Mexico Automotive Review 2017 by Mexico Business Publishing

2017

Despite grim projections for the Mexican automotive industry at the end of 2016, the sector remains in good shape, slower perhaps but on track for greater growth. Even after a couple of months of uncertainty, the sector has maintained its position as one of the top drivers of the national economy. The world’s seventh-largest lightvehicle manufacturer and third-largest exporter, Mexico has a strong opportunity to keep climbing the ranks and to overtake India as the sixth-largest manufacturer by 2018. Companies remain confident in the country’s development and investment continues to pour in from traditional foreign sources such as Germany and Japan, as well as from newcomers such as South Korea and China.

The industry’s challenge is to address its main areas of opportunity to maintain its competitiveness. Talent remains a concern, especially considering the increasingly technological nature of the automotive sector. Local supplier development also worries investors and industry leaders who expect the industry to grow its added value and boost Mexico’s position beyond a low-cost manufacturing hub. Experts see collaboration between the industry and the government as a key point to ensure success both in talent and supplier development.

Mexico Automotive Review 2017 addresses these issues along with success stories, new projects and other areas of opportunity and investment that industry leaders have identified in the past year. Through 14 chapters, Mexico’s automotive industry, from top to bottom, is brought to light.

ALL RIGHTS RESERVED ÂŠ Mexico Business Publications S.A. de C.V., 2017. 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 Publications 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: 978-0-9993108-2-3

TABLE OF CONTENTS

STATE OF THE INDUSTRY

SUSTAINABLE DEVELOPMENT

LIGHT VEHICLES

MOBILITY & URBAN TRANSPORTATION

HEAVY VEHICLES

FLEETS & LOGISTICS

SUPPLY CHAIN

SALES & FINANCING

TECHNOLOGY & DRIVER EXPERIENCE

AFTERMARKET

MANUFACTURING & INDUSTRY 4.0

BUSINESS DEVELOPMENT

TALENT & INNOVATION

THE ROAD AHEAD

Kia's new plant, Pesqueria, Nuevo Leon

STATE OF THE INDUSTRY

Despite uncertainty and exogenous threats, the automotive industry remains a pillar for the Mexican economy. The country maintains its position as the seventh main light-vehicle manufacturer with strong chances of climbing up the ranks. The industry represents 3 percent of the national GDP and after the arrival of Kia and Audi, Mexico has officially replaced Canada as the main exporter to the US and has taken Indiaâ&#x20AC;&#x2122;s place as the third-biggest exporter globally. The renegotiation of NAFTA stands as a potential hurdle to further growth.

This chapter gives an overview of the industry, focusing on the highlights of 2017. The insights within this section cover recent investments and new programs the country is implementing to promote the national automotive industry. Additionally, State of the Industry offers clear perspectives on the current challenges and opportunities the country is facing, especially regarding the supply chain and the evolution of the domestic market.

CHAPTER 1: STATE OF THE INDUSTRY 7

ANALYSIS : The Year in Review

MAP: Light and Heavy Vehicle OEMs in Mexico

INFOGRAPHIC : Executives Expect Stability From The Market

VIEW FROM THE TOP : Ildefonso Guajardo, Minister of Economy

VIEW FROM THE TOP : Eduardo Solís, AMIA

VIEW FROM THE TOP : Juan Carreras, Governor of San Luis Potosi

VIEW FROM THE TOP : Gustavo Puente, Minister of Economic Development of San Luis Potosi

(SEDECO)

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

VIEW FROM THE TOP : Fidel Otake, CLAUGTO

INFOGRAPHIC : Boosting Competitiveness for National Growth

VIEW FROM THE TOP : Manuel Montoya, CLAUT

INSIGHT : Jaime González, CLAUZ

VIEW FROM THE TOP : Héctor Soto, Automotive Cluster of San Luis Potosi

VIEW FROM THE TOP : Óscar Albin, INA

VIEW FROM THE TOP : Miguel Elizalde, ANPACT

VIEW FROM THE TOP : Guillermo Rosales, AMDA

VEHICLE SPOTLIGHT : Aston Martin DB11

ANALYSIS

THE YEAR IN REVIEW Record sales and production marked the latter half of 2016 but a slowdown set in during the first half of 2017, marked by shrinking sales of light vehicles in the key US market. Uncertainty marked the previous 12 months, with the renegotiation of NAFTA spurring the country to cast an eye at alternative markets for growth

2017 compared to the previous year when they reached a

position as the seventh main light-vehicle manufacturer

total 853,620 units. Solís and Guillermo Prieto, Executive

in the world but it has now climbed up the ranks in terms

President of AMDA, agree that the most likely outcome for

of exports. In 2016, the country moved up one position to

the domestic market will be moderate single-digit growth

become the third-ranked light-vehicle exporter globally,

for 2017 of no more than 5 percent.

behind Germany and Japan. The automotive industry represents approximately 3 percent of Mexico’s GDP and

Unlike its lighter counterpart, production in the heavy-

18 percent of its manufacturing GDP. Breaking down these

vehicle segment plunged 21 percent in 2016, totaling

numbers, the auto parts sector contributes 1 percent to

150,889 units, due to lower demand in Mexico’s main

national GDP and 8 percent to manufacturing activities.

export markets, which Miguel Elizalde, Executive President of ANPACT, expects will continue, leading to a further 20

Data for 2016 show Mexico achieved record numbers in

percent production decline in 2017.

terms of production, exports and sales of light vehicles. By the end of the year, production accounted for 3.47 million

PRODUCTION

vehicles, representing a 2 percent increase compared to

The Mexican automotive industry comprises 23 light-

2015. Of these, 2.77 million were exported, a rise of 0.3

vehicle and 15 heavy-vehicle production plants in

percent year on year. With the arrival of Kia and Audi, not

operation, distributed across North Baja California, Sonora,

only did the country move up the international rankings, it

Chihuahua, Coahuila, Nuevo Leon, Aguascalientes, San Luis

also became the main vehicle exporter to the US.

