at Helmut Fischer

Q: How did Helmut Fischer’s participation in the metrology

characteristics of a component like nanoindentation does.

equipment market evolve during 2017?

This data can be used to improve component design.

A: Our client portfolio remains unchanged but we have

274

explored new business opportunities. Helmut Fischer is

We want to boost micro and nanoindentation technology

introducing nanoindentation equipment to Mexico for

in the Mexican market because both have many possible

the first time. The Autonomous University of Nuevo Leon

applications and can improve component design processes.

(UANL) was the first to buy this technology and employ it for academic purposes. Now, we have collocated a highly

Q: How can nanoindentation improve measurement

sophisticated material-analysis piece of equipment in

processes on production lines?

CIDETEQ. This machine does nano-superficial analysis on

A: The footprint that nanoindentation leaves on a

thin films and CIDETEQ will use it to engage in cutting-edge

component when hit can only be seen through a

research and development of new technologies. We also

microscope. As a result, the parts that are tested with this

delivered a similar machine to MAHLE, which will be used

method can be easily reintegrated into the production line.

for analysis of piston rings in the company’s laboratory, and

Nanoindentation is an automated method that explores the

another to Termoinnova in Hidalgo.

surface of components, which enables Helmut Fischer to register any detail of a component’s surface and compare

2017 was pivotal for Helmut Fischer because it is the

the characteristics of an optimized and a nonoptimized

first time we placed this technology with three different

area within the same piece. Prior to this method, it was

customers. This shows that the Mexican automotive

necessary to cut a component in half and analyze areas

industry is increasingly interested in being well-equipped

in a component that received heat or surface treatment

and in producing more sophisticated products.

and those that did not. Helmut Fischer’s nanoindentation solution enables users to focus only on the surfacing

Q: What advantages can nanoindentation offer over other

material or coating rather than the entire piece. It is similar

hardness measurement methods?

to testing the hardness of a person’s skin without the

A: Hardness is usually measured with testers that hit a

hardness of the bone interfering.

small area of an object with a weight. The footprint it leaves is used to calculate the hardness of the material

Q: What is Helmut Fischer’s position on the debate

and its capacity for plastic deformation. Helmut Fischer’s

between optical and tactile measuring technology?

nanoindentation method can gather data on how

A: Most of Helmut Fischer’s metrology solutions are

much a component can deform and how much it can

tactile but the future is in optical technology. Metrology is

recompose after applying pressure. The main advantage

migrating toward nontactile technology because of Industry

that nanoindentation offers over other hardness

4.0 and automation trends. Riding the wave, Helmut Fischer

measuring methods is that it allows for the material’s

is betting on the development of pulsed-laser technology.

elongation coefficient to be measured after it regains its

These systems can measure the thickness of several coats

original geometry. In other words, traditional methods

of car paint remotely through the detection of variations

only measure plastic deformation and not the elastic

in light frequency as the laser beam penetrates the car’s paint coats.

Helmut Fischer is a metrology equipment manufacturer that

We trust pulsed laser will revolutionize the automotive

specializes in coating thickness measuring, material analysis

industry because it will allow for all cars to be tested quickly.

and micro-hardness testing. The company operates in several

Car paint is usually tested manually with operators choosing

industrial sectors where precision and speed are needed

a sample vehicle in the production line and revising the

coating’s thickness in a laboratory. Helmut Fischer’s pulsedlaser technology will continuously gather data that can be used to improve processes. Q: What milestones has Helmut Fischer reached in integrating its metrology solutions into automated production lines? A: It is natural for Helmut Fischer as an equipment manufacturer to collaborate with automation providers. These companies can offer robots and automated devices to make production lines more efficient while we can solve inspection tasks with our technology. Integrating automation solutions is one of our main objectives for 2018. We need to establish synergies with automation companies so our equipment can be successfully integrated into automated processes. We collaborate in this area with Autechnik on a pipe-measuring project and with AVR in Queretaro. Q: What will be Helmut Fischer’s most important project in Mexico for 2018? A: We expect to install X-ray metrology equipment in a production line at TE Connectivity’s Hermosillo plant. This machine will be used in a reel-to-reel process for plating of electronic contacts using zinc, nickel, copper, silver or other conductive metals. Our equipment will measure the thickness of these coatings to prevent material waste and ensure that components meet specifications. Being able to control the plating process nanometrically reduces companies’ overhead by optimizing the use of expensive materials such as silver. Helmut Fischer was successful in the US with a client that needed to control its plating process to control the thickness of gold depositions in electronic contacts at 25nm. Measuring coating thickness requires high precision and speed and Helmut Fischer will have the opportunity of installing, adjusting and calibrating advanced X-ray measuring equipment in TE Connectivity’s first automated production line and we expect this to be a benchmark for other potential clients. Although Helmut Fischer’ solutions are costly, savings thanks to the control of deposition of precious-metal coatings can pay for the equipment in itself. Q: What is Helmut Fischer’ strategy to continue growing in Mexico’s automotive industry? A: We are working to secure two certifications. The company is getting certified in the updated version of ISO 9001:2015 for quality management and we need to gain the ISO 17025 certification that guarantees traceability and technical competitiveness of measurement labs and metrology equipment manufacturers. These certifications are important for both Helmut Fischer and Mexico because they improve the industry’s capabilities, they guarantee minimum standards of service and validate our calibrators.

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| VIEW FROM THE TOP

LASER-SCANNING AN INDUSTRY GAME CHANGER BRADFORD BARTMESS Director of Sales for Latin America and Canada at Nikon Metrology

276

Q: What role does Nikon Metrology play in the Mexican

take multiple samples, our laser-radar technology has the

and global automotive industry?

capacity to shoot a beam from 30m or 50m away depending

A: Although we have always had distribution operations

on the model and take accurate measurements. Furthermore,

in Mexico, we formally entered the country in 2016 with

the equipment has the capacity to rotate 360° and it can

the establishment of a technical center in Queretaro.

be mounted on a robot to complement its working space.

Nikon used to focus only on microscopes and lenses but

This technology has been used for many years in the

in 2009, the company acquired the Belgian group Metris

aerospace sector and we are now adapting it to the needs

thus integrating coordinate-measuring machines (CMM),

of the automotive industry. Instead of clients having to use

laser-radar equipment, X-ray computed tomography (CT)

large CMMs to scan a body frame, they can use a laser-radar

and laser-scanning technology to its portfolio. Nikon

solution mounted on a robot on a rail to scan the entire

Metrology’s penetration in the automotive sector is mostly

system. Thanks to its flexibility, clients can even put another

due to this acquisition. With our original equipment we

station on the other side of the laser-radar to scan another

would be limited to laboratory inspections and material

frame and maximize the equipment’s capabilities. In the end,

testing. Now, we participate in body-in-white production

samples are as equally precise as with tactile probing but

with most OEMs in the market and we collaborate with

they can be collected almost five times faster.

many of their suppliers as well. Q: How open have automotive companies been to replace Q: What is Nikon’s bet on innovation within the metrology

their traditional CMMs in favor of laser-radar equipment?

segment for manufacturing operations?

A: OEMs do extensive testing before implementing new

A: We see greater opportunity for companies to embrace

equipment, so we spent a lot of time with them to make

laser-scanning equipment over tactile probing solutions.

sure our systems complied with their needs. One of the

Our high-speed laser technology in CMMs, portable arms

advantages was that we had already implemented this

and scanners allows clients to collect data faster and make

technology in the aerospace sector, which is no less

better manufacturing decisions. This development helps us

demanding. We had to adapt our solutions to the reality

set Nikon apart from all the other metrology companies in

of the automotive industry but there were many companies

the market. We also see a need to improve nondestructive

with a more forward-looking vision that were open to

testing. In the past, to check for internal defects in a

testing our offering and moving on from tactile probing.

component you had to grind it down. Using X-ray CT, companies can test components without having to alter

Q: How do you promote these disruptive solutions among

them, not only analyzing them visually but also comparing

clients that are just starting to implement technology in

their structure against a solid model.

their operations? A: We have sample lines at our technical centers in Michigan

Nikon is also betting on a large-scale laser-radar solution

to demonstrate how the technology works. Clients need to

with its MV331 and MV351 products, which we think could

understand that it is not only faster but it can even reduce

be a game changer for the industry. Unlike traditional

the number of workers needed on an assembly line. The

technology where probes approach the component and

programming interface is also quite straightforward and is compatible with several manufacturing software packages such as PolyWorks and Metrologic. The most challenging

Nikon Metrology is a division of Nikon focused on optical

thing has been finding capable integrators to match our

3D measuring instruments. Its portfolio includes metrology

technology with robotics and other automation solutions.

equipment such as CMMs, portable arms, laser scanning and

It is one thing to have a static unit and another to have it

X-ray CT inspection

mounted on a robot on a rail.

INSIGHT |

MAINTAINING TRADITIONAL METHODS IS NOT STALLING JORGE ESCARCEGA General Manager of Mahr Corporation de México

Although new technologies are constantly changing the

being said, staying on top of every trend is a considerable

landscape of the Factory of the Future, some traditional

challenge for any company. As a result, Mahr is open to

practices are still the best option for certain processes,

collaborating with other technology developers, even

according to Jorge Escarcega, General Manager of Mahr

with its own competitors, to deliver the best solutions

Corporation de México.

to the client at the best cost possible. Just as in OEM partnerships like that between Daimler and the Renault-

With over 150 years in the metrology market and 21 years

Nissan-Mitsubishi Alliance, Mahr hopes to make the best

operating in Mexico, Mahr produces measuring solutions

out of the tough competition in the metrology market. “Our

for several manufacturing sectors, including automotive,

solutions must be able to attach to and communicate with

aerospace and electronics. Some of its competitors have

other equipment and have open source codes so that they

chosen to move on to X-ray, laser and radiofrequency technology but for Escarcega, tactile technology remains necessary for certain components. “Some of our clients produce drive shafts that must meet specific characteristics such as straightness, roundness and surface finishing,” says Escarcega. “These components are better suited for tactile technology.” Tactile solutions might be Mahr’s core business but the company does not shy away from the latest innovations in the metrology sector. “Visual solutions such as cameras, scanners and lasers can also ensure a good level of precision depending on the application at hand,” says Escarcega. Smart Factory trends are also within the company’s scope because

“

can be integrated with other technologies,” says Escarcega.

We are now implementing wireless technology even into manual solutions to prevent data annotation errors”

Mahr ’s collaboration is not limited to equipment

“communication and data analysis are the next thing in the

manufacturers. Remaining close to OEMs enables Mahr to

market,” says Escarcega.

participate in the initial stages of product design and to introduce its technology according to its clients’ needs.

To prevent measuring mistakes, Mahr is introducing wireless

“Everything manufactured by automotive companies must

transmitters and receivers in its solutions. “Transmission

be measured,” says Escarcega. “Therefore, companies want

technologies were not integrated into our measuring solutions

to know how they will measure their products from the

two or three years ago,” explains Escarcega. “However, we

conception of a project.”

are now implementing wireless technology even into manual solutions to prevent data annotation errors and similar issues.”

Partnering with automotive OEMs has not been an easy

The company is also preparing for the emerging trend in

road for Mahr, though. Before building its relationship

maintenance. “In the future, machines will tell operators

with automakers, the company had to grow its operations

when they need to receive maintenance and what specific

enough to satisfy client demand and answer any request

part must be serviced,” Escarcega says. “We will be able to

in under 24 hours. “In the last 10 years, Mahr has reached

offer solutions that notify how many hours are due before

average double-digit growth in terms of invoicing,” he

it is necessary to change bearings or similar components.”

says. That led to an increase in the company’s client portfolio, as well as a strengthened operation in indirect

Mahr relies on its R&D department and the collaboration

sales through distributors. “The distribution network

agreements it has with several universities in the US and

is still consolidating but we already have sales and

Germany to remain versatile, technologically updated and

technical service operations in all industrial areas of

to develop the technology it wants in the market. That

Mexico,” he says.

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| VIEW FROM THE TOP

TOUCHING, RATHER THAN SEEING, IS BELIEVING RAFAEL LELO DE LARREA Director of Industrial Metrology at ZEISS de México

278

Q: Where do you see the metrology segment going in

have to comply with the strictest tolerances, thus requiring

terms of technology development?

tactile metrology solutions to deliver the best results. We

A: The ultimate goal is to become part of the production line,

might have a focus on vision systems at ZEISS but we still

delivering more accurate measurements in a noncontrolled

have not given up on tactile technology. To this day, the most

environment. Today, normal quality control processes

accurate tactile machine for dimensional control is probably

require sampling and testing in laboratory conditions.

ZEISS’ with a precision of 0.3µm, mainly because there is no

These steps are performed while the production line is still

probe capable of offering a more accurate measurement.

going so if there is a problem that needs to be fixed, the

In comparison, the most accurate vision equipment in the

production that left the line in the meantime represents

market can deliver results with a ±10-12µm tolerance.

scrap and losses for the company. Q: How has ZEISS advanced in its efforts to integrate Automation is a key element in the evolution of metrology,

software developments to its portfolio and what are your

making connectivity between robotized systems and quality-

growth projections for this business division?

control equipment a must for clients. Integration efforts are

A: Developments such as πWEB have been quite successful

normally managed by Germany but we have looked to have

in the market although we found some resistance from

more autonomy in this process by collaborating with local

companies unwilling to change their reporting and data

technology integrators. Similarly, data management has

collection methods. However, our software solutions have

become a priority for accuracy in manufacturing processes.

helped us grow our collaboration with existing clients and

Companies require as many points of data as possible to

even to enter market niches we had not yet explored. Our

digitalize a component, which has led to a preference for

priority now is to streamline communication between quality

vision systems over tactile solutions. Additive manufacturing

areas and the production floor. That way, data from quality

has made it crucial for companies to analyze the interior of a

control can be analyzed to impact production planning

component thus giving more importance to X-ray applications.

automatically. So far, this process is managed manually but we can digitalize it following Industry 4.0 concepts. This is

Q: As vision technologies gain ground in the industry, what

a completely new project based on an acquisition ZEISS

will be the future of tactile equipment?

made in May 2018. We are integrating our own DNA into this

A: I do not think tactile technology will disappear but we will

solution and we expect to deliver a product in the near future.

definitely see a reduction in demand for these systems. That being said, tactile technology is still the most precise in the

Q: How has your collaboration with R&D centers helped

market and it will be a while before vision systems deliver

you understand the needs of the automotive industry?

the same level of precision and certainty in measurements.

A: This collaboration helped us understand that we need to

In automotive manufacturing and in electric-vehicle

grow our presence in the Mexican market and to decentralize

production particularly, manufacturing processes have

our operations. Thanks to this, we are present in many

narrowed their tolerances significantly. Although an electric

industrial hubs in the country and we have invested in

powertrain will have 90 percent fewer components than an

building our own research centers, such as that in Monterrey.

internal combustion engine, the 10 percent remaining will

We still maintain our relationship with public research centers and academic institutions, however, since we see them as a key part in our communication with the industry. Our

ZEISS is a German company with a specialized division

priorities at the moment are to open new centers of our

focused on industrial metrology. ZEISS’ portfolio includes CNC

own in the north of the country and the Bajio region and

coordinate measuring machines, multidimensional metrology

to participate in the implementation of metrology norms

and image processing systems

together with CIDESI, CENAM and other public centers.

VIEW FROM THE TOP |

HIGHER INVESTMENT DELIVERS OPTIMAL RESULTS SALVADOR ICAZBALCETA General Manager of Heller Machine Tools de México

Q: How does Heller Machine Tools stand out against its

There is also a risk involved in trying to target smaller

many competitors in the CNC equipment market?

companies. Many of these players work from contract to

A: Our best added value is our capability to deliver turnkey

contract and they do not have the resources to back up

solutions. We do not only sell CNC equipment but analyze

the investment needed to purchase our equipment when

the client’s process and build the necessary engineering

their projects get canceled. Even though we are trying

around it. Companies tend to buy machines from different

to break into this market, our safest bet is still with large

providers when setting up their operations, which can result

transnationals.

279

in missteps in the process. Heller’s manufacturing engineers, however, always work hand-in-hand with application

Q: How important is the automotive sector in your

engineers to achieve true integration.

operations compared to other industries? A: Heller Machine Tools is mostly dedicated to the

Our goal is to deliver the best products to the customer

automotive sector. Almost 60 percent of our business is

so they can reach their own objective of producing at the

dedicated to this sector, while aerospace represents 20

lowest cost per part possible. At the same time, the main

percent of our operations. The rest is divided among other

driver of our Mexican operations is to build confidence

applications. The key factor that has allowed us to build

among existing and potential clients so they know they

such a strong presence in automotive is our attention

will always be supported not by a representative of Heller

to detail when it comes to satisfying the clients’ needs.

Machine Tools but by a proper subsidiary.

We have embraced new technology trends used by the industry, including the rising Industry 4.0 concept, but our

Q: What challenges have you found while trying to grow

main focus has been to reduce scrap and downtime when

your presence in the Mexican market and target the

machining a component.

growing local supply chain? A: Our equipment is among the most efficient solutions

The automotive sector is highly demanding when

in the CNC machining market. Our solutions deliver

optimizing production and we have managed to raise our

productivity, process stability and reduced downtime. All

standards to an 85-90 percent rate of efficiency in our

that requires a strong initial investment. For this reason,

equipment. Besides innovating in our technology, we have

most of our operations are with global key accounts that

also integrated the best clamping, cutting and metrology

already trust in Heller Machine Tools and see the value of

solutions to boost our equipment’s performance. Our global

our offering. Most OEMs, Tier 1 and Tier 2 companies are

objective in past years has been to maintain our yearly

looking for the best in the market, which means they tend

sales around €500 million (US$617 million). Our target

to seek out turn-key solutions.

remains the same but we want to make our operations more efficient, reducing manufacturing times without

The problem we have found in Mexico is that managers still

having to increase our payroll. Similarly, we are very open

tend to look at an investment only from a price standpoint.

with the client and inform them if our analysis concludes

They look for machines with the lowest cost, resulting in

that Heller is not the best fit for the company. That way, our

operations that employ several machines from different

engineering team does not build a proposal in vain.

providers. It is difficult for Heller Machine Tools to compete under these circumstances because we are not offering just a machine but a complete engineering service that

Heller Machine Tools is a subsidiary of HELLER, a machine

entails a large price difference. There are many brands

tool construction company founded in Germany in 1894. The

competing in the market and price wars can get really

company

aggressive.

equipment for a variety of industries including automotive

manufactures

state-of-the-art

CNC

machining

| TECHNOLOGY SPOTLIGHT

0 to 2,500Âµm PHASCOPE PAINT's measurement range

PHASCOPE PAINT: ACCURATE MEASUREMENT IN THE PALM OF YOUR HAND Field testing often involves checking many different kinds of coatings, which requires a flexible instrument. In the era of Industry 4.0 applications, such a solution has to meet digital and connectivity standards to ensure testing is effective and does not compromise the production line. PHASCOPE PAINT relies on the versatile eddy current method. It can measure paint coatings on magnetizable substrates such as steel or iron, as well as on nonmagnetic metals like aluminum without having to change the device or the probe. If clients are not sure what kind of substrate they are dealing with, PHASCOPE PAINT can automatically detect the material and select the appropriate measuring mode. During measurement, a red LED indicates if tolerance limits are exceeded. That makes it easy to recognize defects in the coating, even for nontechnical users. To simplify analysis of the readings, PHASCOPE PAINT uses an intuitive app. Measurements can be visualized on a smartphone without having to first transfer them to a computer. Reports can also be created directly on the smartphone. PHASCOPE PAINT also includes a special feature that allows the user to quickly insert photos of the test site into the measurement report to document potentially damaged areas. When handling pieces of various aluminum alloys, their different conductivities can influence coating thickness measurements. Because of this, PHASCOPE PAINT is equipped with a conductivity compensation feature, which ensures accurate measurement results. In addition to spot checks, PHASCOPE PAINT also has a continuous mode for testing large areas, providing up to 70 measurements per minute. PHASCOPE PAINT is an ideal and versatile solution for measuring paint coatings and it is applicable in industries ranging from automotive to corrosion protection. The solution has a measurement range of 0 to 2,500Âľm and follows ISO 2360, 2178, 21968 standards, as well as ASTM D7091. It has a wireless connection via Bluetooth and a rechargeable battery with a USB connection. Companies can use this to quickly test random samples from a manufacturing line, document damage or defects on an inspection round or even control incoming goods. PHASCOPE PAINT is a handy gauge that fits in the operatorâ&#x20AC;&#x2122;s pocket.

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| VIEW FROM THE TOP

A NEW VISION FOR A CHANGING INDUSTRY JOSÉ FIGUEROA Director General of Marposs México

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Q: Considering its focus on internal combustion

A: The Marposs Group has invested in acquiring new

components, how is Marposs innovating regarding

companies in the last few years and invests a percentage of its

electrification?

income in the development of new products on a yearly basis.

A: Our business has focused on internal combustion engines

Marposs used to only produce gauging equipment but it has

for almost 65 years. However, Marposs’ corporate vision

diversified and now also produces measurement equipment

projects an eventual decrease in production of internal

for glass applications, electric engines, gears and leak testing

combustion engines due to pollution, fuel prices and the

machines. This diversification allows Marposs to cover a wider

increasing popularity of alternative motorization. With

market and creates new opportunities to attract clients.

this in mind, the company decided to start working in new technologies such as hybrid and electric engines.

Our company’s vision also includes support for growing automotive regions. Marposs’ goal is to be close to our clients.

The Marposs Group has already participated in the

All automotive markets in Mexico are covered by a Marposs

development of measuring applications for hybrid and

office. We are well-established in Atizapan, Queretaro and

electric engine components including parts for Tesla.

Saltillo and tend to regions from there. For instance, the

Internationally, the group has decided to create a task

Queretaro office caters to Silao, Irapuato and San Luis Potosi.

force that focuses strictly on electric engines and batteries

Additionally, Marposs México has sales and technical staff on

because they are the most critical components in EV

the ground in Chihuahua that simultaneously cover that state,

production and design. We already have some applications

Baja California and Sonora.

to test battery size and leakage, as well as equipment for electric-motor drivelines and casings.

Q: How can Marposs’ robust equipment designed for production-line applications compete against laboratory

Q: How much will Mexico participate in those

machines in terms of costs?

developments?

A: Marposs’ equipment may require a higher initial investment

A: I think the country will play a larger role in the long run.

in terms of design and production due to the necessity to

Mexico has developed a strong supply chain but it has also

create a robust, tough and reliable tool. However, having

focused almost exclusively on internal combustion vehicles,

equipment with these characteristics pays off in the long run

which means that production of EV components still has a

as it lasts longer and can be used right on the production floor,

long way to go. Batteries are limiting EV acceptance in the

shortening quality-control processes and recalibration times.

marketplace because they determine how long a vehicle

Laboratory equipment, on the contrary, is not usually located

can be used before it requires recharging. We expect there

near the production line. This leads to additional costs for

will be a boom in battery production. Improving battery life

clients when they have to stop the line to take a component

and ensuring quality is maintained and monitored will be a

to the lab, test it, bring it back and make adjustments.

key step toward making EVs more efficient. Manufacturing times are critical on a line that is continuously Q: What is Marposs’ strategy to attract new customers in

producing parts. Wasting time to test components is

developing automotive regions?

inefficient, so it is necessary to have the equipment to rapidly test that part. If something is wrong with the part, adjustments can be made immediately.

Marposs México is part of Italy-based Marposs Group. The company offers measuring solutions and is a supplier of

Q: How is Marposs México’s client portfolio divided between

services and products to improve manufacturing efficiency

large Tier 1 and Tier 2 suppliers and smaller suppliers wanting

and effectiveness in ensuring product quality

to enter the automotive supply chain?

A: Most of Marposs’ business — about 80 percent — is with

internships so they can work on real industry projects. Once

large clients and Tier 1 companies. Only 15 to 20 percent of

students begin working here, they are taught the Marposs

our projects involve small suppliers. We consider this normal

culture and they sometimes end up as technicians and

because newcomers do not normally invest heavily in

engineers at one of our facilities.

equipment but start working little by little while they become familiarized with Marposs’ products. Furthermore, Marposs

Q: How much do you think the automotive industry could

usually carries out large projects with Tier 1 clients that are

be impacted by NAFTA renegotiations and what will be the

returning customers.

impact on Marposs’ operations? A: Ford had announced an investment for a new plant in

Q: Small companies sometimes resist investing in technology.

San Luis Potosi but the project was canceled in 2017. Since

How does Marposs encourage the implementation of its

the company is among our Top 10 clients, that plant could

equipment among these players?

have brought new opportunities for us. Apart from that, we

A: We present clients our solutions and work depending on

have not noticed much impact in our ongoing projects with

their needs. Marposs has met clients that continue working

automakers or suppliers since investment plans and increases

as they did 20 years ago. Operating that way has worked

in production have continued more or less as planned.

for them and they believe it is the best path to further success. Remaining close to our clients and showing them

However, if NAFTA were canceled or rules of origin became

how new technologies can improve their production is part

stricter, the impact on the automotive industry would be

of our strategy. Marposs also consigns equipment. We visit

significant. It has always been cheaper for US companies

customers and offer to test our equipment on their production

to produce in Mexico because of low salaries and other

line at no cost so they can convince themselves of its

incentives. Removing trade advantages would change that,

advantages in terms of efficiency. A key feature that clients

though. Manufacturing vehicles in Mexico would become less

look for is support. We can repair any damaged equipment

convenient for automakers, which would have an effect on

from our Mexico offices rather than sending equipment back

investments.

to Italy. That gives our customers the certainty they will not have to lose valuable production time. Marposs also provides

Q: How has acquiring its workshop location in Queretaro

training to its clients regarding the operation and maintenance

helped Marposs grow and pursue its objectives?

of our equipment.

A: Purchasing that workshop in 2017 enabled us to enter the Queretaro aerospace industry. That, combined with Marposs

Q: Is Marposs collaborating with R&D centers or universities

México becoming a member of FEMIA, has enabled the

to showcase its technology?

company to reach clients in other aerospace clusters across

A: That has been one of our strategies and one of our flagship

the country, such as Baja California and Chihuahua, as well

projects involves the aerospace sector. Through the Mexican

as improve our presence among customers as suppliers of

Federation for the Aerospace Industry (FEMIA), we have kept

tools and gauging equipment. Marposs’ investment in that

in close contact with the Autonomous University of Queretaro

workshop is not yet finished but we have already started

(UAQ), which trains personnel to work for the aerospace

operations. Our plan for 2018 is to acquire new machinery

industry. Marposs contacts universities to offer students

and support the production area at this new workshop.

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NATIONWIDE SUPPORT FOR AUTOMATION USERS ALFONSO RAMÍREZ Commercial Director of Grupo Kopar

Q: Why would a company choose to purchase its

cycle times, waste and downtime, thus evaluating how

equipment through Grupo Kopar, instead of going directly

much they can save with the right automation solution

to the manufacturer?

and how long it would take for them to see a return on

A: The main advantage we offer to clients is our national

their investment.

coverage and Mexican market knowledge. We have 14 284

branch offices in the country with vision technology,

Q: What do you see as the main trends regarding

robotics and connectivity laboratories, supported by

automation within the automotive sector?

almost US$2.8 million in inventory. Our automotive clients

A: Automotive companies are under pressure to increase

are demanding in terms of service and maintenance and

their competitiveness due to the economic and political

they know they are supported by our offices and our teams

environment in Mexico. We want to help them wade

trained in Germany and the US.

through these obstacles, so we must understand the latest trends in the industry, including the concept of Industry

We closely collaborate with our partner brands and we

4.0. In the metrology area, for example, companies are

have a specialist focused on each. Our strength is market

now realizing that it makes much more sense to have a

knowledge; we support our clients in their cities and adapt

camera connected to a robotic arm, instead of having a

to their needs. Our aftersales service is completely adapted

whole array of sensors.

to a local environment, while at the same time being nationwide supported. Our partner brands cannot offer that same

Collaborative robots have also revolutionized the industry

service but we are here for our clients when they need us.

by offering an effective and cost-competitive solution with a user-friendly interface. Having a robotic solution

Q: How involved is Grupo Kopar in a client’s decision-

under US$7,500 would be unthinkable in the past but now,

making process when acquiring new automation

companies like Universal Robots and EPSON are making

equipment?

this possible. Furthermore, while companies previously

A: We communicate with our international and national

would need to bring someone from Germany or the US to

partners right from their design phases, allowing us to be a

their plants in other to get a project going, systems are now

key player in the implementation of one automation solution

much more intuitive and they do not need safety equipment

or another. At the same time, we are constantly working

to operate near humans.

on a visits plan to our clients’ plants to identify process bottlenecks and areas where material is being wasted,

Q: How important has energy efficiency become for both

that way we help both our customers and partners brands

equipment manufacturers and potential clients?

identify areas of opportunity to improve their solutions.

A: Most brands in our portfolio have energy efficiency as a priority in their product development process.

Our Customer Profit Reinforcement (CPR) analysis is

In pneumatics, particularly, there is a huge area of

another tool we employ to determine which solution

opportunity to improve operations since most companies

best fits our clients’ operations. We help companies

work while compensating for leaks, which eventually

understand how their process is developing in terms of

translate to monetary losses. Although it is hard to measure accurately, energy efficiency can represent a 2025 percent shorter time in the return on investment. The

Grupo Kopar is a 100-percent Mexican company founded in

initial investment may be higher but that is compensated

Monterrey in 1983. The company distributes automation and

over the long run, which is why energy efficiency has

robotics solutions from brands such as EPSON Robots, Cognex,

become a key decision-making factor for many of

PHD, MAC, Universal Robots, SICK and MURR Elektronik

our clients.

INSIGHT |

TRACING PARTS, AVOIDING PROBLEMS CONSTANTINO DE LLANO Director General of Domino Printing Mexico

Traceability is crucial in manufacturing processes. Everything

Contrary to production machines that can offer little data,

from beer bottles and aspirins to electric cables and piston

coders are capable of gathering real-time information on

rings needs a code to tell its story. Knowing the history of

production when connected to a company’s systems.

a defective unit can help manufacturers to identify where

“ERPs and coding systems go hand in hand and should

things went wrong in the production line, both solving the

work simultaneously,” says de Llano. This has proven to

problem and retiring that batch from the market. “Coding

be a challenge in Mexico though, mainly due to the price-

systems are just as important as any other machine in the

sensitive nature of the market. “Instead of focusing on price,

production line,” says Constantino de Llano, Director General

manufacturing companies should be focusing on how robust

of Domino Printing Mexico. “They better work if the line

the system is, how easily its consumables can be supplied and

participates in a critical process that cannot be stopped.”

how reliable it is to prevent unwanted stops in production.”

Domino Printing Sciences is a UK-based developer

The price factor might not be eliminated but Domino has

and manufacturer of industrial printing equipment and

learned to approach potential customers by highlighting

consumables. In Mexico, Domino Printing’s native industries

uptime, availability and technical support. The company’s

are pharma and food and beverage but the company has also

technology has proven to be an advantage thanks to its

entered the automotive industry through its complex printing

flexibility in coding different components and materials.

solutions branch. At first glance, automotive could seem a

“Coding on plastics or metals can be done using laser or

sour bet for a company like Domino given the difference

ink but components such as cables can only be coded

in production volumes between this and the food and

with ink,” de Llano says. Because of the lifecycle of

beverage industry. “The number of items that a soft-drink

auto parts, de Llano says Domino sometimes needs to

company needs to code daily is greater than the number

create inks that can stand high temperatures, abrasive

of components that an auto parts company produces in a

conditions, dust and other harsh settings.

year,” says de Llano. However, a system that uses special inks or machines is complex and robust and thus requires a

As Industry 4.0 continues to permeate the Mexican

different support structure that not every coding equipment

automotive industry, de Llano says Domino has also taken

manufacturer is willing (or capable) to offer.

several steps toward taking advantage of this trend and enabling companies to be more flexible through coding

“We started printing on cables and electric harnesses, saw

solutions. All the equipment the company launched in

the opportunity to specialize and jumped to printing on auto

2017 is fully compatible with Industry 4.0 needs and

parts,” says de Llano. Domino Printing has specialized in the

de Llano expects to add more digital-friendly features

automotive industry by developing special inks for labeling,

to future products. “Our new equipment can not only

as well as dedicated equipment depending on the product

connect with other systems but also gather data, upload

being marked and the specific needs of clients.

it to the cloud in a standard format and make it available to clients.”

Mexican manufacturing companies, however, tend to place minor importance on coding systems in their lines, according

Domino Printing plans to grow hand in hand with the

to de Llano. “This is a mistake,” he says. “A production line

automotive industry and increase its market share. De

can only be as robust as its weakest link.” Coding systems

Llano points out that as more OEMs start asking suppliers

are secondary production equipment and normally are seen

to mark their components, companies will become more

as accessories within production lines. This can prevent

open to Domino Printing’s solutions. “We will grow and

companies from harnessing all the advantages that keeping

increase our market share according to the evolving

a tight control on processes through digital means can bring.

needs of customers,” he says.

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GREATER CUTTING SOLUTIONS THROUGH PROCESS DIGITALIZATION RENÉ GRONAU President of KOMET MÉXICO

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Q: What makes KOMET such a competitive company in

what the most appropriate parameters for a given process

its segment?

are. With the collected information, a future strategy to

A: As part of the CERATIZIT GROUP, KOMET is the fifth-

deal with the differences in materials can be developed,

largest company in the cutting tool business. Our objective

which translates into costs savings through prevention of

is to move up to third by 2020, which we will do through

tool breakage. The fewer tools that are broken, the more

both organic and inorganic growth. CERATIZIT GROUP has

downtime is reduced.

acquired several companies to complement its portfolio and integrate vertically in the area of cutting materials. KOMET

Q: What is Mexico’s role in KOMET’s global operations?

was a perfect fit to boost the company’s offering and we

A: As a manufacturing country, Mexico is preponderant

will continue growing our presence, particularly in Asia and

for KOMET. Even before we became part of CERATIZIT

the Americas. Through our new partnership with CERATIZIT

GROUP, Mexico was already among the three main markets

GROUP, we can offer a complete portfolio that includes

in KOMET’s global network. While India and China are

everything from materials to high-precision cutting tools,

growing swiftly, Mexico is right behind them. The country’s

standard and specialized tools and digitalization concepts

potential in the cutting tool market is approximately

in those regions.

US$200 million and KOMET’s share amounts to around 5 percent of the total cutting tool sales. Mexico’s cutting

Q: How can a cutting tool company harness the Industry

tool market is growing between 2 and 3 percent annually,

4.0 megatrend?

so there is still great potential to grow organically, perhaps

A: We have a learning process assistance system called

to a 15 percent rate.

ToolScope. While many companies work in process monitoring systems, KOMET’s ToolScope also tracks

Q: A common problem in Mexico’s manufacturing industry

the tool’s position and speed, collects data on materials

is the difficulty in finding appropriate human talent. What

and processes and analyzes them to improve the

is KOMET’s strategy to fight that problem?

overall manufacturing process and the result of the final

A: KOMET MÉXICO invests continuously in training

component. Part of our strategy to grow in Asia and the

for technicians and specialized engineers. We have

Americas is to focus on the traditional cutting tool market,

demonstrated that our engineers in Mexico not only have the

as well as Industry 4.0 and digitalization.

same level as in other countries where KOMET has presence but, in some cases, are more advanced than others. As a

When implemented in a machine, KOMET’s system collects

matter of fact, our competition and clients sometimes steal

data on the component being produced, the machine

our staff because of how well-trained they are.

in which ToolScope is installed and the parameters in which that machine operates. It is possible to upload this

KOMET has also signed an agreement to open a training

information to the KOMET cloud and help the system to

center for technicians and engineers in collaboration with

learn how processes work and how to correct differences

the Autonomous University of Queretaro, the Aeronautic

between tools and materials. Learning how a process

University of Queretaro and the Technological Institute

works enables ToolScope to instruct machining centers on

of Queretaro. A key challenge we have noticed is that engineering students tend to work during the week and study at night and during the weekends, which reduces

KOMET is a global technology leader in the fields of high-

the time destined for practical training. Our goal is to

precision drilling, reaming, milling, threading and process

introduce the European concept of dual education within

monitoring. KOMET MÉXICO is now a local member of the

our company to cater to both the company’s and the

CERATIZIT GROUP

market’s needs.

VIEW FROM THE TOP |

ADVANCED TECHNOLOGY NEEDS MARKET AWARENESS ALONSO ACEVEDO General Manager of HAIMER México

Q: What challenges do Mexican metal-mechanic companies

Q: Who has the final say on whether a manufacturing

face in relation to cutting tools?

machine will equip HAIMER balancing and clamping

A: Users of cutting tools tend to face issues regarding the

technology?

consistency of their cutting processes. While tools should

A: In Mexico, final users make the choice in most cases

theoretically work the same when replaced, the material

because they buy the machine they need and its accessories

characteristics of both the tool and the component being

separately. In some circumstances, final users tell machine

manufactured are not always the same. HAIMER technology

builders the component they need to produce and their

ensures the tool delivers consistent results without

goal regarding production times. In those cases, machine

compromising its structure. Our balancing solutions counter

builders develop the engineering necessary to produce the

the vibrations during the cutting process, thus increasing

part and decide whether to equip HAIMER cutting tools,

the tool’s useful lifetime.

clamps and balancing equipment thus delivering an integral, tailor-made solution. This is not that common, however,

Q: What companies can take advantage of HAIMER

because that scheme is costly and end users prefer to buy

México’s solutions?

the machine and accessories separately and engineer the

A: Our ideal client is any company that employs CNC

solution themselves.

machining equipment and engages in metal-mechanic manufacturing. Within the automotive industry, we focus

Q: What is HAIMER’s participation in Mexico’s

on clients that produce large volumes on a daily basis and

clamping market?

look for highly stable and consistent processes. Companies

A: There are various types of clamping alternatives in the

continuously aim to improve their processes and boost

market. HAIMER focuses on thermal clamping and still

efficiency and productivity and they normally approach us

holds a small market share in that segment in Mexico.

when they face a problem in delivering the right quality.

Clients tend to use mechanical clamping technology

Having said that, HAIMER’s technology still needs greater

that works by loosening and tightening nuts because it

promotion within this market. Only a small percent of our

is inexpensive. However, mechanical clamping is not as

clients have a solid knowledge of HAIMER’s technology, the

precise as thermal clamping because of variations in the

rest know the products superficially and are not fully aware

strength of operators. Thermal clamping uses a special

of the advantages that we can deliver for their processes.

kind of steel that expands when applying heat through electric induction. Tools are then placed in the clamp’s

Q: How easily can a company that is starting to migrate to

brackets and remain tightly sealed when controlled

automated processes implement HAIMER solutions?

temperatures are applied and steel contracts. The force

A: We have seen that even small Mexican shops are prone

of a thermal clamp, on the contrary, is constant and

to buy better quality machinery. As companies adopt more

four times higher than a mechanical solution. Thermal

advanced solutions, they start to take greater care of their

brackets are also more precise when tools are rotating

processes to extract the greatest advantage from them.

during the machining process, which reduces wear on

While we have Tier 1 clients, Tier 2s and 3s are key for our

the tool. HAIMER guarantees 30,000 tool changes before

operations. HAIMER México’s business is more directly

needing to replace the bracket of a thermal clamp.

oriented to lower tiers in the automotive supply chain. SMEs tend to respond well to our technology unlike large companies with decision-making processes that involve

HAIMER México is the Mexican subsidiary of Germany-based

several steps. When a client understands the advantages

manufacturing

of our technology, it looks for the time and space to invest

company focuses on the development and production of

in HAIMER’s solutions regardless of its size.

balancing machines, mills, clamps and other equipment solutions

equipment

company

HAIMER

GmbH.

The

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| VIEW FROM THE TOP

GENERATIONAL SHIFT DEMANDS DIGITALIZATION ARTURO ROBLES Director General of CIMATIC de México

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Q: How can CIMATIC’s offering of Infor products stand out

A: Skills needed to maintain older or heavily customized

from other international ERP developers such as Oracle,

ERP systems are becoming obsolete as new technologies

SAP and Epicor?

enter the market. Furthermore, competition among clients

A: Infor has invested hundreds of millions of dollars in

for talent with these skills is intense. New generations are

developing modules to support micro verticals across all

more likely to use the cloud and mobile services to access

industries that are available in its core product set. This

ERP systems and as the baby-boomer generation retires,

approach reduces the need to modify applications to meet

it might be time to consider upgrading or replacing these

specific micro vertical needs, thereby making products

older platforms.

easier to implement, maintain and upgrade. At CIMATIC, we are focused specifically on challenges Q: How does CIMATIC’s relationship with Infor work and

that automotive companies and suppliers face. We have

how has that helped you develop a stronger portfolio to

deep experience in the industry and we partner with our

cater to automotive clients?

customers to deliver value and enhance their solutions,

A: For 15 years, CIMATIC has strengthened its alliance with

thus ensuring a high return on investment. Furthermore,

Infor, becoming its most important distribution partner in Latin

we continue to invest heavily in our strategy and our

America and ranking among its 10 most important partners

technology.

globally. Our commitment to the company has spurred blind faith from Infor in CIMATIC’s operations for the development

Q: How can CIMATIC and Infor target companies that are

of the Infor brand in Mexico. CIMATIC is now spearheading

more reluctant to change their traditional management

distribution, implementation and even operation of Infor’s

and administration practices?

solutions, particularly in the automotive industry.