Potosi, Guanajuato, Jalisco, Queretaro, Morelos, the State of Mexico, Puebla, Hidalgo and Veracruz.

In the domestic market, sales jumped 18.6 percent to more than 1.6 million units. Numbers from January to July 2017,

After two years of planning, Mexican innovator VUHL

however, suggest a slowdown is in progress. Production

opened its MX$65 million (US$3.7 million) plant in

and exports are exhibiting the strongest growth at 10.8

Queretaro, where it plans to manufacture 25 cars per

percent and 13.1 percent, respectively. Kia continues to

year. Grupo Bimbo’s subsidiary Moldex is also expanding

ramp up its production and according to Eduardo Solís,

its vehicle production outside Bimbo’s borders and will

Executive President of AMIA, other automakers have

now produce electric vehicles for the national market in

finalized platform updates that were the main cause of

collaboration with billionaire Carlos Slim’s Giant Motors

moderate production growth in 2016. Meanwhile, sales

at its plant in Hidalgo. In terms of foreign investment,

have only grown 1.4 percent between January and July

along with the entrance of Kia and Audi, Mexico attracted

WTI OIL PRICES (DOLLARS) WTI OIL PRICES (US$) 120 100

102.4

80 59.3

52.2

51.2

FCA

FORD

Jun-17

May-17

Mar-17

Apr-17

Jan-17

Feb-17

Dec-16

Oct-16

Nov-16

Sep-16

Jul-16 Aug-16

Jun-16

Apr-16

May-16

Mar-16

Jan-16

Feb-16

Oct-15

Nov-15

Sep-15

Jul-15

Aug-15

Jun-15

May-15

Mar-15

Apr-15

Jan-15

Fuente: Secretaria de economia

Feb-15

Dec-14

Oct-14

Nov-14

Source: SGM

Dec-15

37.3

Sep-14

45.2

44.8

Jul-14 Aug-14

As 2017 headsinto the final stretch, Mexico retains its

150

In collaboration with Giant Motors, in which Slim’s Grupo

120

121.6 122.9

116.9

118.4 114.5

110.8 117.9

will begin manufacturing two SUVs at Giant Motors’ plant

119.7 123.3

Inbursa is a 50 percent owner, the Chinese brand JAC

134.5 127.4

and eventually the NAFTA region.

137

LIGHT-VEHICLE SALES (thousands of units)

131.7 122.1

LIGHT VEHICLE SALES (THOUSANDS OF UNITS)

Chinese OEMs looking to target the Latin American market

in Hidalgo. JAC has invested MX$4.4 billion (US$249 million) and production is expected to begin in 2018. A

collaboration between Grupo Picacho and the Chinese maker BAIC also resulted in a new manufacturing

30 9

Foton’s plant in Veracruz in April 2017.

July

June

May

April

started manufacturing its vehicles at truck manufacturer

March

February

relationship transformed into a production venture. BAIC

January

project. Originally a distribution deal, Picacho and BAIC’s

Benz vehicles into the production line in 2018. BMW’s

200

venture in San Luis Potosi is projected to start in 2019. The

150

363.7

The company’s facility will be located in Guanajuato and will focus on production of pickup models.

July

June

plant in the works, scheduled to begin producing in 2020.

50 May

model when the plant comes online. Toyota also has a new

100

April

have an annual production of 150,000 units of its Series 3

March

project is under construction but the company expects to

269.9 278.2

250

266.9

production of INFINITI models and will integrate Mercedes-

271.3 301.5

300

February

operations by the end of 2017. The project will start with

350

267.5 278.5

project in Aguascalientes, which is scheduled to begin

January

in collaboration with Daimler is now building the COMPAS

284.4 286.4

Source: INA 400

319.1 334.6

operations no later than 2019. The Renault-Nissan Alliance

279.5 327.8

Three more light-vehicle plants are expected to start

LIGHT VEHICLE PRODUCTION (THOUSANDS OF UNITS) LIGHT-VEHICLE PRODUCTION (thousands of units)

Mario Hernández, Leading Partner of the IMMEX Segment

LIGHT VEHICLEEXPORTS EXPORTS (THOUSANDS OF UNITS) LIGHT-VEHICLE (thousands of units)

at KPMG Mexico, says the country’s economic and political

300

main entry point to the Latin American market. Brazil

225.5 243.1

247 276.6

200

226.2 257.7

to target North America and it has now become the

219.7 240.9

is equally strong. The country offers a great opportunity

250 213.2 211.7

distribution is perfectly centered and the domestic market

197 228.8

stability have been key selling points. “Our demographic

224.2

297.6

Source: INA

150

is undergoing political, economic and social problems,

has ambitious goals regarding production and development of the domestic market. According to Solís and Prieto, the

2016

country’s target for 2020 is to achieve production of over

Source: AMIA

5 million vehicles and domestic sales of 2 million units.

Source: INA

July

June

May

Despite an expected slower growth pace in 2017, Mexico

April

March

AMBITIOUS GOALS

February

fiscal environment is far simpler.”

100

January

making Mexico a sound alternative for investors as our

Mexico seems to be on track for both targets although

thanks to lower gasoline prices. In July 2014, the prices of

there are factors that could potentially present a risk to

a barrel of WTI mix peaked at US$102.4 but then reversed

meeting these goals.

fortunes until reaching its lowest point in February 2016 at US$30.6. Since then, the mix has regained strength but it

The first consideration is the evolution of the international

is still below half of what it cost in 2014, sitting at around

vehicle market. Due to the plunge in oil prices starting

US$45 at the end of June 2017. According to Solís, Mexico’s

in July 2014, the market began favoring larger vehicles

production is highly dependent on the behavior of the

LIGHT AND HEAVY-VEHICLE OEMS IN MEXICO

Tecate

Mexicalli

3 Hermosillo

2 Chihuahua

LIGHT VEHICLES Ford

Toyota

1 1964

17 2002

2 1983

18 2020

3 1986

Mazda

4 2015

19 2014

General Motors

Audi

5 1965

20 2016

6 1981

Kia

7 1996

21 2016

8 2008

Renault-Nissan Alliance-Daimler

Honda

22 2017

9 1995

BMW

10 2014-2015

23 2019

Volkswagen

Giant Motors-Moldex / Giant Motors-JAC

11 1964

24 2016 - 2017

12 2013

BAIC

FCA Group

25 2017

13 1981 - 1995 - 1998 -2010 -2013

VUHL

14 1964 - 1968

26 2016

Nissan 15 1966 16 1982 - 2013

Source: ProMÃ©xico and Mexico Automotive Review

16 22 Aguascalientes

9 El Salto

HEAVY VEHICLES Kenworth

Freightliner

DINA

Hino

ISUZU

Mercedes-Benz Buses

MAN Truck & Bus

Scania

Giant Motors

Volvo

International

Foton

Hyundai Truck & Bus

Cummins 11

6 Ramos Arizpe

Garcia

Pesqueria

Saltillo

Escobedo

8 San Luis Potosi

23 Villa de Reyes

7 Silao

12 Queretaro

Irapuato

4 19

Salamanca Celaya

26 24

Cd. Sahagun

Cuauhtitlan

Toluca

Santiago Tianguistengio San Martin Tepetlixpan Tultitlan

11 15

Cuernavaca

Puebla

San Jose Chiapa

Puente Nacional

THREE SCENARIOS FOR LIGHT-VEHICLE SALES IN 2017 (millions of units) Sales

Growth

Most plausible

1.69

Most optimistic

1.77

11%

company would transfer its production to China in an effort to further reduce costs. According to a statement from Joe Hinrichs, President of Global Operations at Ford Motor Company, the company will save US$1 billion by moving its operations to China, liberating budget to invest in its light-truck plant in Kentucky and new projects related to autonomy and electrification.

TRENDS 12

Most pessimistic

1.33

-17%

Advanced technology trends are another concern for the national industry. Mexico has developed as a global

PARTICIPACIÓN EN FINANCIAMIENTO 2016

manufacturing hub but its operations are mostly oriented

COMPANIES' PARTICIPATION IN THE FINANCING MARKET (Jan-Jun)

toward low-cost production. Meanwhile, the industry is moving forward in terms of technology integration and without any added value to its operations, Mexico risks losing competitiveness in the near future. “Our whole industry is based on a product that will cease to be relevant in 10 or 15 years, involving enormous investments

2016

in manufacturing capabilities and infrastructure,” says

70.9% OEMs’

financing arms

PARTICIPACIÓN EN FINANCIAMIENTO 2017

25% Banks 4.4% Self-financing

11% Mazapil

2% Sahuaripa

9% Cananea

2% Morelos

7% Nacozari de Garcia

2% Eduardo Neri

5% Fresnillo

2% Aquila

4% Ocampo

2% Alamos

4% Caborca

1% Chinipas

2% Sierra Mojada

47% other

2017

71.3% OEMs’

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

24.1% Banks

4.4% Self-financing Source: AMDA

11% Mazapil

2% Sahuaripa

9% Cananea

2% Morelos

7% Nacozari de Garcia 2% Eduardo Neri US and Canadian markets and in both markets, demand 5% Fresnillo 2% Aquila is intricately linked with oil prices. These two countries 4% Ocampo 2% Alamos have seen a decrease in demand but compact models 4% Caborca 1% Chinipas took the hardest blow. Since most Mexican production is 2% Sierra Mojada 47% other oriented to these types of vehicles, the industry’s growth Source: CGM, Ministry of Economy 1 With figures to March of 2015

has decelerated.

Guillermo Rosales, Director General of AMDA. “Rendering our industry obsolete will have a natural and enormous impact on employment generation and revenue. What the world saw in Detroit between 1990 and 2000 is an example of what could happen to Mexico unless we move toward value generation instead of simple manufacturing.” In terms of sales, the forecast is much more favorable but there are clear areas of opportunity to enhance Mexico’s chances to reach the 2 million-vehicle yearly sales mark. Financing is growing and now represents 68.2 percent of all sales in the country. OEM financing arms remain the leaders in this market, although banks such as Scotiabank and Banorte have shown interest in its development. Growth in financing needs to be maintained, while also boosting the opportunities that leasing presents for the domestic market. “Mexico’s domestic market could easily grow to 4 million vehicles per year thanks to leasing but we still have many legal and fiscal issues to address before this can happen,” says Gerardo San Román, Head of Latin America for JATO Dynamics. Solís also highlights the importance of maintaining a strict regulation in usedvehicle imports coming from the US. “The domestic market is still recovering from a decade of imported used