A: Our best bet is on offering specific business intelligence. Our platform has its core on manufacturing

Q: How can CIMATIC’s offering adapt to clients in the four

activities, which allows it to deliver industry-specific

different verticals it manages?

KPIs, dashboards, operational reporting and in-context

A: We offer a single unified solution built for automotive

business intelligence. Our experience in the industry

OEMs, specialty vehicle companies, original equipment

is also an added advantage. We continuously add and

suppliers and aftermarket providers. Infor’s solution

refine our functionality and capabilities based on the

provides end-to-end functionality wherever companies

industry’s needs and we try to maintain and expand our

need it. The platform is extremely intuitive and simple to

global trading partner catalog. Our Hook & Loop approach

use. Furthermore, our Cloud Suite strategy takes a holistic

also helps us support projects to streamline processes

view of our client’s business, making the platform cost

and workflows to improve collaboration and efficiencies

effective in its implementation.

between clients and their suppliers.

Q: What do you see as the main opportunities for clients to

Q: What is the expected ROI timeframe after the

optimize their operations and how can CIMATIC’s solutions

implementation of CIMATIC’s solutions and how have you

help in this process?

optimized your technology to reduce this? A: We implement a complete Cloud Suite ERP solution in a period of 4 to 8 months depending on the complexity of

CIMATIC de México is a consulting firm focused on the integration

the working environment. Driven by the process alignment

of ERP and other digital business-management solutions. The

toward best practices, plus the opportunity and deviations

company is Infor’s official distributor in Mexico and a Golden

analysis on the data we get to make decisions, ROI is

Partner with over 10 years of experience in the country

positive since the first year of implementation.

INSIGHT |

RAISING THE STAKES IN ASSET MANAGEMENT SOFTWARE RAFAEL FUNES Executive Chairman of LOVIS

The need to keep tight control of resources and maintain

what I call ‘Great Data’ from the start, for example, information

updated information on a company’s assets spurred the

without noise.” For him, Great Data makes analyzing and

creation of ERP systems. For the industry to move forward

predicting behaviors a more precise process. Noise in data

in its quest to improve efficiency, predictive analysis based

forces companies to clean their registries before building

on trustworthy and updated data is key, says Rafael Funes,

a correlation that may fail or that provide inferences and

Executive Chairman of LOVIS.

conclusions that are wrong. 289

Business technology firm LOVIS has placed its bet on

Contrary to ERPs, EOS places information quality at its core

Enterprise Operating Systems (EOS) to solve ERPs’ data

and the company’s plan only as a function. Funes says the

collection problems. “ERPs assume plans are executed

importance of this difference is that trustworthy data enables

as originally outlined,” says Funes. “But 99.9 percent of all

companies to plan well, reach their goals and better deal

companies have variations in their processes that prevent

with variations because registration is performed according

them from following these plans to the letter.”

to reality rather than to previous conceptualization. Since EOS registers every operation, consumption and delivery

Funes lists continuous downtime, unreliability of information

the moment it happens, the data it offers reflects reality

for predictive analysis and not allowing data to be registered

online and in real time. “Creating trustworthy and opportune

in real time as some of the disadvantages that ERPs present.

information makes it possible to perform highly precise

According to a survey conducted by Nielsen Research,

analytics and correlate results with exogenous variables,”

automakers lose an average of US$22,000 per minute due to

Funes says.

unscheduled downtime and data collection can play a crucial role in these incidents. “ERPs must close their operating

Beyond what the industry knows as Industry 4.0, LOVIS’

cycles periodically, usually three days a month, while they

goal is to boost the Enterprise 4.0 vision through its EOS

run administrative processes. This prevents continuous event

solutions. “While Industry and Manufacturing 4.0 are oriented

registration from taking place,” he says. “Data is captured in

toward manufacturing processes and based on cyber-physic

the system hours or days after events occur, which leads

systems and robotics, Enterprise 4.0 is based on a platform

managers to constantly work with outdated information that

that focuses on the end consumer,” says Funes. Just like its

cannot be fully trusted.” The ability to capture the necessary

manufacturing counterpart, Enterprise 4.0 is based on optimal

data through a timely and on-the spot process is among the

online communication and real-time data collection. However,

advantages EOS offers over ERPs, Funes says. “EOS does

the ultimate goal of this concept is to connect a company’s

not stop so there is no loss of time and operations continue

entire operation, including its administrative processes,

naturally,” he says. “Furthermore, while ERP takes about four

its interaction with suppliers and its relationship with the

minutes to register an event, EOS only needs 20 seconds

end consumer.

to manage the same information, which effectively boosts registration efficiency twelvefold.”

While Enterprise 4.0 has yet to become a reality, EOS is fundamental to articulating the whole chain, according to

As the industry moves toward Industry 4.0 practices,

Funes, and LOVIS’ next step is to launch a solution designed

predictive and prescriptive analysis is fundamental and EOS’

for the automotive industry that will boost efficiency

capabilities to register data continuously is a significant

throughout the supply chain. “It would be ideal for companies

advantage for potential clients, according to Funes. “I do

to know how resources are consumed in certain regions,” he

not agree with the general concept the industry has of Big

says. “This information would enable producers to pre-supply

Data because it implies having to infer something from data

components and then deliver them locally, cutting the need

contaminated with noise,” he says. “The challenge is creating

for suppliers to wait for an order and then ship it.”

| VIEW FROM THE TOP

BUILDING EFFICIENCY THROUGH 3D DESIGN SOLUTIONS GUNTHER BARAJAS Vice President of Dassault Systèmes de México

290

Q: How important are manufacturing industries to Dassault

We also approach customers and run a simulation of the

Systèmes’ operations, particularly the automotive industry?

design and manufacturing of one of their components.

A: The automotive industry represents around 30 percent

That way, they can understand the benefits of our software.

of our activities. In Mexico, the automotive and aerospace

3DEXPERIENCE is a highly intuitive platform that takes all

industries are our main business areas. Globally, OEMs are

company’s areas into consideration, which helps clients find

Dassault Systèmes’ main clients and in Mexico the company

ways to improve their operations. Eliminating information

collaborates with OEMs and Tier 1 companies to support the

gaps, improving communication processes between

development of local Tier 2 and Tier 3 suppliers. We have

designers and people on the production line and reducing

a supplier development plan for the automotive industry

iterations when checking if a design can be manufactured

in which we collaborate with several clusters, including the

are the most common areas of opportunity.

State of Mexico Automotive Cluster. Q: What level of penetration have augmented-reality Q: How has Dassault Systemès’ technology evolved to

solutions found in the Mexican market?

make design processes easier for clients?

A: Dassault Systèmes’ clients are increasingly adopting this

A: We integrate design and simulation within the same

technology. Through augmented reality, a chassis-making

platform, which we call the 3DEXPERIENCE platform.

company can see how its components will behave based

When defining the geometries of a component, loads and

on the workloads they will experience and the scenarios

stresses are automatically pre-set so clients can have a clear

they will go through. This enables the company to calculate

idea of how the part will perform right from the beginning.

where a chassis will deform.

Dassault Systèmes’ solutions can also make geometric and topological recommendations to reduce weight and make

Q : Wh a t a re D a ss a u l t Systè m e s ’ key g row t h

components more efficient. For hybrid and electric vehicles,

objectives in 2018?

this translates to a larger range of autonomy.

A: We experienced a 20 percent growth rate in 2017 and we expect to reach this same margin in 2018. Dassault

Q: How open are SMEs to adopting advanced software like

Systèmes solutions are being increasingly adopted as

that provided by Dassault Systèmes?

the standard design platform for the next generation

A: SMEs are interested in these solutions but the challenge

of vehicles, particularly EVs, where we have a market

they face is the initial cost of this technology. Dassault

share of over 90 percent. Suppliers that want to work

Systèmes collaborates with clusters and state ministries of

in these platforms will have to adopt Dassault Systèmes’

economic development (SEDECOs) in the establishment of

technology to integrate their supplier base and make

innovation centers to address this issue. At these centers,

design operations more agile.

SMEs can use our technology to design and manufacture their components through rapid prototyping or 3D printing.

Q: What is the main challenge that could stall Dassault

These are also spaces for them to interact with OEMs or

Systèmes’ growth in Mexico’s automotive industry?

Tier 1 suppliers. We include technological universities in this

A: Our main issue is talent development. Without capable

process as a way to train the talent the industry needs.

people, technology adoption becomes much harder. We collaborate with SEDECOs and state ministries of labor to open centers for training in design where companies can

Dassault Systèmes is a French software developer that creates

recruit new talent and adopt new technologies. Dassault

solutions for 3D design and product life-cycle management.

Systèmes also supports technological universities through

Its 3DEXPERIENCE platform enables companies to optimize

product life-cycle management competency centers to

design and manufacturing processes

ensure talent is continuously generated.

INSIGHT |

IMPROVING WORKFORCE PRODUCTIVITY IN THE NAFTA 2.0 ERA GABRIEL ALVARADO Vice President and General Manager Latin America of Kronos

Unlike their foreign counterparts, Mexican companies tend to

Alvarado says. The use of an automated process and digital

focus on time spent at work rather than how productive that

technology can enable supervisors to transmit their best

time is, a trend that will have repercussions in the long run, says

practices to improve labor quality. Kronos does that by

Gabriel Alvarado, Vice President and General Manager Latin

keeping a roster of employees in which each position has

America of Kronos, a global leader in workforce management.

its own KPIs on quality, output, skills and certifications. The company can continuously monitor these indicators and

“If NAFTA 2.0 forced Mexico to raise its salaries, Mexicans

align the employee roster with an activity in real time.

would need to boost their productivity and that cannot be translated into more man hours.” Alvarado points out that

To cut back staff turnover, Kronos also makes an effort to

higher salaries resulting from NAFTA 2.0 would force the

ensure employees are treated justly and with consistency,

Mexican workforce to remain competitive by other means.

adds Alvarado. He explains that supervisors usually give

“The challenge is having Mexican workers produce more

preferential treatment to employees with whom they have

than US workers in the same amount of time,” he says. “It is

a good relationship, which tends to make some workers feel

necessary to compare how much a Mexican worker produces

they are being treated unfairly. Kronos created a series of labor

compared to workers in countries where wages are higher.”

procedures to ensure the just and consistent application of company rules. According to Alvarado, the main reason why

Kronos’ core business is addressing labor processes

people quit jobs is difficult relations with their bosses. “When

and automating them through digital means to increase

employees feel they are treated justly, their engagement and

productivity. As Alvarado says, “Kronos is in the business

commitment to the organization increases,” he says. Kronos

of making people produce more in the same time and

offers companies the ability to move employees between

doing the same activity.” He points out that Mexican

production lines depending on the immediate needs of the

manufacturing companies offer many opportunities for

company. Alvarado says that if necessary, a supervisor can pull

Kronos to introduce its labor optimization and worker

a worker with special skills from one step in the production

performance monitoring solutions.

line to another, reducing expensive downtimes while also rewarding employees with better salaries. “An employee who

While the country’s workforce culture is migrating from a focus

is paid in a differentiated way according to skills gets both a

on entrance and departure times to paying greater attention

feeling of recognition and a better payment for hours worked

to employee productivity, companies in Mexico tend to lack

at a preferential rate,” says Alvarado.

the analytical intelligence tools to monitor each employee’s productivity and compare it to a benchmark, which is an

Kronos attacks three key segments with three different

opportunity for Kronos to optimize their labor processes. “We

solutions. The company’s Workforce Ready product is oriented

calculate how much a Mexican worker produces and compare

to SMEs while Workforce Central and Workforce Dimensions

that to the global average,” he says. “If there is a gap, we

are more suitable for global companies with thousands of

identify why a worker produces more or less so corrective

employees. According to Alvarado, Kronos Dimensions

measures can be taken if necessary.” He underlines that the

employs artificial intelligence (AI) to predict processes and

reason why production is greater or lower may be related to

is based in the cloud. “Business analytics can tell companies

training, skills or processes being overly manual.

what happens on their lines in real time but combining it with AI makes the process predictive,” he says. This allows Kronos

A key hurdle to Mexican labor becoming more productive is in

Dimensions users to predict what might happen in the future

the way companies allocate work assignments. “Companies

and make decisions accordingly. “Users upload their monthly

continue to assign activities based on empirical experience

targets and the system indicates how likely the company is to

of supervisors, while not all of them are equally experienced,”

reach them while preventing problems.”

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| INSIGHT

MACHINING PRODUCTIVITY THROUGH SPECIALIZED SOFTWARE ROBERT WEBER Commercial Director of Euklid México

Computer-aided manufacturing (CAM) solutions are not

allows for more complex designs to be machined. “Euklid

new to the automotive industry but some companies

can build a valve with seven commands in three minutes

still are not always aware of the advantages that certain

while solid machining software needs an hour,” underlines

architectures can offer when compared to platforms based

Weber. Optimized production times enable companies to

on computer-aided design (CAD), says Robert Weber,

charge more per machining hour. “An hour of three-axis

Commercial Director of software developer Euklid México.

CNC machining costs about US$25 compared to US$40

292

for an hour of CAD/CAM,” he says. “Productivity of a software is related to how easy it is to learn, how strong its modeling capacities are and whether

In terms of the additional finishing work needed to move

components machined using the software need much

from CAD to CAM, Weber says most software solutions in

additional finishing work,” says Weber. Most CAD/CAM

the market lack the ability to trim automatically when adding

solutions built their interface from 2D or 3D CAD, thus focusing

a radius due to the lack of integration between CAD and

more on the component’s design rather than its manufacturing

CAM platforms. Euklid on the contrary does the trimming

challenges. Weber explains Euklid was designed directly as a

automatically because its modelling capabilities already takes

CAM platform to give clients a competitive advantage.

machining into account. In terms of machining, Euklid works directly on the surface of the component. This results in a wide

Euklid is a Swiss-based software developer that focuses on

variety of milling alternatives that reduce CNC machining time.

software for tooling, molds and 3D modeling. Weber says that when manufacturing companies in Switzerland started

Having integrated finishing steps right from the modelling

to migrate toward automation, they realized that a drafting

process also eliminates additional manual work and

system or a solution that machines components such as a 3D

guarantees repeatability throughout the manufacturing

CAD/CAM software would boost productivity. “Adopting CAD

process. “With solid milling software, the equipment has to

software multiplies productivity by 1.5 times but an integrated

be balanced after each machining iteration. Surface milling,

3D CAD/CAM solution can multiply savings fivefold,” he says.

however, provides balanced stability right from the start.”

According to Weber, the importance of a software being easy to learn lies with the challenges that staff turnover brings

Euklid has introduced its solutions among Japanese OEMs

companies and in the advantages of technicians interacting

such as Nissan, as well as Asian tire-makers and Weber sees

with it. “While engineers handle software tools, they know

clear growth potential in Mexico. However, though clear on

nothing about CNC machines or cutting tools,” he says.

the advantages it can offer to manufacturers, one of the main

Training engineers in a software can take six months and if

challenges that Euklid faces to grow in the Mexican market is

they leave the company, it takes another six months to train

that companies in the automotive industry look for software

new recruits, adds Weber. Euklid CAD/CAM, however, can be

solutions that can do everything. “It is a mistake to think

learned in a week. “Even with high staff turnover, damage is

companies can develop software that is strong in all areas

minimized because the software can be taught quickly to

from 3D modeling to product design and manufacturing.”

engineers, technicians or model makers,” says Weber.

Moreover, Weber points out that companies in the Mexican automotive industry are usually price-oriented. “There is no

On software modeling capacities, Weber differentiates

awareness of how to evaluate software solutions based on

software that focuses on solid modeling and software for

productivity.” He adds that company executives should ask

surface modeling. “An advantage of surface modeling is its

technicians from the CNC area, what software solutions would

ability to reduce the number of patches tenfold compared to

help them better. “More attention should be paid to people

a solid model maker using fewer programming commands,”

in the machine shop because that is where the money is

he says. This not only reduces production times but also

made,” he says.

INSIGHT |

METROLOGY SOFTWARE DRIVES DOWN SUPPLIERS’ PPM RATES, ENSURES QUALITY MIGUEL ARIAS Director General of PolyWorks México

In vehicle production, meeting dimensional specifications

rather than on improving processes,” Arias says. While 3D

is necessary to ensure the quality of components and their

scanners have been in the market for over 20 years, they only

effective performance. If suppliers fail to comply with

became popular in the automotive industry around 2008

these specifications, OEMs may fine them or altogether

and in Mexico since 2012. “Technological evolution takes

expel these companies from their supplier base, making

place slowly in Mexico because companies lose interest in

a metrology solution crucial for operations, according to

introducing significant changes to their production processes

Miguel Arias, Director General of PolyWorks México, the

when things are already working well,” says Arias. “Mexico

local subsidiary of Canada-based metrology software

could use better metrology practices and increase quality

company InnovMetric Software Inc.

delivery certifications. Companies are gradually becoming more open to adopting these solutions.”

“Automakers push their quality requirements down the whole supply chain to prevent expensive halts in their

PolyWorks México curbs the problem of resistance to

assembly lines and the only way to ensure components

technology among SMEs by giving its clients access to

are perfectly suited for assembly is through dimensional

technical support and organizing training workshops. “The

metrology inspection,” says Arias. As the new subsidiary

added value of increasing training and technical support is

of InnovMetric Software, PolyWorks México offers a variety

helping companies improve the quality of their components

of metrology software tools for both OEMs and suppliers

through their production engineers,” he says. Technical

to detect defective components and ensure quality is kept

support and training lets PolyWorks México’s users rise

throughout the value chain.

to the level of other companies in Germany, Japan or any other advanced manufacturing country. “Our solutions are

Before it was purchased by InnovMetric in February 2018,

relatively pricey but their features are worth the price and

PolyWorks México was known as Prefixa Vision Systems, a

can lead to a return on investment of approximately six

Mexican company focused on software development and

months depending on the client’s operations,” says Arias.

an official distributor of PolyWorks in Mexico. The company had successfully grown PolyWorks’ presence in the country

Looking ahead, PolyWorks México plans to boost its sales

and according to InnovMetric, Mexico became the fifth most

force, as well as its R&D operations in Queretaro and its

important market for the company behind Japan, the US,

software development unit in Puebla, according to Arias.

Germany and China.

Metrology equipment suppliers generally sell an integrated solution of hardware and software but users tend to prefer

Its acquisition by InnovMetric has helped the company

PolyWorks because it is easier and more comfortable for

to boost its technical support and sales, as well as to

users to create metrology reports and to trace and follow up

strengthen its R&D team. “Software development is part

defective components in production lines.

of our core business and as part of InnovMetric we will continue developing software to support PolyWorks

As technology evolves, however, PolyWorks has found

products’ evolution,” Arias says. “Our business model is

itself needing to develop software solutions that adapt to

oriented to creating solutions that add value to automotive

new metrology hardware and increase demand of tools and

and aerospace companies.”

features from the final users. According to Arias, the company released a version of its software designed for coordinate-

Among the challenges the company faces to introduce its

measuring machines as a strategy to expand into new market

solutions is companies’ reluctance to invest in improving

segments beyond probes and 3D scanners. “The cloud, mobile

manufacturing processes. “Mexico is a late technology

apps and augmented reality devices are the next step for

adopter because companies tend to focus on reducing costs

metrology solutions for the automotive industry,” he says.

293

Morgan 3 Wheeler

SALES CHANNELS & DOMESTIC GROWTH

Mexico has the potential to sell 2 million light vehicles per year. However, the market must provide the right conditions. As the old adage goes, the client is king, and the king wants to move sales to the digital world. Dealerships are adapting their sales and marketing strategies to fit into the digital era but not all of them understand how the process works. At the same time, although financing has become a strong factor in the development of the market, diminished purchasing power could put the brakes on the segmentâ&#x20AC;&#x2122;s growth trajectory.

Sales Channels & Domestic Growth opens a discussion on how sales are transforming in Mexico from showroom-based to a digital marketing strategy that leads to a final decision taken before entering the dealership. Risks and opportunities are analyzed from different perspectives, along with best practices to incorporate online solutions into mature operations. Financing and insurance also play a crucial role in this chapter as driving forces in the marketâ&#x20AC;&#x2122;s development.

295

CHAPTER 11: SALES CHANNELS & DOMESTIC GROWTH 298

ANALYSIS: Preparing for the Upturn

299

INSIGHT: Ricardo Haneine, A.T. Kearney

300

VIEW FROM THE TOP: Carlos López de Nava, Grupo Alden

301

VIEW FROM THE TOP: Fernando Enciso, Grupo Surman México

302

INSIGHT: Nazareth Black, Car Fast

303

INSIGHT: José Antonio Ramírez, soloautos.mx

304

INSIGHT: Juan Manuel Díaz, Overlap Consulting Group

305

VIEW FROM THE TOP: Thomas Welle, MCON Mexico

306

VIEW FROM THE TOP: Aureliano García, Scotiabank

308

VIEW FROM THE TOP: Ricardo Duhart, BBVA Bancomer

309

INSIGHT: Cédric Desplats-Redier, BNP Paribas Personal Finance

310

VIEW FROM THE TOP: Luis Montaño, LUMO Financiera del Centro

312

INSIGHT: David Madrigal, Element Fleet Management Corporation

313

VIEW FROM THE TOP: Regina Granados, LeasePlan México

314

VIEW FROM THE TOP: Santiago Fernández, AXA México

315

INSIGHT: Raúl Barba, ANA Seguros

316

VIEW FROM THE TOP: Alejandro Cosio, SeguroSimple.com

317

INSIGHT: Leonardo Cortina, miituo

297

| ANALYSIS

PREPARING FOR THE UPTURN When sales are low and a depressed market is weighing on the profits of brands’ and dealership groups, keeping regulations on vehicle imports in place, delivering comprehensive financial products and diversifying vehicle lineups to cater to the few growing segments can help these companies wait out the downturn Between 2016 and 2017, light-vehicles sales in Mexico fell

periods is that they also elongate a greater default risk for

4.6 percent according to AMDA data. Close to 75,000

the financial branch, commercial bank or SOFOM offering

fewer vehicles were sold in 2017, with subcompacts taking

the loan. This has prompted financing companies to come

the largest hit at 48,597 fewer units than in 2016. While

up with innovative financial products to boost sales. BNP

several experts agree the sales downturn is a natural turn

Paribas is introducing balloon credits whereby clients only

in the country’s economic cycle, they point out several

pay for the use of the vehicle. Meanwhile, several other

areas that must be strengthened to underpin the domestic

commercial banks, including BBVA Bancomer, Scotiabank

automotive market.

and Banorte, are introducing digital-based credit options that ease access to automotive credit. At the same time,

298

Guillermo Prieto, Chairman of AMDA, points out that light

SOFOMs such as UNIFIN are increasing their share in

vehicles sales grew at double-digit rates for six years in a row

Mexico’s leasing market.

prior to the drop that started in June 2017. “It was difficult to sustain such accelerated growth, especially considering

The downturn has hit some of the largest players in Mexico

the bar was set higher each year,” he says. Mayra González,

by share, which is also impacting dealerships. Nissan, GM,

President and Managing Director of Nissan Mexicana, adds

FCA, Ford and Volkswagen are among the volume brands

that the Mexican market has almost doubled its size since

that have seen their sales figures plunge the most both

2009 so it is only natural the market would peak. “This is

between 2016 and 2017 and in 1H18 compared to 1H17. On

not a crisis, only an adjustment,” she says. Gerardo San

the other hand, volume OEMs with a smaller share such

Román, Head of Latin America at JATO Dynamics, agrees,

as Mazda, Suzuki, Hyundai and Kia as well as premium

saying the Mexican automotive industry should recognize

brands including BMW, Mercedes-Benz, Porsche and

and harness the economic cycles impacting the industry.

INFINITI have grown slightly, while others such as Honda,

“We are coming from a peak in the cycle,” he says. “It is time

Toyota or Renault have remained stable. For dealership

to prepare for when the industry starts moving up again.”

groups, results are mixed depending on the brands they manage. “Dealership groups that have no brands that are

Several issues still plague the domestic market, which should

struggling, will see business as usual,” says Carlos López de

be addressed for vehicle sales to reach the projected goal of

Nava, Director General of Grupo Alden. Fernando Enciso,

2 million units. First, regulation of used-vehicle imports from

Automotive Director of Grupo Surman, underlines that

the US must remain a priority for the new administration.

the automotive market always has brand cycles. “Brands

“These cars have been a cancer for the national industry that

have their ups and downs depending on many factors,

we (AMDA) have worked to exterminate,” says Prieto. Not

including product life cycles, facelifts and new product

only is the sale of imported used vehicles under-regulated

launches,” he says.

compared to the strict controls that dealership groups face to market their cars, but they also allow scrap units to

Only two segments have experienced sales increments in

enter the country. The entrance of these vehicles to Mexico

the face of a contracting market: SUVs and luxury vehicles.

has dropped since 2006 thanks to stricter regulations and

However, growth has been modest. Between 2016 and

better law enforcement, which is what Prieto and other

2017, sales of SUVs increased 6 percent (19,619 units) and

industry leaders want for the market.

although in that same period luxury vehicle sales fell 5.1 percent (4,113 units), the sector recovered in 1H18 with a

Another challenge the domestic vehicle market faces is

13.4 percent sales increase. Several brands have changed

access to credit. High interest rates have translated to

their lineups to adapt to these changes. Volkswagen,

greater cost of money for people wanting to purchase a

Hyundai, Nissan and Toyota are among the brands that

car on credit, thus disincentivize vehicle renewal among car

have introduced more SUVs to their portfolio. Meanwhile,

buyers. “Prices have gone up, as well as interest rates, and

luxury brands such as INFINITI and Mercedes-Benz as well

companies have offered lower down payments and longer

as exotic super-sports car brands such as Lamborghini,

financing terms as a way to counter this,” says San Román.

Aston Martin, Caterham and Morgan are maintain their

The main issue with overly elongated credit maturation

positive outlook for Mexico’s premium and luxury segments.

INSIGHT |

UNFAIR IMPORTS AND FINANCING GAPS: THE DOMESTIC SALES BLUES RICARDO HANEINE Partner at A.T. Kearney

Although Mexico is in good position to boost domestic

growing as automakers’ financial units, private banking

light-vehicle sales, limited auto credit availability and unfair

institutions, SOFOMs and other players introduce new

competition from low-quality, used-vehicle imports could

financial products to the market. Similarly, legal changes

pose considerable challenges together with new disrupting

regarding vehicle repossession have reduced the risk for

factors, says Ricardo Haneine, Partner at global management

financial institutions offering vehicle loans. Nevertheless, the

consulting firm A.T. Kearney. “Keeping a healthy domestic

market has not reached its true potential. “Mexico achieved

market is key because vehicle sales in Mexico are crucial for

new-vehicle sales of over 1.6 million vehicles in 2016, which

the development of the Mexican automotive industry,” he says.

equates to 13 vehicles for every 1,000 inhabitants,” says Haneine. “Of those sales, subcompact models represent

Data from AMDA and AMIA shows vehicle sales reached their

between 55 and 70 percent of the market. That is the

lowest level in 10 years in 2009 because of the financial crisis

segment that should be boosted according to the country’s

that hit the country. In 2015, after a slow market recovery,

income structure,” he says.

sales finally surpassed the record 1.14 million units set in 2006. According to Haneine, right after the crisis there was a debate

While the industry must keep these old threats in check,

between the public and private sectors regarding the culprits

companies must also look to the new technological challenges

behind low vehicle sales and what the country could do to

that are disrupting vehicle sales in Mexico. “Growth of

improve the situation. “Some said sales were lagging because

alternative mobility services like Uber have boosted fleet

of low levels of credit while others thought imports of used

sales but at the same time, the implementation of new

cars were the main problem,” he says. In 2011, A.T. Kearney

public transportation projects such as the Mexico-Toluca

developed a series of statistical and econometric models

Interurban Train restrain new-vehicle sales to a certain extent,”

which validated both hypotheses. “Both low automotive

Haneine says.

financing and rising stocks of low-quality used cars were hitting sales volumes at a certain level,” says Haneine.

Digitalization is another phenomenon disrupting the automotive industry from the production stage to the sales

To fight these negative factors, several countermeasures

floor and all aftermarket-related activities. “Technology

were presented. On the one hand, the government put in

changes quickly and so do consumers’ preferences and criteria.

place regulations that forced vehicles to meet the driving

As a result, digitalization is changing the way companies

requirements of the US state they came from to be eligible

interact with customers,” says Haneine. In the Mexican market

for importation. Previously, these units were exported by the

dealerships tend to be family-owned businesses, limiting their

US as scrap since they could no longer be sold or operate

technology adoption. However, there are large multi-brand

there. Mexican distributors bought the cars by the ton, which

consortia that have grown successfully thanks to their efficient

equated to only a fraction of the price of the same car sold in

costs and administrative structures. “These consortia are more

Mexico. Although these regulations have effectively reduced

likely to invest in sales digitalization rather than family-owned

used vehicle imports, Haneine says they remain temporary,

dealerships,” he says.

which opens the possibility for vehicle sales to be impacted again. “If we were to reach the level of imports in 2008, new-

While Mexico’s core business in the automotive industry relies

vehicle sales would drop significantly,” he says. “The country

on exports, developing a stronger domestic market is what will

needs a NOM that restricts imports of used vehicles in bad

ensure sustainable growth for OEMs in the country. Haneine

mechanical condition to prevent unfair competition.”

believes that transformation is necessary for companies to remain competitive. “Companies must become more efficient

On the other hand, financing still presents an opportunity

in their structures to deliver a better service and new value

for further growth. According to Haneine, car financing is

proposals,” he says.

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| VIEW FROM THE TOP

BETTING ON THE RIGHT PARTNERS TO ENSURE GROWTH CARLOS LÓPEZ DE NAVA Director General of Grupo Alden

Q: How are brands and dealerships dealing with contracting

Dealership visits have fallen in the past months and although

sales since the second half of 2017?

we understood why clients were weary to invest right now,

A: Despite the sales contraction, the industry is still not

we did not ask them directly why. Sales people are not very

offering many discounts or rebates. We are 9.4 percent

good at diagnosing customer behavior but we should make

below the results from 2017 but not all brands are behaving

this a habit to better understand how to handle these market

the same way. The strongest drops in sales have been for

fluctuations.

GM, Nissan and Volkswagen. Kia and Hyundai keep growing, 300

while Toyota, Honda and Mazda remain stable. Not everyone is

Q: What role does brand performance play in your decisions

underperforming but it is natural for the whole market to drop

to invest or divest from certain dealerships?

when leading brands such as Nissan and GM fall. If we end the

A: It is definitely an investment indicator. Kia and Hyundai

year with a 15 percent drop in sales compared to 2017, most

combined, for example, have had months with sales of

distributors would be content considering the good results

11,000-12,000 units, which could make them the third or

from 2016 and 2017. Furthermore, groups that have no brands

fourth-most important group in the country. Therefore,

that are struggling will see business as usual.

it is only natural that distributors want to invest in these brands.

The real problem this year were the elections. If the peso devaluates, there will be considerable impact for distributors

Some OEMs do not see a bright future in Mexico because

that import most of their vehicles. The costs for OEMs to bring

they are struggling to make a profit with each car they sell.

their production to Mexico will increase and dealerships will

As a consequence, struggling brands are no longer looking

have to share that cost difference. In that scenario, either

for distributors in the meantime because that would lead to

prices go up again or discounts and rebates start to appear

splitting lower earnings among more partners.

to kickstart the industry but in the end, the market could close the year 20 percent below 2017’s results. Still, my forecast is

Q: What impact do you think Ford’s decision to leave the

that the industry will end 15 percent below the sales results

compact vehicle segment will have on its position in Mexico?

from 2017 and if that happens, we will be fine.

A: Ford wants to reduce its presence in the market to have fewer distributors with better profits. Instead of offering its full

Q: How did the presidential elections impact sales in the

sedan, SUV and pickup lineup, the brand wants dealerships

automotive industry?

to sell fewer but better-paying models to improve margins.

A: Future vehicle owners were divided into two groups; the

I think it is a smart move and the objective I think is to have

ones that bought out of fear of what might happen after the

better dealerships and better businesses in accordance with

elections and those that wanted to wait and see who won.

the times.

On the bright side, many clients chose the first option and, to boost confidence among potential buyers, some brands

Q: How has Grupo Alden advanced on the Chinese

offered their clients unemployment insurance to protect them

brand front?

for a few months should they lose their jobs because of the

A: Many dealerships are already betting on these models

elections.

and we expect to enter this business before the end of 2018, although we are still considering who to partner with. After previous attempts to conquer the Mexican market by

Grupo Alden is a new and used-vehicle dealership group

some Chinese brands, other companies are trying to convey

that started operations in 1984. The group handles 14

that their vehicles are safe and of good quality. Clients are

different brands including Kia, Hyundai, Ford, Mazda, Audi

gradually trusting these companies and it helps that they have

and Lincoln

the support of large distribution groups.

VIEW FROM THE TOP |

INTEGRATED SERVICES KEY FOR DEALERSHIP SUCCESS FERNANDO ENCISO Automotive Director of Grupo Surman México

Q: What are your priorities as a new member of the board

and get to know the new products in stock. The endgame

of Grupo Surman México?

should be for clients to eventually trade in their used model

A: My main goal is to add my experience to the current

for a new one.

board to help modernize services in dealerships, thus disrupting traditional models. When talking about

Q: How important is the used-vehicle segment and how has

innovation in our industry, most advances are made in the

it helped you generate sales in the new-vehicle segment?

product. However, sales and aftersales services are equally

A: Traditional sales models see each part of the dealership

important although digitalization in these areas remains

as a separate business but to succeed and become more

lacking. At the moment, I am focused on developing new

competitive, all areas must be integrated. The used-

marketing and communication channels to reach customers

vehicle business is a key segment because, under the

more effectively.

current market conditions, revenue margins are better in used than in new vehicle sales. To boost sales, OEMS are

In terms of network expansion, we are introducing new

offering many discounts and in most cases, we have to

brands such as JAC and Land Rover and we expect to close

absorb part of this cost. We are working on activating a

2018 with more than 100 dealerships, up from the 92 we

healthy repurchase cycle in which clients come to service

have at the moment. Our goal is to maintain sales at the

their current car, visit the dealership to find a new one

same level as in 2017.

they like and then trade theirs for a new model. We get to keep the used vehicle and market it one more time

Q: What do you see as the best opportunity to improve

thus recovering some of the profit we compromise due to

customer service in dealerships?

OEM discounts. If we combine this with added services like

A: Talent development is critical to have the right type of

number plate permits, insurance and extended warranties,

employees for every type of client that visits the dealership.

we end up with better profitability for our business. Our

Today, 50 percent of our dealership visits originate from

mindset must evolve to see vehicle sales as a means to

a digital lead. Many generations coexist on the sales floor

offer added services.

and our sales force must learn to interact with people that prefer digital communication, as well as with those that still

Q: How is Surman countering the negative results from

favor traditional sales methods. In the end, it is all about

brands that consistently lose market share?

learning to cater for the clients’ needs and opening a clear

A: This industry is cyclical. One of our advantages as a large

communication channel.

distribution group is that we have a diverse investment portfolio. That means that when one brand is having a

Q: How has Grupo Surman’s business responded to the

bad time, we remain afloat thanks to the success of other

decelerating sales in the domestic market?

brands going through better times. Brands have their ups

A: Dealership visits have decreased, which is why it is

and downs depending on many factors, including product

so important to establish a better relationship with the

life cycles, facelifts and new product launches. We cannot

customer. In a contracting market, it is common for new

control many of these, so the best we can do is make our

clients to search for the best offer in terms of discounts

own operations more efficient.

and rebates. The market becomes more competitive and companies fight for a smaller client base. Most clients carry out their research online nowadays, which means that our

Grupo Surman is a Mexican distribution group focused on new

best chance to attract more visits is with clients that come

and used-vehicle sales. The company manages brands such as

for their routine maintenance service. We have to improve

Chevrolet, Bentley, VW, Peugeot, Porsche, JAC, Kia, Hyundai,

our service so they are more inclined to visit the sales floor

Audi, BMW, Ford and Nissan

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| INSIGHT

DIGITAL SUCCESS LEADS TO FRANCHISING SCHEME NAZARETH BLACK CEO and Founder of Car Fast

302

Although car buyers still enjoy visiting showrooms and

win-win situation not only for Car Fast and consumers but

interacting with vehicles before making the final purchase,

for all players involved in the sale of a vehicle, including

the Internet and digital platforms present new distribution

brands, distributors and financing institutions. “Brands share

channels that users can explore. This, however, is still a

part of their profits with Car Fast for being included in the

greenfield opportunity explored only by a few, according

company’s digital platform and in exchange, Car Fast orders

to Nazareth Black, CEO and Founder of Car Fast.

units, pays for them and ask for invoices,” explains Black.

“Car buyers are usually unaware of what vehicle best fits

In terms of financing, Car Fast works with all banks to

their needs and are often charged different prices for the

offer clients financing options to purchase vehicles online.

same unit, depending on the rebates offered or the kind of

The company decided to bring in vehicle and financing

financing plan they select,” says Black. Noticing this area

experts who assess clients and offer them advice on

of opportunity, Black decided to create a digital platform

what vehicle and financing option is best for them. “We

where people could get advice on vehicles and financing

designed a system that evaluates clients individually to find

options. In 2007, Car Fast became the first digital dealership

the alternative that suits their needs best,” says Black. “We

in Mexico to offer integrated vehicle solutions over the

offer an ethical and warm interaction that translates into

Internet. The company was created as an option to more

a great digital-based customer experience, which makes

effectively cater to clients’ needs. “We bring together the

purchasing a car easy, fast, comfortable and at the same

whole automotive industry in a single platform and have

price offered in any showroom.”

vehicle and financing experts who offer buyers advice on what car to purchase,” she says.

Car Fast has even developed leasing options for SMEs that are not interested in owning vehicles. “SMEs are important

The company decided to be a digital sales channel from

to us because they can benefit the most from our services,”

the beginning to fill the gaps in traditional sales processes

says Black. Just as with private customers, Car Fast creates

in physical dealerships. “Car Fast focuses on the niche of

services around the needs of its SME clients. “Clients tell

people that have had negative customer experiences at

us their growth plans and we prepare a suitable financing

dealerships and those who need fast, specialized attention

plan for them to acquire their vehicles,” says Black. “We can

and cannot lose time with a showroom tour,” says Black. As

effectively reduce the response time for auto credit from

digitalization permeates the Mexican automotive market,

between one and one and a half months to just four days.”

interest on digital sales channels has grown and more companies are paying attention to digital vehicles sales.

As Car Fast solidifies its presence in the Mexican automotive

“The fact that Car Fast recently closed a US$500,000 deal

market, the company now plans to start selling franchises

with a client without ever meeting a salesperson or seeing

of its digital platform. So far, the company has had annual

the car beforehand says a lot about how ready the market

sales of 4,000 vehicles and it strives to reach the 5,000-

is for these solutions,” she adds.

unit mark through its first franchise launched in June 2018 in Mexico City. Once Black ensures franchises can deliver

Digital sales channels might seem threatening to

the quality of service it offers in-house, the company will

dealership groups, but Black says it will take a while before

continue growing this business model. Black also plans to

digitalization takes over the automotive market. “Car Fast

start operations in Brazil through both its platform and car

does not take away sales from dealerships,” she says. The

rental unit by 4Q18. Chile and Colombia could be its next

company brings the client closer to the distributor and

destinations after that. “We want to start expanding in Latin

helps these players by providing solutions to manage all

America to show that the region is capable of exporting

their dealerships through a single digital platform. This is a

trends rather than only following them,” says Black.

INSIGHT |

EMBRACE DIGITALIZATION OR DIE TRYING JOSÉ ANTONIO RAMÍREZ Director General of soloautos.mx

Digital sales are gaining ground in both the new and used

the total real car listings in Mexico. Unlike companies

vehicle segments and José Antonio Ramírez, Director

such as Segundamano or Mercado Libre that have a

General of soloautos.mx, believes dealership groups that

more horizontal approach with a wider product-type

cling to traditional marketing practices face an imminent

portfolio, soloautos.mx has a sole focus on car sales. The

risk. “It is crucial for dealership groups to start taking

company’s goal has been to devise the best strategies so

digitalization seriously,” he says. “Companies tend to think

clients can sell their vehicles quickly and its services and

that when clients go to the dealership and ask for a specific

technology have been key in that process. In Australia,

model, that is when they are really interested in buying a

Ramírez says, soloautos can determine the time it will

car. However, the digital lead is equally important and we

take a person to sell their vehicle based on its mileage.

have tried to explain its importance to all our collaborators.”

Similarly, for clients who do not want to share their phone number, soloautos can provide an alternative number

According to the E-Commerce Research of 2017 published

that connects to their cell phone. “We expect to keep

by the Mexican Association of Online Sales, the market

innovating and bringing new technologies to our Latin

value of online sales grew 28.3 percent in 2016, representing

American operations,” he says.

approximately US$17.63 billion. Furthermore, the research showed that 75 percent of all Internet users made an online

The company has also grown its presence in Mexico after

purchase during 3Q17. Although Ramírez does not think it is

acquiring a review platform called Autología in 2016,

plausible for automakers to sell their vehicles directly online,

which gives soloautos.mx access to an audience looking to

digitalization is permeating the new vehicle segment as

compare different vehicle models according to advantages

more and more brands build customization platforms into

and disadvantages. “Not only has this helped us attract

their websites. “The car will always be delivered by a third

more clients but it has also helped us support future

party but eventually, I see clients paying for their vehicle

vehicle owners during their decision-making process,” says

online,” he says. “AMDA members must find a way to remain

Ramírez. The number of people selling their vehicle through

true to their business while looking for new and better ways

soloautos.mx grew by 100 percent in 2017 and Ramírez

to help the client order a car online.”

expects to grow another 100 percent in 2018, which would represent growth in revenue of 250 percent.

As a leading platform for online vehicle sales, soloautos. mx has strived to help its dealership and OEM partners

Ramírez says soloautos.mx has potential in both the

understand the value of the digital market and how

new and used vehicle segment, but he sees the best

best to address it. “As a company with a strong digital

opportunity in the advertising opportunities the platform

background, we have a responsibility to train our peers and

can offer to OEMs. “Dealership groups used to have areas

professionalize digital and lead management operations,”

of influence but digitalization has broken all barriers,” he

says Ramírez. He says companies must analyze each digital

says. “Companies can now cover a much wider region,

lead and the opportunity it can present to attract a new

which will lead to more business opportunities but also

client. “If the customer is already asking something too

more risks for players that do not embrace this new trend.”

technical, they are probably already hooked,” he says.

The company builds specialized campaigns based on the

“Meanwhile, if they are asking more general questions, the

product and the market it wants to reach, and then offers

company has an opportunity to engage and create loyalty

them directly to automakers. “We do not charge for this

in a new client.”

service, only for its positioning on our webpage,” Ramírez says. “Companies that base their marketing strategy only on

Soloautos.mx has experience in both new and used

traditional channels are at risk of losing even long-standing

vehicle sales, and manages approximately 75 percent of

and faithful clients.”

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| INSIGHT

DIGITALIZING DEALERSHIPS WILL DRIVE SALES JUAN MANUEL DÍAZ Automotive Practice Director at Overlap Consulting Group

Vehicle sales channels are changing as car buyers arrive to

area where most dealers have their work cut out for them.

showrooms armed with data and as information technologies

However, the appearance of new apps like Sirena that enable

provide dealerships an opportunity to respond rapidly

dealers to better capture digital leads could help in this

to client requests and more effectively follow up. As the

regard, sometimes boosting sales results two or threefold.

Mexican market faces depressed vehicles sales, digitalization

“This app captures leads and sends them immediately to

could help these companies move more cars.

a company’s sales force whereby the first salesperson to answer gets to keep the lead and the potential client,” says

304

“Walk-in clients that arrive to showrooms without having

Díaz. “This creates a 24/7 sales strategy as some salespeople

done any prior research are becoming scarce,” says Juan

will answer immediately, even in the middle of the night.”

Manuel Díaz, Automotive Practice Director at Spain-based consulting firm Overlap Consulting Group. “People now

The entrance of digital players into automotive sales in

arrange a meeting in a showroom to see the vehicle they

Mexico is changing the way dealers compete. Díaz says

have already researched.” Approximately 70 percent of

digital dealerships such as Car Fast are jumping at the

the sales process will take place outside of the three or

opportunity to reach customers more effectively. “These

four showrooms that a potential client will visit before

new players perform a deep analysis of clients and offer

buying a car, according to Díaz, which means dealers face

them a range of vehicle options that adapt to their needs

the challenge of focusing on digital channels to better

and budget,” he says. Since digital dealerships give clients

capture customers.

everything from financing options to test drives before the final vehicle delivery, a new challenge arises for traditional

Overlap Consulting Group helps dealers implement

vehicle sales channels. “Even though digital platforms

business programs and train their talent to ensure sales

depend on dealers to source the vehicles, dealerships are

in a changing environment. With 30 percent of its Latin

starting to lose importance and could say goodbye to part

American operations focused on the automotive industry,

of their profit as the owners of digital interfaces absorb

the company takes advantage of its experience to help

the most winnings under new business models,” says Díaz.

automotive companies harness market trends including digitalization. “Distributors that do not include digital

As light-vehicle sales contract in the domestic market,

channels in their sales strategy face the risk of not

the incorporation of effective sales strategies becomes a

selling,” says Díaz. With most of today’s car-buyers, the

matter of life or death for dealers. Díaz forecasts further

decision-making process happens outside the showroom

contraction of 7-8 percent in vehicle sales in 2018 to

and mostly online. Díaz says dealers must get involved

around 1.35 million units due to uncertainty regarding

with potential clients as they look for information on the

the 2018 federal elections. There could be a more positive

vehicles they want before coming to the showroom.

scenario where sales bounce back in the second half of the year but still, growth levels will be far from the rates

“Distributors need to create value-added content that

seen in 2015 or 2016.

prompts potential customers to take action. Adopting new marketing formats, such as video and social media, will be

However, not all clouds are charged with rain and Díaz

key in this process,” says Díaz. A major area of opportunity

says it is possible to harness opportunities despite the

for Mexican dealers to better capture digital leads is offering

storm. “In Mexico, the A and B segments are the largest

clients immediate attention through websites. “Clients that

and most sensitive to changes in the country’s economic

receive all the information they need right away leave with

environment,” he says. Newly-arrived brands have the

a good impression of the company, which builds trust

opportunity to strengthen their line-up and attack new

to continue with the sales process,” says Díaz. This is an

market segments.

VIEW FROM THE TOP |

DECONSTRUCTING MISCONCEPTIONS THROUGH DATA OBSERVATION THOMAS WELLE Managing Director of MCON Mexico

Q: How can companies benefit from MCON’s data

they were operating under were actually wrong. Marketing

management solutions?

campaigns are a clear example of how companies tend to

A: MCON is an independent solutions provider that helps

function based on misconceptions. In the end, the goal is for

companies with their digital transformation process through

companies to stop doing what they think is right and focus

business intelligence, customer relationship management

on what the data says they should be doing. Through data,

(CRM) and business integration with retail operations. In

OEMs and dealerships can know when a car was bought,

a nutshell, MCON focuses on data-driven solutions that

when it needs maintenance and when the client will finalize

increase the value of our clients’ sales and aftersales business.

its loan. Enriched with this and more information, companies

Although we have a strong relationship with both OEMs and

can predict a lot in terms of turnover times and market trends

distribution groups in Germany, in Mexico our initial focus is

thus targeting the customer more efficiently and effectively.

on the OEMs. Even though dealerships are directly in contact with the customer, all the data generated by the distributor is

Q: What are your goals in the Mexican market considering

sent to the OEMs, which make marketing and sales decisions

your recent establishment in the country?

based on that information. Furthermore, the data analysis

A: We started servicing the Mexican market in 2013 but we

tools used in the process are normally chosen by the OEM, not

only established formal operations in the second half of

by the dealership. Three years ago, we had the opportunity

2017. We are still a newcomer to the country so we want

to establish a business relationship with a Mexico-based OEM

to consolidate our presence and be seen by all the OEMs

and we have used that project as a stepping stone to build

and dealership groups in the country. Many executives from

our presence in the region.

OEMs in Mexico already know how customer relationship processes can be improved based on their experience in other

Q: What are companies’ main deficiencies in data

more digitally advanced markets. We have over 20 years of

management operations?

experience working with CRM and data-driven solutions for

A: Mexico faces many of the same problems as other global

the automotive industry and we want potential clients to

locations. Companies tend to not see their customers from

understand what they can achieve through data management

a holistic perspective, managing their data in individual

thanks to MCON.

packages or silos without consolidating that information into a single customer profile. When customers walk into a

Q: How much competition has MCON found in Mexico?

dealership to buy a car, they will probably also apply for a

A: In terms of holistic, data-driven solutions tailored to the

loan or they might also be corporate clients interested in a

automotive sector we have not found much competition.

fleet offering. Instead of managing the client’s information as

There are companies that specialize in specific solutions or

a single unit, both the dealership and the financial services

that may have a strong focus on parts of the sales or aftersales

area, for example, have different entry points for information.

process, but very few companies can offer an integral, holistic

This creates redundancies and makes it more challenging for

approach. Furthermore, we have vast knowledge about the

companies to follow up on the clients’ demands efficiently via

internal processes at the OEMs and the architecture of their

the various channels that are in place.

IT systems, which puts us farther ahead of any consulting competitor in the market.

Q: How can companies work to develop a holistic approach in their customer management practices? A: Adopting a holistic approach starts with the OEM. These

MCON provides a 360° portfolio of services as a single-

companies must consolidate their different client management

source supplier for business consulting and strategy, linking

systems to get real insights into the data they are generating.

clients with IT implementations, business intelligence and IT

Once they succeed, they often realize that the hypotheses

Infrastructure mostly in the automotive sector

305

VIEW FROM THE TOP

UNIQUE STRATEGIES FOR STRATEGIC ALLIANCES AURELIANO GARCÍA Automotive Financing Director and CFA of Scotiabank

306

Q: What are your growth expectations for Scotiabank

Q: Why did Scotiabank choose to collaborate with Renault,

considering the deceleration in light-vehicle sales in the

considering that the OEM has its own financing arm?

domestic market?

A: We are the main financing arm of Mazda, Suzuki and

A: Scotiabank’s progress is completely in contrast to the

Subaru. With Renault, we are working as a preferred option

industry’s performance. While light-vehicle sales have

along with the OEM’s financing branch. The OEM was looking

decreased by 6.6 percent as of February 2017, we have

for an alternative company to work with its distribution

grown our operations year-on-year by almost 40 percent,

network and we saw a good business opportunity through

so we expect 2018 to be a good year for the bank. More

this alliance. In this case, the client and the distributor choose

than decelerating, the industry is reaching the end of a cycle

which company to work with depending on the client and the

and the way we have countered this is by strengthening

region where it operates. We might be acting as a second-

our alliances with growing OEMs. By partnering with

best option but that motivates us to work even harder to

strategic companies, we have defied the market trend. Part

offer the best financing option to the final customer.

of our corporate philosophy is to not have bad months just because everyone else does. Our goal is to create a

Q: How has Scotiabank adapted its portfolio to comply

sustainable business for both Scotiabank and its clients.

with the needs of companies from different nationalities and corporate cultures?

Q: What is Scotiabank’ strategy regarding the establishment

A: Our consumer-oriented strategy, coupled with a strong

of new corporate alliances?

focus on personalized service and a controlled growth

A: We started building alliances in 2011 when we partnered

projection, is what we offer to all companies regardless of

with Mazda seven years ago. Now, we have learned to

where they come from or how they work. That being said,

understand the needs of OEMs and distribution groups

every OEM has its own strategy in Mexico and our alliance

and to see this as a long-term business. This has helped us

directors have a team dedicated to each of our partners

ditch our mindset as a bank and start thinking as a financing

so we can build a unique solution for them. One of our

arm, helping companies sell more vehicles and be more

partners, for example, wants to consolidate its position in

profitable while doing so.

the market. The others are either looking for growth or to be seen as more daring competitors. Our teams are specialists

Today, we have partnerships with Mazda, Suzuki, Subaru

on the way each company works and we have implants at

and Renault and we are finalizing negotiations with a

the OEMs and their distribution networks to incorporate

French and a Chinese OEM. We have selected our OEM

their culture into Scotiabank’s products.

partners carefully so we are not impacted by declines in market share and to maintain relationships with companies

Q: What future do you see for the electric and hybrid-

that share Scotiabank’s values. These OEMs are focused

vehicle market and what participation do you want to have

on improving our clients’ quality of life with high-quality

in this segment?

products. They also have a forward-looking strategy

A: We are fully committed to a future strategy focused on

regarding hybrid and electric vehicles. If all goes well, we

hybrid and electric vehicles. The industry is still learning how

hope to close 2018 with six partnerships.

these units will impact the market but just between 2016 and 2017 the market grew 28 percent. In the first months of 2018, electric and hybrid units already accounted for sales of 1,000

Scotiabank is the Canadian bank with the largest international

units per month, which might seem small when compared

presence. It was founded in Halifax, Nova Scotia, in 1832 and

to the 1.5 million vehicles sold in 2017 but it is considerable

it reached the Mexican market in 1996 in collaboration with

progress for the industry. We continue to innovate in our

Grupo Financiero Inverlat

financial solutions focused exclusively on electric and hybrid

models and we are organizing several events called E-Nights where we gather every OEM with an electric-vehicle portfolio under the same roof in five different locations simultaneously across the country. All brands have been pleased to have a place to showcase their products. We also are lobbying with the government for more incentives for these vehicles and to build proper charging infrastructure. We still see a huge opportunity in the use and exploitation of battery technology. Our projection is that the electric and hybrid-vehicle market will start to consolidate in the next three to five years. Q: How is Scotiabank innovating in terms of digitalization and how has that impacted the way you interact with clients? A: Scotiabank is advancing significantly and should be considered a booster of digitalization in the banking segment. More than a year ago we created Digital Factory as a center of technology development focused on digital banking. This area is now in charge of transforming our business from a traditional model to address the mobile world. We take this project seriously and we do not consider it just one more division of Scotiabank. There is no project more important for Scotiabank than the development of our digitalization strategy. We are already entering the testing phase of our One-Click Financing solution through which clients will get final approval on a loan directly on their phone. New vehicle owners wil simply send their loan application via Internet and less than 10 minutes later they will be able to present the bankâ&#x20AC;&#x2122;s approval at the dealership. We will begin trials by the end of March 2018 and we expect to have everything ready by March 2019. Q: How has Scotiabank advanced in the mobility market through its relationship with Piaggio? A: We wanted to send the message that we care about mobility as a bank. Our priority is cars but we wanted to participate in finding an alternative mobility solution. We began our mobility plan with Piaggio and the company has an aggressive strategy for the next two years. We are learning how the motorcycle market works and now we are ready to open our business to other brands. The first step will be to build a financing strategy with the motorcycle division of one of our strategic partners by the end of 2017. This will allow us to branch out into other market segments. After consolidating our position with this new brand, the plan is to open a completely new division within the bank focused solely on the motorcycle market and to start working with the biggest OEMs in the country. We are not planning to target the volume market; our goal is to focus on the high-end segment, offering clients the opportunity to acquire an alternative to their vehicle.

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| VIEW FROM THE TOP

DIGITALIZATION THE PATH TO STREAMLINED CUSTOMER EXPERIENCE RICARDO DUHART Director of Automotive Financing and Mortgages at BBVA Bancomer

308

Q: Car sales suffered a slight contraction in 2017. What

Mexican market. On the one hand, the bank has installed

are BBVA Bancomer’s projections for the number of loans

simple processes for credit approval within dealerships. BBVA

granted in the domestic market?

Bancomer only requires its customers provide an ID and a

A: We expect sales in the domestic market to be flat in 2018

credit application and the bank can give them an answer within

and perhaps 2019 while prices stabilize and salaries recover.

30 minutes. Efficiency is crucial for maintaining the emotional

Purchasing power has fallen due to the increase in inflation

nature of car sales. On the other hand, BBVA Bancomer has

while salaries have not been adjusted accordingly. We do not

one of the largest client portfolios in Mexico. We usually know

expect the 16-18 percent growth rates we have achieved in

our customers better that our competitors and provide pre-

previous years but demand will grow once these changes are

approved loans to them. When clients arrive to the dealership

absorbed. Mexico has pent-up demand that has accumulated

they already have an approved plan to purchase their car. To

for several years and will remain so until people regain the

boost our market share, BBVA Bancomer has also become

necessary purchasing power to re-energize vehicle sales.

the financing arm for several brands that operate in Mexico. Coupled with our financing models, the bank has fast and

Q: What strategies has Bancomer implemented to maintain

efficient processes and a large client base that helps us pump

its leadership?

our partners’ sales.

A: BBVA Bancomer has over 15 years of specialized business experience in the automotive industry. We were the first

Q: What was the reasoning behind the creation of digital

banking institution in Mexico to establish a special model for

financing options such as the “Crédito Digital para Auto?”

the automotive sector. The vehicle financing market does not

A: For BBVA Bancomer, process digitalization is a key to

work like the traditional banking sector, where credits are

remaining successful in the vehicle financing market. Any

traditionally arranged in bank offices. Clients in the automotive

company that fails to digitalize its customer experience is

market arrive to an external location — the dealership — and

condemned to fall behind. Moreover, we see digitalization

expect to receive an expedited and efficient service. Bancomer

as the future not only for banking but for several industries.

is strongly investing in technology to simplify processes and

Digitalized processes empower clients to make decisions

improve customer experience to deliver an integral service

on their own instead of depending on third parties. BBVA

both at the salespoint and through digital channels.

Bancomer’s goal is to make vehicle financing so easy that clients do not feel it.

Q: How are you closing the gap with the leading financial entities in the market?

When a person buys a car, they want to feel the emotion of

A: Banks and OEM financial units are not competing on an

buying a car. Yet, credit processes are usually so difficult that

equal footing. These other financers tend to offer preferential

they kill the overall experience.

prices supported by their parent company, which prevents fair competition on the sales floor. That being said, we have

Potential customers have already done their vehicle research

two significant advantages that enable BBVA Bancomer to

online and are perfectly informed when they arrive to

compete against the financial arms of automotive companies

the dealership. Building on those circumstances, BBVA

and which have helped us gain a significant presence in the

Bancomer can make a customer’s life easier by inserting itself into the digital part of the car-purchasing process. Today, it is possible to customize every detail of a vehicle

BBVA Bancomer is the result of Spain’s Banco Bilbao Vizcaya

through a brand’s webpage. However, to apply for financing

Argentaria (BBVA) becoming the main shareholder of Bancomer

it is necessary to go back to the stone age and use piles of

in 2000. BBVA Bancomer is the largest private financial institution

forms and papers. In the end, our goal is not to sell a loan

in Mexico and the main bank for automotive financing

but to help people buy a car.

INSIGHT |

INNOVATION, MARKET COLLABORATION RECIPE FOR SUSTAINABLE GROWTH CÉDRIC DESPLATS-REDIER CEO of BNP Paribas Personal Finance

When sales are down and high interest rates are hitting the

penetrate the Mexican automotive market,” says Desplats-

vehicle financing market, keeping brand partners close and

Redier. “Players that fail to consider these areas will run into

building a comprehensive strategy can be the difference

difficulties.” As part of its innovation focus, BNP Paribas

between surviving and growing in a difficult market, says

invested in the introduction of new products that will boost

Cédric Desplats-Redier, CEO of BNP Paribas Personal Finance.

auto financing without increasing its risks due to elongated credit maturation terms. “We will launch a balloon financing

“BNP Paribas has managed to grow despite the market’s

scheme and we will also implement a CRM system to keep

general downturn by working together with key OEMs,” says

close to our clients,” Desplats-Redier adds.

Desplats-Redier. Inflation rose in 2H17 but the brands working with BNP Paribas maintained a growth streak nonetheless.

Keeping in mind the importance that the Mexican market

Only in 2017, Kia reached 49.2 percent growth in sales in

places on vehicle ownership, the bank designed a balloon

Mexico compared to 2016, for a total of 86,713 units, and it has

solution to reduce monthly payments and leave a residual

plans to reach the 100,000-unit mark by the end of 2018. “Kia

value so clients can either pay it and retain the vehicle or

still experiences strong growth rates, which is partly thanks

turn it into a down payment for a newer model. “Users of

to the credit options BNP Paribas offers as the operator of

the balloon product pay only for the use of the vehicle,” says

Kia Financing,” he says.

Desplats-Redier. “When budgets are tight, it makes sense to

“

only pay for usage and balloon is the answer to this need.”

According to Desplats-Redier, the automotive financing market is highly competitive but uncertainty and interest rates are challenges that must be addressed. “High interest rates make credit more expensive and volatile peso-dollar exchange rates will play a key role in the sales results of 2018,” he says. The economic environment resulting from the federal elections, as well as the results of the NAFTA 2.0 negotiations are two other factors that will impact exchange rates and play a significant role in 2H18 sales results, according to DesplatsRedier. “Mexico is a price-sensitive market, so vehicle prices

High interest rates make credit more expensive and volatile peso-dollar exchange rates will play a key role in the sales results of 2018”

will be the main driver behind sales results,” he says. The bank expects to increase its credit portfolio by 20 percent To continue growing despite these challenges, BNP Paribas

in 2018, relying on the growth expectations of Kia and other

Personal Finance plans to harness OEMs’ sales growth while

brands. Although the bank has its sights set on market

attracting car buyers with quality. At the same time, the

segments beyond automotive, Desplats-Redier says BNP

bank looks for OEMs with consolidated dealership networks

Paribas will first take advantage of the opportunities it has

to partner with. “Our partners’ network must be wide and

already identified. “Becoming a top player in the automotive

sensitive to the advantages of vehicle credit because we lean

market is our priority prior to looking into new segments,” he

on distributors to market our solutions,” says Desplats-Redier.

says. That being said, BNP Paribas Personal Finance places greater importance on sustainable growth rather than on

The bank always looks to be the first or second option in

market share. Because of this, the company looks for quality

its partners’ sales. To that end, it has developed a growth

clients who will not eventually fall into a nonperforming

strategy that relies on aggressive pricing schemes, innovation

portfolio. “Rather than aiming for large sales results, we want

and quality of service that exceeds customer expectations.

to market our solutions among the people who can pay for

“Focusing on these three areas at once will help us further

them,” says Desplats-Redier.

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| VIEW FROM THE TOP

INTEGRATING VEHICLE LEASING SERVICES TO MAXIMIZE EFFICIENCIES LUIS MONTAÑO Director General of LUMO Financiera del Centro

Q: What opportunity did LUMO Financiera del Centro

now has contracts in most of the border states and the

identify in working for the public sector?

Baja California Peninsula. LUMO Financiera del Centro

A: The Federal Government has changed the way it buys

is also designing a strategy for tourist zones focused on

vehicles. It used to arrange individual tenders to acquire

electric, hybrid and low-consumption vehicles so tourists

vehicles, spare parts, insurance and maintenance services,

can support a nonpolluting culture.

but that is highly inefficient and can open the door to 310

corruption and price distortion. Today, the government

The transportation sector accounts for 45 percent of the

usually calls for bids for integral services.

company’s portfolio. From this percentage, about 60 percent of LUMO Financiera del Centro’s operations are

The government leases 100,000 vehicles per year

focused on financing and 40 percent on leasing. Dividing by segment, 30 percent of our contracts are for heavy vehicles, 50 percent for light vehicles and the remaining 20 percent for specialized vehicles such as armored or patrol cars. The company celebrated its ninth anniversary in 2017 and in those nine years we have grown tenfold. We expect to

Companies must now present proposals that include

replicate that result in the coming five years by offering

the vehicle, its maintenance, insurance and other

integral leasing solutions with the best brands of vehicles,

related services. This allows the government to deal

spare parts, insurance, GPS and assistance companies.

with a single company and reduce corruption as fewer people are involved in the process. Furthermore, vehicle

Q: What is LUMO Financiera del Centro’s value proposition

maintenance and other service costs can be reduced by

for government agencies and other clients?

25-30 percent. LUMO Financiera del Centro is one of the

A: We partner with OEMs and distributors and build a

few companies in the market that can offer an integral

proposal according to what the government plans to do

service with a strong financial backbone to support

with the vehicles. It does not make sense, for instance,

leasing in great volumes.

to have delivery people driving an eight-cylinder vehicle that will consume fuel indiscriminately. Choosing vehicles

Q: How are LUMO Financiera del Centro’s operations

depending on the use cuts fuel costs and eases maintenance

distributed across the country?

procedures.

A: The government leases approximately 100,000 vehicles through contracts with over 50 Federal Government

LUMO Financiera del Centro also offers leasing services

dependencies. We are present in 17 states and 15 regional

by the month, with insurance, preventive and corrective

capital cities. Just in the metropolitan area of Mexico City

maintenances, legal and road assistance and a substitute

we have over 5,100 leased vehicles, including more than

car if necessary. The contract periods for these services

350 garbage trucks and 2,000 patrol cars. The company

range between 12 and 48 months and clients can renew

has worked toward expanding in the northern part of the

their vehicles after the contract ends while paying the same

country where gasoline prices were first liberated and it

amount. LUMO Financiera del Centro is also associated with the most important insurance and bonds companies in Latin America: Interprotección, which helps us offer the right kind

LUMO Financiera del Centro is a member of Grupo CEPADEM,

of insurance for each situation.

a firm that specializes in structuring, hiring and managing financing services for infrastructure or productive investments

Q: What is LUMO Financiera del Centro’s advantage over

across the country

other full-service operators in the market?

A: LUMO Financiera del Centro has experience with larger

understand their customers. LUMO Financiera del Centro

vehicle fleets thanks to its work with the government.

has become a node for information distribution that helps

Tending to thousands of vehicles around the country

clients buy in a more informed way.

gives the company a logistics background that no other company has. We also have a strong financial backbone,

Q: How have uncertainty and high interest and inflation

which differentiates us as most other full-service companies

rates impacted LUMO Financiera del Centroâ&#x20AC;&#x2122;s activities?

are integrated vertically, with service centers and shops.

A: As interest rates rise, we have seen the need to optimize

Instead, we offer lower financing costs and alliances with

operations. Today, leasing fees are 30 percent lower than

OEM shops to prevent warranty losses. LUMO Financiera

four years ago due to increased competition. Companies

del Centro also offers contracts that ensure fixed prices of

strive to deliver the best service possible to the government

spare parts and other supplies throughout the year.

and the government will only hire the company that offers the best price and service.

Q: Who are LUMO Financiera del Centroâ&#x20AC;&#x2122;s partners in the heavy and light vehicle segments?

Fuel costs have also incremented, which boosts the

A: Daimler is our main ally in the heavy vehicle segment.

transition to gas and hybrid engines to cut these costs

The largest fleet in charge of vaccine distribution and most

back. I think in 10 years at the latest, all government

of Liconsa milk deliveries are done with Daimler trucks,

vehicles will transition from gasoline to hybrid and gas

most of them leased. LUMO Financiera del Centro has a

and eventually EVs. Although there are only a handful

partnership with International through which we can offer

of hybrid cars in Mexico, this transition should start with

new garbage trucks for cities and municipalities. We also

urban transportation and then with the fleets of large

have projects with Volvo for articulated buses for urban

companies.

transportation and a strong alliance with MAN. Q: What would you consider the biggest challenge in Regarding light vehicles, LUMO Financiera del Centro works

ensuring the continued growth of the domestic market

with Toyota and Nissan to provide hybrid and electric

and what changes do you think the industry should make?

taxis and charging stations for Guadalajara, Monterrey and

A: Under no circumstance should we go back to buying

several cities in the State of Mexico. Since the New Mexico

instead of leasing because that would only deplete

City International Airport (NAICM) will strive to only have

necessary resources to renew the national fleet. Aside

hybrid airport taxis, we expect to be the best option for

from maintaining a leasing policy, we should address

taxi drivers who need financing or who want to lease these

pollution problems by implementing hybrid technology.

vehicles.

Doing so, however, requires companies to create an area of cost-benefit analysis capable of pondering the benefits

Vehicle brands approach integral leasing-solution

of transforming their fleet away from combustion engines.

companies such as LUMO Financiera del Centro because

Once this happens, we will start seeing a new and more

we can serve clients in both the public and private sectors.

efficient vehicle fleet managed by companies such as LUMO

Integration enables clients to hire vehicle leasing services

Financiera del Centro that integrate the best brands and

more inexpensively and also helps brands to better

technologies while offering a good price.

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| INSIGHT

ADAPT TO THE CLIENT, DO NOT MAKE THE CLIENT ADAPT TO YOU DAVID MADRIGAL President of Element Fleet Management Corporation

While other companies have tried to transform the market and

as-you-go scheme globally and a total of 3 million in 50

push companies out of their comfort zone, David Madrigal,

countries thanks to our relationship with BNP Paribas’ fleet

President of Element Fleet Management Corporation, has

management subsidiary Arval.”

found that the best strategy for success is to adapt to what the market demands, not the other way around.

There is still much room for growth in Mexico according to Madrigal, both in the pay-as-you-go and the renting offering.

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“In Europe, approximately 70 percent of all corporate fleets

“I think there is potential for us to manage a total 50,000

are managed and leased through a third party,” says Madrigal.

or 60,000 vehicles up to 2023,” he says. The company has

“In Mexico renting fleet management has only reached 20

already built a name for itself in the country and currently

percent of the market.” This presents a natural opportunity

manages over 40,000 vehicles. Looking ahead, Madrigal

for companies in the fleet management sector like Element.

points to predictive analytics as the next step to solve

However, these players must be aware that not all companies

clients’ logistics issues. “We are already in the preliminary

have the same cost objectives, which means that not all

phase of doing predictive analytics, which eventually will

companies will be open to adopting the same business model.

provide us with more robust information to share with our clients,” he says.

Today, there are two options for fleet management solutions available in the market: a renting solution and what Madrigal

Element Financial Corporation has put data analysis at the

likes to call a pay-as-you-go model. With renting, on the

core of its strategy to understand clients’ needs. “Vehicles

one hand, companies lease their fleet and outsource its

today are computers on wheels that offer a lot of information

management, all through the same company that takes care

we can use,” says Madrigal. The company’s consultants

of everything related to the vehicle, its maintenance and

analyze a client’s fleet, gather the information they need

repairs. A product such as this ensures clients they will have

and create reports that contain insights on how to improve

payment stability throughout the duration of their contract,

operations. “Data is contrasted against industry averages for

thus offering more long-term certainty. According to

similar fleets and models,” says Madrigal. Element experts

Madrigal, the main users of this model in Mexico are European

can then tell clients whether they are spending more than

companies with presence in the country because this is the

they should be on fuel, for example, compared with their

preferred option in their homeland.

industry’s average.

The pay-as-you-go model, on the other hand, targets

Due to the importance of data-driven decisions, Element

strategic savings and efficiencies through modular solutions.

Financial Corporation has also set itself the objective of

Companies that do not mind monthly cost variations but are

developing digital platforms to improve fleet operations

looking for overall annual cost reductions are more interested

for its clients, thus making management easier. “Element

in this scheme according to Madrigal, since it can make the

decided to invest over US$100 million in developing its

service up to 20 percent cheaper. These are also companies

Xcelerate digital platform after acquiring GE Fleet Services,”

that normally own their own fleets and contract providers

says Madrigal. The first part of this investment involved the

such as Element to manage different aspects of their fleets

creation of a digital platform where clients can obtain reports

without actually relinquishing control over them. Madrigal

on their fleets’ performance and monitor factors such as

says this model is still largely used in the US, which has

location online. Now, the company is working on a second

influenced Mexican clients to adopt it. “Element prefers to

stage involving advanced analytics and connected vehicles,

offer the pay-as-you-go service because it more effectively

through the release of an app for drivers that will provide

caters to the needs of an evolving Mexican market,” he

information on gas station locations, service shops and similar

says. “We manage over 1.5 million vehicles through the pay-

services directly on their smartphones.

VIEW FROM THE TOP |

ACCESS TO MOBILITY DOES NOT MEAN OWNERSHIP REGINA GRANADOS CEO of LeasePlan México

Q: What is LeasePlan’s main challenge to becoming as

schedule maintenance dates at any moment and keep track

competitive as it is in the European market?

of key data from the vehicle. For fleet managers, we report

A: Europeans have embraced the leasing culture, which

costs related to the vehicle and we inform them which vehicles

makes it easier for us to market our solutions. Mexico’s reality,

generate the most costs, how long units have stayed in the

however, is still different. Mexico City’s vehicle park amounts to

shop and other KPIs. The company also created the MyFleet

7 million units and all are bought rather than leased. Leasing

online solution to help customers set report parameters

culture is only starting to permeate the country thanks to

according to their needs. All these systems are supported

the advisory efforts of companies such as LeasePlan. We

by the newly created LeasePlan University in which we try to

approach our clients and make them aware of the benefits

align clients’ and suppliers’ operations. That way, all companies

that leasing entails. This includes fiscal advantages but also

involved in the operation of the fleet can be aware of what

greater control of vehicle fleets.

can be done to improve processes. In 2018, we are launching a telematics solution that tracks driving habits and pinpoints

Q: Why is leasing vehicles instead of purchasing them a

the location of any vehicle in the fleet at all times.

better strategy for LeasePlan clients? A: Access to mobility anytime and anywhere is necessary

Q: What is LeasePlan’s strategy toward EVs and

for companies to focus on their business. Our clients’ core

autonomous vehicles?

business is usually not fleet management and engaging in this

A: In Europe, we have taken some steps toward making

activity without the necessary expertise or systems hampers

EVs the new normal by 2030 because the technology is

vehicle control. LeasePlan can reduce companies’ expenditure

already available. In Mexico, the development of this market

thanks to our supplier network that offers more competitive

still depends on diverse factors such as the availability of

prices for repairs and maintenance services. Additionally,

charging stations. Some of our customers in Mexico are global

LeasePlan has agreements with several OEMs that reduce

companies, so part of their policy is to reduce emissions in all

the price of the vehicle.

markets. Depending on what their policies dictate, we work together with these customers to help them achieve their

Q: What is LeasePlan’s strategy to promote the leasing

sustainability objectives. LeasePlan will push to support EVs

culture now that car sales are decelerating?

and hybrids but the process will follow the market’s evolution.

A: We approach our customers and show them the

The company is doing consulting on CO2 emissions for its

advantages of paying a monthly leasing fee rather than

clients and we already have a client in Mexico about to make

decapitalizing through vehicle purchase. Owning vehicles

its fleet fully electric.

means having assets that do not yield profits but require constant investment that could be better allocated toward

Q: How did LeasePlan perform in terms of client portfolio

the companies’ main operations. Leasing also eliminates the

and revenue growth during 2017?

need to take care of guarantee issues regarding defective

A: We added 85 new customers to our portfolio and we

auto parts and enables companies to identify users with high

grew our fleet by 48 percent, even though LeasePlan had

incidence rates.

forecasted growth of 16 percent. Our strategy of having our salespeople work like consultants has made a difference.

Q: What needs did LeasePlan identify to develop its app and how has the market reacted to it? A: Companies stall when they are not at the forefront of

LeasePlan is a Netherlands-based company focused on leasing

technological development. Users tend to forget to schedule

and fleet management services. It started operating in Mexico

maintenance dates for their vehicles. LeasePlan came up with

in 2008 and has launched a variety of digital solutions to help

a solution that gives them greater control by letting them

its customers have better control of their fleets to reduce costs

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| VIEW FROM THE TOP

DIGITALIZATION STILL A PERK RATHER THAN ADDED VALUE SANTIAGO FERNÁNDEZ Executive Vice President of Vehicles, P&C and Health at AXA México

314

Q: How does growth in the domestic market impact

Q: How important is AXA’s collaboration with Uber to offer

development in the insurance sector?

insurance to all drivers outside Mexico City?

A: In other markets, growth in new-vehicle sales is

A: Our main priority is to protect our clients’ assets. We

synonymous with renovation of the vehicle park. In Mexico,

insure cars but, most importantly, we insure users' mobility.

new-vehicle sales add to the existing vehicle park. In terms

If the industry is coming up with new mobility solutions, we

of insurance, however, more vehicles on the road does

must adapt accordingly. We have established an alliance

not necessarily mean more contracts given that in Mexico

with Uber not only in Mexico but in other countries as

insurance is not mandatory. Only certain states have issued

well and although it is still a small part of our business,

regulations to make insurance mandatory but even then,

this represents a major step in terms of innovation and an

insurance has not been linked to the fiscal system.

opportunity to build future strategies with Uber or other mobility service providers. Moreover, our collaboration with

Today, seven out of every 10 vehicles lack an insurance

Uber resulted in the first insurance-by-kilometer solution

policy in Mexico. It is true that thanks to the role financing

offered in the Mexican market.

plays in the growth of new-vehicle sales, insurance has had a much larger penetration in the light-vehicle market.

Q: Overall, what do you expect will be AXA’s contribution

Having said that, each OEM and financing branch has its

to the development of the automotive industry?

own sales politics and priorities, which means insurance

A: Besides supporting the growth of leading industries such

companies do not benefit from the market’s growth in

as automotive, the insurance market by itself has become

the same way. For AXA, results have been cyclical and

a pillar for the Mexican economy. We follow an inverted

right now we are enjoying a period of growth that we

cycle, wherein clients give us money without us having to

seek to maintain through a close relationship with OEMs

deliver a service immediately. We issue a policy and we pay

and distributors.

back only if the client has an incident. All the money we have in our reserves is invested in Mexico’s economy, which

Q: How do you expect the increase in car theft will impact

makes us a contributor in the country’s development just

insurance penetration if insurance prices go up?

as much as banks.

A: It is the same issue users face with the increase in gasoline prices. Clients must be aware that beyond the

Q: How ready is AXA to embrace digitalization in its

investment they will make in their vehicle, they must

operations?

consider the added expense of having proper insurance in

A: AXA is committed to innovation and digitalization.

the same way they consider their constant use of gasoline.

Yet, we participate in an industry where sales are mostly

The price of an insurance product is directly related to the

completed through human interaction. In general, the

risk that insurance companies assume. It is true that car

insurance market is not considered the most innovative

theft is increasing considerably, which leads to a general

sector but we are constantly working to improve our

increase in insurance prices, particularly in the commercial

digital communication with the client and on training

and heavy-vehicle segments due to the cost of the vehicle

our personnel regarding the use of new technologies.

plus the cargo.

The My AXA app has been particularly important in our digitalization process. Today, most calls we receive related to health issues as well as some car accidents are

AXA is a French insurance company present in 64 countries

done through the app. The client can also check on the

and with over 103 million clients worldwide. In Mexico, AXA

adjuster’s progress through the app, making the process

has over 6 million clients, supported by 52 offices throughout

more transparent and providing our customers with

the country

peace of mind.

INSIGHT |

RIDE-HAILING DRIVES NEW INSURANCE CHALLENGES RAÚL BARBA Director General of ANA Seguros

Ride-hailing services have become increasingly popular as an

While ANA Seguros offers coverage for motor vehicles

urban mobility option. However, in a country with low levels

from trucks and cars to motorcycles, the company’s area

of insurance penetration, not being able to differentiate

of expertise is the used-vehicle segment. “Mexicans tend

ride-hailing drivers from regular car owners harms the

to hold on to their vehicles, so our task is to promote the

insurance market, says Raúl Barba, Director General of

penetration of insurance in this segment,” says Barba. The

insurer ANA Seguros.

main reason for ANA Seguros’ focus, however, is related to competitiveness. Barba points out that the new-vehicle

“When ride-hailing services arrived, we insured private

market has become extremely competitive and insurance

drivers as regular vehicle owners because these platforms

companies have lowered their premiums to the point of

advocated good driving habits,” Barba points out. “When

limiting access for companies like ANA Seguros. At the same

Uber and similar services first appeared in Mexico, the idea

time, spare part prices and availability are difficult topics in

was that drivers would transport people around as a way to

the new-vehicle segment that compromise the position of

complement their income rather than making a job out of

the insurer, rather than that of the dealership. “Spare parts for

these services.” Now, the ride-hailing concept has changed,

new vehicles are often imported and clients tend to not be

vehicles are no longer in optimal condition and there are

that understanding when it takes up to five months to deliver

people who employ 15 drivers or more in e-hailing fleets.

a component, normally blaming the insurance company.”

These changes have made insurance companies like ANA

Barba enumerates auto insurance becoming mandatory

Seguros lose interest in ride-hailing vehicles. Barba says

and the entrance of new digital technologies as key factors

mechanical requirements of vehicles used for ride-hailing

that will play a role in both the penetration of insurance in

have been reduced, their security conditions have become

the Mexican market and in ANA Seguros’ plan to grow 35

deficient and their incidence rates have risen even beyond

percent by the end of 2018. However, he points out that

the rates of regular taxis.

authorities should change their perspective when addressing insurance being compulsory in Mexico. “Insurance has been

Unfortunately, the fact that insurance companies are not

considered from a tax-raising perspective rather than from

interested in these units does not prevent their drivers and

a prevention-promoting approach,” Barba says. “Authorities

owners from buying coverage. According to Barba, drivers

are more oriented to fining people who lack insurance

and owners simply do not reveal plans to use their vehicles

coverage rather than to raising awareness on the damage to

for ride-hailing transportation and insure them as normal

patrimony that can result from crashing without insurance.”

private vehicles. This poses a double challenge. “Pricing insurance policies is more difficult for ANA Seguros and

For its own growth, Barba sees technology as a must to

other companies,” he says. “Meanwhile, premiums and

remain competitive and the reason for the company’s 33

monthly fees from regular owners with low incidence rates

percent gains in 2017. “Although insurance sales have not

are used to pay for the frequent accidents of ride-hailing

changed much and most are still done through salespeople,

vehicles,” he says.

we need to step onto the technology train to reach younger generations,” he says. “Our ideal clients are professionals

Though ride-hailing users may be a risk for ANA Seguros, the

above 27 years of age who are parents and who drive

company has not given up on the light-vehicle market. “Only

vehicles older than three years.” The company is now betting

30 percent of Mexico’s vehicle park is insured,” says Barba.

on apps and telematics to deliver new solutions to its clients

“Yet, the country’s insurance market has evolved thanks to

and to offer online auto-adjusting so the presence of an

security problems and natural disasters that raise awareness

insurance adjuster in case of an incident can be reserved

on the importance of protecting one’s assets.”

for a few cases.