Solís does not seem concerned, however. “Although there

vehicles plaguing our roads,” he says. “These units had

is currently a preference toward larger vehicles and SUVs

a terrible impact on new vehicle sales and we did not

in the US, I would not expect Mexican plants to shift their

see any recovery until 2015. The situation is somewhat

production toward these models,” he says. Nevertheless,

under control and each month we see fewer cars enter

the country has already tasted its first disappointment due

the country.”

to receding demand for compact vehicles in the US. After canceling its investment in San Luis Potosi, Ford announced

THE TRUMP CARD

that its projected production of the new Focus would be

Since 1997, Mexico’s inflation rate has dropped steadily,

relocated to its existing plant in Hermosillo. However,

maintaining below 5 percent since 2010 and hitting an all-

the company issued a statement in June saying that the

time low of 2.72 percent in 2015. According to estimates

Audi's new plant, San Jose Chiapa, Puebla

from the International Monetary Fund and the World Bank,

a renegotiation of NAFTA moves forward, the Mexican

Mexico’s GDP grew 2.2 percent in 2016 to US$1.17 trillion.

government has stood its ground against Trump.

In its report The World in 2050, PwC forecasts that Mexico could grow at an inter-annual rate of 3.8 percent up to

According to a survey conducted by Mexico Automotive

2050, becoming a driving force for the global economy.

Review 2017 with 184 executives of the national industry,

“We project new emerging economies like Mexico and

uncertainty remains the main factor hindering companies’

Indonesia to be larger than the UK and France by 2030

competitiveness. Still, growth projections for Mexico are

(in purchasing power parity (PPP) terms),” the report says.

positive. According to Fitch Ratings’ latest review on Mexico’s

While the long-term outlook remains relatively unchanged,

perspective, the ratings firm has awarded the country a BBB+

the economy in the short term has been hit by uncertainty

mark, with an upgrade to “stable” from “negative.” According

in the wake of Donald Trump’s rise to the US presidency.

to a statement from the firm, “the risk of a negative scenario that could affect the competitiveness of Mexico’s exports

Trump started targeting the Mexican manufacturing industry

is reduced now that the US seems to be taking a moderate

in the second half of 2015, declaring that Mexicans were

position regarding the renegotiation of NAFTA.”

stealing jobs from the US. The rhetoric intensified in the last quarter of 2016 when prior to the US elections, Trump

The economic and political landscape has been less

began to attack automotive companies directly via Twitter.

than ideal for Mexico but it has forced companies and the government to re-evaluate potential diversification

The real estate billionaire's premise was that given Mexico’s

opportunities outside the US. Although the Transpacific

unfair trade balance with the US, the ideal measure would

Partnership Agreement negotiations fell through once

be to slap a 35 percent tariff on vehicle exports coming from

Trump took office, companies see Asia and Latin America

Mexico. The result was a wave of uncertainty and hesitation

as regions that could boost their business in Mexico.

among companies with manufacturing operations in the

Approximately 86 percent of light-vehicle exports destined

country. Ford’s case was the most well-known in the

for Canada and the US show that NAFTA is the main FTA

automotive industry after the company canceled its US$1.6

for most players but there are many other agreements to

billion investment plan for San Luis Potosi. However, as

choose from.

INFOGRAPHIC

EXECUTIVES EXPECT STABILITY FROM THE MARKET After a period that dripped with uncertainty between 4Q16 and 1Q17, confidence is returning to Mexico. The gloomy economic forecasts that characterized the end of 2016 in the wake of US President Donald Trump’s election have given way to expectations among foreign and domestic CEOs of a stable 2017 Mexico Automotive Review 2017 asked 184 executives for

percent, executives expect low fluctuations in oil prices, which

their perspectives on three macroeconomic factors and their

could minimize further impact on gasoline prices. Regarding

potential impact on the Mexican economy: the dollar-peso

the Trump effect and the peso’s position against the dollar,

exchange rate, the price of oil and the effect of President

most executives think the impact will be moderate or null. This

Trump’s policies on Mexican industry. The answers were

is reflected in the current exchange rate. The peso touched a

mostly positive, especially after the liberalization of gasoline

record low in January 2017 against the dollar at around MX$22

prices in Mexico in January 2017. Although prices soared by 20

but has since rebounded to hover around the MX$18 mark.

GASOLINE PRICES AND DOLLAR-PESO EXCHANGE RATE (MX$) 18 WHAT ARE YOUR EXPECTATIONS REGARDING OIL PRICES FOR 2017?

25%

12.5%

Will rise

47.2%

Will drop

15.2%

Remain stable

No answer

——Magna ——Premium ——Diesel

Dolar-peso exchange rate WTI oil prices (US$)

14 13.92 13.20

13.94

12.92

11.10 10.63 10.54

2012

2013

Sources: Mexico Automotive Review, SGM, INPC, Bloomberg

December

November

October

September

July

August

May

June

April

March

Januay

2014

February

December

November

October

September

July

August

May

June

April

March

February

Januay

December

October

November

10 September

WHAT YOUR EXPECTATIONS REGARDING THE WhatARE are your expectations regarding the peso’s position againstPOSITION the dollar AGAINST for the endTHE of 2017?What your PESO’S DOLLAR are FOR THE expectations regarding the peso’s position against the dollar END OF 2017?

MEXICO'S RANKING REGARDING GASOLINE PRICES (Out of 61 countries) Price

for the end of 2017?

14 16

46.20% Will remain stable

Affordability

29.89% Will weaken 14.13% Will strengthen 9.78% No answer

43 46 46

Income spent

61 61 61

Q4 2016 Q1 2017 Q2 2017

20.72

MUCH DOexpect YOU Trump’s EXPECT TRUMP’S POLICIES TO Q: HOW How much do you policies to impact the IMPACT THE MEXICAN Mexican automotive industry? AUTOMOTIVE INDUSTRY?