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| VIEW FROM THE TOP

DIGITALIZATION KEY TOÂ UNLOCKING MARKET ALEJANDRO COSIO Country Manager Mexico of SeguroSimple.com

316

Q: What opportunities did the Mexican market offer to

can sensitize vehicle users to the importance of insurance

SeguroSimple.com, considering the low penetration of

through the content we post as part of our marketing

insurance particularly in the automotive sector?

strategy. Digitalization has allowed us to reach a wider

A: We like to consider ourselves a Latin American company.

potential market and clients can quote their products and

Although we have both Mexican and Peruvian stockholders,

choose from different alternatives digitally. We ask for very

our Mexican stockholders now surpass their Peruvian

basic information from the clients and their vehicles and

counterparts. The company started in Peru and is now the

based on a quick assessment, we can offer different options

No. 1 digital insurance broker there, breaking even at the

from the eight insurance companies that collaborate with

end of 2017.

SeguroSimple.com.

After analyzing the state of the Mexican market, the

We understand that insurance products might be

company decided to enter the country and tackle the

complicated at times, which is why we also have a contact

opportunity that low insurance penetration offered. The

center available by phone, email or WhatsApp. That way,

Mexican automotive market is 20 times larger than Peruâ&#x20AC;&#x2122;s,

whatever doubt may arise regarding coverage, payment

yet insurance penetration is at just over 30 percent. We think

or any other issue can be addressed by our support staff.

there is an enormous opportunity to develop our digital

People know they need insurance and they want the best

model and garner a bigger presence than traditional brokers.

deal available, but they sometimes do not know what they need to insure based on how they use the vehicle.

In 2015, only 5 percent of all car insurance products were sold through digital platforms and by the end of 2018, the

Q: Considering the close relation between financing and

projection is for this number to grow to between 7 and 8

insurance, what is your plan to establish collaborations

percent. Our expectation is that by 2022 or 2023, digital

with dealership groups and financing partners?

insurance penetration will reach a 15 to 20-percent rate out

A: At the moment, we are focused on insurance services

of the total car insurance sales and our goal at SeguroSimple.

for private users. We also have a limited offering for taxis

com is to cover 5 percent of the total vehicle insurance

and ride-hailing platform drivers. We chose not to enter the

market in Mexico and Peru. Chile and Colombia will be our

cargo segment because that requires more specialization

next target markets. Unlike what happens with cars, people

and we did not want to get involved in a market where we

do not need to see or feel their insurance before buying it,

could not offer an optimal service.

which means that just like what happened with airline tickets, insurance sales will eventually become fully digital.

We still have not approached dealership groups directly but we have many clients that are part of the sales force at

Q: What advantages can you offer your insurance partners

several dealerships. These users have found SeguroSimple.

as a digital link to potential clients?

com a powerful and useful tool to support their clients by

A: We can offer two advantages through our digital model.

offering different options and potential savings in acquiring

First, we can access a client population that might not have

their insurance. We do have a plan to approach distribution

had previous contact with the insurance market. Second, we

groups formally and we already have this in place in Peru, but in Mexico it is a midterm strategy. In the long term, we also want to reach out to companies and offer them

SeguroSimple.com is a digital insurance broker founded in

corporate insurance plans for their employees. Being

Peru in 2013. The company entered the Mexican market in 2017

backed by a company reduces the risk that insurers face

and now works with the eight largest insurance companies in

with certain clients, and companies can offer this as an

the country, including AXA, Qualitas and GNP

added benefit to their employees.

INSIGHT |

EMPLOYING PAY-PER-KILOMETER INSURANCE TO BOOST MARKET PENETRATION LEONARDO CORTINA Founder and CEO of miituo

Drivers who spend little time on the road are more prone

Cortina adds that digitalization is at the core of miituo’s

to roll the dice and choose not to have car insurance rather

business because of the nature of pay-per-kilometer

than pay annual premiums that, to them, makes no sense. But

insurance, its commercialization process and the challenges

there is an opportunity to attract these potential customers

of offering this kind of insurance. He says that auto insurance

with the right products, says Leonardo Cortina, Founder and

can be easily sold digitally because it is commoditized.

CEO of miituo, which partnered with insurer Seguros Atlas

“Available information regulates market prices and clients

to provide car insurance per kilometer. “Mexicans may not

are becoming fond of purchasing coverage digitally

have a culture of buying medical or civil liabilities insurance,”

because it is fast and efficient,” he says. The company

he says. “But we are aware that vehicles are a key part of our

relies on digital channels such as Google and Facebook to

patrimony,” Cortina says.

reach its target clients.

There were around 30.1 million registered cars circulating on

Cortina enumerates several challenges that miituo had

Mexican roads in 2017, according to INEGI, but only a fraction

to overcome to offer pay-per-kilometer insurance. These

of the country’s vehicular park is covered by insurance, which

include knowing the distance users drive each month,

Cortina attributes to an absence of products that cater to

processing large amounts of digital transactions and

the uninsured market or people who drive only once or

calculating premiums in a 100 percent variable insurance

twice a week. The company uses digital means to offer

scheme. Cortina explains that the company pondered

pay-per-kilometer insurance coverage for that segment of

using GPS devices and an app where drivers would log in

drivers who want insurance according to how much they

before embarking to glean the necessary information on

drive. “Paying for coverage according to the driven distance

distance driven. But the company chose to create an app

transforms insurance from a fixed to a variable cost,” says

where users take and upload photos of their odometers.

Cortina. “Some clients can save up to 80 percent of their

“Clients tell us how much to charge them by reporting

insurance premium.”

their kilometrages to miituo on a monthly basis,” he says. miituo’s clients purchase coverage digitally, install the

The idea for the company’s business model derives from

company’s app on their smartphones and use it to take

Cortina’s experience in fleet management. “Insurance is

and upload a few photographs of the insured vehicle

always a complex topic in transportation because coverage

to show its current state. “Clients can only use miituo’s

and premiums are too flat,” he says. Cortina points out

app to take and send these pictures, which protects us

that during his tenure in fleet management there was no

from any possible fraud,” says Cortina. miituo then asks

distinction between cars for executive use and commercial

clients to use the app to send a picture of the vehicle’s

vehicles despite the abysmal differences in incidence rates

odometer showing its kilometrage. From that point on,

and kilometers traveled. “We wanted our product to be

clients will receive notifications that remind them to

completely variable,” he says. To that end, miituo partnered

report their kilometrage each month and miituo charges

with insurance company Seguros Atlas. “Our partner focuses

them according to respective changes in the reported

on charging premiums and handles incidents while we focus

kilometrage.

on commercialization, branding and product development.” The challenge of dealing with large volumes of digital The insurance industry works by pooling premiums in

operations are directly related to miituo’s model that

common funds that insurance companies use to make

charges on a monthly basis. “Clients usually interact with

payouts, explains Cortina. “miituo came up with a different

their insurance providers once a year unless they suffer an

scheme of mutuality in which each user has its own according

incident,” says Cortina. “miituo charges clients differently

to the kilometers driven,” he says.

every month, so digital transactions multiply twelvefold.”

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Piston ring production

AFTERMARKET OPPORTUNITIES

Competition is healthy but not when it leads to a price battle without considering product quality. The Mexican aftermarket has for many years been dominated by the law of the lowest price. This is finally changing as clients become more aware of the need for quality products. However, a lack of regulation remains an issue for companies wanting to compete against low-priced products coming from abroad. At the same time, companies face a paradigm shift as digital presence becomes more important for potential customers.

This chapter presents an overview of how the aftermarket is developing in Mexico and how the clientsâ&#x20AC;&#x2122; mindset is transforming in favor of added value rather than reduced price. Top companies also share their perspectives on what needs to change for the domestic market to become a more regulated entity with higher quality standards.

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CHAPTER 12: AFTERMARKET OPPORTUNITIES 322

ANALYSIS: Regulatory Gaps, Yesterday’s Cars: Future Aftermarket Opportunities

323

VIEW FROM THE TOP: Alejandro Calderón, ARIDRA

324

VIEW FROM THE TOP: Gerardo Varela, ZF Services

325

VIEW FROM THE TOP: Sergio Álvarez, Hankook Tire de México

326

VIEW FROM THE TOP: José Pescador, Fast Autopartes

327

VIEW FROM THE TOP: José Álvarez, Cofremex

328

VIEW FROM THE TOP: Jorge Vásquez, OSRAM México

330

VIEW FROM THE TOP: Michael Gines, Dacomsa

331

VIEW FROM THE TOP: Eduardo Tamer, Mikel’s

332

VIEW FROM THE TOP: Alejandro Calderón, Autopartes Calderón

333

VIEW FROM THE TOP: Fernando Murguía, TecAlliance Mexico

334

ROUNDTABLE: What Role Will Digitalization Play in the Industry’s Evolution?

336

VIEW FROM THE TOP: Amelie Mossberg, Mercado Libre México

337

VIEW FROM THE TOP: José Gómez, Grupo Gocar

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| ANALYSIS

REGULATORY GAPS, YESTERDAY’S CARS: FUTURE AFTERMARKET OPPORTUNITIES It takes some time for a new vehicle to need maintenance or repairs and car owners are more likely to bring their vehicles to dealerships for service for the life of their warranty. Years down the line when it no longer makes financial sense to maintain a vehicle directly at a dealership, the vehicle reaches the independent aftermarket

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Growing sales results in the domestic market means more

Óscar Albin, Executive President of INA, says many price-

business opportunities for the country’s aftermarket

sensitive vehicle owners in Mexico choose low-quality

players. It just takes a while longer for the sector to

parts to keep their units functioning despite the short

see these benefits. According to Alejandro Calderón,

uptime these components guarantee and the risk of

President of ARIDRA, there is solid demand ahead for

vehicles breaking down again. “There is no NOM-type

Mexico’s aftermarket services given that 2016 was a

seal that tells customers whether a spare part is good

record year in which over 1.6 new vehicles were sold. “This

or bad quality, so Mexican clients often buy aftermarket

vehicle park will start needing spare parts and repairs

components blindly,” he says. Michael Gines, Managing

around 2019,” he says. “At the same time, consumers who

Director of Dacomsa, points out that Mexico is the only

decided not to buy a new vehicle in 2018 will continue

country in which the company sells its components where

“

making repairs to their current units.”

Any regulation that improves a vehicle’s performance results in a benefit for the spare parts market” José Pescador, Director General of Fast Autopartes

lack of regulation leads to deficient protection for the end consumer. In an unregulated market, customers are often left to their own devices. As Calderón points out, there is room for both quality and low-cost products according to budgets, and Mexicans are figuring this out for themselves. “The market is learning that buying cheap is not always a good idea because savings achieved when purchasing lowquality products are lost in repairs,” says José Pescador, Director General of Fast Autopartes. While a price-sensitive view is still part of the country’s dynamic, vehicle emissions regulations have boosted

According to the document Dialogue with the Automotive

sales for quality components in some segments of the

Industry 2018-2024, published jointly by AMDA, AMIA,

aftermarket. “These norms have a positive effect because

INA and ANPACT, the average age of Mexico’s light-

vehicles will have to be thoroughly repaired in a timely

vehicle park was 13 years in 2017 while 36 percent of

manner to be allowed on the road,” says Albin. This

the country’s heavy-vehicle park was more than 21 years

benefit, however, was cut short during the first half of

old. The fact that Mexico’s vehicle fleet is older means

2018 when emission verification tests were put on hold.

opportunities for aftermarket players that offer repairs

According to Caledrón, this led to decreased demand in

and spare parts. Only 25 percent of the 33.6 million light

the aftermarket since owners did not have to worry about

vehicles roaming Mexican roads are under 6 years of age,

their vehicles complying with any standards.

which means in 2018 around 25.2 million light vehicles plus a number of heavy vehicles can be targeted by shops

With the renovation of the verification program and the

and spare parts retailers.

enforcement of new regulations for heavy vehicles and emissions inspections in Mexico, industry leaders expect

However, Mexico’s aftermarket faces several regulatory

renewed growth opportunities for the aftermarket. NOM-

challenges in terms of quality standards for spare parts

012 will increase basic safety equipment that all trucks

and emissions inspections that prevent healthy growth.

and buses must equip in order to circulate. Meanwhile

Nothing beats original equipment when it comes to

NOM-044 will demand higher emissions standards

quality but that comes at a cost. Mexico is a highly price-

promoting migration toward more efficient motorizations.

sensitive market, making it difficult for manufacturers

“Any regulation that improves a vehicle’s performance

and distributors of quality parts to market their products

results in a benefit for the spare parts market,” says

while competing with lower-priced components.

Pescador.

VIEW FROM THE TOP |

ROOM STILL THERE FOR PREMIUM AND LOW-COST PARTS ALEJANDRO CALDERĂ&#x201C;N President of ARIDRA

Q: How did the suspension of mandatory vehicle emissions

that keep vehicles on the road for longer. The premium side of

inspections in Mexico City in 1H18 impact the Mexican

the aftermarket has also grown in importance as more women

aftermarket?

buy their own vehicles. This population segment is generally

A: Sale of quality spare parts plunged during this time

willing to pay more to have quality parts in their vehicles.

because people did not need to pass any tests or have their vehicles checked, leading to a crisis for repair shops

Q: How is the downturn in vehicle sales since 1H17

because they were working at less than half of their

impacting the countryâ&#x20AC;&#x2122;s aftermarket?

installed capacity in Mexico City for six months. Prior to

A: Aside from the vehicles used for public transportation

the suspension of this public program, demand for branded

that enter the aftermarket almost immediately after being

spare parts, including Bosch, DENSO, Delphi and HELLA,

sold, the sales drop does not have an immediate impact on

was on the rise. These components reduce both ownership

the aftermarket. Vehicles sold in 2018 will need spare parts

costs of vehicles and fuel consumption, so we expect that

in three to five years. On the other hand, 2016 was a record

when the vehicle inspections program becomes mandatory

year with over 1.6 million new vehicles sold. This vehicle

in more states, demand will rise. ARIDRA raises awareness

park will start needing spare parts and repairs around 2019,

about branded products and how they meet the quality

so there should be solid demand ahead for the Mexican

standards of original equipment that enable vehicles to

aftermarket. At the same time, consumers who decided not

pass these environmental verifications. To meet this coming

to buy a new vehicle in 2018 will continue making repairs

demand, all aftermarket companies in Mexico City have

to their current units.

increased their production and distribution capabilities. Q: How ready are Mexican spare parts distributors to cope Q: How has the spare parts market evolved toward

with the projected demand generated by vehicles sold in

minimum quality standards in the Mexican aftermarket?

2017 and 2018?

A: OEMs dictate the quality standards that their

A: The more than 1.5 million vehicles sold in 2017 and those

component suppliers must meet. There are several quality

sold in 2018 will start reaching the aftermarket between

levels in the Mexican aftermarket. While some companies

2020 and 2021 and will create an interesting demand.

have developed spare parts that meet original-equipment

Companies in the Mexican aftermarket cannot fully prepare

quality standards without participating in this segment,

for this demand because they are unaware of what vehicles

others import low-cost, low-quality components. There is

are more prone to breaking down and what parts will need

a demand for both products. Since there is no regulation,

to be replaced more often. Having said that, Mexican spare

companies that import low-quality parts can market them

parts distributors already have fast-moving components

among price-driven users. As an example, an oxygen

for new vehicles in stock. Filters, sparkplugs, brake pads

sensor requires pure platinum parts to work as expected.

and suspension parts for new vehicles reach the market

But, some low-quality, imported oxygen sensors do not

before new vehicles need them. Engines, pistons and other

use pure platinum and do not perform as expected. When

more complex components take longer to be available. This

an emissions scanner is applied to this component, it

happens because engines are increasingly technologically

will not offer clear readings and the performance of the

advanced and parts tend to last longer.

vehicle will suffer. While small shops may buy the components that clients ask

The National Association for Representatives, Importers and

for, larger chain shops will pay attention to their image and

Distributors of Spare Parts and Accessories (ARIDRA) is a

focus on delivering premium services and use quality spare

civil association that integrates manufacturers, importers and

parts as more Mexican drivers care about having components

distributors of spare parts and accessories in Mexico

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E-COMMERCE TO CUT THE MIDDLEMEN, IMPROVE AFTERMARKET GERARDO VARELA General Manager of ZF Services

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Q: What strategies is ZF Services implementing to reach

Q: How has the Mexican aftermarket reacted to ZF

end consumers directly through e-commerce?

Services’ corner modules?

A: ZF Services works to strengthen its B2B business model

A: This concept offers many advantages to the entire

to offer clients access to the company’s CRM system for

automotive component distribution chain. A corner module

interactive consults and transactions while also developing

kit offers key safety parts, including brake components,

a B2C business model that integrates retailers, shops,

shock absorbers and steering and suspension parts to

installers and end users to ease every digital process from

deliver a complete solution to consumers looking to keep

a simple product enquiry to a direct purchase. ZF Services

their vehicles in excellent shape. The idea is that component

is also developing an app that will help us remain in contact

distributors can access a complete, one-stop solution

with our end users and to reward them for their loyalty by

through only one vendor.

offering technical and product support. Users can collect and redeem ZF points for attractive prices through this

Q: How has ZF Services’ merger with TRW impacted

bonus program.

the company’s position as an innovator in the aftermarket segment?

Q: How important is digitalization in the aftermarket and

A: Several of the projects that have been created from this

how is this trend impacting ZF's marketing and sales

merger have taken advantage of synergies between both

strategies?

companies to increase productivity, reduce duplications

A: Digitalization has become critical for the aftermarket.

and improve business processes to become faster and

We live in a digital world and need to remain aligned to the

more competitive. This merger has also resulted in the

latest technologies to design, develop and manufacture our

strengthening of the BOGE and TRW brands.

products and to sell them across the different markets in which we are present. Digitalization also supports greater

Q: What are ZF Services’ plans regarding the

productivity and efficiency as it bridges the gap between

implementation of a specialized shop in Mexico?

the manufacturer and the end user. This process is changing

A: ZF Services is developing a project to remanufacture

the way aftermarket products are promoted and sold to the

ZF Automatic Transmissions for various bus brands such

benefit of consumers.

as Volvo, Mercedes-Benz, Scania and MAN Truck & Bus. This project will enable ZF Services to support warranties

Q: How do you expect e-commerce will impact the diversity

and satisfy the expectations of end users. ZF Services’

of quality levels in the Mexican aftermarket?

Remanufacturing (Reman) Workshop will be located in

A: I expect e-commerce to have a strong impact in the

Queretaro.

aftermarket. It will improve everything from the quality of a product to its delivery process. Middlemen located

Q: What are your growth projections for 2018 in terms of

between the component manufacturer and the end user will

sales and revenue?

disappear and prices will be reduced and the aftermarket

A: We expect to grow sales by 10 percent compared

will move away from supplying spare parts and toward

to 2017. We had a rough start to the year due to the

complete solutions.

political and economic uncertainty related to the NAFTA renegotiations and Mexico’s federal elections. But we have a positive market outlook for 2H18, both for our

ZF Friedrichshafen is a German manufacturer of drivetrain

target markets and for the Mexican economy in general.

and chassis components for light and heavy vehicles and

Mexico has reached a level of competitiveness that will

motorcycles. Its aftermarket operations are managed by the

continue to attract FDI to the country’s automotive

ZF Services subsidiary

industry.

VIEW FROM THE TOP |

KEY STRATEGIES FOR A GROWING SEGMENT SERGIO ÁLVAREZ Commercial Director of Hankook Tire de México

Q: How did your operations evolve in the north of the

is the fourth element in this growth strategy. For Hankook

country after opening your distribution center in Monterrey?

to be successful, we need distribution partners that believe

A: We opened our first Hankook shop in Monterrey along

in the brand and that know how to showcase its advantages

with Grupo Raga and the goal is to open more by the end

when compared to commodity solutions. Finally, our people

of this year in Chihuahua, Jalisco, Colima, San Luis Potosi,

have been essential in building these relationships and

Yucatan, Queretaro and Mexico City. Although we already

incorporating new ideas into our organization.

are the top brand in Chihuahua, we are just building our brand in Monterrey and San Luis Potosi. The north and south

Q: How has the clients’ mindset changed in favor of quality

are two of our main priorities at the moment, considering

rather than price?

that we now have an established presence in Jalisco,

A: Clients have become much more active when deciding

Guanajuato, Queretaro, Michoacan, Coahuila, Hidalgo,

what tire fits their vehicle best. Normally, they go for the same

Puebla, Veracruz, the State of Mexico and Mexico City.

model the car had when they purchased it but our distributors have also been clever in showing clients the benefits they can

Q: How successful is your strategy to partner with

get from Hankook. Overall, clients are more curious and more

supermarkets for aftermarket operations?

informed about what type of tire they should use according

A: Our relationship with supermarkets has been critical

to the season and the speed range in which they drive. As a

in building our presence throughout the country. This is a

result, quality, safety and performance are trumping price as

much more price-driven market for commodity products

a priority in the consumer’s mind. The fact that companies

but we have also positioned our tires, mainly the Laufenn

are also working to reduce production costs and developing

brand. Our results have been positive and we expect our

more affordable brands within their lineup has also been key

sales in supermarkets to grow approximately 15 percent by

for users to be more attracted to quality products.

the end of 2018 compared to 2017. Q: How important is digitalization to Hankook’s strategy Q: What strategies have you implemented to grow your

in the aftermarket?

presence in a price-driven market like Mexico?

A: Thanks to our growing presence in original equipment,

A: Clients sometimes think tires are all black and round. That

our distribution network has steadily increased with our

is not the case and we have worked on five key elements to

Hankook Masters stores. Our goal is to have 30 Hankook

show the end consumer the advantages that Hankook can

Masters stores by the end of the year. However, demand is

offer. First, we pay close attention to the clients’ needs to

greater and younger generations are now looking for us

then offer product innovation based on those requirements.

online. According to our latest statistics, Hankook is the

Korean culture is founded on innovation and we are

best-selling tire brand online in Mexico, practically doubling

introducing products to the Mexican market that can offer

the sales of our closest competitor. Today, between 30 and

an added value in terms of safety, comfort, sustainability and

32 percent of all tires sold digitally are Hankook, which

performance. We have also implemented warranties for our

equates to approximately 3 percent of our total sales. My

products as part of our differentiation strategy.

personal goal is to grow our digital operations to 10-12 percent of our total sales by the end of 2019.

Our third strategy is related to cost reduction, both in manufacturing and distribution operations, which is why we now have a total of three distribution centers located in

Hankook Tire is a Korean tire manufacturer with corporate

Monterrey, Queretaro and Puebla. The latter is focused on the

presence in 30 countries and manufacturing facilities in eight

original equipment segment but the other two support the

of those. The company has close to 22,000 employees globally

development of our aftermarket distribution network, which

and a production capacity of 104 million units as of 2017

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STRENGTH THROUGH REGULATIONS, QUALITY THROUGH STANDARDS JOSÉ PESCADOR Director General of Fast Autopartes

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Q: What is Fast Autopartes strategy to continue growing

Mexican aftermarket has developed a taste for standard

in the brake component segment?

quality spare parts that work well at commercial prices.

A: We entered a commercial alliance with a distributor of

There is a wide spectrum in the Mexican aftermarket where

electrical and fuel-injection components called CIOSA that

service and complete inventories make all the difference.

has a sales channel of 20 distribution centers in Mexico.

People in this market segment do not look for top-of-the-

This alliance will enable Fast Autopartes to grow and reach

line, cutting-edge European or US technology that costs

a 3-percent market share in the brake-pads segment by

three or four times the price of an average spare part but

the end of 2018 and 5 percent in 2019. Another promising

expect a quality level that ensures their components will

sales channel is e-commerce and we have already started

not cause problems.

a project to sell more of our components through digital means. Only around 3 percent of our sales come from

Q: How can stronger regulations on brake-pad quality

e-commerce but we are confident this will increase

increase vehicle safety?

over time.

A: Regulation in the Mexican aftermarket is an issue that the Ministry of Economy and several chambers of commerce

Q: What impact will the arrival of Chinese OEMs and

should address to protect national manufacturers from

suppliers have on the Mexican aftermarket?

low-quality imports. Regulations on braking components

A: The Mexican aftermarket will grow as long as vehicles are

are not as pressing as in other segments. However,

sold. Chinese OEMs will increase competition in the segment

because Mexican companies hold 60 percent of this niche,

of low-cost vehicles where OEMs such as Toyota and Nissan

iit is difficult for foreign companies to showcase products

are present. In terms of spare parts, the Mexican consumer

that will endanger users. Fast Autopartes looks for an

has learned to recognize the importance of quality over

edge over competitors in the Mexican market by earning

price. That being said, Chinese manufacturers are building

international certifications. All the components we import

increasingly better products. Low-quality spare parts have

comply with international quality standards and original

become less common as the Asian manufacturing industry

equipment norms that aftermarket components should

adopts international quality standards. These markets have

meet. The more regulations there are in the aftermarket,

had to improve to sell their components all over the planet.

the more Mexico’s auto parts manufacturing industry

Before, it was hard to come across high-quality brake pad

will grow and only the companies that meet original

manufacturing plants in China but things have changed and

equipment specifications will be allowed to import and

now more Chinese companies comply with the standards

sell components.

necessary to meet our expectations. Q: How do you expect NOM-012 on auxiliary brakes for Q: What led the Mexican consumer away from cheap, low-

heavy vehicles will impact the Mexican aftermarket?

quality products?

A: Any regulation that improves a vehicle’s performance

A: The market is learning that buying cheap spare parts

results in a benefit for the spare parts market. Fast

is not always a good idea because the savings achieved

Autopartes collaborates with interurban bus companies

when purchasing these products are lost in repairs. The

that already equip electro-mechanic brakes in their vehicles to increase the useful life and efficiency of their brake pads. Friction technology to slow down and stop a vehicle as

Fast Autopartes is a Mexican distributor of brake pads, rotors

brake pads do is difficult to replace. An electro-mechanic

and discs. The company sources its components from Europe,

brake may increase the useful life of brake pads by up to 40

Asia and China and focuses on meeting international standards

percent and slow down a moving vehicle, but friction will

for original equipment to stand out in the Mexican aftermarket

always be necessary to stop the unit completely.

VIEW FROM THE TOP |

NEW NORM WILL BOOST SAFETY-ORIENTED, COSTSAVING COMPONENTS JOSÉ ÁLVAREZ Director General of Cofremex

Q: How do Cofremex’s products help freight transportation

dealerships so that vehicles leave the dealership equipped

companies reduce costs?

with braking units financed by the dealership. Our

A: Our maintenance-free electric brakes are based on the same

technology can then be included in the final bill but instead

physical principle that powers magnetic levitation high-speed

of being installed in the production site, it is installed in a

trains. These braking units are connected directly to the truck’s

semi-centralized shop.

powertrain without having to use conventional friction brakes. This effectively reduces wear on conventional friction braking

Q: How will NOM-012 impact Cofremex when enforced?

systems and multiplies their useful life up to 500 percent. Our

A: One of the key advantages we had before arriving to Mexico

brakes are not based on engine revolutions but on cardan

was being already homologated with European manufacturers.

shaft revolutions as opposed to engine brake systems. This

Cofremex’s electromagnetic brakes are homologated for

enables them to effectively curb engine revolutions, reducing

up to 85 ton and comply with this new Mexican regulation

fuel consumption and brake pad exhaustion. Electric brakes

on vehicle weight and dimensions. According to this norm,

can cut the requirement for brake pad replacements from

trucks weighing between 12 and 25 ton must have an engine

once every three or four months to once every three or four

braking unit or an auxiliary braking unit. Since vehicles in that

years. Trucks and trailers equipped with our components

segment do not have engine braking units, they will have

need to use the clutch less and their tires experience less

to be equipped with electric brakes. Making friction-free

heat and suffer less friction-related erosion. This translates

brakes mandatory equipment will enable Cofremex to grow

to vehicles spending less time in the shop thus improving

exponentially. There will be an enormous impact in the heavy

route times.

vehicle aftermarket because clients will have to implement auxiliary brakes.

Q: What challenges has Cofremex faced in penetrating the Mexican market?

Q: What growth expectations does Cofremex have for

A: The company had to shift its initial safety-oriented

2017 and 2018?

sales strategy to a cost-savings approach, mainly because

A: We started operations in Mexico in 1997, selling only one

transportation companies are unwilling to invest beyond

brake unit that year. Now, we expect to close 2017 with

meeting minimum safety standards. People in this industry

over 2,000 units sold. Autotanques Nieto, Praxair, Pinfra

worry about 1 percent savings on fuel but usually do

and other companies that transport hazardous materials

not consider the costs of an accident. Transportation

are key clients. CEMEX’s mixer trucks as well as some of

companies must still face costs related to ownership, repairs

Holcim’s and Cementos Moctezuma’s are also equipped

and maintenance even if the unit remains inoperative for

with Cofremex brakes. Some OEMs, such as MAN or Scania,

months.Companies must change this mindset to reduce costs

already equip their vehicles with similar braking systems to

and become more efficient. At the same time, there should

what Cofremex can offer, so our goal is to work with other

be a Technical Vehicle Inspection norm that works. If it takes

manufacturers. We have landed a project with Hyundai to

half a day to go through the norm, a mechanic will not read it

supply mobile shops for the company’s distributors. It will

and simply approve everything. It is necessary to have simpler

not be necessary to take trucks to the shop. Instead, the

regulations that can be reviewed by a mechanic in half an

shop will go to them.

hour and that addresses critical components in heavy vehicles. Q: Does Cofremex have any plans to implement electric

Cofremex sells electric-brake systems for heavy vehicles,

brakes as standard original equipment?

provides spare parts and maintenance for these components

A: It is too complicated to introduce this equipment directly

and offers training for operators to take advantage of electric-

in OEM assembly plants. Our strategy is partnering with

braking units

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INNOVATION, DIFFERENTIATION KEY FOR GROWTH JORGE VÁSQUEZ Marketing Manager of OSRAM México

Q: What is OSRAM's position in the Mexican lighting

or even ahead of our clients’ demands. For OSRAM,

aftermarket?

digitalization is not only online presence or online sales.

A: OSRAM is the worldwide leader in automotive lighting.

Our approach is to establish and execute an omni-channel

Focusing on the NAFTA region, we have a share above

strategy with the objective to provide a single face and

90 percent in the aftermarket and in Mexico alone we are

a single experience to the customer, whether it is at a

currently competing to be the market leader.

brick and mortar store, our website, our catalogue, our social media or through our e-commerce partners. All

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Q: What aftermarket strategies has the company

these pieces should be consistent and complementary.

implemented to differentiate from other players in the

Our goal is to increase sales not only in the e-commerce

industry, such as HELLA and Philips?

channel but also in the traditional channel.

A: The aftermarket is important for OSRAM’s development. Based on our strong presence and growth in the last

Q: Overall, how much growth has the company seen in the

years, we have intensified our investments mainly at our

Mexican aftermarket?

plants in the US with the SYLVANIA brand and Germany

A: Since 2015, we have experienced strong growth

with the OSRAM brand. These investments are linked

reaching double-digit rates, mainly due to the

to our differentiation strategy. Today, we are the only

development of strong portfolios and the opening of

automotive lighting company that continues producing

key accounts nationwide. For us, 2018 began slowly with

most of its products in the US and Germany rather than

high inflation, variable exchange rates and low consumer

China or other Asian countries as our competitors do. We

confidence. However, after the presidential elections, we

have invested in our manufacturing processes to maintain

have seen rapid response from the market and quick

our competitiveness without sacrificing quality. This

development of our market strategies. We believe we

year, we are also launching completely new portfolios

will end 2018 with renewed growth.

worldwide for traditional technologies as well as valueadded products and LED replacement retrofits.

Q: As a German brand, how do you compete against cheaper but also lower-quality products?

LED penetration in the global original equipment lighting segment is 20 percent

A: OSRAM SYLVANIA offers complete lighting solutions to the aftermarket segment. We are the world's leader in original-equipment automotive lighting. However, being original is just the beginning. We offer our customers a series of value-added products that help increase their safety while driving, with bulbs that provide more light

Q: How important is digitalization in OSRAM's

for farther, wider and better views.

aftermarket strategy? A: For OSRAM, digitalization is a top priority. As a

Q: How does OSRAM's portfolio differ between the

technology company, we see rapid and major changes

original equipment and the aftermarket segments in terms

in the market, which means we need to be aligned with

of quality? A: Our consumers benefit from our experience as a manufacturer of original equipment and can use these

OSRAM, headquartered in Munich, has over 100 years of

high-quality lamps to replace their current automotive

experience in the lighting industry. The company has a wide

lights. There is no difference between our original

portfolio of visible and invisible light solutions for various

equipment and our products offered in the aftermarket.

applications, including automotive

However, we go beyond original equipment by offering

stylishly designed automotive lamps that give cars an unmistakably modern look. We offer lamps that provide brighter, whiter light. This is achieved with our OSRAM COOL BLUE lamps and our OSRAM SYLVANIA XTRAVISION WHITE lamps. Performance in lighting involves quality, luminous intensity and higher output. Our OSRAM automotive performance lamps set new standards for automotive lighting, with lamps that comply with transit regulations and offer greater visibility for increased safety while driving. Safer driving can be achieved with our OSRAM NIGHT BREAKER LASER and our OSRAM SYLVANIA XTRAVISION and SILVERSTAR lamps. Q: What specific developments has the company worked on for the aftermarket segment? A: OSRAM has been investing in increasing and improving our product portfolio. Our key challenge is to achieve clear differentiation with traditional Halogen and HID product portfolios that can guide end users in their buying decisions. Simple color coding and catchy icons make the products easily distinguishable. Our green labels indicate our products are designed for durability and environmental friendliness. Meanwhile, blue stands for highest aesthetic standards and black for innovative products such as LED. Finally, our red packaging indicates high-end performance products that meet the highest performance expectations. OSRAM has developed a full LEDriving portfolio that presents broad and innovative LED products such as headlights, high-quality LED technology for daytime running lights, app-controlled lighting systems for ambient lighting and stylishly designed LED automotive retrofit bulbs for interior and exterior applications. This year we are launching our portfolio for FOG LED and FWD (Forward Lighting) LED with H7, H8, H11, H10, H16 and 9006 bulbs. Our goal is to have a complete portfolio by 2019. Q: How much penetration has LED technology had in the aftermarket and what are OSRAM’s priorities for this sector? A: It is difficult to calculate a percentage for LED penetration in the aftermarket because lighting components are not regulated in Mexico. However, we know that the penetration in the original equipment segment worldwide is close to 20 percent of all cars produced. We are ready to participate in this market. However, other manufacturers are “poisoning” this technology with low-quality products sold in the aftermarket. OSRAM ensures that all its LED products comply with global lighting requirements.

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A CHALLENGING POSITION FOR GROWTH MICHAEL GINES Managing Director of Dacomsa

Q: What is Dacomsaâ&#x20AC;&#x2122;s strategy to cope with a growing and

manufacturing in 2019 but thanks to our success we are

aging vehicle park?

now accelerating our process.

A: The age of the vehicle park, far from being an obstacle,

330

is an opportunity to grow our sales. The true challenge for

However, 2018 has not been so favorable mainly because

the aftermarket is to cater to the demands of such a large

of three factors: the presidential elections, the negotiation

and diverse vehicle park. In 1985, there were only 10 or 12

of NAFTA and the six-month elimination of the vehicle

types of engines available in Mexico and now there are over

verification program. Although we cannot quantify it

600 models and versions to service. We have had to adapt

precisely, we think the fact that people did not have

our inventories to increase the number of SKUs available

to verify their cars had an impact on the purchase of

while decreasing the stock of each component.

spare components mainly for engines, which represents 55 percent of our total operation. Our performance in

Q: What impact have the scrappage scheme and the import

braking, which contributes 35 percent of our sales, and

of used-vehicles from the US had on Dacomsaâ&#x20AC;&#x2122;s operations?

powertrain that represents the remaining 10 percent

A: The scrappage scheme for heavy vehicles has

is still on track and growing, but our sales for engine

certainly affected the development of the aftermarket

parts remain flat compared to 2017. That being said, our

because most of the units destroyed required constant

performance outside of Mexico has been successful and

replacement components. Used-vehicle imports have

we are growing significantly. Our priority right now is to

presented a much more complicated situation. These cars

consolidate our operations outside the country, defend

were imported normally after five years of use, which

our position as market leaders and ramp up production

means they were right at the stage where they needed

at our new site in Celaya.

repairs and maintenance. However, many of these models were not available in the Mexican park, which meant

Q: How have customers changed their mindset in favor of

there were no spare parts to meet demand. Now that

high-quality albeit costlier spare parts?

imports have been limited, we have noticed that states

A: Users understand that using quality parts like those

near the border have regularized their vehicle parks with

offered by Dacomsa guarantees their vehicle will remain

national models.

functional for 100,000km to 150,000km. That being said, purchasing power has decreased after the recent increase

Q: What have been Dacomsaâ&#x20AC;&#x2122;s recent results in terms of

in gasoline prices, which has forced clients to go back to

sales and what are your growth projections for the end

cheap, low-quality parts.

of the year? A: 2017 was a very successful year for Dacomsa, particularly

This is a worrisome situation and many distributors

in the braking market. Our results were strong enough for

have faced problems regarding payment collection

us to push our development plans ahead by two years and

but there is only so much we can do in this situation.

we are opening a new manufacturing center in Celaya to

Our strategy to showcase our advantages has been to

increase our brake pad production volume. Our original

contact shops directly and understand how we can help

plan was to start constructing this site in 2018 and begin

them solve recurrent problems. We have several training programs for mechanics that take place at their shops but we have also implemented training via Facebook Live

Dacomsa is a 100-percent Mexican company founded in 2003

and YouTube to avoid affecting schedules. Automotive

as the aftermarket distribution division of Grupo Kuo. The

components are becoming increasingly complex and

company manages several brands including Fritec, Moresa,

our role as a spare parts manufacturer is to help shops

TREMEC and TF Victor

understand these changes.

VIEW FROM THE TOP |

EXPANSION, INNOVATION ENSURE SUCCESS EDUARDO TAMER CEO of Mikel’s

Q: What factors influenced Mikel’s results in 2017?

However, the clients we approach through these channels

A: Mikel’s is constantly innovating in its product portfolio

are not experts in the segment so most of our sales are of

to meet our strict growth expectations. By the end of 2017,

conventional, nonspecialized products.

we grew our sales 14 percent compared to 2016, which was 2 percent above our initial expectation. Targeting

Q: How has the deceleration in light-vehicle sales impacted

the aftermarket in a more orderly fashion was a key

Mikel’s’ operations and how does that impact your growth

factor to ensure growth and small retailers and shops

projections for 2018?

have embraced our development strategies. At the same

A: We have consistently grown at double-digit rates for the

time, we approached new OEMs including Honda and we

last 20 years but the first half of 2018 has been difficult. Our

strengthened our relationship with Toyota, Kia and Hyundai.

sales have remained stable although we expect results to

Overall, 2017 was a very profitable year for Mikel’s. We

ramp up in the second half of the year, mainly thanks to our

have tried to maintain a balanced portfolio between our

relationship with OEMs and our operations with large retailers.

aftermarket and original equipment segments and to this day, the former represents 65-70 percent of our operations

Regarding our growth outside of Mexico, we have seen good

while the latter makes up for the rest.

results in Uruguay, Colombia and Central America. Our plans in the US are on standby, although we are meeting with

Q: Which development strategies have you made a priority?

some investors who see a possibility to build a partnership

A: We have made digitalization a key part of our

with Mikel’s to substitute Chinese imports. Even amid NAFTA

development strategy, putting the final user at the center

negotiations, we have seen interest from US investors in the

of all our activities. We still need to better understand the

country and although we expect changes in the treaty’s rules

needs of the final client because our end goal is to have

of origin, our forecast is that any changes will be for the

a multichannel distribution. Clients will be able to access

best. Furthermore, although there might be an impact on

Mikel’s products at a bricks and mortar shop or an online

automotive exports after these new trade conditions, our

site and they will receive their products at the distributor’s

operations focus mostly on domestic production.

point of sale or directly at their doorstep. Our commitment is to conclude our digital transformation by mid-2019. So

Q: What is the next step in Mikel’s’ innovation strategy?

far, digital sales represent less than 1 percent of our total

A: Mexican companies should be ambassadors of quality and

transactions but through our new platforms and digital

specialization in product development but they should also

strategies, we hope to grow that number to 10 percent by

be a standard in testing and validation. Mikel’s facilities are

2020 and to 25 percent in three to four years.

currently the authorized laboratory for bottle-type hydraulic jacks by the General Norm Direction and the Mexican Entity

Q: How has the Certified Mikel’s Shop business evolved and

of Certification. Moreover, we are already in the process

what are your expectations for this project?

of certifying our operations for testing of rolling hydraulic

A: Our franchise business has been quite successful in the

jacks, hydraulic booms, slings and reflecting triangles. We are

market and as of July 2018 we have already opened 53

investing in strengthening our processes and having state-of-

stores in 16 states with the last being in Puerto Escondido.

the-art equipment to ensure the best quality in our products.

These franchises have been a key element in approaching the end user more successfully, strengthening our presence in the country and ensuring our position as a brand. In terms

Mikel’s is the authorized brand of automotive components and

of our relationship with large retailers, we have collaborated

equipment produced and distributed by Industrias Tamer since

with them for over 24 years. We know this market and

1960. The company has over 1,000 products and 53 certified

are aware of the growing demands of these partners.

shops in 16 states

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| VIEW FROM THE TOP

BALANCED CATALOGUE ENSURES DIVERSIFICATION ALEJANDRO CALDERÓN Director General of Autopartes Calderón

332

Q: What sets Autopartes Calderón apart in the Mexican

Q: How is Autopartes Calderón’s catalogue divided

automotive aftermarket?

between Mexico-made components and imported parts?