42.93% Moderately 30.43% Low impact 12.5% Significantly 10.33% No answer 3.8% No impact

18.04 17.79

17.05 16.62

15.99

14.92 14.10

14.63

13.98

110 100 90 80 70 60 50 40

2015

2016

2017

May

June

April

March

February

Januay

December

November

October

September

July

August

June

May

April

March

February

Januay

December

November

October

August

September

July

June

May

April

March

February

Januay

VIEW FROM THE TOP

PRIORITIES FOR MEXICO’S TRADE RELATIONSHIPS ILDEFONSO GUAJARDO Minister of Economy

Q: How will Mexico take advantage of the renegotiation

to FDI registry, as well as access to the required national

of NAFTA to boost the country’s manufacturing

standardization procedures and applicable standards or

competitiveness in the auto industry?

technical regulations.

A: The automotive industry in North America is a key driver of economic growth, job creation and global

Q: What are the government’s priorities regarding the

competitiveness for the region. There is the possibility

establishment of commercial agreements with Asian and

to assess if we can enhance NAFTA’s competitiveness

Latin American countries?

by increasing the region’s value add. Nevertheless,

A: The Asia-Pacific region is a priority for Mexico. Over the last

such an evaluation should be based on the importance

four years, we have followed different routes to strengthen

of preserving the integration achieved over the past 23

the country’s commercial ties with these countries. In late

years among the sector’s value chains and which has

2012, Mexico joined TPP negotiations. However, since TPP’s

promoted cost-effective production for automakers in

entry into force is uncertain, Mexico is exploring additional

all three countries. Mexico and its NAFTA partners can

paths to approach the region. For instance, in March 2017

explore additional means to increase competitiveness

in Viña del Mar, Chile, the Pacific Alliance established the

by collaborating on safety standards, infrastructure

“associate state” category, with the goal of signing trade

improvements to border facilities and by streamlining

agreements with Asia-Pacific countries, mainly targeting

customs procedures.

other TPP hopefuls. Within the framework of APEC, leaders of the Pacific Alliance engaged in dialogues with Asian

Q: What strategies is the Ministry of Economy following to

economies in which they explored common cooperation

ensure that Mexico remains a competitive destination for

areas, namely SMEs and trade facilitation.

FDI despite international uncertainty? A: Mexico is one of the most open economies to

Q: What strategies is the government planning to implement

international trade and investment. The structural reforms

to help companies diversify operations outside the US?

carried out by President Enrique Peña Nieto’s administration

A: President Peña Nieto’s administration expects to diversify

have helped attract domestic and foreign investment in

Mexico’s trade agenda with potential markets and deepen

strategic sectors. Specifically, the Ministry of Economy has

our integration with existing partners. We are modernizing

implemented several actions to simplify doing business

our trade agreements with both the EU and the European

in Mexico. First is the easing of regulations to facilitate

Free Trade Association countries. In Latin America, we are

investment in sectors where FDI was previously restricted.

deepening the existing agreements with Brazil and Argentina.

Second is increased accessibility and transparency of the Public Registry of Commerce and Property. Third is the

Q: How is the Ministry working to boost the presence of

creation, with the support of Congress, of a new corporate

Mexican companies abroad?

figure called Simplified Joint Stock Company, which allows

A: ProMéxico serves as a useful platform to help

for the creation of an online business at no cost and at any

internationalize Mexican companies. It provides them with

time when annual income is below MX$5 million. Finally,

assistance to identify the most suitable export or foreign

the use of electronic platforms to ease processes related

investment opportunities through market studies and accompanies them through the process, from packaging, labeling and brand registration, to finding legal advice

Ildefonso Guajardo was appointed Minister of Economy by

across the border. ProMéxico also develops promotional

President Enrique Peña Nieto on Dec. 1, 2012. Originally from

activities to help position Mexican products abroad, such

Monterrey, Guajardo has also served as President of the Economy

as missions, fairs or seminars, which help them enhance

Commission and was a member of the Ministry of Finance

their growth.

VIEW FROM THE TOP

THE GOALS OF THE MEXICAN AUTOMOTIVE INDUSTRY EDUARDO SOLÍS Executive President of AMIA

Q: What are your growth projections for Mexican

Q: What opportunities do you see regarding financing,

manufacturing operations based on 2016’s results?

considering its importance to growing domestic sales?

A: The goal for 2017 is to manufacture 3.5 million vehicles.

A: Financing has played a crucial role in the domestic

During the first three months of the year, production rose

market’s development. Almost 70 percent of all vehicles

17.1 percent, mainly fueled by the incorporation of new

sold in Mexico are bought through a loan. The international

manufacturing facilities from Kia and Audi. In addition,

benchmark for financing is 85 percent, which means there is

several plants increased production compared to last

still room for growth. Longer payment terms are becoming

year when production was hampered by the reduction

more attractive for clients and financing institutions, and

in vehicles produced as some OEMs switched vehicle

both banks and multiple-purpose financial institutions

platforms. Production is closely linked to Mexican export

(Sofomes) are promoting these terms as a sign of certainty

destinations. Although there is currently a preference

in the development of the domestic market and in Mexico’s

toward larger vehicles and SUVs in the US, I would not

economic situation.

expect Mexican plants to shift their production toward these models. Mexico is mainly focused on manufacturing

Q: What impact do you expect Chinese newcomers like BAIC

compact vehicles and switching platforms to incorporate

and JAC will have on competition in the domestic market?

larger models is a complicated process.

A: It is still uncertain what kind of impact these companies will have. What remains true is that all commercial directors

Q: What successes has the National Group of Academic

are implementing strategies to maintain and grow their

Institutions and Research Centers achieved?

current market share. We are already in contact with both

A: The group, created in 2015, has already yielded successful

BAIC and JAC, which are not yet members of AMIA.

results from collaborative research projects. Research centers with a focus on automotive applications are now

Q: What are your projections for electric vehicle sales,

participating in the development of a Mexican demo car.

especially after the increase in gas prices?

This vehicle will need to comply with three characteristics:

A: We expect to see more and more of these vehicles on

it has to be electric, connected and autonomous. We will

the streets, especially after the increase in gasoline prices,

organize an innovation workshop with 850 students to

but fiscal or technological breakthroughs are still needed

generate proposals that incorporate these features.

before Mexico sees a drastic increase in demand. Right now, there are almost no incentives to purchase and use electric

The group has been an excellent catalyst for boosting

vehicles, unlike in other places like California, where clients

collaboration between public research centers managed

receive a US$7,500 incentive from the federal government

by CONACYT and CINVESTAV, as well as private centers

plus US$2,500 more from the state government. These

from OEMs and suppliers. Collaboration on engineering and

incentives are necessary because costs related to these

innovation projects is essential for the Mexican industry to

vehicles are still too high. Batteries remain too expensive

develop and there is much excitement and high expectations

but as soon as the technology becomes more affordable,

for the success of this venture. UNAM, IPN, ITESM, Anahuac,

governments will no longer have to resort to financial

the People’s Autonomous University of Puebla (UPAEP)

compensation for clients.

and the Autonomous University of Nuevo Leon (UANL) are among the academic institutions participating in the group. Universities and research centers are supported by the Ministry

The Mexican Association for the Automotive Industry

of Economy, the Treasury, the Ministry of Public Education,

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

the National Council for Standardization and Certification of

of representing the interests of vehicle manufacturers

Labor Competences (CONOCER) and ProMéxico.

established in Mexico

VIEW FROM THE TOP

AUTOMOTIVE A MAJOR DRIVER FOR JOB CREATION JUAN CARRERAS Governor of San Luis Potosi

Q: How has the automotive industry in San Luis Potosi

real-life training focused on preparing students to join

helped boost jobs and benefits for the state?

the labor market. Higher education in the state is well

A: A hundred years ago, nobody would have thought

served, with excellent public and polytechnic universities,

that the automotive industry would be one of the main

as well as a state-of-the-art technology university that

engines of the world economy at the beginning of the

starts classes in August 2017. Our goal is to offer an

century. Not only does this apply to OEMs but to

education that covers the entire manufacturing industry,

the whole supply chain and domestic sales as well. The

including the automotive sector. This new university will

automotive industry is a very important sector for San

also operate a dual model so young people can combine

Luis Potosi. It is highly valued because it constantly

study and real-life work experience.

develops research and technology and continues to be a great employment generator. The automotive industry

The Consortium of Molds, Dies and Tooling (MTH) will

generated 16,463 new jobs in 24 months by July 2017.

be inaugurated in San Luis Potosi to provide training

Almost the same number of jobs were created in the six

and mold manufacturing and to coordinate with other

years spanning 2003 to 2009. Growing employment is

facilities to make molds on request for companies. It will

reflected in the population’s salary contribution to the

be the only center of its type in the country and will grow

Mexican Institute of Social Security (IMSS), which has

according to the needs of companies in the industry. This

increased significantly since automotive investments

was made possible thanks to an initial investment of over

arrived. This also makes it one of the industries for which

MX$100 million (US$5,676,000).

we see the greatest future in our local economy. Q: How are automotive companies and government Q: What factors have attracted companies to the state

working together to improve the state’s competitiveness?

over other automotive clusters?

A: Many companies have internal development programs

A: San Luis Potosi is part of Mexico’s northwestern region

and we try to support these locally through our research

but it is next to many Bajio states, making it one of the most

systems. The government has agreements with specific

dynamic areas in the country. It is an important platform

companies to improve their operations and to train

for those that export to North America, with strong

people effectively.

transportation links and connections with states that also participate in the automotive industry, such as Guanajuato,

I had the opportunity to visit several automotive

Queretaro and Aguascalientes. Moreover, there has not

companies’ operations abroad, where I met Mexican

been a strike here in 14 years. This illustrates the good

workers fulfilling periods of training at flagship plants.

communication between the government and industry.

Some of these training sessions lasted three to six months or even more depending on the skills needed here in

Q: How is the state helping develop human capital and

Mexico.

industry-targeted education? A: We are trying to link middle schools with dual education

Many of those recruits were between 24 and 32 years

models that involve learning at school complemented by

old and many were from San Luis Potosi. They told us the automotive industry had offered them chances their parents would not have had a generation ago. These

Juan Manuel Carreras was elected Governor of San Luis Potosi

experiences give young people expertise and professional

on Sept. 26, 2015 for a six-year term. From 2000 to 2003 he

characteristics that provide more opportunities for them

served as Federal Representative at the LVIII Legislature of the

to grow in their careers. This also increases their long-

Mexican Congress representing the State of San Luis Potosi

term quality of life.