A: Autopartes Calderón buys directly from the most

A: Around 40 percent of the products we sell are

prestigious brands that manufacture quality spare parts in

imported and the rest are procured locally. We only import

Mexico, while also importing discontinued products from

components that are not produced in Mexico and cannot

Asia, Europe, South America and the US. For instance,

be found in the local market. Autopartes Calderón is not in

the light switch of an old Volkswagen Beetle Sedan or a

the business of competing against Mexican manufacturers.

classic Ford Mustang are no longer produced in Germany,

On the contrary, we prefer to buy from local companies if

South America or Mexico. Taiwan is the only place where

possible. There is no point in importing oxygen sensors from

these products can be found with appropriate quality. The

China because quality counterparts are produced in Mexico.

country’s vehicle park is on averages 18 years old, so there is still a decent market for older components that have

Q: How important is digitalization for Aupartes Calderón?

disappeared in other countries with younger vehicle parks.

A: We are aware that digitalization is the future so the company is in the process of renewing all its digital systems.

Q: What are the main areas of opportunity for growth in

We are changing our corporate image and updating our

the Mexican aftermarket?

search engines. E-commerce still accounts for a minimum

A: Mexico City’s vehicular emissions testing program became

share of our sales but that is where the spare parts market

nonmandatory for six months during 1H18. This process harmed

is headed. Autopartes Calderón focuses mainly on wholesale

our ability to reach our growth expectations as fewer people

and has several sales points in central Mexico, so clients often

took their cars for repairs to meet emission requirements. We

browse our catalogue online and purchase the parts they

expect that when this testing program is again implemented,

need at one of our stores. End users generally prefer to

the aftermarket will regain its lost momentum.

purchase the part as soon as possible to get their vehicles back on the road. In some cases, drivers may be willing to pay

The aftermarket business has become increasingly

a high shipping price and order online just so their vehicles

complex as vehicle, model and version variety increases

are back on the road immediately. Less than 10 percent of

but production volumes are reduced. Some decades ago,

our digital operations are export-oriented, although we have

there were only five brands in the Mexican market and most

shipped to Colombia and Venezuela.

spare parts were relatively similar. Now, there are up to 50 different versions of some vehicles sold in Mexico. A

Q: How do you expect digitalization to impact the Mexican

company looking to supply for every vehicle that exists in

aftermarket and companies’ sales strategies?

the Mexican market including used models imported from

A: Some spare parts and tire companies in Mexico have

the US has to keep over 100,000 components in stock.

found great success in selling components over the Internet.

Achieving this stock level is difficult but some distributors

Mexico has lagged behind the US in the auto parts segment,

have managed to do so and they sell their components

particularly against e-commerce players such as Amazon.

above market prices because they are the only ones that

The US has already achieved noteworthy online sales

have such parts available.

volumes but Mexico has fallen behind because of fraud and security concerns. Some of the challenges that Mexico faces to digitalize its automotive aftermarket are the high

Autopartes Calderón is a Mexican supplier and wholesale

price of Internet connectivity and the difficulty in accessing

distributor of spare parts. The company manages products

smartphones and other devices. Millennials will change this

from several renowned original-equipment brands including

trend and buy more aftermarket components using their

Bosch, Continental, Valeo, DENSO and DelcoRemy

smartphones.

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TECHNIFICATION: FIRST STEP TOWARD DIGITALIZATION FERNANDO MURGUÍA Director General of TecAlliance Mexico

Q: What main challenges does TecAlliance face when

Q: What will be the role of e-commerce in the development

introducing its services to the country?

of the aftermarket?

A: One of the biggest challenges we face is that the Mexican

A: E-commerce in the aftermarket has to be approached

aftermarket has not fully embraced digitalization. Many small

from two different angles. On the one hand, there is

retailers still work without a computer and they prefer to

wholesale e-commerce where large distributors have

do business in a traditional way, with catalogues to consult

found a really successful niche. Some of the companies

whenever they have a need. As a result, manufacturers

we have approached are already managing 50 to 60

are reluctant to let go of paper-based information. Even

percent of their wholesale operations through digital

companies that participate actively with TecAlliance see

applications. Our role with these companies is supplying

their printed catalogues as something essential in Mexico. To

them with data and services to help them digitalize their

counter this, we have engaged in technification programs with

operations.

several auto parts distributors. On the other hand, the retail market is an area where We have supplied several distributors and retail shops

very few companies have ventured to participate in terms

with systems to support them during this transition, but it

of digitalization. Large marketplaces remain the leaders

is a complex process. The aftermarket sector in Mexico is

due to their large experience in the digital environment.

immense, even more so if we go into the distribution part of

Logistics operations are a key element to enable

the business. Today, there are approximately 180 auto parts

e-commerce in the auto part segment and if companies

manufacturers and more than 500 brands in the Mexican

manage to establish efficient delivery times, then digital

aftermarket, approximately 1,500 wholesale distributors, more

sales would drastically improve for distributors. There

than 44,000 retail distributors and approximately 150,000

are still many opportunities to participate in e-commerce

repair shops. The value chain is huge and the size of the

as it is rapidly gaining ground in the auto part segment.

aftermarket in Mexico is approximately US$27,000 million. The challenge for TecAlliance is to bring all participants into

Q: What are TecAlliance’s priorities for 2018 and what role

the digital aftermarket age. We are working with companies

does the company want to play in the evolution of the

all over the country that we think could be early adopters.

Mexican industry? A: Our primary goal for 2018 is to continue supporting part

Q: How does this technification process differ from what

manufacturers to become TecAlliance’s data suppliers.

TecAlliance has seen in other global markets?

We make sure to standardize all their products data,

A: The European market went through a similar technification

so their distribution network can use it in a very simple

process 30 years ago and TecAlliance participated in a similar

and efficient way. In parallel, TecAlliance is supporting

process. Now is Mexico’s turn and TecAlliance is supporting

distributors to implement digital solutions to help them

companies in this transition. We see the aftermarket as a

to digitalize their commercial operations. TecAlliance has

complete ecosystem where we have to work with each of

also collected information and intelligence on the Mexican

the different participants to make our technology work.

market, such as data regarding vehicles in operation and

We seek the collaboration of every manufacturer and large

original equipment part numbers.

distributor and we approach all shops and retail players to deploy strategies for IT technification, digitalization and e-commerce. In parallel, TecAlliance has a similar strategy in

TecAlliance is a German company that provides information

Central and South America, where the company has strong

and a communications platform regarding the automotive

presence and is implementing similar actions in order to

aftermarket. The company has been in Mexico for three years

develop these markets.

and offers different solutions in data management and analysis

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| ROUNDTABLE

WHAT ROLE WILL DIGITALIZATION PLAY IN THE INDUSTRY’S EVOLUTION?

Sales strategies are changing as customers become more digitally oriented. Almost every sales process starts online when the client searches for the product, its characteristics and even reviews from fellow users. This process is impacting vehicle sales, aftersales services and even the aftermarket, which means companies must adapt or face obsolescence. Although it is already a global trend, digitalization is still in its early stages in Mexico when it comes to sales. Mexico Automotive Review asked different players for their views and what risks they foresee for companies that do not embrace this change.

Through digitalization, clients will be able to manage their vehicle purchases independently. This, in turn, will transform the role of salespeople, managers and even the entire distribution network. As providers of financing solutions, our role is now to educate clients on how to become part of the banked population, how to contract 334

the most appropriate financing products and how these will work. Scotiabank is

AURELIANO GARCÍA Automotive Financing Director and CFA of Scotiabank

advancing significantly and should be considered a booster of digitalization in the banking segment. More than a year ago we created Digital Factory as a center of technology development focused on digital banking. This area is now in charge of transforming our business from a traditional model to address the mobile world. We take this project seriously and we do not consider it just one more division of Scotiabank.

Companies that fail to embrace digitalization will become obsolete. One in every three dealerships will cease to exist in the future because those that learn how to take advantage of digitalization will gain a greater market share and absorb their competitors. Digitalization is a highly complex subject with many different perspectives that include car-sharing, electrification and new sales strategies. We

THOMAS WELLE Managing Director of MCON Mexico

are constantly telling our clients they must embrace the change and do not just sit and wait to see what happens in the market. Companies must consolidate their different client management systems to get real insights into the data they are generating. Enriched with this and more information, companies can predict a lot in terms of turnover times and market trends thus targeting the customer more efficiently and effectively.

AXA is committed to innovation and digitalization. Yet, we participate in an industry where sales are mostly completed through human interaction. In general, the insurance market is not considered the most innovative sector but we are constantly working to improve our digital communication with the client. Digitalization is still not seen as an added value that can change a client’s preference for one company

SANTIAGO FERNÁDEZ Executive Vice President of Vehicles, P&C and Health at AXA México

to another. Most innovations are still peripherals that enhance the user experience in some way but that have no real impact on the insurance coverage. If no company embraced digitalization, the risk would be minimal, at least until companies like Amazon start to participate in the industry. That being said, digitalization conveys a better image to the client.

Demand is greater and younger generations are now looking for us online. According to our latest statistics, Hankook is the best-selling tire brand online in Mexico, practically doubling the sales of our closest competitor. Today, between 30 and 32 percent of all tires sold digitally are Hankook, which equates to approximately 3 percent of our total sales. This market has grown rapidly and clients can find the tire they need by make and vehicle model and they can choose between our Hankook and Laufenn brands. My personal goal is to grow our digital operations to 10-12 percent of our total sales by the end of 2019.

SERGIO ÁLVAREZ Commercial Director of Hankook Tire de México

We have measured the impact of our digital strategies since 2015. Approximately 2-3 percent of our leads originated from these campaigns in 2015 but now the percentage is over 15 and we expect it to keep growing. Our priority is to improve our response times because there are dealerships that take days to answer a digital query. This is not good because the client wants immediate service with a maximum of 15 minutes of waiting time. According to our CRM provider SICOP, two of every 10 clients that write to the dealership are going to buy in the end and yet, we are not giving this the importance it should have in our operations. The dealerships with the fastest response times through digital channels will survive in the end.

CARLOS LÓPEZ DE NAVA Director General of Grupo Alden

Companies that fail to embrace digitalization are doomed to disappear. Visits to dealerships are decreasing and clients that do come have already done the research on the model they want. Companies that fail to include digitalization in their strategy will gradually lose market share, even if their dealerships enjoy the best strategic location. We are improving our databases and ensuring our digital center standardizes operations for both the new and used-vehicle sales segments. Moreover, we are now growing the digital center to manage our aftersales operations and offer service reminders to clients while marketing other

JOSÉ GÓMEZ Director General of Grupo Gocar

special promotions.

It is all about traffic and exposure. Clients used to visit eight dealerships on average before purchasing their vehicle. Now, that number has narrowed to two. Dealerships no longer receive as many people as they used to, which means they need to find new channels to reach their customers. Today, when clients start their search process, their first point of contact with the available car offering is online. Interest in purchasing a vehicle is still there but companies need to understand that the clients’ mindset has changed. Mercado Libre’s Motors Classifieds division alone generates 20 million visits per month from at least 7 million unique users. In comparison, a dealership’s website receives approximately 20,000 visits per month.

AMELIE MOSSBERG Commercial Director of Motors Classifieds at Mercado Libre México

We see the digital experience as an opportunity for the whole market. Even though some products might not be sold digitally, their marketing will certainly be digital. New generations see digital presence as a priority and companies that do not take this into consideration will face many challenges, especially if they participate in a volume market such as automotive. Particularly in this market, we have found that digitalization has been a critical factor in raising awareness about the importance of having insurance, mainly with clients who do not realize how costly an accident can be.

ALEJANDRO COSIO Country Manager Mexico of SeguroSimple.com

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| VIEW FROM THE TOP

IT IS ALL ABOUT TRAFFIC AND EXPOSURE AMELIE MOSSBERG Commercial Director of Motors Classifieds at Mercado Libre México

336

Q: How has Mercado Libre grown its position in Mexico and

Q: How has Mercado Libre worked to build confidence

what new projects have you started here?

among clients that are still reluctant to participate in the

A: We have been the market leaders in Mexico since 2017

online business?

with growth rates of 40 percent year-on-year in terms

A: In June 2018, we evolved from just generating leads

of clients, moving to 2.2 million announcements posted

to becoming an active participant in the sales process.

during 2017. The used-vehicle market has presented a

Once clients find the car they are looking for and thanks

great opportunity for Mercado Libre to grow its position,

to Mercado Pago, they can put that model aside and

especially now that new-vehicle sales are contracting. That

reserve it with a down payment depending on the cost of

being said, in the last year we have grown our collaboration

the vehicle. We saw this was a global trend among digital

with distribution groups so dealerships can post their new-

marketplaces around the world and we decided to be the

vehicle offering on our platform. Today, 50 percent of the

first to implement it in Latin America.

publications on Mercado Libre are uploaded by private users and the rest by dealerships and multi-brand distributors in

Part of the reason why people are still reluctant to reserve a

both the new and used-vehicle segments. The latter remains

vehicle online is because of the security issues in the payment

our main offering but already new vehicles represent 5

process, particularly in smaller cities. By implementing

percent of our posts.

Mercado Pago, we give much more certainty to the process since clients do not have to rely on monetary transactions

Q: Why should distributors choose to upload their offering

outside of the platform. The money is held by Mercado Libre

to Mercado Libre’s platform?

until the sale is completed and any party can back out at any

A: It is all about traffic and exposure. Clients used to visit

moment providing the buyer with a full refund.

eight dealerships on average before purchasing their vehicle. Now, that number has narrowed to two. Dealerships

Q: What is Mercado Libre’s position in the auto parts

no longer receive as many people as they used to, which

segment and what challenges do you see for this segment

means they need to find new channels to reach their

regarding digitalization?

customers. Today, when clients start their search process,

A: In this segment, Mercado Libre manages the entire sales

their first point of contact with the available car offering

process from search and payment through Mercado Pago,

is online. Interest in purchasing a vehicle is still there but

to delivery through Mercado Envíos and today, auto parts

companies need to understand that the clients’ mindset has

represent 10 percent of all sales transactions on Mercado

changed. Mercado Libre’s Motors Classifieds division alone

Libre. The platform has over 5 million active auto parts

generates 20 million visits per month from at least 7 million

posts and most of our clients are vehicle owners, although

unique users. In comparison, a dealership’s website receives

there is a small percentage of specialists and mechanics

approximately 20,000 visits per month. Through Mercado

that use the platform.

Libre, clients can search their preferred vehicle option from our entire catalogue based on their price range, instead

We have established relationships with several auto parts

of visiting several websites from different dealerships to

manufacturers and most have a micro website hosted on our

compare models and prices.

platform. We already have over 100 of these “official stores” on Mercado Libre dealing with tires and other spare parts. The challenge in this segment has been to help both manufacturers

Mercado Libre is an Argentinean digital market place

and end clients understand the benefit of purchasing these

created in 1999. The company operates in 19 countries in

types of products online. There is no retailer or distributor that

Latin America and is already the leader in e-commerce of

receives 20 million visits per month. Similarly, there is no store

the region

that has 5 million different part numbers in stock.

VIEW FROM THE TOP |

UNIQUE OPPORTUNITIES GENERATE BETTER PROFIT MARGINS JOSÉ GÓMEZ Director General of Grupo Gocar

Q: How important is boosting the used-vehicle segment in

digital center that supports clients looking for a new or

a market focused on contracting new-vehicle sales

used vehicle, offering direct communication through our

A: The used-vehicle market presents a significant area

webpage seminuevosgocar.mx, Grupo Gocar’s corporate

of opportunity for vehicle distributors. The ratio of used

site and digital marketplaces where we buy space for our

to new-vehicle sales in Mexico is low compared to other

portfolio. Our operators at the digital center communicate

important automotive markets. Boosting used-vehicle sales

the client’s needs to a sales person at the dealership, thus

does not imply Mexico is an underdeveloped country. On

defining the entire sales process before the client arrives

the contrary, if large economies sell larger volumes of used

to the showroom.

cars, there is no reason why Mexico should not incentivize this market. However, for this to happen, the country

Q: How do sales strategies differ between the new and

should have a better registration system that fosters an

used-vehicle market?

environment for transparent transactions in the second-

A: Dealership groups must understand that used-vehicle

hand market. The used-vehicle market could also be a

sales are based on unique opportunities and the only way

source for better profit margins. Finding a new car with

for clients to find what they are looking for is through digital

specific characteristics is not hard and any dealership can

means. Clients looking for a new vehicle need only to go

comply with clients’ requirements. However, finding a used-

to their nearest dealership to find what they are looking

vehicle that adapts to key requirements can be challenging

for. However, for a used vehicle with key elements that

and a differentiator for the dealership that is selling it.

fit their requirements, they are even willing to move to neighboring states.

Q: How can vehicle registration improve the development of the domestic market?

Q: What have been Grupo Gocar’s results in 2018 so far

A: Vehicle registration should be stricter, allowing banks

and what are your priorities to strengthen your business?

and OEM financing arms to build better plans for used

A: We have had a good year even though 2018 has been

cars. Mexico City has a good registration system but many

difficult for the domestic market. We had much higher sales

other states do not pay enough attention to this situation.

expectations at the end of 2017 and distributors have had

There is no synergy between vehicle registration agencies

to work under more challenging conditions. Furthermore,

in different states, which means that vehicles can go

inventory surplus has led to higher operational costs with

under the radar even when owners fail to terminate their

many brands. Grupo Gocar has focused on maintaining

financing agreement. Solving the registration issue could

healthy, efficient and productive operations, choosing to rely

lead to better sales in the used segment because financing

more on established processes and standardization instead

companies would have no trouble identifying the status of

of individual expertise. We are also improving our databases

each vehicle and its location.

and ensuring our digital center standardizes operations for both the new and used-vehicle sales segments. Moreover,

Q: How important is the used-vehicle segment for Grupo

we are now growing the digital center to manage our

Gocar and what strategies have you implemented to reach

aftersales operations and offer service reminders to clients

clients effectively?

while marketing other special promotions.

A: The used-vehicle segment is one of our most important divisions and we invest many resources in its development. We have found that the best way to target customers in

Grupo Gocar is a distribution group that focuses on both

this market is through digital means and we invest heavily

the new and used-vehicle segment. The group manages

in marketing campaigns and tools such as AdWords

Volkswagen, Nissan, Renault, SEAT and Honda dealerships and

to generate traffic and leads. Grupo Gocar now has a

has 13 points of sale throughout the country

337

QroBici / Queretaro City

MOBILITY TRENDS & OTHER DISRUPTORS

The industry is transforming from being car-oriented to mobility-oriented. Companies must therefore change their mindset to adjust to a new concept that favors availability and efficiency above ownership. At the same time, trends like digitalization, electrification and self-driving automation are forcing automakers and suppliers to innovate and undergo a disruptive change in their business model.

In this section, companies present new mobility alternatives that could solve Mexicoâ&#x20AC;&#x2122;s problems in terms of traffic and infrastructure saturation. Meanwhile, suppliers and technology developers present the innovations that are leading to a high-technology future where the car is just one of many connected mobility alternatives.

339

CHAPTER 13: MOBILITY TRENDS & OTHER DISRUPTORS 342

ANALYSIS: A Thirst for Sustainable, Intelligent Mobility

343

VIEW FROM THE TOP: Miguel Elizalde, ANPACT

344

VIEW FROM THE TOP: Laura Ballesteros, SEMOVI

346

INFOGRAPHIC: Mobility, a Work in Progress

348

VIEW FROM THE TOP: Mauricio Cobo, Minister of Mobility of the Queretaro Municipality

350

VIEW FROM THE TOP: Fernando Páez, WRI México

351

VIEW FROM THE TOP: Gerardo Múgica, Alexander Dennis

352

INSIGHT: Abel López, World Bank Group

353

VIEW FROM THE TOP: Manuel Nieblas, Deloitte Mexico

341

Alberto Torrijos, Deloitte Mexico

354

VEHICLE SPOTLIGHT: Mazda MX-5 2019, a True Connection

356

VIEW FROM THE TOP: Philip Chaves, Uber Latin America

357

BOX: Millennials Favor Sharing

358

INSIGHT: Ricardo Weder, Cabify

359

VIEW FROM THE TOP: Jaime Aparicio, Easy

360

INSIGHT: Andres Omaña, SmartBike

361

INSIGHT: Alejandro Morales, Econduce

362

INFOGRAPHIC: An Electric Future

364

INSIGHT: Torben Eckardt, Volvo Car México

365

VIEW FROM THE TOP: Mario Rodríguez, Arbomex

366

VIEW FROM THE TOP: Alejandro Rojo, CIMA at ITESM Toluca

367

ROUNDTABLE: How Will Electrification Impact Mexico’s Manufacturing Operations?

| ANALYSIS

A THIRST FOR SUSTAINABLE, INTELLIGENT MOBILITY All major vehicle OEMs in the world are already working toward a greener mobility. The promise of electrified, self-driving cars, shared-mobility services and increasingly stringent emission regulations coupled with the development of more fuel-efficient motorizations are only a few of the trends poised to disrupt mobility for good Green vehicles remain a meager percentage of Mexico’s

hybrid and electric units after Tesla,” says Torben Eckardt,

vehicle park. According to data from AMIA, 10,512 electric

Former Managing Director of Volvo Car México. Toyota,

and hybrid cars were sold in the country in 2017, with

Nissan and Hyundai are among the companies that have

most of those in Mexico City. Although this constitutes

also increased the number of electrified vehicle options

a substantial increase in sales of 27.3 percent compared

in their catalogues. According to AMIA data, Toyota’s

to the 8,260 units sold in 2016, sales of green vehicles

Prius was Mexico’s top seller in the luxury segment with

accounted for just 0.7 percent of the 1.53 million vehicles

7,193 units sold in 2017 and it accounted for 70 percent

sold in 2017.

of all hybrids sold in Mexico in that year. Hyundai has also entered the green vehicles market through its

342

This low percentage, however, also represents an

hybrid Ioniq. “Our bet is on hybrid units and even fuel-

opportunity for new players like Zacua, a 100-percent

cell powertrains as the cleanest alternatives,” says Michel

Mexican OEM, to step in and improve the available

Kaim, Managing Director of Hyundai Motor de México.

offering. “Zacua would be a new brand in a highly competitive market, a Mexican brand, and it would focus

Mexico’s auto parts segment has also been impacted by

on electric vehicles. Our proposal was one paradigm shift

the electrification trend and companies that make critical

after another,” says Jorge Martínez, Director General of

parts for internal combustion engines are also getting on

Zacua, which assembles electric vehicles at its plant

the bandwagon. Belgian exhaust-system manufacturer

in Puebla.

BOSAL Group, for example, is developing new technologies and introducing new products to its catalogue according

However, electrification does not only impact automakers.

to Luis Palomé, Managing Director of Bosal México. “In

Being Mexico the fifth-largest manufacturer of auto

Mexico, we already produce a heat exchanger for hybrid

parts, Óscar Albin, Executive President of INA, says the

vehicles,” he says. “We look forward to producing more

rise of green vehicles could also play to the country's

components for electrified vehicles like this in Mexico.”

strengths. “An electric, self-driving vehicle will require fewer components than today’s vehicles and demand for

Beyond electrification, self-driving technology is being

parts such as electric harnesses will increase,” he says.

developed at design and engineering centers in Mexico.

“This increased demand is good news for Mexico as the

Solís points out that self-driving technology offers an

country is a global leader in the production of electric

opportunity for Mexico to increase its participation in

harnesses for automotive applications.”

the industry. “Control units, radar and lidar sensors are imported from Asia, which is an area of opportunity to

Eduardo Solís, Executive President of AMIA, adds

fill both in Mexico and North America.”

that Mexico is ready to participate in the production of technology for electrified units including critical

According to Jorge Vázquez, R&D Center Director

electric components like batteries. “Companies must

at Continental Automotive, the company’s center in

learn to adapt to the changes introduced by new

Queretaro is focused on creating accident-prevention

technologies, so axle and other transmission component

systems that monitor vehicles’ surroundings and

manufacturers will have to find ways to participate in a

minimize the consequences of an imminent accident.

new industry,” he says.

“These systems work through artificial intelligence that will eventually be used in self-driving platforms,”

PREPARING FOR CHANGE

he underlines. The car of the future may still be a few

The dawn of the electric car era also means the dusk of

decades away from conquering the roads and it will

the internal combustion engine and while there is a long

take a long time before green, self-driving vehicles gain

road ahead before electrified vehicles become the norm,

a noteworthy share of Mexico’s vehicle park. However, the

some companies are already preparing for the change.

first steps have been taken in terms of sales, production

“Volvo Cars will become the second OEM to deal only in

and design toward a new automotive horizon.

VIEW FROM THE TOP |

NEW NORMS, NEW PLANS TO MOVE FORWARD MIGUEL ELIZALDE Executive President of ANPACT

Q: How have regulations evolved in the heavy-vehicle

this is a difficult situation in the light-vehicle segment due

segment to boost technology development?

to the number of cars that enter per month but that is not

A: In 2018, two new regulations were approved: NOM-

the case in the heavy-vehicle market. Approximately 10,000

012 focused on safety, implemented by the Ministry of

heavy vehicles are imported each year, which means that

Communications and Transport (SCT), and NOM-044

only 27 units would have to be checked daily across all

regarding the incorporation of post treatment and new

border crossings.

engine technology, issued by the Ministry of the Environment (SEMARNAT). Both regulations will bring many benefits

Q: What is the role of PEMEX and ultra-low sulfur diesel

in terms of road safety and environmental protection but

(ULSD) availability in this transition?

they demand additional initial investment from clients due

A: One of the requirements to advance to newer

to the added costs related to emission control technology.

technologies in emission control is to ensure ULSD

SEMARNAT expects environmental benefits stemming from

availability. This fuel will be mandatory starting Jan. 1, 2019

NOM-044 to represent approximately US$120 billion related

and July 30, 2019 will be the last day that Euro IV / EPA 04

to public health and environment issues. However, without

units will be manufactured or imported. Yet, ULSD is still

the proper incentives, we will not reach these savings soon.

not 100-percent available throughout the entire country. We are in the midst of an energy reform and all companies

Q: What factors could slow the benefits from these

importing fuel must do so with ULSD. PEMEX is the only

regulations?

company that sells regular diesel and the challenge is for

A: Used-vehicle imports could potentially hinder the

this entity to change its offering between now and 2019 to

development of the domestic market. Although regulations

comply with the NOM-016-CRE regulation established by

were updated through the implementation of a new NOM-

the Energy Regulatory Commission.

012 and NOM-044, these only apply to new vehicles. Unlike the light-vehicle market, heavy-vehicle imports

Q: What will be the future of the scrappage scheme and

have increased since 2015. Today, for every 100 vehicles

what are your plans to move forward with fleet renovation?

registered in the Mexican market, we import 28 used-

A: The scrappage scheme ended on Dec. 31, 2017. What

vehicles from the US with an average age above 16 years. If

we are now pushing for is to have differentiated green

we compare it with 2017 figures, there has been an increase

incentives depending on the type of company applying

of 28 percent in used-vehicle imports from the US. The real

for financial support. There should be a scheme designed

problem is that in Mexico there are very few regulations that

for companies wanting to acquire the new technology

prevent scrap vehicles from being imported and those that

established by NOM-044-SEMARNAT, and another that

are in effect are not enforced at the border.

supports the growth of owner-operators through financing and training for professionalization. We are already in talks

The US has effective regulation enforcement, which means

with SCT, the Ministry of Economy and SEMARNAT but the

that these units can no longer circulate there. On the

Ministry of Finance must make the final ruling. Our hope is

contrary, Mexico has not managed to implement the right

that any new scheme is implemented this year, considering

supervision to follow up on physical-mechanical regulations

that the new regulations will be enforced in 2019.

established in NOM-068-SCT or pollution emissions regulated by NOM-045-SEMARNAT. There is a complete asymmetry between Mexico and the US, which results in

The

our roads being filled with scrap that puts our health and

Manufacturers (ANPACT) has represented heavy-vehicle and

National

Association

Bus,

Truck

and

Tractor

road safety on the line. Ideally, all vehicles entering the

engine manufacturers since 1992, promoting the development

country should be checked beforehand. We understand

of the commercial-vehicle industry in Mexico

343

| VIEW FROM THE TOP

MOBILITY CHALLENGES FOR THE NEW ADMINISTRATION LAURA BALLESTEROS Former Deputy Minister of Planning at SEMOVI

Q: What challenges need to be tackled when working

and consensus reached on public transportation. All that

toward implementing a sustainable mobility vision?

translated into a Mobility Law that prevented public officers

A: Any government working to offer safe and sustainable

from investing in grey infrastructure that only works to the

mobility must face two challenges. The first is to generate

detriment of the city’s sustainable ecosystem. The second

as many transportation options as possible for people to

tier of the Periférico, for example, increased traffic by 34

have access to the city and reduce commute times. The

percent, affecting not only private drivers but also public

goal should be to reach a modal split where 80 percent of

transportation users.

the population uses public transportation, while less than 344

20 percent of the people use their own vehicle. Today, 45

Q: What is the role of Metrobús in the city’s mobility plan?

percent of people use public transportation, 35 percent are

A: The city began a transition of its public transportation

pedestrians, 2 percent are cyclists and the remaining are

fleet. Metrobús has been one of the most successful

private vehicle users.

strategies to phase microbuses out but there are still areas where these units operate. Today, 60 percent of all trips in

The second challenge is to guarantee the population’s

the city are completed with microbuses, out of the total

well-being. Road safety must remain a strategic priority

35 million trips taken daily. This means that, on the one

in mobility planning for the next administration. The

hand, we have a Metrobús system that on a scale of 0 to

government must not fall into populist practices and

10 scores 8.5-8.8 in terms of quality according to users,

remove all speed-limit regulations. These are the key to

and on the other, we have areas where people still have

ensuring the safety of the population and we must keep

to move using microbuses that receive a score of 4 on

working to ensure technology can save lives.

that same scale.

Q: How can sustainable mobility contribute to the city’s

Q: What priorities would improve the city’s mobility

social development?

landscape?

A: Mexico City faces a significant problem of inequality

A: The city must evolve following three fundamental

and public services are no exception. The city has some

guidelines. First, the government must ensure accessibility

of the best public services in terms of transportation

to the city through a safe, inclusive and structured

globally; the problem is that not every citizen has

transportation system. The current transportation network

access to them. Many neighborhoods in the Benito

must grow by 30 percent or 240km of additional public

Juarez delegation have services that can be compared

transportation lines, which is the least the city needs to

to the most advanced cities in the world and at the

allow people to have access to their rights and all services

same time, areas on the periphery of the city have social

the government can offer.

development indexes that can be compared to Africa. Fixing this issue will be one of the main challenges for

The best strategy for the city would be to invest in

the incoming administration.

24km of Metro lines to expand the existing network and decongest its stations. At the same time, the government

Investing in sustainable public-transport infrastructure

should grow the Metrobús network by 80km and take the

and accessible mobility networks is one of the most

next step toward electrification of public transportation

effective instruments to combat inequality. Mobility is a

and overall mobility. Finally, the city should work on

gateway right to others such as health and education, and

the implementation of a Metroférico, a 50km cableway

this was the basis for the Mobility Plan implemented six

system that would connect five north delegations with

years ago. The city based its policies on a legal framework

the city center. Right now, people traveling from the

approved in 2014 that complemented the data, evaluation

north of the city suffer commutes of approximately two

hours and with this system, we would reduce this time

enable different systems to coexist and orient them to what

by 60 percent.

the country needs.

The second guideline the city should follow is related to

Digital applications have proven to be a key element in

street infrastructure. Streets are the base of mobility, so

improving the city’s mobility and we must revise our laws

they must be universal and open to all users regardless

to ensure these players have a space in the local scheme.

of their method of transportation. The new government

That being said, regulations should work to promote the

should invest in having complete streets with biking

implementation of carpooling and zero-emission vehicles to

infrastructure, confined lanes for public transportation and

reduce the potential impact on the city’s environment. At the

general lanes for private vehicles. The biking infrastructure

same time, all new mobility alternatives must work to integrate

alone should grow by 60 percent, adding 270km to the

with the rest of the public transportation system in the city.

current network and providing better connectivity with public transportation systems.

Q: Why are mobility issues managed by state and municipal governments instead of being addressed at a federal level?

Finally, technology integration should be a key element in

A: The problem is that the current administration was

the development of the city. The government should provide

not bothered about the sustainable mobility agenda,

better access to technology so all population segments can

leaving cities alone to meet their own needs and budget

access alternative mobility options through digital devices.

requirements. Mexico City, being one of the largest cities in

Similarly, technology should be a cornerstone to ensure

the world, cannot address its mobility issues with its own

road safety so the human factor always remains the priority

resources. Taxes are collected from only 9 million people

of the mobility ecosystem.

and yet we have to solve 35 million daily trips from the entire metropolitan area.

Q: What should be the role of the private sector in the development of Mexico City’s mobility infrastructure? A: Private investment is critical in the development of a successful mobility plan. Today, the government does have enough resources to support these projects, which means public-private partnerships (PPPs) are the best way to

Only 45 percent of the population in Mexico City uses public transportation

move forward. So far, PPPs have been an excellent vehicle for infrastructure development but the government must

Participation from the Federal Government is essential to

ensure that all projects are properly tendered to eradicate

alleviate the city’s mobility issues. Except for the Mexico-

any form of corruption. Projects should be better planned

Toluca Interurban Train, there was no investment in Mexico

to avoid most of the profits coming from infrastructure

City’s mobility from the Federal Government during this

projects going directly to private companies. Today, only 30

administration. We need a legal framework that forces

percent of a project’s profit benefits neighborhoods while

governors from different states to dialogue about the country’s

the company keeps 70 percent. This rate should be reversed

mobility needs and that addresses their budget concerns. I

to ensure the healthy development of the city.

think a Metropolitan Planning Institute and a Metropolitan Agency of Urban Services would be ideal first steps to build

Similarly, the government must establish clear

national integration. These entities would work alongside

communication with companies to direct projects and

SEMOVI, as well as water, waste and public lighting providers,

technology developments toward what the city truly needs.

considering these are the services that are lacking for a large

We need to move toward electrification and other solutions

part of the population depending on where they live.

that disincentivize the use of private vehicles. The country needs committed investors that want to work on public

We desperately need a national mobility plan and metropolitan

infrastructure projects.

funds to invest in mobility projects in different cities, as well as an Urban Transportation Ministry within the Ministry

Q: How can new technological platforms contribute to

of Communications and Transport to disincentivize grey

create a sustainable mobility environment?

infrastructure and work toward sustainable mobility projects.

A: Technology innovation traditionally advances in a different direction than transport regulations. Laws are normally seen as prohibitive in Latin American countries but

The Ministry of Mobility of Mexico City (SEMOVI) is in charge of

technology disruption cannot work under those conditions.

all regulations related to public and private transportation within

Technology does not know of politics or legislation. We

Mexico City. Its goal is to consolidate the city’s regulations with

need to change our mindset to establish regulations that

the safety of all users and the preservation of the environment

345

| INFOGRAPHIC

MOBILITY, A WORK IN PROGRESS The Mexico City government favored vehicle infrastructure

the Metrobús system. Meanwhile, the entrance of several

for years without taking sustainable mobility into account.

players in the alternative mobility sector has also helped

This has resulted in a collapsed infrastructure that can barely

alleviate traffic and reduce the number of vehicles on the

handle the 35 million daily trips that citizens have to complete.

roads. The arrival of a new administration will introduce fresh

The implementation of the new Mobility Law in 2016 has led

development opportunities for the city but in the meantime,

to some benefits in terms of public transportation, including

this is the status of the city's mobility ecosystem.

HOW IMPORTANT DO YOU THINK VEHICLE OWNERSHIP IS FOR MEXICANS?*

MEXICO'S NATIONAL VEHICLE PARK (including cars, passenger and cargo vehicles, million)

346

2016

39,801,827

2017

41,311,027

2018

41,888,455 until May

8.4

Private

55.1% Very important 35.2% Important 1.2% Not important 8.5% No answer 16.8

25.2

33.6

Public

No answer Not important

RIDE-HAILING SERVICES

UBER

CABIFY - EASY

In Mexico, Uber

Cabify and Easy are the

plans to have

largest Ibero-American

DIDI important CHUXING Mildly DiDi Chuxing is the latest Very important player to enter the Mexican

500,000 drivers

players competing in the

ride-hailing market. The

using its platform

global ride-hailing market.

Chinese company officially launched its DiDi Express

by December 2018

Easy and Yaxi were the

with operations in

first ride-hailing platforms

service in Toluca in April 2018

10 more cities. As

to appear in Mexico. Easy

following the implementation of a pilot program. Around 21

of April 2018, Uber

acquired Yaxi in March 2018

was present in 41

to increase its fleet and

million drivers worldwide use

cities in Mexico

improve services

the DiDi platform

ECOBICI

BICYCLE AND ELECTRIC MOPED SHARING SERVICES

In 2017, more than 9.5 million trips were completed using ECOBICI’s shared bicycles.

VBIKE According to an article published by

Entrepreneur in May 2018, VBike plans to

Around 4.36 million ECOBICI trips were

introduce 50,000 dockless shared bicycles

completed in 1H18 compared to 4.94 million

in Mexico. The first stage of the project will

trips in 1H17. By the end of July 2018, over 52.47 million bicycle trips had been completed and 283,265 users have been registered since the program started in 2010

MOBIKE Mexico is the first country where

see 2,000 VBike bicycles made available in several neighborhoods of the Benito Juarez delegation, located in the centersouth of Mexico City

ECONDUCE Between 2017 and 2018, Econduce

China's Mobike has operations in

reached a fleet size of almost 500

Latin America. Mobike’s dockless

electric scooters, with over 400,000

bike-sharing service first arrived to Mexico City in February 2018 when the company introduced its first 50 bicycles in the Miguel Hidalgo delegation *Mexico Automotive Review 2018 interviewee survey

complete trips and an increased user base. Econduce’s scooters take two hours to charge and the energy necessary to charge a regular EV can charge up to 70 Econduce scooters

MEXICO CITY'S PUBLIC TRANSPORTATION SYSTEM

As of April 2018, Mexico City’s subway system comprises 226km of railway transited on average by 273 train carriages

Mexico City’s Mobility System 1 (M1) includes 94 bus routes offering four kinds of services: Ecobus, Express, Atenea and

These carriages travel an average distance of 121,500km and transport 4.43 million passengers every day

a regular service. The Atenea service focuses on guaranteeing sexual violence-free commutes on the main roads of Mexico City

As of April 2018, 609 buses operate on M1’s routes Monday through Friday, while 364 cover The Tren Suburbano route is made up of 27km of railroad and seven train stations that cover four municipalites in eastern

the weekends, traveling an aggregate 115,000km on a daily basis transporting 386,000 passengers

State of Mexico and two delegations

347

of northern Mexico City

STC metro Metrobús Tren suburbano Tren ligero Trolebús Main avenues and highways

The Mexico City Light Train’s single route stretches for 25km and is operated by 20 double-cabin trains. In April 2018, Tren Ligero’s units traveled 145,000km and transported 2.83 million passengers

By April 2018, Metrobús’ fleet was composed of 679 buses designed to meet Mexico City’s electric bus system (trolebús) comprises eight lines stretching for 204km

the needs of Mexico City’s streets. There are four different types of Metrobús buses: articulated, biarticulated, double-decker Euro VI and 12m units. Between Monday

In April 2018, an average of 154 electric buses traveled 985,400km and transported 4.04 million passengers

and Friday, an average of 561 buses are in operation. On weekends, this figure is reduced to 352

Source: INEGI, ITDP, STC Metro, Metrobús, Ferrocarriles Suburbanos, STE-CDMX, SM1-CDMX, Uber, DiDi, EcoBici, Econduce, Mobike, Excélsior, Entrepreneur

| VIEW FROM THE TOP

GIVING MUNICIPALITIES THE POWER TO CHANGE MOBILITY MAURICIO COBO Minister of Mobility of the Queretaro Municipality

348

Q: Why should more municipalities have their own Ministry

allocated to mobility projects within the city. We have been

of Mobility?

subsidizing car use for many years and now it is difficult to

A: The municipality of Queretaro is one of the few in Mexico

motivate people to use other alternatives. We do not use

that has a Ministry of Mobility. This is something urgent that

methods such as road tax to disincentivize the use of cars

all cities with more than 50,000 inhabitants should begin to

like other countries do. Allowing companies to use streets

look at. Citizens have four methods of transportation: by foot,

and highways free of charge is a type of subsidy because the

biking, public transportation or car. Throughout the country,

government spends a great deal of money on building these

cities have given preference to vehicles, which in the end

roadways but gets almost no return on them.

determines the shape of the city. Cities then begin to force citizens to aspire to owning a car because of the way the city

Q: What is the main cause of Queretaro’s mobility problem

has been designed, meaning this option offers a better quality

and why create a Ministry of Mobility?

of life. This phenomenon makes cities also grow unequally

A: If the government invests in public infrastructure, the

and hostile to unmotorized transportation methods. In the

private sector tends to respond. One of the main reasons

Ministry, we create public policies for mobility and then design

why the Ministry of Mobility was created was because the

and execute projects such as bike lanes throughout the city.

city has grown extensively in past years. In the 1970s, the city of Queretaro had approximately 300,000 citizens but

Q: How does the Ministry obtain funding for its mobility

it had a density of 200 inhabitants per hectare. Today the

initiatives?

city’s urban density is 45 inhabitants per hectare, which is a

A: The Ministry is part of the municipal government. Therefore,

dramatic decrease. Urban sprawl has grown 30 times in the

it only receives funds from the local government and the

last 30 years with extremely low densities, creating a problem

mayor. The municipal government has various sources of

that we must overcome fast. This was largely due to the

funding but most of Queretaro’s income comes from the city

housing policy that was established. More and more people

itself. Property tax and domain transfer payments in Queretaro

demanded single-family homes and did not want to live in

are both strong income sources. When a real-estate developer

vertical developments. There are more than 40,000 vacant

wants to create a project that exceeds 500m2, it has to have

lots within the city that add to the large dispersion problem.

the approval of the Ministry of Mobility and then according to the Income Law it must pay an amount for the impact the

Q: How has the municipality improved the public

project will have on the city’s mobility.

transportation system without being involved in BRT or bus systems?