VIEW FROM THE TOP

KEEPING PACE WITH A THRIVING INDUSTRY GUSTAVO PUENTE Minister of Economic Development of San Luis Potosi (SEDECO)

Q: How much does the automotive sector contribute to

A: We are so close that it is hard for each state to specialize

San Luis Potosi’s GDP and growth potential?

in just one area of the industry, and we do not need to if we

A: The manufacturing industry in San Luis Potosi, of which

work together. Toyota, Honda and Mazda are next door in

automotive is a major part, represents 25 percent of the

Guanajuato, Aguascalientes is home to a huge Nissan plant,

state’s GDP. Automotive specifically makes up almost 7

Puebla is a growing cluster and home to Volkswagen, and

percent of the total, more than double what it was 10 years

even though Queretaro does not have any OEMs, there are

ago. In the rest of the country, manufacturing accounts on

vast supply-chain operations established there so being

average for 18 percent of GDP. This, teamed with the rapid

located in the Bajio region is a prudent decision for any

expansion in automotive operations, shows that San Luis

automotive company. Within less than 300km of San Luis

Potosi is industry-focused.

Potosi, seven OEMs have facilities. As a result, the supply chain has developed so that within 250km, companies

Q: Which projects have boosted quality of life for San Luis

can find 836 automotive suppliers covering Tier 1, 2 and 3

Potosi’s residents?

operations. We are not far from FCA in Toluca nor from the

A: We estimate 90,000 people are employed by the

capital city where most corporate headquarters are located.

automotive industry and projections for the next three to

If a company plans to invest in Mexico, the Bajio is a better

four years estimate 30,000 new jobs will be created during

bet than Tijuana or Monterrey, for example, which is the

our term. The administration plans to close its six-year term

reason behind the central region’s impressive growth.

with 120,000 people specifically employed in the automotive industry by 2021. We have broken records switching people

Q: How is the state building infrastructure and facilities to

from the informal to the formal labor market. In July 2017,

keep up with rapid industry growth?

we registered 417,546 employees with social security

A: As a state, San Luis Potosi grew 3.1 percent in 2016 while

across all industries, 41,463 of whom were newly registered

Mexico’s growth reached 2.3 percent. Based on our R&D

workers in the current administration. In the first year of this

expansions and the rate of investment we have already seen,

administration, inaugurated in September 2015, the state

we estimate 3.3 percent growth in the state by the end of 2017

received investments totaling US$1.7 billion, which is equal

while the country is projecting 1.5 percent. Traffic is increasing

to what Ford was expected to invest here. In our second year

in the locality and companies sometimes misdiagnose a lack

in office we reached US$2 billion.

of employee mobility as a lack of available workforce. We need to create solutions to get the skilled population to the many

Q: How will the state take advantage of the supply chain

workplaces that are opening. In response, the government is

that was put in place before Ford canceled its plant?

implementing a mobility plan that will improve connections

A: The investment plan and cancellation happened so

with industrial zones and Mexico City to the southeast. This

quickly that few companies had time to establish new

will involve a MX$3 billion (US$170 million)investment. We

operations in preparation. The majority had not even

have already started creating some bridges with the federal

purchased land because choosing a location is often the

government’s help. Government and state concessions will

most complicated step for company expansions, so the

hopefully begin 70-80 percent of the project and complete

effect of Ford’s cancellation was limited. Eight companies

it by the end of the administrative term, funds permitting.

canceled their expected projects in San Luis Potosi but at least six more went on to establish a relationship with BMW. SEDECO promotes and creates the necessary conditions for

Q: To what extent do states compete for automotive

San Luis Potosi’s development, which is home to General

investments or collaborate to boost the country’s

Motors, BMW and over 200 suppliers. The Minister promotes

competitiveness?

the state’s advantages to encourage investment

VIEW FROM THE TOP

ATTRACTING INVESTMENT TO SUPPORT GROWTH MIGUEL MÁRQUEZ MÁRQUEZ Governor of Guanajuato

Q: How have new investments in Guanajuato impacted its

private schools promote lifelong learning, and the State

automotive industry?

Commission for the Planning and Programming of Upper

A: For 15 years, we were traditionally an agricultural,

Secondary Education (CEPPEMS) have established a

livestock and textile trade region. The first manufacturing

workplan for 2035. The decisions of these entities will

company that came to the state was GM, 20 years ago,

guide education in Guanajuato for the coming years.

which was responsible for boosting our growth. Before

The 30 universities inaugurated in the past nine years in

GM, we were exporting US$200 million per year but

Guanajuato all have technological profiles. They are not

now we export more than US$20 billion per year from

traditional colleges because they train talent to meet

our automotive and other manufacturing activities. The

market demand, primarily in engineering and metal

industrial sector remains the driver for these exports and

mechanics.

the automotive industry’s results put it in first place among all industries. In second place is the agricultural industry

Adjusting to market demand involves growth in the

followed by metal mechanic. Automotive manufacturing is

Guanajuato State Training Institute (IECA), an intermediary

a big part of Guanajuato’s development and in five years it

between schools and the private sector where companies

has grown to represent 17 percent of the state’s GDP.

join forces to train young people. We have negotiated many agreements with Germany for business training through

One of every five vehicles that is produced in Mexico is made

the dual-education program. There is also an association

in Guanajuato, putting us among the top five manufacturers

of retired German teachers that helps us. Many of them

in the country. By the year 2020, most OEMs established in

developed careers in the automotive sector and visit the

Mexico will have operations here. Toyota

state to help train our youth. An agreement

will lead us to consolidate as the most

with Japan’s International Cooperation

important cluster in Latin America for vehicle production. The top brands that are working here are Honda, Mazda, GM, Hino Motors and Volkswagen, as well as

90,000 Jobs generated in Guanajuato by the automotive industry

Agency (JICA) supplements this with a student and teacher exchange from those studying at the National College of Technical Professional Education

top suppliers including American Axle

(CONALEP), to imitate the advantages of

and GKN, among many others. Ford’s

the Japanese education system and create

transmission plant will start operations in 2017. Together

equivalent certifications in technical colleges.