The bigger the project, the more the developer has to pay.

A: The BRT system is responsibility of the state government

This is relatively new in cities because before, a developer

but the bus stops are responsibility of the municipality.

would pay a fee that dealt with transit. We are now being

Approximately 64 percent of the population moves around

more thorough and creating mobility impact studies. If the

in public transport, 35 percent in cars and 1 percent in bicycle.

development will create traffic and heavily impact the city’s

If 64 percent of the municipality uses public transportation

mobility, then the developer will pay a right for that impact

and we are not responsible for the transport itself, we can

to the city. Developers demand that the money is invested in

improve the state of the bus stops. We decided to construct

a project or service that is near to their project. This way they

high-density bus stops that are safe, comfortable and have

see that this fee is a win-win for both the city and the project.

access to communication services.

When it comes to funding, the income mobility impact studies

Together with the Queretaro Transport Institute we have

generate per year, which is approximately MX$15 billion

created mobility solutions that will enhance the quality of life

(US$800 million) to MX$20 billion (US$1.1 billion), should be

of the people living in Queretaro. We are constructing 15 of

Queretaro City

these high density stops in areas that are hubs for intermodal

already existed to create a network. Studies were carried out

transportation. We chose the stops according to the areas

to see how likely citizens were to use bike infrastructure and

that had the highest density of users and that were not

surprisingly, 80 percent of the people within the 15-35-year

within the short-term plans of the BRT system. Queretaro has

age bracket said they would be willing to use bikes as their

contemplated the construction of eight BRT lines in the next

mode of transportation if the correct infrastructure was in

few years. The municipality of Queretaro has the advantage of

place. International guidelines for bike lanes suggest painting

being surrounded only by municipalities and not by another

the lanes either blue or green. We painted the 200km green

state, as in the case of Mexico City. When it comes to bicycle

so they would be more noticeable.

infrastructure, we are developing this as far as the border with the next municipality so our neighboring government can pick

Q: What steps has the Ministry of Mobility taken to ensure

up where we left off.

sustainable development of the city in the future? A: One of the peak hours for traffic in Queretaro is when

Q: How has the municipality responded to the QroBici and

parents drop off their children at school. The Ministry began

bicycle infrastructure developed in past years?

to analyze the amount of traffic that was generated when

A: QroBici began operations in March 2018 with 450 bicycles

families drove their children to school individually. As a

and 50 stations. 95 percent of users access the bicycles

solution, we decided to create a free public-transportation

through the app and the remainder uses a physical card. The

system for children. Mothers would drop off their children in

bike system is operated by Estrategias de Movilidad Urbana

designated places and then all children would be transported

but the system belongs to the municipality. The municipality

to schools in one large bus instead of one in each car.

pays a fee each month to the operator.

Queretaro City has more than 500 schools within its limits and we generated routes for 120 of these schools with 57

Given that only 1 percent of the population uses bicycle as

buses. This project now transports 17,000 students each day,

their mode of transportation, many questioned why the city

saving families four trips a day into the city and mitigating

was investing so much in the bike system and lanes. These

traffic around schools. This system is subsidized and is being

investments are made in hope that more and more people

paid by the municipalityâ&#x20AC;&#x2122;s income.

will begin to use it because it is now available and the correct infrastructure exists to allow intermodal mobility. There seems

We are sure that the key actor that must take the first

to always be a strong resistance for bicycle initiatives. If the

step to making more sustainable cities is the government.

infrastructure exists and the right tools are provided, a culture

The municipality has changed its land-use regulations and

is created and these investments are extremely viable for the

plan. We want to encourage the construction of vertical

development of more sustainable cities in the future. We now

developments, with eight different programs for the seven

have 5,000 users and more than 1,800 trips a day, which

neighborhoods in Queretaro City.

demonstrates that the system is working and will have an impact on the city. The Ministry of Mobility of Queretaro is one of the first municipal-

Queretaroâ&#x20AC;&#x2122;s mobility masterplan dictates that it should have

level ministries dedicated solely to improving mobility throughout

500km of bicycle lanes. In this administration, 200km of bike

the city. It focuses on creating alternative transportation solutions

lanes were constructed and integrated with the 60km that

and improving access to public transportation systems

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| VIEW FROM THE TOP

ELECTRIFICATION, A GRADUAL CHANGE FERNANDO PÁEZ Operations Director of WRI México

350

Q: How did WRI participate in the implementation of Line

the other hand, operational costs that this measure would

7 of Metrobús in Mexico City?

entail and the potential impact in the ticket price paid by

A. WRI has been an active participant in the Metrobús

the user if we consider a self-sustained financial system. The

project in Mexico City from its design to its deployment.

problem could be solved through the implementation of two

WRI has been a big influencer on the vision of urban public-

alternative solutions. One is the provision of bi-articulated

transportation services. During the development of the first

vehicles that have greater capacity, while taking care not

lines of the Metrobús system, our collaboration was more

to affect the frequency of the service. The other would be

active due to the city’s initial poor technical experience

to improve the information users access so they can plan

in the development of the BRT projects. Today, Metrobús

their trip better, taking advantage of the interconnections

has developed a rich technical experience although WRI

between the system’s different lines and find other ways to

maintains active participation in the development of

reach their destination.

new projects. Regarding Line 7, we have been following the project closely and we have offered technical advice

Q: How open are operators to invest in new articulated or

during its development. Line 7 does not have the same

bi-articulated units?

infrastructure specs as the BRT lines in Insurgentes Avenue.

A: How open operators are to invest in units to improve the

Its development implied a challenge in the design and

service is related to the way this action will be remunerated.

construction of Metrobús stations that could benefit users

It is necessary to consider the impact of these investments

without changing the integrity and appearance of one

on the costs of operating the system and to be very clear

of the main avenues in the city. We also added double-

about the source of financing to guarantee payment to

decker buses as an inclusive transportation technology. We

operators, the financial sustainability of the system and

performed a technical analysis on the corridor’s operation

maintaining an affordable rate for users.

and efficiency using these units, as well as its connectivity with other transportation services.

Q: How viable is it to transform Metrobús into an electrical system?

Q: How does Metrobús deal with the problem of passenger

A: Electrification in the Metrobús System is a project that

saturation?

should be considered in the long term for the following

A: The problem of high occupancy in Metrobús, as in other

reasons. First, it is not only a question of replacing a diesel

public transportation systems of the city, is worse during

unit with an electric unit. It is necessary to consider also the

specific periods of the day known as “peak hours." Right

energy supply network that will power the system. Second,

now, the problem of high demand in these periods is being

changing the operation and maintenance conditions of the

addressed by Metrobús by increasing the number of pick

entire fleet would demand the creation of a technical force

up times. Many would think this problem could be solved

capable of providing this service. Financing is a third factor

by increasing the number of buses to meet the demand.

to be acknowledged, especially considering the higher

However, the issue is not that easy because we need to

costs of electric buses. Fourth, vehicle design must also

take into consideration on the one hand, the capability of

be included in the equation since it has a direct impact

the corridors and the stations to get more buses and on

on the service’s capacity. There are some advances in the development of high-floor articulated units such as those required by Metrobús in its lines 1, 2, 3, 5 and 6 but they

The World Resources Institute (WRI) is a global research

are barely in the testing stage for Latin America. Finally, it

organization that spans more than 50 countries. WRI has six

is necessary to have business models that can guarantee

work programs focused on cities, climate, energy, forests, food

the financing of technological change without affecting the

and water

financial sustainability of the system.

VIEW FROM THE TOP |

A DIFFERENT CHOICE FOR MEXICO’S SUCCESSFUL BRT GERARDO MÚGICA Partner México of Alexander Dennis

Q: What made Alexander Dennis’ Enviro 500 double-

were the first of their kind in Mexico. Line 7 is the first double-

decker buses the preferred choice for Line 7 of Metrobús?

decker corridor in Latin America and the first major double-

A: We were in a good position since approximately 60 percent

decker BRT line in the entire world. Furthermore, we are the

of the double-decker buses in the world are manufactured by

only company in Mexico providing aluminum buses,thus

Alexander Dennis. We presented our proposal to Metrobús

offering another advantage in terms of performance and

with great success, which was later escalated to SEMOVI and

sustainability. The same bus manufactured in steel would

to the then-Mayor of Mexico City, Miguel Mancera. However,

weigh approximately 2 tons more.

we did not sell our buses directly to the government. Rather, we negotiated with private operators to showcase

Q: What opportunities do you see to improve public

our vehicles as the best option for the city’s mobility. As a

transportation in Mexico?

concessional system, we did not have to enter a tender with

A: The industry must change its mindset so more people

the government but we did compete with other companies

use public transportation, not because they have to but

that also wanted to supply their units. Once we found out

because they want to. For that, companies must opt for

which companies would be the future concessionaires, we

better-quality buses that can offer clients safe, clean and

started lobbying with them and they realized that we had

comfortable passage. In the end, this is a matter of dignity

the experience and backbone to support a project such as

in the use of public transportation. This, of course, entails

Line 7. Operating in Reforma Avenue was a huge break for

a change in tariffs, which is a very sensible topic in the

us. Normally, companies arrive to a country by selling one

country. Especially when considering the low-income

or two units to a couple of fleets. Instead, we arrived to one

population, tariffs cannot be easily raised. However,

of the most important corridors in the city, which gave us a

every low-entry, high-technology system in the world is

unique visibility as a new brand in the country.

currently subsidized. Economically speaking, I am against easy subsidies as a solution to general cities’ needs. But,

Q: What were the benefits of substituting the old microbus

to improve public transportation we must understand that

units operating in Reforma with Alexander Dennis units?

there are certain problems with special social implications

A: Thanks to the implementation of Line 7, the city managed

that can only be solved via government economic aid.

to reduce CO2 emissions by approximately 19,000 ton. Originally, there were 350 microbus operators in Reforma

Q: What role does Alexander Dennis want to have in the

that transformed to 180 single-decker units when Corredor

development of the Mexican automotive industry?

Villa Lomas and Corredor Bicentenario were implemented.

A: We see great potential in the midibus segment of between

These units were operational until Mar. 4, 2018. Alexander

8.5m and 11m. Our challenge at the moment is to build

Dennis’ 90 units were inaugurated into the new Metrobús

enough presence and stronger relationships with operators

corridor the very next day.

to build a retail market. Projects like Line 7 of Metrobús take years in consolidating but if operators became more involved

When implementing a new mobility solution, we must

and participative in the development of their fleets, we could

consider the vehicle’s performance and its benefits per

close faster, smaller deals with projects that just need small

capita. While a car or another type of bus might offer a

renovations or adjustments in their offering.

better mileage-per-gallon rate, our buses are capable of transporting 130 people thanks to their double-decker configuration. Having said that, Alexander Dennis’ buses

Alexander Dennis is a British bus manufacturer with branches

feature the most advanced engines in the entire country’s

in the UK, US, Canada, Europe, Hong Kong, Singapore, Malaysia,

vehicle park. We had to provide all the equipment and the

New Zealand and most recently Mexico. The company is the

spare parts necessary to service these units because they

world’s leading manufacturer of double-decker buses

351

| INSIGHT

CURBING TOTAL TRAVEL COSTS THROUGH DIGITALIZATION ABEL LÓPEZ Urban Transport Specialist at World Bank Group

Improving local mobility ecosystems and reducing total

As a development bank, World Bank Group has focused on

travel costs in Mexico’s largest cities can be can be assisted

collaborating with the Mexican government to improve urban

by the use of technologies and the digitalization of mass

transportation in the country. The bank developed the MX-

transport systems. However, the country must overcome

Urban Transport Transformation Program to boost the use

several challenges to make the best out of new technologies,

of mass transportation means in cities with over 500,000

says Abel López, Urban Transport Specialist at World Bank

inhabitants, designing it as a complement to the Federal

Group. “Approximately 60 percent of Mexico City’s population

Government’s Mass Transport Support Program (PROTRAM).

commutes using urban transportation means,” says López. 352

“However, only 1-2 percent of all trips in Mexico are digitalized,

Eight years after its implementation, World Bank and

which offers a key opportunity for improvement.”

Mexico’s public sector have collaborated in urban transportation projects in Monterrey, Guadalajara and

Knowing when the next bus, taxi or subway train arrives

Tijuana. “We have learned about the needs of Mexican

enables people to more effectively plan their commutes.

cities, the challenges that public transportation operators

Although the entrance of new technologies such as Uber or

and state and Federal Governments face and the role of

Cabify has offered commuters more certainty on waiting times,

OEMs, commercial banks and technology suppliers in urban

public institutions still need to understand the importance

transportation projects.”

of information to improve mobility ecosystems. “The total travel cost for commuters drops as Mexico advances toward

In its efforts to promote development that contributes to

having real-time information on waiting times,” says López.

ending extreme poverty and boosting shared prosperity,

“Cities must learn to produce, process and share data related

the World Bank Group plays a key role in promoting

to urban transportation, which combined with the regularity

transparency and efficiency in the use of public funds.

of mass transportation will translate to a better impact from

All projects financed by the bank must comply with

any mobility plan implemented by the city.”

procurement norms that promote competition. “In the area of civil works, companies might feel more comfortable

There are already digital platforms specialized in offering

participating in tenders where the World Bank’s resources

mobility services, as well as software solutions that tell

are involved because they know those resources are secured

drivers what roads to take to avoid traffic. However, López

and that the tendering process will be transparent,” says

says more platforms should be created to benefit urban

López. In rolling stock projects, on the other hand, World

populations. At the same time, the country should promote

Bank reviews that projects are structured through solid

better access to digital devices where users can access

grounds thus maximizing value for money. “By motivating

these platforms. “Although Mexico has a high access rate to

international tenders and working closely with government

smartphones compared to other countries in Latin America,

officials, the bank boosts the competitiveness of urban

this indicator is still far from 100 percent,” he says. “Around

transportation,” he says.

80 percent of the people that use public transportation means in Mexico are part of lower-income population

López says the two challenges that need to be addressed

segments with limited access to these devices.” López

in urban transportation projects are planning and

says the role of World Bank Group is to push for better-

financing. “Cities’ mass transportation projects are not

structured projects where the technological risk is covered.

solid enough to attract private investors willing to take

“We need better project planning to implement programs

some risks in exchange for returns or maximize value for

where new technologies can sustain themselves over time,”

money, It is important but expensive to prepare mass

he says. “It is important that vehicles are substituted for

transportation projects and necessary to have resources

those with newer technologies.”

in place to finance them.”

VIEW FROM THE TOP |

PRIVATE INVESTMENT TO MOVE MEXICO

Manuel Nieblas Partner and Manufacturing Industry Leader at Deloitte Mexico

Alberto Torrijos Partner and Automotive Sector Leader at Deloitte Mexico

Q: How is Deloitte participating in developing an integrated

industry and better options for the population. This still

mobility strategy for the country?

does not happen in the public transportation segment but if

AT: We are participating in the planning of new mobility

it did, we could solve part of our mobility problems without

strategies for different cities. States such as Nuevo Leon,

the government having to invest directly in this.

Puebla and Mexico City see this as a priority but we think there should be an integral strategy going forward.

Q: What should be the government’s immediate priority

Infrastructure and development of public transportation

in terms of mobility?

services are just one side of this issue; the government

AT: In the short term, the government should make a

must also consider how to implement new technologies

diagnosis of how we could solve mobility issues while

to improve connectivity and ease the introduction of new

integrating Smart City concepts. Once we have this analysis,

mobility systems and alternative vehicles. From our side,

we can determine which actions to take based on a quick-

we can help cities know how to best integrate all players

win strategy. Metrobús has been an excellent solution

into a single mobility ecosystem.

for Mexico City but it is still insufficient considering the needs of the entire population. We need to explore more

MN: The concept of Smart Cities will be fundamental to

underground mobility possibilities, as well as integrated

develop an integral mobility strategy. If the government

solutions that can solve transportation issues seamlessly.

is thinking only about transportation, its policies will only

So far, we have limited options, which is why most people

go so far.

still prefer to use their own vehicle.

Q: What do you see as the main problem that prevents

Q: How much opportunity do you see for Chinese vehicles

further investment in mobility?

to grow their participation in the domestic market?

MN: The problem is that there is no clarity in the legal

AT: Mexico is a very price-sensitive market and because of

procedures to establish rights of way for new public

the competitive prices that these brands will offer, we think

transportation investments. From our perspective, the best

they will have a great opportunity to conquer the market.

way to solve the issues in mobility investment is through

The only downside for these brands is that there is still a

the development of more public-private partnerships

stigma that relates Chinese production with bad quality.

(PPPs). The government does not have enough resources

There is no success story of Chinese automotive brands in

to solve the country’s problems but it must find ways to

Mexico and most consumers’ minds go to knock-offs when

attract investment and generate returns for any parties

thinking about Chinese production.

interested. In cities like Tokyo or London, the public grants concessions to private companies to operate all forms of

MN: Although the market has a strong perception

public transportation and that model works perfectly. In

regarding Chinese production, the truth is that these

Mexico, however, the government is still afraid to relinquish

vehicles are now of the highest quality. Moreover, these

control on something that is considered strategic for the

companies are investing heavily in the market and bringing

development of the country.

manufacturing operations to show their commitment to the country.

The government should be more open to analyzing new financing strategies for public transportation. Afores, for example, have been quite successful in financing long-term

Deloitte Touche Tohmatsu Limited, more commonly known

infrastructure projects, leading to the creation of tools such

as Deloitte, is a conglomerate of independent firms that offer

as Fibras. The energy sector is another good example of

audit, tax, consulting, risk and financial advisory services. In

how private investment has led to development in the whole

2016, the company generated US$38.8 billion in revenue

353

| VEHICLE SPOTLIGHT

MAZDA MX-5 2019, A TRUE CONNECTION From its first iteration in 1989, the Mazda MX-5 strived to be the embodiment of what the Japanese Yabusame mounted archers knew as Jinba-Ittai: the oneness and ultimate bond between horse and rider. Since then, the company has developed its technology to not only continue with this ideology but exceed the expectations of what clients thought should be the dynamics between car and driver. Enter, the Mazda MX-5 2019. With this new version of its signature model, Mazda seeks to create an intuitive connection with the driver. The company used sensors to analyze the interaction between driver and car, which helped designers determine the exact position in which to place the gear stick, as well as the muscles and effort needed to maneuver the car through each curve and in every driving condition. The back rest and cushions of the new MX-5 were redesigned with lighter materials to reduce vibrations and increase driving stability thus taking the vehicle’s interior to the same level of innovation as the rest of its components. The company also improved the manual opening and closing of the hood to make it easy to handle, regardless of weather conditions. Designers moved the button that was next to the closing lever to the middle part of the hood to allow opening or closing in a single step. To slide the hood more easily, its fixed sections were also pushed to the sides and to the center of the car. This reduced the distance that the driver’s arm must travel to put the hood away from 600mm to 400mm. In its RF version, the MX-5 incorporates a retractable hardtop with three sections: front, middle and posterior. In its posterior, the top has a rear window that is part of the distinctive fastback design of this version, which helps it maintain a waterdrop visual sensation even when the hood is retracted. The opening and closing time for the RF’s hardtop is the shortest in the world, thanks to the superposition of each of the components that make up the hood’s mechanism. Mazda overhauled the MX-5’s engine as well. Its SKYACTIV-G 2L, 16-valve engine now delivers 181hp at 7,000rpm and torque of 205Nm at 4,000rpm, up from its predecessor’s 155hp power output at 6,000rpm and 201Nm at 4,600rpm. As a result, the Mazda MX-5 2019 can now offer more agility and a unique driving experience. The rpm redline of the 2019 edition was also moved to 7,500rpm from the 6,800rpm in 2018.

355

| VIEW FROM THE TOP

MOBILITY DEMOCRATIZATION FOR PRIVATE AND CORPORATE USERS PHILIP CHAVES Head of Uber for Business Latin America

Q: How has your experience in Mexico City helped you

use our platform efficiently. Solutions like Uber Central

to understand the needs of the Latin American market?

allow companies to share rides with employees who lack

A: We have had very similar experiences in Mexico City and

a smartphone just by sending a text message. We are also

in Sao Paulo. Both cities have complex mobility systems and

developing a lighter version of our app that can be used on

a widespread urban infrastructure with huge populations. In

a feature phone to still be able to hail an Uber.

addition, both Mexico and Sao Paulo have a deficient public

356

transportation system, which leads to challenging traffic

We think about access as a way of democratizing mobility

conditions, and they are in the midst of economic turmoil

for everybody. In that sense, Uber has to be available

that has caused high levels of unemployment. In these cities,

everywhere, it needs to be affordable compared to other

Uber has increased the populationâ&#x20AC;&#x2122;s access to transportation

transportation options and inclusive for segments of the

options by providing access to a safe, reliable, affordable and

population without access to a credit card. Democratizing

fast service and, at the same time, it has created flexible job

mobility also has to do with making all the data we have

opportunities for people to be part of that change.

available to governments or public institutions in charge of planning and developing urban infrastructure. Today,

Q: As new competitors enter the market, how is Uber

businesses dictate where people live and how long they

planning to maintain its leadership position?

spend in traffic. Thanks to the data generated by our

A: Having the ultimate customer experience is what will

partner drivers, we can help public officials understand

make Uber the favourite solution available in the market. I

how to arrange business districts to shift part of that traffic

am a fan of competition and I think it keeps our game sharp.

and make the city a little bit smarter. An average person

Furthermore, competition has made us think about areas

spends between two and five years stuck in traffic during

of opportunity that we had not yet analyzed. That being

their entire life, which is a complete waste of time. In the

said, our vision has always been to make Uber and Uber for

end, Uber might not be the ultimate solution to traffic but

Business the best app experience that clients can possibly

we can transform that wasted time into something more

get. We connect drivers with the users that need them

productive. This vision is what drives our business and what

and we strive to do that as seamlessly as possible. In Uber

helps us develop the solutions we have in the market.

for Business, specifically, our goal is to make our platform robust enough so both huge corporations and small players

Q: How attractive have Uber's business-oriented solutions

can efficiently manage the rides their employees are taking.

been and how does the experience differ between platforms?

In the end, our goal is that clients will no longer think about

A: Uber was born as a business-related tool to help executives

how to get a ride, it will just happen, as simple as that.

get to meetings easier. Also, we understand that Uber for Business must be different from our private user experience.

Q: What is Uber doing to democratize mobility in a country

When an executive gets in an Uber, he wants a quiet ride so he

like Mexico where only 30-40 percent of the population is

can continue working or answer emails. We have our roots in

part of the banking system?

business transportation and now we are focusing on building

A: We understand that there is a large part of the population

a robust platform to support any type of business. Uber for

that may not have the smartphone or device required to

Business does not deal with the ride per se, what we do is help with our clientsâ&#x20AC;&#x2122; administrative processes.

Uber Technologies is an American company based in San

Q: How can Uber for Business help a company manage its

Francisco, California, and founded in 2009 by Travis Kalanick

operations better?

and Garrett Camp. Since August 2017, the company is presided

A: Uber for Business is not necessarily only about the ride.

by Dara Khosrwoshahi

We want our platform to be a hub where many types of

services are available to a company. Uber has solutions for rides, food deliveries and freights and our goal is to

MILLENNIALS FAVOR SHARING

develop an ecosystem where all these solutions coexist so companies can build, manage and organize all the services that we offer. This does not mean, however, that

The entrance of millennials into the economically

we will integrate our different services into a single app. It

active population has had a profound impact on urban

is important to clarify that Uber for Business is not an app

mobility. The apparent lack of interest of younger,

but a software platform that manages different services.

digital-native generations in purchasing vehicles and

Employees will be able to use Uber, Uber Eats and Uber

their thirst for digital solutions to everyday problems

Rush depending on their activities and all those rides and

are greenfields for sharing economies and an improved

services will be centralized by our clients’ administration

public transportation system.

division. This allows companies to create rules and policies, as well as different billing options depending on how

Of course, car ownership will not go away. Mario

employees use these apps.

Hernández, Leading Partner of the IMMEX Segment at KPMG Mexico, expects the Mexican automotive

Q: What impact do you think solutions like Uber will have

market to bounce back from the sales contraction

on the development of the automotive industry in general?

that started in 2H17 thanks to Mexico’s economic

A: Companies are starting to realize how the sharing

growth and a greater participation of youngsters in the

economy is going to transform their business, not only

formal economy, which is consistent with Manpower’s

in the automotive but in the oil and gas sector as well.

projection that 35 percent of the global workforce in

We have realized that owning a vehicle is no longer the

2020 will be composed of millennials, according to the

ultimate ambition of the population, particularly when

company’s Millennial Careers: 2020 Vision study. INEGI

isolating certain segments of the population, including

data shows that 94 percent of Mexico’s economically

millennials and generation Z. Having a car used to be a

actively population between 15 and 29 years old (16

luxurious experience but not anymore. Due to insecurity,

million people) were employed in 1Q17.

insurance, purchasing power and several other factors, cars have become so cumbersome that a solution that helps

Still, ride-hailing apps and sharing services like ECOBICI

you get a ride whenever you want has become extremely

and China’s DiDi Chuxing or Mobike will continue to

attractive for younger generations.

be major disruptors in the mobility market. According to Statista’s projections for the Mexican ride-sharing

Automotive companies are certainly rethinking their role

market, by 2020 there will be 13.5 million ride-sharing

in society. At the same time, we need to shift the way

users compared to an expected 10.5 million by the end

we think about vehicle ownership and come up with

of 2018. In 2017, 60.3 percent of users were between

new models that suit the requirements of an evolving

18 and 34 years old. Assuming no changes in the age

population. Maybe instead of owning a vehicle, clients can

distribution of ride-sharing users, that means that by

only purchase hours of that same vehicle depending on

2020 around 8.85 million users would belong to this

how much they expect to use it. Purchasing a car that you

segment compared to 6.32 million in 2018 and 5.24

will only use three or four hours each day does not make

million in 2017.

sense any more. Companies will have to be more creative in the way they market their products.

Segment business leaders say a key driver of this growth is vehicles becoming a hassle rather than an

Q: As the Head of Uber Enterprise Latin America, what are

asset. “Having a car used to be a luxurious experience

your priorities for Mexico at the moment?

but not anymore,” says Philip Chaves, Head of Uber for

A: Our goal in Mexico is to identify influential companies that

Business Latin America. “Due to insecurity, insurance,

can adopt our solution and change the way their employees

purchasing power and several other factors, cars have

move around the city. We are talking to a large company

become so cumbersome that a solution that helps you

with thousands of cars in their corporate fleet. Our goal is to

get a ride whenever you want has become extremely

exchange that for an Uber contract where companies offer

attractive for younger generations.” At the same time,

unlimited Uber rides instead of a corporate car.

Jaime Aparicio, Global COO of Easy, says some people have started to realize they no longer need to own

Analyzing how this could benefit the client, we have found

a vehicle to commute. “The use of Easy and other

that we can generate savings of up to 40 percent of the

platforms has grown aggressively to the point that

company’s transportation costs when thinking about

most people are now aware of the existence of ride-

mileage, gasoline and maintenance.

hailing solutions.”

357

| INSIGHT

COLLABORATION THE ROAD TO IMPROVED MOBILITY RICARDO WEDER Global President of Cabify

Growing populations, migration to cities and ever-sprawling

full- and part-time work so that the gap between supply

urban areas are greatly pressuring transportation systems.

and demand for these services is reduced.”

Ricardo Weder, Global President of Cabify, says a cultural shift away from car ownership is necessary for this pressure

Cabify collaborates with other mobility players to create

to subside. “We are building cities around cars rather than

public policies that bolster healthy competition between

around communities,” he says. “Technology will enable us

transportation alternatives. The company believes in

to reclaim these spaces.”

competition and recognizes the importance of coexistence among several players to create the best ecosystem for

358

Weder says mobility ecosystems in Latin America are

users. “We need technology to modernize mobility in

harmed by a lack of appropriate public transportation,

collaboration with all public and private players,” he adds.

inadequate investment by governments and nonexistent urban planification. These inefficiencies offer great potential

While taxis have been the traditional competitors of ride-

for improvement through technology. Ditching the concept

hailing services, Cabify has taken a step forward to work

of vehicle ownership will be a key step in this process.

with them in some markets. “We do not see cabs as our direct competitors,” Weder says. Cabify covers different

“The social cost of having a car is not included in the price

needs that clients cannot meet through the use of taxis

that people pay for it,” says Weder. The combination of

and thus competes directly against the global giants of

widely-extended vehicle ownership with insufficient mobility

ride-hailing, he says. “We are proud to be competing with

alternatives not only translates to collapsed road networks

Uber and DiDi Chuxing as a truly Ibero-American company.”

but also to diminished quality of life among the population segments with the lowest income who often live on the

As part of its efforts to develop mobility ecosystems in Latin

peripheries of cities and endure the longest commutes.

America, Cabify has also participated in the creation of the Latin American Association of Mobility Services Companies

This, however, will change in the next decade thanks to

alongside other industry players. This organization is

technology, according to Weder. As part of the Spain-

planned to include all actors in the technology-based

based Maxi Mobility group, Cabify and its sister company

mobility ecosystem, from start-ups to funds. “We plan

Easy focus on offering ride-hailing services as well as

to address issues of security and Big Data and to share

developing mobility-oriented technology to support the

best practices, processes and information to improve our

development of transportation systems in the group’s

processes and boost security,” says Weder. Cabify plans

target markets in Europe and Latin America. “Cabify

to host workshops that focus on the regulations needed

has the talent to develop top-of the-line technology to

to improve Mexico’s mobility and offer certainty to

compete against the best-funded e-mobility companies.”

transportation companies.

An example of this is Cabify’s collaboration with Google Maps. “Clients can now hail a ride from the Maps app thus

Regulation is one of the main challenges that deter mobility

curbing waiting times, costs and other variables while also

development, according to Weder. “Technology moves

increasing our user base.”

faster than governments can develop the corresponding public policy,” he says. “Transportation is a key variable in

Weder points out that e-mobility offers many opportunities

urban life, which makes it impossible for this sector to be

to not only improve transportation in cities but also to

trumped by regulations. We need a regulatory framework

generate wealth for drivers. “Ride-hailing in Latin America

with a nationwide application to provide more certainty to

offers huge opportunities to create well-remunerated self-

companies and offer long-term incentives that support the

employment,” he says. “Shared-mobility models allow both

country’s mobility ecosystem.”

VIEW FROM THE TOP |

LOCAL EXPERTISE TO CHANGE RIDE-HAILING GAME JAIME APARICIO Global COO of Easy

Q: How will Easy’s acquisition of Yaxi improve the company’s

ride-hailing solutions. Easy is today the second-largest player

operations and service portfolio in Mexico?

in Mexico’s ride-hailing market. In 2017, the number of trips

A: Technological and market expertise is an advantage that

completed through the Easy platform reached triple-digit

enables us to better cater to the specific needs of drivers

growth. With the acquisition of Yaxi, we are confident we

and passengers in Mexico. This acquisition will double our

will reach similar figures in 2018. The market has grown

existing fleet, which translates into a faster and higher-quality

significantly but still most trips throughout the city are

transportation service for passengers. As the pool of drivers

managed outside the ride-hailing market. There is still room

grows, Easy can apply stricter regulations to ensure service

to go and conquer.

quality. This transaction will also help strengthen our drivers’ business through the unification of two platforms into a

Q: What effect have ride-hailing services had on vehicle

single consolidated service. Unifying our technologies helps

ownership in Mexico?

us merge the two market segments that Yaxi and Easy had so

A: Some people are starting to realize they no longer need to

that drivers only need one app to offer their services. While

own a vehicle, but others have yet to let go of this mindset.

that may sound simple, reducing the number of apps that

Our ultimate goal as a company is to strive for cleaner and

drivers need is a key advantage. Having only one app running

more agile mobility in congested urban centers like Mexico

translates to lower battery and memory consumption and

City. We are part of a larger mobility scheme and whether it is

better smartphone performance.

by commuting by bicycle, electric motorcycle or ride-sharing services, having fewer cars on the road will increase the quality

Q: What advantages does Easy bring to the Mexican market,

of life of both users and non-users of ride-hailing services.

versus competition like Uber and DiDi Chuxing? A: Latin America is our target market and we have the

Q: What are Easy’s strategic priorities to expand its

flexibility to adapt to the needs of its cities. Yaxi and Easy

operations?

were the first car-hailing platforms to appear in Mexico,

A: There are three main areas of opportunity for us to

as well as the first Latin American companies that tried to

grow in 2018. We need to work on branding so that more

optimize the way vehicles were used to transport people in

people use ride-hailing transportation within cities and

urban areas. Easy started to change the mobility mindset

recognize the added value that Easy offers. We also need

of drivers and passengers in 2013. This has taught us

to aggressively increase the number of service providers

plenty about the needs and behavior of drivers in cities like

available through our platform so waiting times are reduced

Mexico City, Puebla and Queretaro. The combination of this

and passenger experience is improved. Finally, Easy needs

expertise and our focus on the Latin American market gives

to boost security for both users and drivers using the

us the ability to mold our technology to the specific needs

platform. This is a sensitive challenge. While branding and

of these markets, something that more robust international

growth are matters of operational capacity, creativity and

platforms cannot do.

strategy execution, boosting security requires research, technological improvements, monitoring and collaboration

Q: How has the market reacted to Easy’s mobility proposal?

between private and public players that usually have

A: On the drivers’ side, their mindset and business has

different interests and agendas.

taken a 180° turn. Not only do taxi drivers now see digital platforms as an option to improve their activities, but also as a completely new market segment that offers access to

Easy is a Brazil-based ride-hailing technology company that

employment and income. On the passengers’ side, the use

offers urban transportation services through its Easy app.

of Easy and other platforms has grown aggressively to the

The company operates in 170 cities in 12 countries, including

point that most people are now aware of the existence of

Mexico

359

| INSIGHT

WANT TO STAY AHEAD OF THE CURVE? INNOVATE ANDRES OMAÑA Director of SmartBike

As the public continues to develop a taste for new mobility

Omaña’s infrastructure plans are ambitious and are not

options, taking advantage of the city’s infrastructure and

limited to just adding more bicycles. The company’s

harnessing new technologies is key to have an edge in an

end goal is to offer more amenities for its users. “We

increasingly competitive market, says Andres Omaña, Director

are interested in evolving toward modular docking and

of SmartBike. As the division of Clear Channel that supplies

charging stations that offer open Wi-Fi to users and where

bicycles and manages Mexico City’s shared-bycicle system,

they can even pay for domestic services such as electric

SmartBike faces the challenge of new competitors arriving to

power or gas,” he says.

town. According to Omaña, these players offer a similar pricing 360

level to Mexico City’s shared-bicycle system, so SmartBike

At the same time, SmartBike has worked on improving

bets on area coverage and technological advancements to

the Mexico City’s shared-bicycle system app to make for

deliver a service level that sets the service apart from other

a more seamless process. Users can find their nearest

players. “We have 480 docking stations covering 38km ,”

bicycle station and check whether there are units available.

he says. “Competitors complement Mexico City’s mobility

Building on the digitalization trend, the company also

offering but they lack our backbone and infrastructure.”

introduced new digital ways for people to register as users,

reducing registration process times from 45 to only eight SmartBike covers a greater area than any other shared-

minutes. Similarly, the company started offering support

bicycle company present in Mexico City, which has

via WhatsApp for Business and has increased its digital

constituted one of its key strengths. Moreover, Omaña says

safety levels for online charging to ensure users are not

new competitors’ lack of docking infrastructure, although

charged twice for their fees. “Riders can now pay through

a source of flexibility, can present problems for users.

the digital platform Openpay, which means we can validate

“Since our competitors’ bicycles can be more easily stolen,

transactions on a massive scale, prevent cyberattacks and

the available vehicle park for users is reduced,” he says.

meet Mexico’s data protection requirements,” says Omaña.

SmartBike has also helped Mexico City’s shared-bicycle system distinguish itself through the introduction of new

As 2018 was an election year, Omaña says SmartBike looks

technologies to improve the user experience before and

forward to working with the new Mexico City government

while riding a bike. “We have introduced electric bicycles

that will begin its tenure on Dec. 1, 2018. “As the new

and 28 charging stations in the city,” says Omaña. SmartBike

administration enters office, we will continue expanding

has harnessed the advantages electric bicycles deliver when

to the south of the city by installing more docking and

cycling long distances or riding uphill. “Our 340 electric

charging stations for regular and electric bikes,” he says.

bicycles are assisted by an electric engine and reduce users’ effort while also increasing speed,” he says. “These bicycles

SmartBike has several ongoing projects with the current

have a top speed of 20km/h and an autonomy of four hours

administration that will be re-established when the

when fully charged.”

new government enters office. “These projects require investment from the government and will be on standby until

Since these bicycles are also equipped with GPS services,

the next administration starts and fulfills its responsibilities

SmartBike can track the route users follow to strategically

with the Mexico City’s shared-bicycle system program,” says

introduce more electric bicycles and improve rider

Omaña. In the meantime, SmartBike has strived to leave

experience. “We have already determined where and when

everything in order to ensure a smooth and transparent

bicycles are in greatest demand and our goal is to increase

transition between administrations so Mexico City’s shared-

our capacity, distribute bicycles more effectively to docking

bicycle system expansion plans can be continued. “Our

stations and make sure there is place for users to drop their

hope is that the next Mexico City administration will expand

bicycles when their trip is over,” he says.

the existing bike-sharing system,” he says.

INSIGHT |

ELECTROMOBILITY NOT JUST FOR CARS ALEJANDRO MORALES Co-founder and Administrative Director of Econduce

Full-electric urban mobility in Mexico may not be too far

depending on the rider’s driving style, weight and whether

down the road. However, electric cars will not be the only

their route is uphill.

participants in this new transportation scheme. Alejandro Morales, Co-founder and Administrative Director of Econduce,

Econduce plans to source the energy in its scooters from

says electric scooters could be a suitable alternative in terms

renewable sources in the future, which Morales considers

of space and emissions control.

feasible due to the low consumption levels of these vehicles thanks to their small batteries and low weight. “Our scooters

“Four electric scooters fit in the space of a normal vehicle and

weigh around 90kg and their batteries can be connected to a

one can make up to 10 trips a day on a full battery,” Morales

common socket and charge in two hours,” he says. “With the

says. Even though Mexico City, as well as other metropolises in

energy necessary to charge a regular electric car it is possible

the country, have been designed to be vehicle-centric, Morales

to charge up to 70 Econduce scooters.”

saw an opportunity to participate in the motorbike business and at the same time, partake in the growing trend of the

Morales says Econduce is playing a key role in disincentivizing

sharing economy. Through a mobile app, users can locate the

vehicle ownership. “We are in this business because we want

nearest scooter, reserve it, turn it on and off, do their trip and

to improve the quality of life of our users and the quality

then just drop the scooter at their destination as long as it is

of the environment within cities,” he adds. The company

within Econduce’s “free-float” area. Similarly, users can always

recognizes the importance of other sustainable transportation

pick up and leave scooters at the charging stations available

means such as walking and bike-sharing and looks forward to

in the center and west of Mexico City.

reaching a point when it makes more sense for people to drop their cars and choose from a variety of available sustainable

“Between 2017 and 2018, we doubled our fleet of electric

mobility options according to their specific needs.

scooters to almost 500, notched over 400,000 trips and expanded our user base,” says Morales. The company plans to

“We understand that Econduce is not the only way to

expand its “free float” zone beyond its current limits based on

commute within the city and thus we support intermodal

those high annual growth rate figures in terms of fleet, number

transportation,” says Morales. Given the options, the company

of trips and user base. “We are increasing our coverage as new

has decided to focus on medium-length trips, which is the

scooters arrive almost every two weeks,” he says. Econduce

segment where its electric scooters offer the best option.

wants to grow its fleet to thousands of electric scooters to

“Commutes ranging between 5km and 10km are Econduce’s

cover as much of the Mexico City urban area as possible, as

specialty because no other alternative offers a faster or more

well as other markets within the country. Morales expects this

cost-effective commute,” says Morales. “Walking is the best

will also entice possible users to choose Econduce as their

option for short commutes, bicycles are best for 1km trips

mode of commuting. “In 2018, we expect to at least double

and ride-hailing is more suited for long commutes or special

the number of scooters we have on the road,” he says.

cases such as rainy days.”

The company is also impacting air pollution in Mexico’s most

Mexico City’s mobility ecosystem has evolved but Morales

populous city and largest automotive market. “Our electric

says this has been mainly thanks to investment from

scooters have a positive environmental impact because they

private companies. The main challenge that Econduce and

produce neither noise nor emissions,” says Morales. “Every

other private mobility companies face is getting people

trip on an Econduce electric bike replaces a trip by car, which

out of their private vehicles. “The city’s cars not only cause

translates to carbon savings of approximately 300 ton of CO2

traffic but also a loss of productivity, as well as lack of

as of 1Q18.” Moreover, the new batteries in Econduce’s bikes

available public spaces, health problems and damage to

give them an enhanced average autonomy of up to 50km

air quality,” he adds.

361

| INFOGRAPHIC

AN ELECTRIC FUTURE Although their share in the Mexican market is still less than 1

plans for the future of their brands. This shift, however, will

percent, electric and hybrid vehicles have become a priority

require changes not only in OEMs' development strategies

for OEMs around the world. Tesla's success in building an

but also in the entire supply chain to support the production

affordable electric unit has influenced more automakers'

of these vehicles.

RAW-MATERIAL DEMAND PROJECTION FOR LITHIUM-ION BATTERY PRODUCTION (thousand ton) Raw material needs

EV chassis and body manufacturing

Silicon, Copper, Aluminum

Brushless direct current motor production

Dysprosium, Praseodymium

Permanent magnet use

Neodymium

Alternate current motor production

Aluminum, Copper

Lithium-ion battery production

Manganese, Lithium, Cobalt, Nickel, Graphite, Aluminum, Copper

Supercapacitor production

Aluminum, Iron, Copper

Wiring

Copper, Aluminum

4,000 3,000

Graphite Aluminium Copper

2,000 1,000

7.3 million

18. 74

b Fe 18 20 41 18.

17 17 .5 5

efficient internalcombustion engines

45.5%

Alternative powertrains

33 17.

materials research

16.77

17.53

15 .79 15.7 9 15.69 17.6

17 .7 6 16 .95

May 2017

16.8 8

y Jul 7 201

Jun 2017

Apr il 201 7

g Au 17 20

8 16.4

.53 16

17 .0 6

Nov 2017

Oc t 20 17

16 .77

9 .3 17

16.6

b Fe 17 20

2 17.3

07 17.

17.84 17.07 15.9 15 2 17.7 .7 3 9 17 16. .6 3 96

17.4

n Ja 7 1 20

16.16 16.01

.00 16 4 .9 15

17. 64

81 17.

17.23

17.97

.57 15 1 15.5 15.59

4.8%

13.9% Other

17.77

5 18.4

Downsizing

.97 18

16.7

7.9% New

2030

19 .13

27.9% More

2029

5 .6 18

17. 65

Q: What do you see as the best bet to reduce polluting emissions from vehicles?*

*Mexico Automotive Review 2018 interviewee survey

2028

19. 2

barrels of oil per day will be displaced by EVs and electric buses by 2040

Sources: AMIA 2017, Mexico Government, Bloomberg New Energy Finance, Cambridge House, Volvo, MercedesBenz, BMW, Audi, Ford, GM, Volkswagen, Toyota, Nissan, Bloomberg.

2027

18.88

——Premium ——Diesel

2026

M 20 arc 18 h

2025

Ap 20 ril 18

2024

May 2018

2023

19.33

2022

17.8

2021

Jun

2020

AVERAGE GASOLINE PRICES IN MEXICO (MX$)

——Magna

5,000

19.12 2018

2019

6,000

19.57

2018

7,000

18.06

Manganese Lithium Cobalt Nickel

Ma r 20 ch 17

362

8,000

Electric-Vehicle production activity

Se 20 p 17

Jan 8 201

Dec 2017

Mar 2018

Apr 2018

Feb 2018

May 2018

Jan 2018

18.74

18.65

18.88

Jun 2018

18.41

19.13

19.33

19.12

Dec 2017

19.2 18.97

19.57

17.77 Nov 2017

17.55

17.65

17.8

18.06

18.45

17.33

17.23

Oct 2017

17.97

17.07

16.7 17.84

16.96

16.16 16.01

17.73

15.92

15.51 15.69

15.79

Sep 2017

17.39

15.57 15.59

15.79

15.94

16.77

17.63

15.79 15

16.53

17.32 Aug 2017

16.48

17.4

16.6 17.617.53 17.64 17.81

Jul 2017

16.77

17.76 16.88

17.07

16.95 17.06

Jun 2017

May 2017

Apr 2017 Jan 2017

Mar 2017 Feb 2017

2016 2017

Jan 2018 0

4. Nuevo Leon

100

150

200

250

Release of 20 new battery-electric and fuel-cell models by 2023. The company’s current CEO, Mary Barra, expects to make a profit

2011

800

out of electrified models by 2021.

2012

642

Development of the Roadmap E initiative to have all of Volkswagen’s portfolio electrified by 2030 through an

2013

599

investment of US$23.4 billion. At least one electrified version for each of Volkswagen's models.

2014

540

Aim to reduce global average new-vehicle CO2 emissions rate by

2015

350

90 percent by 2050 from 2010 levels. Sales of 5.5 million electrified vehicles by 2030, 1 million of which will be battery-electric and electric or will have an electrified version. Over 10 battery-electric

208

42.2

models will be available no later than 2020.

Sales of 800,000 electrified vehicles by 2025 and more than 20

143

2020

28.7

131

2021

120.9

2022

111.8

2023

103.6

2024

96.5

2025

90.1

2026

19.4

84.2

2027

69.5

2028

16.7

2029

69.5

2030

full-electric models and electrify the INIFNITI brand by 2021.

27 Every Volvo car will include an electric motor by 2019. The brand

25.5

will launch five full-electric models between 2019 and 2021.

President, Lee Ki-sang, these models could represent 90 percent of the company’s sales by 2025 should battery technology

models, 12 of them full-electric.

of 40 electrified models, 16 of them full-electric.

——Projection of lithium-ion battery prices per kWH (US$)

165 Total

Ja n

Jan 2017

GREEN-VEHICLE MARKET SHARE OUT OF TOTAL SALES (percent)

20 18

0. 89

20 17

16.4% >15% 9.7% No

production (percent)

0.48

21.8% 0-5% 32.1% 5-10% 20% 10-15%

400

——Share of battery costs in vehicle

Investment of US$11 billion by 2022 on electrification and release

Q: What level of penetration do you expect electric and hybrid vehicles for in the domestic market in the next five years?*

500

sales by 2025. By that year, the brand will have 25 electrified

700

800

Electrified vehicles will represent 15-25 percent of the brand’s

600

develop enough.

300

be brand new models. According to the group’s Senior Vice

alternative for all its models. Approximately 25 percent of the

100

22.6

first EQ model will be launched in 2019. By 2022, Mercedes-Benz will have over 10 full-electric models and will offer an electrified

0. 69

MercedesBenz

Release of the EQ brand that will focus on electromobility. The

Release of 38 electrified cars by 2025, seven of which will Hyundai Motor

2019

Sales of 1 million electrified vehicles by 2022 according to Nissan

brand’s sales will be full-electric vehicles by 2025.

BMW

2018

157.9

Ford Motor

2017

178.7

33.5

electrified models.

M.O.V.E. to 2022 strategy. The brand plans to develop eight new

2016

273

fuel-cell models. By 2025, all Toyota and Lexus models will be full-

200

General Motors Volkswagen Toyota Motor Corporation Audi Nissan Motor Company Volvo Car

5. Michoacan

PROJECTED LITHIUM-ION BATTERY DEVELOPMENT

OEM PLANS REGARDING ELECTRIFICATION

Companies

300

3. Jalisco

2. State of Mexico

Jan 2017

973

1. Mexico City

257

10,512

271

8,260

593

TOP 5 STATES FOR GREEN VEHICLE SALES

ELECTRIC VEHICLE SALES IN MEXICO Electric Vehicle Sales (AMIA)

HYBRID VEHICLE IN MEXICO Hybrid Vehicle SALES Sales (AMIA) Thousands

answer

0.51 2016 0.2 0.4 0.6 0.8 1.0

363

| INSIGHT

PUSHING FOR AN ELECTRIFIED FUTURE IN MEXICO TORBEN ECKARDT Former Managing Director of Volvo Car México

Traffic accidents, respiratory diseases and congested roads

Volvo, however, looks to give people back more than just

are the result of the use and abuse of cars. But, electrified,

time, according to Eckardt. Air contamination, common

self-driving cars can help counter these issues as soon as

to large and densely populated urban areas, takes a toll

automakers start moving away from yesterday’s vehicles

on their inhabitants’ health. “People get sick and die from

and toward tomorrow’s cars, says Torben Eckardt, Former

pollution because of car fumes, particularly in cities with a

Managing Director of Volvo Car México.

high number of vehicles with no catalytic converters or no availability of light diesel,” he says.

“Every week, 400 people die on the streets in Mexico 364

because of traffic accidents,” says Eckardt. “That amounts to

Along with self-driving technology, Volvo Car is betting

over 20,000 people a year or a Boeing 747 filled with people

on electrification to address this issue. In August 2017

crashing on a weekly basis. These victims are important and

at a press meeting, Samuelsson, stated that by 2019, the

valuable people who would have contributed to Mexico’s

company’s entire new car lineup would be electrified. “This

future had they not died.”

announcement marks the end of the solely combustion engine-powered car,” he said. Volvo already offers both

As an OEM with a history of focusing on passenger safety

hybrids and EVs as options to combustion engines but it

and quality of life, Volvo has introduced game-changing

will become the first OEM after Tesla to deal only in hybrid

safety and emissions-reductions devices such as the three-

and electric units, according to Eckardt. Raymundo Garza,

point seatbelt, the Lambda Sonde catalytic converter and

the new Managing Director of the company in Mexico will

the first curtain airbags. The company takes advantage of its

now continue with this program.

relatively small size and an innovative management to swiftly make ideas a market reality and put strategies that counter

As a global strategy, electrification is gradually advancing in

public wellbeing threats, says Eckardt. Now, it is working to

markets like Europe and California. Mexico, however, poses

harness vehicle electrification and automation to continue

several challenges for the implementation of electrified

reducing deaths in traffic accidents and to improve urban

and autonomous cars. These include the lack of necessary

life through zero-emission vehicles.

charging infrastructure, as well as high prices of EVs and electrical power. Eckardt says the main issue of selling

“Our vision is that by 2020, no one should be killed or

electric vehicles is reaching a lower price-per-kilometer

seriously injured in a new Volvo car,” Håkan Samuelsson,

than that of a fuel-powered car. After that, another incentive

President and CEO of Volvo Cars, said in a statement issued

for buyers would be to achieve residual values similar to

in 2015. The company has for many years developed active

traditional models. “We need to make sure it pays off for cars

and passive safety technology to protect passengers but is

to run on kilowatts,” says Eckardt. “This entails incentives,

now taking a step forward to make self-driving technology

infrastructure development and an electrical power strategy

the basis to achieve its 2020 goal. “Safe vehicles will take

that supplies enough power at an affordable price.”

care of people by stopping, driving and staying on the road on their own,” says Eckardt. “This will both prevent

In some Mexican states, power becomes increasingly

accidents and reduce commuting times.” He points out

expensive as more kilowatts are consumed. “That system

that in some Mexican cities people drive up to 50 hours

is aimed at punishing the use of electricity, even though

per month, or about 25 days a year. Instead of just sitting

electricity is a better alternative to other energy sources

behind the steering wheel, Volvo’s goal is to enable people

that produce CO2,” says Eckardt. “This should work the

to prepare for meetings, socialize, sleep or watch movies as

other way around as it does in Sweden where power

they commute in their cars. “We will effectively give people

prices decrease as more kilowatts are consumed and

a month of their lives back every year,” he says.

there is a rebate on consumption.”

VIEW FROM THE TOP |

ADAPTING TO THE NEW REALITY OF THE INDUSTRY MARIO RODRĂ?GUEZ CEO of Arbomex

Q: What is Arbomexâ&#x20AC;&#x2122;s most important innovation

are the next step for the industry and even though people

project in 2018?

are still afraid to climb into a car without a steering wheel

A: We have two main projects in order to compete

or pedals, innovation is knocking at our door.

with steel and assembled camshafts. For many years, internal-combustion engines have used steel and forged

Both shared mobility and autonomy will be tied up with

components due to the higher mechanical properties they

the evolution of the electric vehicles. The industry expects

offer. We are developing an iron camshaft mixed with other

that by 2030, electric vehicles, shared mobility systems and

alloys, which we named Acehierro. This component can

autonomous vehicles will transform the automotive industry

deliver similar mechanical performance as the steel and

into something completely different from what we know

assembled camshafts previously mentioned. For engines

today. More than 25 percent of all new vehicles sales could

where iron cannot meet mechanical standards, we have

be electric. It is undeniable that the electrification trend will

developed a hybrid component: and iron camshaft with an

ramp up by 2020, especially considering that by 2025 it is

inserted steel lobe or lobes. Both innovations, Acehierro

expected that electric vehicles could reach price parity with

and our Inserted Steel Lobe, were designed with the goal

the internal combustion units. These conditions will force

of reducing production costs.

Mexico to adapt in terms of sales and production.

Q: How ready do you think Mexico is to embrace

Q: How much has Arbomex embraced digitalization and

electrified vehicles?

Industry 4.0 practices and how has that impacted your

A: Countries such as France, Germany and China are

operations and the development of your human capital?

establishing deadlines to stop selling internal combustion

A: Currently, we are in the middle of significant change

engine units. It might take some time for these regulations

toward the implementation of manufacturing 4.0. Arbomex

to cross the Atlantic and enter the Americas but we cannot

is redefining the way it analyzes, interprets, executes and

sit around and wait for these changes to arrive. We believe

improves processes and products within the organization.

Mexico has a long way to go as a country in terms of greenhouse-gas emission reduction. However, we expect

We are already working with collaborative robots to

that by 2025 electric vehicles will be able to compete

increase productivity in our operations. Nevertheless, we

with internal-combustion units in terms of cost. When that

also expect our operators to develop their capabilities in

happens, users in Mexico will start buying these vehicles.

terms of problem solving, so the more repetitive tasks

Electrification is coming. We want to explore the possibility

can be left to robots. The company also acquired a 3D

of supplying components to these new automobiles and

printing center, which we have used to not only recreate

we are working on different strategies to achieve that goal.

prototypes of the pieces we manufacture or are planning to produce, but also functional tools for our operations

Q: How soon do you see the industry transitioning toward

with the advantage of reduced manufacturing time and

electric vehicles and how much participation do you

cost. In the coming weeks we will receive a new printer

expect Mexico to have?

capable of manufacturing in metal, significantly increasing

A: We cannot look at electrification as an isolated trend.

our field of action.

Shared mobility will impact the industry, as young generations become less interested in vehicle ownership. The priority for clients now is mobility without the

Arbomex is a Mexican company that specializes in production

responsibility of having a car in terms of maintenance or

of powertrain and chassis component. This includes camshafts,

insurance. This means vehicle sales will not growth at the

crankshafts, casted parts and machining precision parts. Its

same rate as the world population. Autonomous vehicles

main export destinations are North America and Europe

365

| VIEW FROM THE TOP

DESIGN PROJECT LEADS TO ADVANCED MANUFACTURING EXPERIENCE ALEJANDRO ROJO Director of CIMA at ITESM Toluca

Q: How has CIMA’s electric vehicle project with Moldex and

electric vehicle has a more evenly distributed configuration

Giant Motors evolved?

and if designed properly, its center of gravity can even be

A: CIMA has already fulfilled its end of the project, which

at its center. For the vehicle to have a proper functionality,

involved the design of the motor and battery configuration

suspension and steering components must be redesigned

in collaboration with Moldex, as well as the testing of its

according to the new weight distribution.

performance. We created four electric-vehicle prototypes,

366

each with different powertrain and battery characteristics

Just adapting an existing vehicle design to include an

that resulted in four performance standards in terms of

electric motor is not ideal according to our findings. For

autonomy and response time. We tested the duration and

the Moldex project, we adapted an existing FAW truck from

charging times of the batteries, as well as the acceleration

Giant Motors but our autonomy results would have been

from 0 to 60km/h in each prototype and they all complied

even better if we had re-engineered other components

with the requirements established by the Mexico City

in the vehicle as well. Companies such as Volkswagen in

Ministry of Science, Technology and Innovation (SECITI).

Puebla and Ford in Cuautitlan will start to participate in

Originally, the vehicle had to comply with 120km of

the design of components for electric-vehicle applications

autonomy and our results yielded a range of 125-135km

and they have already reached out to CIMA so we can teach

under controlled laboratory conditions and on a closed road.

their engineers about these differences.

Q: How will CIMA continue with research in electric-vehicle

Q: What experience did you implement to improve the

technology after the conclusion of this venture?

results of the prototypes created?

A: We delivered three of the four prototypes to Giant Motors,

A: During the development of the project, we applied a

which is the leading partner in the project. We kept one of

mathematic model to determine the best motor-battery

the vehicles as part of the arrangement that Giant Motors

configuration for the vehicle according to its future

and Moldex had with ITESM and the goal is to keep working

application. This model used a formula that took rolling

on more tests for electric-vehicle technology. This “Prototype

resistance between the tire and the pavement into account

Zero” as we call it, will be a mobile testing center for CIMA

but, during the testing phase, we found that actually the

that will help us participate in the development of better

width of the tire had a significant impact on the vehicle’s

motor technology and research in battery performance.

performance and its potential autonomy. By narrowing the tire’s area of contact with the pavement, we were

Q: What lessons did this project provide CIMA and the

able to increase the car’s autonomy by approximately

industry regarding the construction of electric vehicles?

10 percent.

A: The construction of the prototypes clearly illustrated the difference in dynamics between an internal combustion

Another interesting result was that the implementation of

vehicle and an electric vehicle, mostly in the suspension

a mechanical transmission can improve the performance

and in driving comfort while turning because of the car’s

of electric vehicles. Traditionally, electric vehicles do not

weight distribution. In an internal combustion unit, most

need a gearbox because the electric motor can generate

of the weight is in the front of the car. On the contrary, an

enough torque for the car to function properly. The vehicle we were adapting to an electric configuration already had a transmission and we did not want to discard it. We

The Research Center for Automotive Mechatronics (CIMA)

performed our tests with the electric motor coupled with

at ITESM Toluca offers consulting, research, technological

the transmission and that resulted in the possibility of

development and training in all areas related directly or

having a smaller motor and a smaller battery bank, which

indirectly to automotive engineering

in turn lowered the weight of the entire vehicle.

ROUNDTABLE | Mexico has vast experience in automotive manufacturing after substantial investments from OEMs and suppliers, as well as a strong development strategy for quality manufacturing. However, that experience has mostly been founded on knowledge regarding internal-combustion units. As the industry moves toward an electrical and autonomous future, the country will now have to adapt to the construction of vehicles that were previously nonexistent. Supply chains will change, certain suppliers will have to transform their business model entirely and

HOW WILL ELECTRIFICATION IMPACT MEXICO’S MANUFACTURING OPERATIONS?

quality standards will rise even further. Is the country ready for such a drastic change?

As a country, we are fully committed to the Paris Agreement and our strategy to reduce polluting emissions. This involves not only manufacturing operations but also carbon emissions from the national vehicle park. The future is electric for the automotive sector and within our “precision-shot” strategy, we have opened a specific division for suppliers wanting to participate in the electrification trend. Soon, Mexico will start manufacturing electric light-vehicle models and that will force us to move ahead in supplier development strategies for these types of components. Electrification will bring new business opportunities as demand for these vehicles grows and we must take advantage of our position as manufacturers to make the

ROGELIO GARZA Deputy Minister of Industry and Commerce

best of this new trend. As a government, we must be agile enough to support this transformation and integrate more suppliers to the production chain.

Rather than impact, the industry will see evolution. Electrification is inevitable and we are already making the leap toward these technologies with the introduction of the X-Trail Hybrid and the second generation of the Nissan LEAF. Change will come gradually, not only in Mexico but through the global industry. Our main export market is the US. That being said, Nissan is the brand that produces the most for the domestic market with 40 percent of our production for local sale. At the same time, we have the opportunity to export our production to many more countries in South America, Europe and even the Middle East. Today, we manufacture eight different engines at Aguascalientes and in the future, we may also include electric or hybrid variations.

MAYRA GONZÁLEZ President and Managing Director of Nissan Mexicana

Although this still has not happened and we have not made clear plans to modify our production, we think the moment will come when it will be unavoidable.

Many of the plants already operating in the country will have to be refurbished or transformed to support the new platforms that OEMs will bring in the next 10-15 years. Technology is advancing rapidly and companies will have to adapt to new trends in robotics and artificial intelligence. At the same time, there are new developments within the vehicle industry itself that will also transform companies’ operations. Mexico has almost no participation in the manufacturing of electric vehicles and in the next 20 to 25 years, there will be fewer internal combustion engines being built. Scenarios such as this one will impact not only OEMs but also suppliers that will have to adapt to new requirements for powertrain components and lighter materials. Autonomous vehicles will also become part of the mainstream and Mexico needs to be ready to service production of these units.

RICARDO HANEINE Partner at A.T. Kearney

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Mercedes-Benz Concept EQA

INTO THE FUTURE

The automotive market is constantly evolving and Mexico is gradually catching up with the latest global trends. The country has ambitious goals for 2020 in terms of production and sales, which means it must integrate as much available technology as possible to compete in a fast-paced environment. The latest investments will take Mexico one step closer to its objectives but, will that be enough for the country to remain competitive?

In the final chapter of Mexico Automotive Review 2018, experts present their perspectives on the future of the country and the potential obstacles it could face to meet its goals. Consulting partners also present their opinions on what Mexico could do to ensure a healthy future in the automotive industry.

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CHAPTER 14: INTO THE FUTURE 372

ANALYSIS: Testing Mexico’s Automotive Resilience Toward 2019

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VIEW FROM THE TOP: Guillermo Prieto, AMDA

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VIEW FROM THE TOP: Gerardo San Román, JATO Dynamics

376

VIEW FROM THE TOP: Manuel Nieblas, Deloitte Mexico

Alberto Torrijos, Deloitte Mexico

377

VIEW FROM THE TOP: Ricardo Haneine, A.T. Kearney

378

ROUNDTABLE: Will Automation Become a Threat for Mexico in Terms of Human Labor?

380

VIEW FROM THE TOP: Mario Hernandez, KPMG Mexico

381

VIEW FROM THE TOP: Carlos Argüelles, Santamarina + Steta

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VEHICLE SPOTLIGHT: Kia Stinger, the Dawn of a New GT

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| ANALYSIS

TESTING MEXICO’S AUTOMOTIVE RESILIENCE TOWARD 2019 The contraction in Mexico’s automotive market that started in 2Q17, elongated NAFTA negotiations, the US tax reform, changing US tariffs on raw materials and weak consumer confidence in Mexico are only a handful of the challenges that the Mexican automotive industry has faced in 2018 and could carry into 2019 The Mexican automotive industry performed well in 2017

supply chain by type of process, boosting growth of all

despite the momentum lost in the first months of 2018.

kinds of suppliers while promoting quality certifications

The sector now needs to demonstrate its resilience against

and specialization among players,” he adds.

troublesome macroeconomic factors that are weighing on Mexico’s automotive future. Vehicle sales continue

Eduardo Solís, Executive President of AMIA, agrees with

on the low side and production faced stagnation in 1H18,

the ministry’s production estimate but warns about the

although vehicle exports are on the rise. All in all, however,

difficulty of forecasting in the face of the complicated

the industry is maintaining a positive yet sober outlook for

scenario that the Mexican automotive industry faces. “If

the road ahead.

no Section 232 measure is implemented, we still see a possibility to reach production of 5 million light vehicles by

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Considering that 2016 marked an all-time high in terms

2020 and exports of over 4 million units,” he says. Section

of annual sales for the Mexican automotive industry with

232 of the Trade Expansion Act of 1962 determines whether

1.6 million units marketed, a contraction in sales could

vehicle imports are a threat to US national security and

be expected due to the nature of economic cycles. All

allows the US president to impose tariffs or quotas on

that goes up eventually comes down and the Mexican

vehicle imports from Mexico or elsewhere.

automotive market is no exception. Total vehicle sales fell by 4.6 percent in 2017 compared to 2016 to 1.53 million

“These are interesting times and particularly now, many

units. The downturn continued in 2018, totaling a decrease

changes are coming.” Solís points out that Mexico has

in sales of 8.4 percent between January and June 2018

proven its capabilities as a competitive automotive hub

compared to 2017 according to data from AMIA.

and now must define the best form to sail through trade challenges, such as the possibility of new US tariffs on

In terms of production, growth rates have been meager

vehicle imports similar to those on aluminum and steel.

throughout 2018 due to a variety of setbacks that OEM

“We are on the brink of a pointless trade war that clouds

operations in the country have faced. Volkswagen has cut

whatever prediction we might make,” he warns.

back its Jetta production in Puebla, the flooding of Honda’s Celaya plant put production on stand-by for a while and

In terms of domestic sales, Guillermo Rosales, Director

Ford stopped assembling for three days in February in

General of AMDA, says the downturn is related to inflation

Cuautitlan due to a component shortage.

impacting the population segments that drove market growth in previous years. “We hope the second half of 2018

Despite this, several industry leaders agree that the

will yield better results considering the base of comparison

country’s automotive industry is on its way to reaching

set in 2017 is lower,” says Rosales. “Inflation has started

its objectives provided some challenges are overcome.

to recede while interest rates remain relatively low, which

According to Ildefonso Guajardo, Mexico’s Minister of

could help the demand curve stabilize.”

Economy, the government is maintaining a positive outlook for the future performance of the Mexican

To prevent an ongoing sales contraction from taking

automotive industry. “Our forecasts show that by 2020,

a toll on their profits, OEMs and dealer groups need to

light vehicle production could reach 5 million units per

ensure they are supplying what the market demands,

year,” he says.

according to Guillermo Prieto, Chairman of AMDA. Mario Hernández, Leading Partner of the IMMEX Segment at

Guajardo underlines that the establishment of assembly

KPMG Mexico, says comprehensive financing products

plants in Mexico during Peña Nieto's administration will

and the entrance of younger generations will play a key

increase demand for auto parts. This growth can translate

role in vehicle sales bouncing back to the levels of 2015 or

into opportunities to attract more foreign component

2016. “Competitiveness is key for the automotive industry

manufacturers and the strengthening of the local Tier 2

to overcome the challenges it faces and to continue being

and Tier 3 supplier base. “It is necessary to develop the

a strong pillar of the Mexican economy.”

VIEW FROM THE TOP |

OPPORTUNITIES AND PROMISING MARKETS GUILLERMO PRIETO Chairman of AMDA

Q: What can OEMs and dealerships do to prevent an

having a profit both in the sale of a new vehicle and in the

ongoing contraction in the domestic market?

repurchase and distribution of the used unit.

A: OEMs must ensure availability of supply to meet the marketâ&#x20AC;&#x2122;s demand. Meanwhile, dealership groups must be

Q : H ow h ave d i f f e re n t b ra n d s fa re d i n t h i s

very careful in their business management to maximize

decelerating market?

profitability. However, the market should strive for a more

A: We have seen a clear decrement in sales of American

level playing field in terms of car sales. On the one hand,

brands. Between 2016 and 2017, Asian brands grew their

distributors play under very strict rules and regulations

market share by 1 percent on average, with some brands

from both governments at all levels and OEMs. On the

growing in sales volume by 17, 30 and even 50 percent.

other hand, there is still an informal market of imported

European brands, on the other hand, lost 2.6 percent

used vehicles that operates with no legal standards

of their market share, while American companies fell 14

whatsoever.

percent, which represents a loss in sales of 71,500 units.

These cars have been a cancer for the national industry that

Q: How attractive have hybrid and other green units

we have worked to exterminate. In 2006, imports equated

become for the Mexican consumer?

to 140 percent of the total new vehicle sales in the country

A: Green vehicles have become a hot topic globally and

but by the end of 2017, this ratio dropped to 8 percent. We

Mexico is no exception. However, these units still represent

do not ask, however, for the border to be closed. We merely

a very small percentage of the total sales in the country.

want this control to be maintained so we do not become

Between January and December 2017, only 10,512 hybrid and

the dumpster for US vehicles that are no longer permitted

electric units were sold in Mexico, although this represented

to circulate in that country.

an increase of 27.3 percent compared to the numbers from 2016. Only 257 of these units were full-electric and of the total

Q: How important is the used-vehicle segment in the

10,512 units, 44 percent were sold in Mexico City. Comparing

current domestic market environment?

the results from 2018 with 2017, 2,227 green vehicles were

A: Thanks to the warranties established by OEMs of up

sold between January and February 2018, up from the 1,286

to seven years in some cases, the used-vehicle market

sold in the same period in 2017 and representing an increase

has become critical for the development of the domestic

of 73 percent. Having said that, only 28 full-electric vehicles

market. Vehicles that are two, three or even four years

were sold between January and February 2018, while in

old are still in optimal conditions and under warranty

2017 that number was 60. Overall, we see a definite trend to

terms, which means they represent an opportunity for

embrace new technologies in the Mexican market but these

dealers to develop more business. Moreover, boosting

should be more affordable to have success in the country.

used-vehicle sales also opens a new market for financing

At the same time, the government should continue working

companies that can take advantage of the same vehicle

on incentives that boost sales of these vehicles, such as

more than once. Certain banks and captive financing

toll discounts and tax breaks. The current administration is

arms are already exploring this niche but there is still a

unlikely to implement something new in this regard but we

challenge due to the lack of reliable statistics regarding

want it to be a priority for the next government.

the vehicle park. Most used vehicle transactions are done between

The Mexican Association of Automotive Dealers (AMDA)

individuals, so companies must find a way to encourage

was founded in 1945 and it now represents over 1,800

people to sell their cars back to the dealership. Creating a

dealership groups located in more than 210 cities throughout

purchase and repurchase cycle would lead to companies

the country

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| VIEW FROM THE TOP

DECELERATION DOES NOT EQUAL STAGNATION GERARDO SAN ROMÁN Head of Latin America at JATO Dynamics

Q: What is JATO Dynamics’ perspective regarding the

time, clients must learn they cannot keep purchasing vehicles

development of the domestic market?

under conditions as attractive as they have enjoyed so far.

A: Domestic sales are not falling, they are just decelerating.

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Moreover, Mexico is not the only market going through this

Prices have gone up as have interest rates and companies

process. Our forecast is that by the end of 2018, we will

have offered lower down payments and longer financing

see a contraction in sales of 4-5 percent compared to 2017,

terms as a way to counter this. However, what this reflects

reaching total sales of between 1.4 million and 1.42 million.

is that people have lower purchasing power and need

All markets have a defined size and we cannot force them

more time to finalize their investment. This dynamic is not

to grow artificially just by implementing more incentives.

sustainable in the long term. Particularly in an election year

Mexico has the potential to reach yearly sales of 2 million

such as 2018, it is even more difficult for companies to

units but not in the short term. We think the market will start

convince clients to push their purchases ahead.

growing again until 2022 and by 2025 we might be near the Q: What advice would you give to the industry regarding

2-million mark.

the domestic market’s deceleration? The industry plays with the elasticity of the market and in

A: We have to be more realistic and more pragmatic in

Mexico there was a huge promotion of financing alternatives

the way we approach business. As a culture, Latins have

that led to years of aggressive growth. This, combined

a problem understanding growth, business sustainability

with a flawed public-transportation system, fostered an

and competition. Markets like Mexico and Brazil are strong

environment that sped up sales. Clients pushed their sales

and they have yielded good results. Yet, the industry sees

ahead, supported by longer credit plans established by OEMs

the current stabilization as something negative. We are still

and financing arms that went from 24-month terms to 36,

not mature enough to recognize the cycles under which the

48, 52 and even 72 months.

industry operates. We are coming from a peak in the cycle and now we are entering a stabilization stage. Now is the

Almost 70 percent of all new vehicle sales

time to prepare for when the industry

are financed and each year more and

starts moving up again for another four

more clients choose plans lasting 48 to 72 months. By enabling this, companies are extending repurchase terms and disrupting the sales cycle. We are finally noticing the effects of this strategy; the

70%

rate of financed sales in the domestic market

market cannot sustain such growth levels indefinitely and that is completely natural.

or five years. The used-vehicle segment is a perfect example of a new business opportunity for the market. For as long as new-vehicle sales go down, distributors should give a much stronger push to the used-vehicle

segment to attract new clients while the market recovers its Q: How can distributors strengthen their position in the

momentum. Financing companies should also see this as a

market under these uncertain conditions?

greenfield area, considering they can take advantage of the

A: Distributors must refocus their strategies toward selling

same vehicle for two or even three cycles.

less but with better margins. Meanwhile, OEMs must keep demand in sight so they do not overwhelm distributors with

Q: How do you think changes in international demand will

inventories that will stay static. Sales strategies must change,

impact Mexico’s production operations?

focusing not on volume but on the experience the client has

A: Production will move according to international demand

when buying a car. This will be the only way companies will

and we will most likely see a reduction in our vehicle output.

reactivate the purchase and repurchase cycle. At the same

OEMs are making decisions on their product lineups based

on the profitability of each product segment. This is a

to gradually enter the market will not take Chinese OEMs

pragmatic view, especially considering that competition in

very far. Korean brands, in comparison, invested heavily

the compact and subcompact segment is becoming fiercer.

on marketing their vehicles and letting the country know

Korean companies, for example, have aggressive plans and

they were here to stay. Chinese brands are also here to

for some competitors, facing this challenge means sacrificing

stay but their advance will be more measured. Once they

profit margins in favor of volume. Instead, companies should

figure out the market, I have no doubt they will implement

focus on segments where they can be the most competitive

extremely aggressive strategies supported by resources

and optimize their earnings.

from their home country.

OEMs, however, are also facing disruptive changes in their business models. Users no longer seek vehicle ownership but mobility solutions. In 2016, then-CEO of Ford Motor Company Mark Fields said the company should no longer focus on selling cars but on providing mobility alternatives for users. This makes perfect sense, particularly when noticing that production costs of certain models are increasing without generating sizeable returns. There is nothing political behind these decisions,

Light-vehicle sales will contract by 4-5 percent by the end of 2018 resulting in 1.4-1.42 million sold units

just business projections. Q: Regarding NAFTA, what impact do you see for

Q: How ready is the Mexican market to ditch its stigma

Mexicoâ&#x20AC;&#x2122;s future?

regarding these vehicles?

A: Negotiations are moving at a pace that makes no sense

A: This is a cross that Chinese brands will have to bear

in an effort to strike a deal under any circumstances.

and shake. Mexican consumers have already proven they

However, we will not see a final agreement before the

are no fools and they are demanding, at least with the

end of 2018, which creates a new layer of uncertainty for

brands already established in the country. Some clients

the industry. Investments are on hold in many clusters

might have had bad experiences with Chinese vehicles

because of the negotiation regarding rules of origin.

but the future of new brands will depend on how they

Having said that, I do not think there will be a disruptive

present themselves to the public. If these companies

impact in the industry since it is in all participantsâ&#x20AC;&#x2122; interest

decide to invest and participate as actively as any other

to operate under the best possible trade conditions.

brand in the market, the result will be positive. It will

The region is solid enough to endure these challenges,

definitely take time to eradicate previous ideas regarding

especially after years of building an integrated supply

image and quality but Mexicans are willing to invest in

chain among all three countries.

good cars regardless of their origin.

Mexico is trying to avoid the implementation of an absurd

Q: How important will digitalization be for distributors and

rule in regional content. Meanwhile, the US is betting on

what risks might companies face should they not embrace

a really aggressive negotiation strategy in an effort to

these technologies?

incentivize more investment to go its way, supported by

A: Consumers are now part of the digital world, which

changes to its fiscal environment. Mexico has not been

means the risk for companies that choose to not play by

clear regarding its position or what it tries to bring to

these rules will be considerable. Purchasing processes are

the negotiation table and so far, my perception is that

completely different nowadays and even though sales do

those in charge just want to maintain things as they

not end online, they certainly start there and 60 percent

were. There is not a clear view toward modernization

of the time through a smartphone. As an emerging

and the government will probably use its position in other

economy, Mexico has adopted the latest technology

industries to gain leverage on automotive matters.

trends much faster than developed countries and now, connectivity and Internet solutions are as equally

Q: What opportunity do Chinese brands have to grow

advanced as in the US or Europe.

their position in the domestic market after FAW's failed attempt? A: They will definitely grow but maybe not at the rhythm

JATO Dynamics is a business intelligence provider focused

they do in China. So far, these brands have made very timid

on the automotive industry. The company has specialized

efforts to grow in the Mexican market due to previous bad

solutions for car and auto part manufacturers, distributors and

experiences. The model they are using of finding a partner

fleet managers

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| VIEW FROM THE TOP

PRIORITIES FOR A NEW TRADE ENVIRONMENT

Manuel Nieblas Partner and Manufacturing Industry Leader at Deloitte Mexico

Alberto Torrijos Partner and Automotive Sector Leader at Deloitte Mexico

Q: What is Mexico’s greatest opportunity to maintain its

means that the average wage to produce those parts

competitiveness following the NAFTA negotiations?

will be close to the standard the US wants to set. Mexico

AT: Mexico’s extensive FTA network remains one of its

would have to make an effort to increase wages but not to

key strengths. The country has now entered the CPTPP

levels of US$15 per hour. The endgame of this proposal is

agreement and is negotiating its FTA with the EU, which

to incentivize foreign investment in the region, which will

means more roads are opening for Mexico to diversify its

boost local content regardless of the wage level where it is

operations and to lower the impact that an altered or even

manufactured.

canceled NAFTA could bring. At the same time, talent is

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without a doubt one of the country’s greatest advantages.

AT: Salaries of technical and administrative positions in the

Over 100,000 engineers graduate each year and participate

automotive industry have incremented by 10-12 percent in

in the development and implementation of new technologies,

the past five years but are still nowhere near what we can see

including Industry 4.0 practices. Furthermore, OEMs and

in the US or Canada. The country is not ready to make such a

leading Tier 1 suppliers are now establishing their own

drastic change in wage rates and companies cannot absorb

training centers or universities to ensure talent availability.

those added costs. Furthermore, raising salaries artificially

Such is the case with Nissan, BMW and Audi that have

would only lead to inflation and an impact on the final price

training centers working closely with the state and Federal

of the vehicles that would have to be paid by the customer.

governments.

In the end, this measure will only diminish the whole region’s competitiveness. Instead, the US proposals should be more

MN: Academic institutions have made great advances in

oriented toward supply chain and technological integration.

collaborating with the industry to deliver talent with the capabilities that companies need. Automotive clusters

Q: What should be Mexico’s priorities in a new NAFTA

in particular have actively promoted integration between

landscape?

the theoretical concepts taught in the classroom and the

AT: The country’s priorities should focus on how to attract

practical approach that students can explore within the

more investment to production of hybrid and electric

industry. Mexico has proven itself as a manufacturing hub

vehicles. OEMs have already vocalized their strategy to

with a high level of integration in the North American region.

bring these models to the mainstream given that so far,

Our goal now is to continue developing the local supply

they represent less than 2 percent of the global market. Our

chain, particularly if we are to meet more stringent regional

entire production infrastructure is oriented toward internal-

content rules in a NAFTA 2.0 scheme.

combustion vehicles and if we do not change that, we will commoditize our offering. The future is electric and our

Q: How viable is it to change wages in Mexico to levels more

supply chain must evolve from focusing on what will later

in line with the US and Canada?

be a commodity to an added value.

MN: In reality, foreign players without local production would be the most affected by the implementation of an average

MN: We need to have an integral proposal that includes not

wage. Components manufactured in the North American

only vehicle production but also auto parts. The government

region will include content from all three countries, which

must pay closer attention to how new technologies will impact the industry and companies must also be aware of how their business will change. At Deloitte, we are working

Deloitte Touche Tohmatsu Limited , more commonly known

on ways to raise awareness about these issues among

as Deloitte, is a conglomerate of independent firms that offer

industry players, particularly Tier 2 and Tier 3 businesses

audit, tax, consulting, risk and financial advisory services. In

because every company knows something is happening but

2016, the company generated US$38.8 billion in revenue

they do nothing about it.

VIEW FROM THE TOP |

THE ROAD TO IMPROVED COMPETITIVENESS RICARDO HANEINE Partner at A.T. Kearney

Q: How have technology and digitalization impacted the

automotive industry is thriving, its contribution to the

development of manufacturing operations in Mexico?

national GDP is limited to 3 or 4 percent due to the lack

A: Most plants built after the late 1990s already included

of domestic auto part production. Mexican Tier 1s offer

advanced automation processes and employed a minimal

highly competitive costs but further down the production

number of workers compared to older facilities. New plants

chain, the country’s offering is quite fragmented. This

still have work stations managed by few employees but

has been one of the main complaints from international

they are restricted to specific tasks such as quality control.

companies for over 30 years. Every new government

Automation has definitely displaced a considerable number

administration has established the development of the

of workers from the industry and digitalization, as well

local supply chain as a priority and even though the

as the arrival of Industry 4.0, will eliminate another layer

industry has improved, it has not done so to its full

of the workforce. Today, labor is still an important factor

potential.

of production in companies’ cost-competitive strategies but if digitalization were to reach a critical level, Mexico’s

Q: If the government has made the development of the

advantage as a low-cost manufacturing country supported

national supply chain a priority for 30 years, why has the

by qualified technical talent would be at risk.

country not advanced to its desired state? A: There has not been enough articulation between

We have studied the root of Mexico’s competitiveness and

the industry and the government. There has been

one of a key aspect is labor productivity adjusted by cost.

improvement if we consider that in the 1970s we used

OEMs and suppliers have reached the highest productivity

to manufacture only harnesses and other maquila

levels within the manufacturing industry. This rate is

components. However, the country’s true potential shows

much higher than the cost level related to labor. Salaries

we still have a long way to go. Having a stronger Tier 2

in Mexico are much lower compared to other automotive

and Tier 3 base could be a trigger for further investment,

manufacturing countries, which offers a clear advantage

but strategies to support SMEs and train them on how to

when adding the productivity levels that the national

improve their financing strategies should be expanded.

workforce can reach. China, for example, has increased productivity considerably but its labor costs have also risen

Q: How ready is Mexico to support the coming

accordingly thus reducing its relative competitiveness.

investments from new OEMs and suppliers? A: Availability of human capital is becoming a challenge

Q: How sustainable is Mexico’s competitiveness?

across most clusters. There are not enough urban

A: The only way to remain competitive is to increase

development initiatives nor mobility options for workers

productivity. That can only be achieved by increasing the

to come from other regions to address the needs of the

added value that the country can offer and the capabilities

fastest-growing clusters. Logistics infrastructure is also

of its local talent. Companies need to find a way to

proving insufficient to support the rising level of exports.

participate in the earliest stages of product development

The projected investment in port infrastructure does not

with design and engineering processes. The percentage of

match the need for technology and modernization to

engineering activities currently done by OEMs in Mexico is

remain competitive in both time and quality of service.

minimal but we have enough capable talent to participate more actively. Many Mexican engineers are even moving to OEMs’ home countries to collaborate on design operations.

A.T. Kearney is a global management consulting firm present in over 40 countries. The firm works with over 350 companies

There is also an opportunity to reduce our imports and

in the Fortune Global 500 and has a team of over 3,600

increase the value of local production. Even though the

associates

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| ROUNDTABLE

WILL AUTOMATION BECOME A THREAT FOR MEXICO IN TERMS OF HUMAN LABOR?

The automotive industry has been a main driver in the adoption of automation and Industry 4.0 practices. Although benefits are clear in terms of efficiency and production quality, companies are still unsure of how these new concepts will fare when compared to Mexico’s cheap and skilled labor. Being human capital one of the key advantages the country offers as an investment destination, will automation become a threat to the Mexican industry’s way of working? Automation companies and equipment manufacturers are leading the charge in this transformation process and Mexico Automotive Review took this question directly to them.

Automation delivers challenges, including the development of more local technologies and the training of specialists in products and solutions that boost productivity, process optimization and cost reduction. It has an impact on jobs — or more accurately, the transformation of jobs — but Mexican companies are willing to change their production processes and make use of the workforce. I do not see risk

VÍCTOR FUENTES 378

Director General of Mitsubishi Electric Automation Mexico / Latin America

in this process as much as I see opportunities for the industry to achieve a more agile competitiveness. This process implies greater investments in the personnel that will design, produce and operate these lines, but they will also produce a different kind of resource, particularly human capital. It is no longer about having a worker tightening four screws eight hours a day but having a person who is designing new products and instrumentation to optimize the process adapted to a machine.

Automation is a natural process. If cars were still being manufactured following the production process implemented by Henry Ford, most people would not have a vehicle. Technology brings innovation. Furthermore, the impact that technology has in economic development cannot be neglected. If we want to remain competitive as a country then the workforce must adopt technology and digitalization. In the past,

MIGUEL LÓPEZ Regional Director of Rockwell Automation

rural work transformed into a more industrialized process and now our challenge is to improve competitiveness based on productivity goals. We want to help our clients embrace these changes and improve their operations, while helping their workforce understand and take advantage of what technology can offer through training in operation and maintenance. Digitalization is key for the industry’s development and Rockwell Automation is leading by example in its implementation.

The essence of automation is to handle all repetitive and dangerous tasks. While this may represent the loss of jobs that endanger or bore workers, it also allows large factories to operate with fewer people while saving lives and employing workers in more valuable areas. Human creativity cannot be replicated by any algorithm and change is one of the natural processes that humankind has always faced. However, for this transition to

RAFAEL FUNES Executive Chairman of LOVIS

be implemented successfully, it is necessary to retrain those who will lose their jobs to robotics and automation. Employment grows in areas where investment in automation is made but talent must be sufficient to meet the new needs of the industry. If a certain region cannot meet the human capital needs of potential investors, it is the responsibility of the government to offer conditions that enable social and geographic mobility.

It is important to understand that not everything about automation is solely positive or solely negative. There would be an adverse effect on one hand but an advantage would result on the other. Automation is usually addressed from a strictly labor-oriented point of view, which is undeniably disadvantageous. However, automation makes production lines more efficient, faster and productive, which is what the country strives for. Technological integration will definitely have an effect on jobs but people who continue working will be well-trained and knowledgeable operators rather than workers whose job is simply to move parts

JOSÉ FIGUEROA Director General of Marposs México

between two areas.

Automation will bring opportunities to the country rather than risks. Labor costs in Mexico are highly competitive and the goal should not be to stop employing labor but to migrate to hybrid systems. This will prompt labor to become more specialized, which will benefit workers as they will receive higher salaries. Automation will also force us to rethink the educational model so people are trained based on competencies. In the case of companies that employ manual assembly processes, it is not recommendable to implement a fully-automated process right from the start. Hybrid solutions — a combination of manual processes and automation — enable clients to continue employing

ADRIÁN SALINAS General Manager of ATC Automation

workers who can cultivate new skills, while countering variables such as turnover. 379

Incorporating new technology also means having more integrators and programmers to support its implementation. Automation does not always imply fewer jobs. The industry is now moving to more advanced operations for which workers need to learn how to work with different software and to control new interfaces. Basic operators might gradually be phased out but there will be many opportunities in technology integration and engineering operations. Similarly, automation will require constant service and maintenance. In the end, the industry will need people with new and more advanced skills who will also be paid accordingly. There is considerable investment in Mexico in engineering education and this home-grown talent will fill these positions.

BRADFORD BARTMESS Director of Sales for Latin America and Canada at Nikon Metrology

Our equipment is a tool that operators use to make their activities more productive. If productivity grows, the company grows and so does its labor force. This is a similar process to what we went through when computers arrived. Many jobs were lost to computers but now no company would be able to survive without one, let alone be successful. Human labor will have to adapt and become more qualified but even then, talent will be cheaper in Mexico than in other countries such as the US and Germany. Companies are looking for productivity and efficiency in their processes so automation, combined with capable talent, will push the country forward and will

MANUEL SORDO General Manager for Latin America of Universal Robots

attract more foreign investment.

Very few companies in Mexico will reach a 100-percent implementation of Industry 4.0 practices, mainly because of the necessary investment that this change requires. Nevertheless, there is still a considerable area of opportunity to automate the Mexican industry. By complementing labor-intensive processes with appropriate automation solutions, companies can increase their productivity, efficiency and quality levels without having to eliminate numerous jobs. If the country wants to remain a key industry player, we have to make this transition and improve our cost-competitiveness beyond cheap labor.

ANTONIO MENDOZA General Manager of Balluff

| VIEW FROM THE TOP

TAXES, RULES OF ORIGIN AND ELECTIONS: THE ORDEALS OF MEXICO’S AUTO INDUSTRY MARIO HERNANDEZ Leading Partner of the IMMEX Segment at KPMG Mexico

380

Q: What main challenges should Mexico’s economic

Q: How feasible do you consider the US’ proposal to

development strategy address to be successful?

include the wage factor in the NAFTA 2.0 negotiation?

A: Most challenges can be linked to three areas: the US tax

A: Salaries cannot be regulated by decree, so establishing a

reform, rules of origin in NAFTA and the 2018 federal elections

formula whereby only salaries above a certain amount can

in Mexico. The US tax reform was approved with the sole

be considered to meet regional content regulations would

purpose of attracting FDI to the US thus creating more jobs.

force Mexico to focus only on raw material supply. Mexico

The US reduced corporate tax rates to 21 percent while in

has focused too much on intensive labor activities and little

Mexico they are at 30 percent, which could be troublesome.

on better-paying automotive operations such as design or

On the NAFTA side, changing rules of origin could heavily

technology development. The US argues that Mexico has

impact international supply chains and economic integration

kept its salaries low to remain competitive but this was

in the region. If regional content is increased without

the result of market evolution. The US needs a competitive

proper analysis and a period of adjustment, efficiency of

Mexican automotive industry so its own industry can flourish.

manufacturing operations could be disrupted negatively in

If rules of origin were not met through regionally-sourced

all three countries. Changes must not take place overnight

raw materials and salaries were punished, companies would

but over a transition period that lasts between five and

face tariffs levied on their products. Final consumers in the

10 years so companies can find ways to comply with new

US would be the most affected due to the price increases

regulations and countries can create programs to support

resulting from these tariffs.

their local industries. Any disruption to the Mexican economy will bear an impact on the automotive industry and that

Q: How can Mexico improve labor conditions without

also includes the 2018 presidential elections. Exports may

compromising its competitiveness?

not suffer much as long as we have good trade conditions

A: Almost 24 years have passed since NAFTA was

with our commercial partners but the domestic market could

enforced and the wage gap between Mexico and its

suffer from reduced consumer confidence.

northern neighbors has only increased. The automotive industry is highly competitive and usually offers better

Q: If regional content were to increase, how could Mexico

salaries than other manufacturing industries but there is

make the most of this new trade scenario?

still a large margin for growth. A key concern regarding

A: Mexico is the ideal country to produce more regional

elevated salaries is the inflation that usually ensues and

content if it were necessary. A more stringent rule of origin

the impact on people’s purchasing power. Salaries should

would be a big opportunity for Mexico to develop its local

grow naturally, according to prices so purchasing power is

supply chain and incorporate more local Tier 1 and Tier 2

not damaged in a vicious cycle.

companies. OEMs have no issue with investing in Mexico but they will not put their investments at risk if suppliers

Q: How can Mexico boost its trade relationships with key

cannot meet their demands. Mexico has the necessary

automotive markets such as China?

infrastructure and competitive labor to produce more

A: The possibility of a trade war between China and the

regional content but both the industry and the government

US offers opportunities for Mexico to diversify its trade

must be involved in developing the local supply chain.

partners, become more competitive and attract FDI from more diverse origins. Chinese automakers aiming to manufacture vehicles in Mexico for the Mexican, US and

KPMG is one of the Big Four global professional services

Canadian markets could bring more investments. It is time

companies. The company offers audit, tax and advisory services.

for Mexico to truly exploit its FTAs with Europe, Japan and

KPMG specializes in regulatory compliance, international trade,

the CPTPP, increase trade volumes with other countries and

market entrance and growth strategies for auto clients

reduce its dependence on the US.

VIEW FROM THE TOP |

INTEGRATION KEY FOR AUTOMOTIVE DEVELOPMENT CARLOS ARGÜELLES Lawyer and Partner at Santamarina + Steta

Q: How open have Mexican companies been to M&As as a

Q: Considering the opportunities that still exist for M&As, how

way of growing their position in the automotive industry?

can Santamarina + Steta help companies in these processes?

A: Companies are gradually embracing this, understanding

A: We support our clients using an integral approach. As a

it is a global practice. Suppliers are constantly forming new

full–service law firm, we are able to assist our clients in a wide

partnerships but even OEMs are merging their operations,

array of legal matters including M&A, corporate, litigation,

resulting in larger consortiums. One of the most popular

tax, labor, environmental, real estate and intellectual

mergers between suppliers in recent years was between ZF

property. We participate from the strategic planning of

and TRW. Several of our clients in the automotive industry

the project and the due diligence to the establishment of

have successfully used M&A transactions as a way to

the purchase agreement and the authorization processes

expand and grow their business.

with the different governmental authorities and economic competition agencies. At the same time, we offer clients the

Collaborations are forming both vertically and horizontally.

advantage of collaborating with our network of independent

Integrations between clients and their suppliers provide

firms across the globe. These partners are distinguished

more certainty regarding component availability and both

by the high-quality standards of their employees and their

companies can boost their cost-competitiveness through

status as full-service firms. All are leaders in their countries

implementation of better practices and similar technology.

and genuine experts in the local business community,

Mexican companies can take advantage of their global

authorities, laws and practices.

partners’ experience and also have a lot to offer to a growing global supply chain.

Q: What are the main challenges that both national producers and importers face to reach their goals?

Q: What are the biggest challenges in terms of regulations

A: Changes to NAFTA will definitely impact the industry,

for companies to implement M&As effectively?

but Mexico has a solid economy and a strong industry to

A: For the past 30 years, Mexico has had an open market

help it wade through these challenges. The country has

for M&As. Recent federal administrations in particular have

received investment from many regions besides the US and

been concerned about attracting foreign investment and

companies will be able to sort any obstacles, albeit suffering

that has prompted alliances in different sectors including

from the natural cycles this will entail.

automotive. Even though the domestic market contracted, production One of the main challenges we face is maintaining

and exports continue to grow. Mexico is the third-largest

a healthy competition environment. We now have a

exporter in light vehicles according to AMIA and our priority

modern regulator in the Federal Commission of Economic

now should be to maintain that position and advance it as

Competition (COFECE), which has been meticulous in

much as possible. NAFTA will remain our main market but

ensuring the end consumer is not impacted negatively

we should export to new regions. The country, however,

by company integrations. Having said that, I still see an

should not neglect domestic sales and the government

opportunity for more automotive companies to collaborate

should push for the integration of new automotive

and form new integrations in Mexico.

technologies such as hybrid and electric models.

Companies in Mexico must be open to receiving capital from foreign investors, but Mexican companies should also

Santamarina + Steta is a full-service law firm with more than

continue to invest in other regions like Europe and Asia.

70 years of experience in the Mexican market. With over 100

Some players are already leading companies in the country

collaborators, the firm has vast experience in sectors such as

and have now been growing beyond Mexico’s borders.

automotive, aerospace, energy and real estate

381

| VEHICLE SPOTLIGHT

KIA STINGER, THE DAWN OF A NEW GT Kia’s swift road to success in Mexico has been mainly fueled by a strong and attractive product portfolio. With the new Kia Stinger, the brand promises to disrupt the GT segment and the way these models are perceived in the market. The new Stinger was born from the basis established by the Kia GT, a concept that was unveiled at the Frankfurt International Auto Show in 2011 to convey the future of the brand in terms of design. “Stinger will fundamentally change Kia’s image globally,” said Peter Schreyer, the company’s Chief Designer in an October 2017 news release. “I have no doubt (Kia Stinger) will revolutionize the clients’ perception toward the brand. It will push us toward a new era.”

Kia Stinger is the fastest accelerating model in the company’s lineup, going from 0 to 100km/h in 4.9s Under the hood, the Stinger features a Theta four-cylinder, 2-liter turbocharged engine capable of delivering 250hp at 6,200rpm and torque of 353Nm at between 1,400rpm and 4,000rpm. The vehicle can also be equipped with an alternative V6, 3.3-liter Lambda II turbocharged engine with a power output of 365hp at 6,000rpm and torque of 510Nm at between 1,300rpm and 4,500rpm. Units featuring the Lambda II engine are capable of reaching top speed of 270km/h and accelerating from 0 to 100km/h in just 4.9s. Both engine configurations are coupled to an automatic eight-gear transmission and a Centrifugal Pendulum Absorber torque converter, a common element in aviation and racing applications to reduce vibration and torsion stress in the powertrain. Safety has also become a priority for Kia, which is why the new Stinger includes a vehicle-stability management system that supports the car’s electronic stability control system to improve braking and handling. Other features included in this model are a rear cross-traffic alert, a surround-view monitoring system and blind-spot detection. All safety components are also enhanced by an advanced highstrength steel frame and seven airbags to ensure passenger safety, both actively and passively.

383

ACRONYMS AMDA

Mexican Association of Automotive

General Motors

Distributors

IMMEX

Maquiladora Manufacturing Industry and

AMIA

Mexican Association of the Automotive Industry

INA

National Auto Parts Industry

ANPACT

National Association of Bus, Truck and

INEGI

National Institute of Statistics and

Export Services

Tractor Manufacturers

Geography

ANTP

National Association of Private Transport

IPN

National Polytechnic Institute

BRT

Bus Rapid Transit

ITESM

Monterrey Institute of Technology and

CONACYT

National Council for Science and Technology

Higher Education ISO

International Organization for

CONALEP

National College of Technical Vocational Education

KPI

Key Performance Indicator

CPTPP

Comprehensive and Progressive

NAFTA

North American Free Trade Agreement

Agreement for Trans-Pacific Partnership

NOM

National Mexican Norm

United States Environmental Protection

OEM

Original Equipment Manufacturer

EPA

Standardization

Agency

R&D

Research & Development

ERP

Enterprise Resource Planning

ROI

Return on Investment

Electric Vehicle

SKU

Stock-keeping Unit

FCA

Fiat Chrysler Automobiles

SME

Small and Medium-Sized Enterprise

FDI

Foreign Direct Investment

SUV

Sport Utility Vehicle

FTA

Free-trade Agreement

UNAM

National Autonomous University of

GDP

Gross Domestic Product

Mexico

ADVERTISING INDEX 6

Government of Guanajuato

162

AMIA

178-179 BASF

ProCrÃ©dito

212

Ministry of Economy

Automotive Cluster of San Luis Potosi

234

ANPACT

GIRAA Automotive Cluster

255

Guanajuato Puerto Interior

Becerril, Coca & Becerril

264

Arbomex

275

Helmut Fischer

CIDETEQ

283

Marposs

AMDA

88 MBP

296

Grupo Alden

102 Agilent

307

Scotiabank

108

CLAUGTO

311

LUMO Financiera del Centro

113

MAN Truck & Bus

320

INA

129

Evonik Industries

329

OSRAM

134

Mitsubishi Electric Automation

340 MBE

140

Mazda

370

155

MISUMI

COFOCE

SPOTLIGHTS 22-23

Guanajuato, Crown Jewel of the Bajio

52-53

Guanajuato Puerto Interior, from Manufacturing to Mindfacturing

82-83

Zacua, the New Mexican OEM Bet

126-127

BASF's Automotive Color Trends 2018-19: Keep it Real

150-151

MISUMI MEXICO Ready to Support Industry 4.0 Implementation

184-185

OSRAM XLS, Revolution Through Standardization

230-231

Next Generation Scania, Renovated Sustainability

242-243

Volkswagen's Delivery 6.160: the New Addition to the Family

280-281

PHASCOPE PAINT: Accurate Measurement in the Palm of Your Hand

354-355

Mazda MX-5 2019, a True Connection

382-383

Kia Stinger, the Dawn of a New GT

ROUNDTABLES 28-29

What Are Mexico's Opportunities to Improve its Global Positioning?

50-51

What Advantages Does Your State Provide to Potential Investors?

76-77

How Attractive is Mexico As an Engineering Destination?

149

What Can Local Companies Do to Participate in Japanese Manufacturing Chains?

172-173

How Ready is the Mexican Market to Ditch its Stigma Regarding Chinese Vehicles?

228-229

How Can Local Companies Participate in Global Production Chains?

250-251

Do You Consider Mexico a True Logistics Hub?

334-335

What Role Will Digitalization Play in the Industry's Evolution?

367

How Will Electrification Impact Mexico's Manufacturing Operations?

378-379

Will Automation Become a Threat for Mexico in Terms of Human Labor?

INFOGRAPHICS 40-41

Location, Location, Location

68-69

Competition in the Big Leagues

100-101

Mexico's Main Export Market

116-117

Manufacturing Footprint Grows

144-145

Strength in Numbers

166-167

Asian Presence Expands

222-223

A Global Effort

227

Mexico's Auto Parts Strength

346-347

Mobility, a Work in Progress

362-363

An Electric Future

378-379

Will Automation Become a Threat for Mexico in Terms of Human Labor?

INDEX A-G AAM Casting 102

CIDETEQ 70-71, 73, 274, 389

ABB 47, 267, 385

CIMA 77, 366

Agilent Technologies 103, 389

CIMATIC 288

Agility Logistics 239

CLAUGTO 21, 41, 42, 46, 51, 202, 389

Aguascalientes 21, 36, 41, 45, 46, 48, 50, 56, 75, 84, 85, 99,

CLAUT 41, 43, 51, 104, 215, 389

110, 116, 117, 125, 136, 139, 145, 146, 153, 156, 157, 159, 215, 217,

CLAUZ 41, 49, 51

255, 260, 367

COFOCE 20, 29, 389

Air Design 62, 66, 77, 209, 389, 390

Cofremex 327

Alexander Dennis 188, 351

CONACYT 12, 14, 70, 71, 72, 192, 205, 384

Alian Plastics 80

CONALEP 125, 137, 384

AmCham 91, 207

Consultores CPM 75, 77

AMDA 8, 9, 24, 29, 92, 165, 172, 202, 206, 298, 299, 303,

Continental 12, 45, 50, 62, 67, 76, 77, 80, 81, 110, 116, 120-121,

322, 372, 373, 384, 389

122, 131, 181, 193, 214, 221, 222, 247, 332, 342, 390

American Industries 56, 389

Controlar 226

AMIA 9, 10, 14-15, 21, 29, 90, 94, 96, 100, 117, 136, 144, 147,

Corrubox 251, 253

164, 166, 169, 192, 202, 205, 227, 299, 322, 342, 362, 372,

Crane Worldwide Logistics 236, 237, 251

381, 384, 389

Dachser Logistics 240

ANA Seguros 315

Dacomsa 322, 330

ANPACT 25, 115, 193, 202, 322, 343, 384, 389

Daimler Buses 110, 115, 390

Arbomex 63, 222, 365, 389

Dassault Systèmes 47, 77, 290

ARIDRA 322, 323

Deloitte 29, 34, 90, 266, 353, 376, 389, 391

Aston Martin 182, 183, 298

DENSO 104, 149, 152, 209, 323, 332

ATC Automation 266, 272, 379

DHL 248, 249

A.T. Kearney 203, 299, 367, 377

DiDi Chuxing 346, 357, 358, 359

Audi 8, 29, 49, 74, 80, 110, 116, 117, 125, 131, 220, 224, 273,

Dietrich Logistics 247, 390

300, 301, 362, 363, 376

Domino Printing 285

Automotive Cluster of San Luis Potosi 29, 41, 44, 51, 389

Donaldson 90, 99

Automotive Cluster of the State of Mexico 41, 45, 47, 50,

DowDuPont 98, 229, 389, 390

228, 389, 390

Dukke Consultores 74

Autopartes Calderón 332

Dürr 273, 391

AXA 314, 316, 334, 391

Easy 346, 357, 358, 359, 391

BAIC 164, 166, 167, 172, 174-175, 176, 202, 215, 221

Econduce 346, 347, 361

Balluff 271, 379

Element Fleet Management 312, 391

Bancomext 12, 38, 192, 193

Embassy of Japan in Mexico 10, 136, 137,

Banorte 174, 298

Epicor 288

BASF 110, 116, 118-119, 127, 222, 229, 388, 389, 390

Euklid 292

BBVA Bancomer 298, 308

Europartners México 236, 244, 250, 390

Bentley 181, 183, 302, 390

EVCO Plastics 104, 228, 389, 390

BMW 8, 11, 12, 29, 44, 57, 110, 116, 117, 125, 131, 192, 217, 220,

Evonik Industries 128-129, 389, 390

221, 224, 255, 273, 298, 301, 362, 363, 376

Fast Autopartes 203, 322, 326

BNP Paribas 298, 309, 312, 391

Faurecia 80, 222, 223

BOSAL 215, 221, 342

FCA 9, 12, 26, 75, 90, 92, 93, 101, 102, 131, 167, 193, 298, 384

Bosch 12, 45, 110, 116, 131, 193, 214, 222, 226, 323, 332

Ford 9, 18, 26, 55, 66, 74, 75, 77, 84, 90, 92, 93, 101, 105, 125,

Brembo 218-219, 223, 390

128, 130, 131, 167, 218, 224, 283, 298, 300, 301, 332, 362, 363,

Brose 105, 116, 124, 222, 229

366, 372, 375, 378, 389

Cabify 346, 352, 358, 391

Galnik 78

Calsonic Kansei 145, 157, 215, 390

Geodis 34, 203, 236, 238, 250, 390

Car Fast 65, 302, 304, 391

Giant Motors 164, 167, 172, 176-177, 208, 366, 390

CENAGAS 41

Gill Industries 90, 105, 229

CFE 40

GIRAA Automotive Cluster 41, 48, 50, 84, 229, 389

Cheersson 215, 225, 390

GM 4, 12, 18, 29, 44, 55, 57, 66, 77, 79, 80, 92, 93, 100, 102,

CIATEQ 71

118, 125, 153, 158, 193, 221, 271, 298, 300, 362, 384, 389

CIDESI 71, 72, 73, 278, 390

Goodyear 223

INDEX G-R | Google 317, 358

Mahr Corporation 277

Grupo Alden 8, 92, 173, 298, 300, 335, 389, 391

MAN Truck & Bus 110, 112-113, 117, 243, 324, 389, 390

Grupo CTT 85

Marposs 282-283, 379, 389

Grupo Gocar 203, 335, 337

Mazda 18, 79, 92, 118, 131, 132, 136, 141, 144, 145, 149, 156,

Grupo Kopar 284

158, 159, 167, 207, 217, 298, 300, 306, 355, 388, 389, 390, 391

Grupo Mess 73

MCON 305, 334, 391

Grupo Pochteca 79

Mercado Libre 303, 335, 336, 391

Grupo Surman 173, 181, 298, 301, 390, 391

Mercedes-Benz 8, 12, 29, 44, 48, 55, 57, 80, 106, 110, 114, 115,

Grupo Sypeisa 84, 215

116, 117, 125, 158, 217, 220, 259, 298, 324, 362, 363, 368, 390

Guanajuato 9, 18-19, 20, 21, 23, 26, 28, 29, 34, 41, 42,45, 46,

Metalsa 271

51, 52, 53, 56, 62, 101, 111, 117, 141, 142, 143, 145, 154, 156, 158,

Metrobús 188, 344, 346, 347, 350, 351, 353

197, 202, 205, 217, 236, 254, 255, 257, 260, 325

miituo 317

Guanajuato Puerto Interior 19, 30, 52, 53, 254-255, 388, 389

Mikel's 209, 331

HAIMER 287

Ministry of Economy 11, 12-13, 17, 46, 110, 136, 192, 209, 214,

Hankook 215, 224, 325, 335

326, 343, 389, 390, 391

HELLA 81, 122, 222, 323, 328

Ministry of Mobility of Queretaro 348-349, 391

Heller Machine Tools 279

MISUMI 151, 154-155, 388, 389

Helmut Fischer 274-275, 389, 391

Mitsubishi Electric Automation 76, 267, 378, 389, 390, 391

Hino Motors 148

Moldex 68, 77, 366

Honda 9, 18, 21, 26, 45, 51, 124, 136, 144, 145, 147, 149, 156,

Navistar 43, 101, 112, 259

158, 159, 167, 217, 220, 298, 300, 331, 337, 372

Nemak 16, 223, 271

HSBC 35, 389

Nikon Metrology 276, 379, 391

Hyundai 55, 92, 122, 131, 164, 166, 167, 168, 170-171, 173, 208,

Nissan 9, 26, 29, 48, 55, 57, 66, 105, 114, 117, 124, 136, 138-139,

210, 215, 217, 222, 224, 298, 300, 301, 327, 331, 342, 363, 390

144, 145, 146, 147, 149, 153, 156, 158, 159, 167, 208, 217, 224,

IDOM 55

255, 277, 292, 298, 300, 301, 311, 326, 337, 342, 362, 363,

IHS Markit 8, 26-27, 28, 34, 93, 203, 215

367, 376, 390, 391

INA 17, 21, 46, 94, 166, 192, 202, 206, 214, 215, 216-217, 223,

Nuevo Leon 21, 41, 43, 51, 56, 72, 101, 115, 125, 164, 170, 215,

227, 322, 342, 384, 389

224, 246, 251, 258, 272, 274, 353, 363

INEGI 19, 68, 214, 223, 239, 317, 347, 357, 384

Onest Logistics 248, 390

INFINITI 8, 11, 48, 136, 146, 149, 153, 156, 217, 298

Oracle 77, 253, 288

Interpuerto Monterrey 258, 390

OSRAM 122-123, 185, 222, 328-329, 388, 389, 390, 391

IPN 53, 63, 254, 271, 384

Overlap Consulting Group 304

ITESM 45, 47, 63, 67, 77, 197, 254, 271, 366, 384

PELT 249

JAC 164, 166, 167, 172, 174, 175, 176, 177, 202, 221, 301

PEMEX 85, 343

Jalisco 21, 40, 41, 45, 51, 56, 67, 68, 75, 76, 81, 120, 145, 325, 363

Peugeot 301

Jalisco Automotive Cluster 21, 41, 45, 51, 76

Philips 328

JALTRADE 21

Pirelli 128, 223

JATCO 153, 223

PolyWorks 276, 293

JATO Dynamics 8, 93, 173, 208, 298, 374-375

Porsche 116, 183, 247, 298, 301

Kenworth 101, 260

Preh 125, 223

Kia 8, 11, 43, 58, 66, 80, 92, 125, 131, 160, 164, 166, 167, 168-

ProCrédito 36-37, 389

169, 207, 215, 217, 224, 298, 300, 301, 309, 331, 383, 388,

ProMéxico 12, 16, 54, 117, 144, 203, 209, 215, 223, 228, 239,

389, 390, 391

389, 390

KOMET 286, 391

Puebla 41, 49, 51, 55, 64, 65, 68, 79, 83, 110, 111, 116, 117, 125,

KPMG 34, 40, 357, 372, 380, 391

180, 186, 201, 224, 236, 260, 293, 325, 342, 353, 359, 366, 372

Kronos 291

Queretaro 19, 21, 36, 40, 41, 45, 46, 50, 56, 62, 68, 70, 72,

Lamborghini 181, 182, 183, 298, 390

73, 78, 105, 110, 117, 120, 121, 124, 137, 154, 160, 187, 215, 221,

LeasePlan 313

224, 225, 229, 231, 236, 238, 240, 245, 255, 256, 257, 260,

LIS Software Solutions 261, 390

275, 276, 282, 283, 286, 293, 324, 325, 338, 342, 348, 349,

LOVIS 289, 378

359, 389, 391

LUMO Financiera del Centro 310-311, 389

Queretaro Automotive Cluster 46, 50, 73

Magna 80, 222, 362

Renault 48, 55, 114, 117, 139, 145, 146, 153, 156, 277, 298, 306, 337

MAHLE 84, 222, 274

Rockwell Automation 270, 378

INDEX S-Z SAKTËSI 260

TIBA 241, 251

San Luis Potosi 4, 9, 21, 26, 29, 37, 41, 44, 46, 51, 56, 93, 100,

Tokyo Boeki Techno-System 159

101, 110, 117, 125, 217, 220, 224, 226, 238, 244, 255, 256, 273,

TomTom 259

282, 283, 325, 389

Toyota 8, 9, 11, 12, 18, 20, 26, 27, 42, 46, 70, 104, 131, 136, 142-

Santamarina + Steta 381

143, 144, 145, 147, 148, 149, 154, 156, 167, 192, 217, 257, 298,

SAP 253, 288

300, 311, 326, 331, 342, 362, 363, 390

Scania 166, 186,-187, 231, 232, 324, 327, 388, 390

Traffilog 259

Scherdel 130

TREMEC 16, 73, 84, 223, 330

Schunk Carbon Technology 110, 131, 390

TRW 222, 223, 324, 381

Scotiabank 173, 298, 306-307, 334, 389, 390, 391

Uber 299, 314, 315, 346, 347, 352, 356-357, 358, 359, 391

SCT Centro Querétaro 256-257, 390

UNAM 25, 197, 271, 384

Seeräuber Automotive 67, 77

UNIFIN 39, 298

SeguroSimple.com 316, 335

Universal Robots 266, 268, 284, 379, 390, 391

Seko Logistics 246, 251

Ventana Serra 236, 245, 250

SEMOVI 344-345, 351, 391

Vesta 57, 254, 389

SICOP 335

Vitro 223

Siemens 47, 267, 271

Volkswagen 18, 49, 57, 66, 74, 75, 84, 110, 111, 112, 113, 116, 117,

SINEC Technologies 81

125, 131, 167, 177, 181, 187, 220, 221, 224, 243, 247, 249, 259,

SmartBike 360

298, 300, 332, 337, 362, 363, 366, 372, 388, 389, 390

Solistica 236, 252, 390

Volvo Car 180, 342, 363, 364, 390, 391

soloautos.mx 303

Volvo Group 189

State of Mexico 37, 41, 45, 47, 50, 101, 110, 220, 228, 236,

VUHL 68

246, 290, 311, 325, 347, 363, 389, 390

World Bank Group 352

Subaru 136, 144, 147, 306

WRI 350, 391

Sumitomo 34, 145, 158

Yaskawa 269

Suzuki 136, 144, 153, 298, 306

Zacua 64-65, 68, 76, 77, 80, 83, 342, 388, 389

Tachi-S 136, 156, 214, 222

ZEISS 278, 391

TecAlliance 333

ZF Services 324

Tesla 16, 55, 67, 80, 177, 217, 225, 271, 282, 342, 362, 364 TI Automotive 62, 220

PHOTO CREDITS | Cover Volvo

79 MBP

Inside Front Cover MBP

80 MBP

81 MBP

11 MBP

82-83

84 MBP

Ministry of Economy

Zacua

14 MBP

MBP, MBP

Ford Motor Company

17 MBP

American Chamber of Commerce of Mexico

Government of Guanajuato

DowDuPont

Guanajuato Puerto Interior

ProMéxico

99 MBP

20 MBP

102 MBP

21 MBP

103

Agilent Technologies México

22-23

104

EVCO Plastics, EVCO Plastics

Government of Guanajuato

24 MBP

105 MBP

25 MBP

106 Daimler

26 MBP

111

Volkswagen de México

Ministry of Economy, MBP, Government of

112

MAN Truck & Bus México

Guanajuato

114

Mercedes-Benz México

MBP, MBP, MBP, Deloitte Mexico, MBP

115

Daimler Buses México

Guanajuato Puerto Interior

118

HSBC

BASF's Coatings Division in Mexico, Central America and Caribbean

36 MBP

120 MBP

38 MBP

121

Continental

39 MBP

122

OSRAM México

42 MBP

123

OSRAM México

124 MBP

CLAUT

44 MBP

125 MBP

Queretaro Automotive Cluster

126-127

Automotive Cluster of the State of Mexico

MBP, MBP

BASF's Coatings Division in Mexico, Central America and Caribbean

128

Evonik Industries de México

49 MBP

130 MBP

Queretaro Automotive Cluster, Automotive

131

Schunk Carbon Technology

Cluster of the State of Mexico, MBP

132

Mazda de México

MBP, MBP, MBP, CLAUT, MBP

137 MBP

52-53

Guanajuato Puerto Interior

138

Nissan Mexicana

ProMéxico

141

Mazda de México

55 MBP

142

Toyota Motor Sales de México

American Industries

143

Toyota Motor Corporation

Vesta

146 MBP

Kia Motors

147 MBP

63 MBP

148

Hino Motor Sales México

64 MBP

149

Mazda de Méxio, Nissan Mexicana, MBP

Zacua

150-151

Steve Jurvetson

Air Design

152

MBP, MBP

67 MBP

153 MBP

70 MBP

154 MBP

72 MBP

156

MBP, MBP

73 MBP

157

Calsonic Kansei Mexicana

74 MBP

158 MBP

75 MBP

159

Mitsubishi Electric Automation Mexico / Latin

160 MBP

America, MBP, MBP

165 MBP

MBP, MBP, Air Design, MBP, MBP

168 MBP

78 MBP

169

MBP, MBP

Kia Motors

PHOTO CREDITS 170 MBP

Caribbean, MBP

171

Hyundai Motor

230-231

Scania

172

MBP, MBP, MBP

232

Scania

MBP, MBP, MBP, Scotiabank, Grupo Surman

237 Crane

México

238

173

Geodis México

174 MBP

239 MBP

176 MBP

240 MBP

180

Volvo Car México

241 MBP

181

Bentley México

242-243

MAN Truck & Bus México

182

Lamborghini

244

Europartners México

183 MBP

245

MBP, MBP

184-185

OSRAM México

246 MBP

187

Scania Mexico

247

Dietrich Logistics

188 MBP

248

Onest Logistics

189 MBP

249 MBP

190-191

Volkswagen de México

250

Europartners México, MBP, Geodis México

196 MBP

251

MBP, MBP, MBP, MBP, MBP

197

Universal Robots

252

Solistica

198

Volkswagen de México

253 MBP

201

Giant Motors Latinoamérica

254 MBP

204 MBP

256

SCT Centro Querétaro

205

Government of Guanajuato, Ministry of

257

SCT Centro Querétaro

Economy

258

Interpuerto Monterrey

206

MBP, MBP, MBP

259 MBP

207

MBP, MBP, American Chamber of Commerce

260

MBP, MBP

of Mexico

261

LIS Software Solutions

Hyundai Motor, Nissan Mexicana

262 Daimler

208

209 MBP, CIDESI, Air Design 210

267

Hyundai Motor

Mitsubishi Electric Automation Mexico / Latin America

216 MBP

268

218

269 MBP

Brembo North America

Universal Robots

220 MBP

270 MBP

221 MBP

271 MBP

224 MBP

272 MBP

225

Cheersson México

273

Dürr México

226

MBP, MBP

274

Helmut Fischer

228

ProMéxico, Automotive Cluster of the State of

276

Nikon Metrology

Mexico, EVCO Plastics

277 MBP

DowDuPont, MBP, MBP, BASF's Coatings

278

Division in Mexico, Central America &

279 MBP

229

ZEISS de México

PHOTO CREDITS | 332 MBP 280-281

Helmut Fischer

333 MBP

282 MBP

334

284 MBP

335 MBP, Grupo Alden, MBP, Mercado Libre

285 MBP 286

KOMET MÉXICO

Scotiabank, MCON Mexico, AXA México México, MBP

336

Mercado Libre México

287 MBP

337 MBP

288 MBP

338

289 MBP

343 MBP

290 MBP

344

SEMOVI

291 MBP

348

Ministry of Mobility of Queretaro

292 MBP

349

Ministry of Mobility of Queretaro

293 MBP

350

WRI México

294 Morgan

351 MBP

299 MBP

352 MBP

300

Grupo Alden

353

Deloitte Mexico, Deloitte Mexico

301

Grupo Surman México

354-355

Mazda de México

302

Car Fast

Ministry of Mobility of Queretaro

356

Uber Technologies

303 MBP

358

Cabify

304 MBP

359

Easy

305

MCON Mexico

360 MBP

306

Scotiabank

361 MBP

308 MBP

364

309

365 MBP

BNP Paribas Personal Finance

Volvo Car México

310 MBP

366 MBP

312

367

Element Fleet Management Corporation

Ministry of Economy, Nissan Mexicana, MBP

313 MBP

368 Daimler

314

373 MBP

AXA México

315 MBP

374 MBP

316 MBP

376

317 MBP

377 MBP

318

378

Federal-Mogul Corporation

323 MBP 324 MBP

Deloitte Mexico, Deloitte Mexico Mitsubishi Electric Automation Mexico / Latin America, MBP, MBP

379

325 MBP

MBP, MBP, Nikon Metrology, Universal Robots, MBP

326 MBP

380

327 MBP

381 MBP

328

382-383

OSRAM México

330 MBP 331 MBP

KPMG Mexico Kia Motors

Inside Back Cover Volvo

CREDITS EDITORIAL MANAGER: Alejandro Salas JOURNALIST & INDUSTRY ANALYST: Luis Pesce EDITOR: Ricardo Guzmán López MANAGING EDITOR: Mario Di Simine PUBLICATION COORDINATOR: Juan Manuel Ruíz PUBLICATION COORDINATOR: Cagla Polat PUBLICATION COORDINATOR: Anaël Farah PUBLICATION COORDINATOR: Maximiliano Cervantes COMMERCIAL DIRECTOR: Jack Miller SENIOR GRAPHIC DESIGNER: Ailette Córdova GRAPHIC DESIGNER: Mónica López DESIGN DIRECTOR: Marcos González WEB DEVELOPMENT: Omar Sánchez SOCIAL MEDIA COORDINATOR: Karen Sujo COLLABORATOR: Alicia Arizpe COLLABORATOR: Brenda Salas COLLABORATOR: Blanca San Martín COLLABORATOR: Tathiana Marín COLLABORATOR: Rebeca Garduño COLLABORATOR: Omar Martínez CIRCULATION MANAGER: Elizabeth Solis DIRECTOR GENERAL: Jeroen Posma

Mexico Automotive Review 2018

Articles inside

Strong Contender Unfazed by Market Contraction

Brand Awareness Pays off for Relative Newcomer

Going Against the Tide

Leaving Comfort Zone to be more Innovative, Emotive

A Clear Roadmap for Reaching Market Potential

Deceleration not Catastrophic for the Industry’s Future

Driving Six Years of Automotive Growth

Leveling the Field for Quality Spare Parts

Interesting Times Ahead

successful results, positive outlook