these companies have generated 90,000 jobs. Guanajuato's unemployment rate, at under 4 percent, is lower than the

Q: How is the state promoted to attract investment and to

average in Mexico.

build stronger relationships with countries besides the US? A: The Foreign Trade Promotion Coordinator (COFOCE) has

Q: What is the government’s strategy to boost research

been working in Guanajuato for 25 years. This coordination

and technological development?

is older than ProMéxico and has helped us broaden our

A: The State Commission for Higher Education Planning

scope of trade. COFOCE is a permanent effort that works

(COEPES), an institution through which public and

on all continents because diversification is key to our growth. Twenty-eight countries are investing in Guanajuato, including Japan, the US, Germany and France. The US is

Miguel Márquez Márquez is a Mexican politician affiliated with

our main market and it will continue as such. The market

the PAN party. He currently serves as Governor of Guanajuato, a

is constantly moving and the reality of trade and industry

position he has held since 2012. Prior to his position as Governor,

overshadows intimidating speeches, such that 50 percent

Márquez was mayor of the Purisima del Rincon municipality

of what we export goes to the US.

We have strengthened our relationship with Canada and

goals, and do not simply become the duty of the governor in

many companies are already purchasing directly from us.

office. These policies should focus on diversification. Newly

Africa is beginning to buy the first exports headed that

arriving companies make the development of local suppliers

way and Asia is a great opportunity for the agricultural and

more attractive because importing services tends to be more

livestock sector. We are interested in continuing to negotiate

expensive. Companies prefer to have the product close by

with countries such as Japan, Korea and China. We have

since imports represent a setback due to delayed transfers

also exported to Guatemala and the rest of Latin America,

and tariffs. We are pleased that local companies are integrated

as the south of the continent has turned into an area of

into the supply chain and we are working on improving any

opportunity for Mexico. Our goal for direct investment

area of opportunity for Mexican companies. This is one of

from foreign industries was US$5 billion but we received

the priority mandates that the President of the Automotive

foreign investment of over US$10 billion. By the end of our

Cluster of Guanajuato (CLAUGTO), Fidel Otake, proposed.

administration in September 2018 we expect between US$11 billion and US$12 billion, because we are diversifying in the

Q: Will you be the new presidential candidate for PAN?

aerospace, energy and automotive sectors.

A: I am mentioned as a possible candidate for the party but, at the moment, I am concentrated on Guanajuato where

Q: What is the development goal of the production chain

there are many investments. We are closing deals with 22

in the automotive sector?

industrial parks, when the initial goal was seven. We have

A: Our development strategy is based on a plan for the year

a lot more work than we expected to have, though we are

2035 and its targets need to be updated to work toward

happy so many companies want to expand in our state,

a new deadline in 2040. We need more adjustments, so

even if we are rushed to close deals in the year and a half

Guanajuato’s policies reflect its short and medium-term

we have left.

VIEW FROM THE TOP

GUANAJUATO’S AMBITIOUS GOALS FOR 2020 FIDEL OTAKE President of CLAUGTO

Q: How have trade uncertainties impacted Guanajuato’s

A: We are developing several specialized projects to

automotive operations?

improve competitiveness. In particular, we created a

A: The automotive sector in the state continues to grow,

Local Supplier Development Committee and a system for

as illustrated by employment indicators. Over 75,600 jobs

evaluating and developing direct and indirect suppliers.

were registered in the sector in 2015. This number rose to

Companies should invest in Guanajuato because of its

88,000 in the first quarter of 2017 and it is estimated to

solid economy, infrastructure, advantage in logistics

reach more than 100,000 jobs within the next three years.

and its specialization in automotive manufacturing operations, in addition to the strong base of technical

Q: How has Toyota’s renewed commitment to the state

schools and universities. The forecast for local growth

helped the cluster and Guanajuato’s development?

by 2020 is encouraging. Overall, we expect the state to

A: By ratifying its commitment to invest in Guanajuato, Toyota

reach the following yearly production goals: 1.2 million

has sent a clear signal of trust and a commitment to a positive

vehicles, 1.81 million engines, 2.32 million transmissions

long-term relationship with the state. At the same time, Toyota

and 12 million tires.

is boosting confidence from investors, the established supply base, government institutions, citizens and consumers. The

Guanajuato

Automotive

Cluster

(CLAUGTO) was

Q: What growth do you expect from auto parts

officially presented in 2012 as a civil association made up of

production and how will the state participate in advanced

six committees focused on preserving and promoting the

manufacturing and R&D?

development of the automotive industry in the state

INFOGRAPHIC

BOOSTING COMPETITIVENESS FOR NATIONAL GROWTH The Ministry of Economy has outlined its priorities to boost the image of the national automotive industry but executives think there are other factors that are equally, if not more important, to ensure international competitiveness and decrease Mexico’s dependence on a single market

Although one of the main advantages foreign investors

and executives are realizing that. However, to increase its

highlight about Mexico is its proximity to the US, many of the

competitive value, the country must also address some

184 executives surveyed by Mexico Automotive Review 2017

internal issues. Security, talent availability and a strong local

say that Mexico’s dependence on the US is one of the country’s

value chain are among the priorities for Mexico’s executives,

main obstacles. Mexico’s FTAs with 45 countries, excluding

along with a plea for legal certainty from the government

NAFTA, open the door to many more business opportunities

when doing business or establishing new operations.

THE AUTOMOTIVE INDUSTRY’S DEVELOPMENT IS BASED ON FOUR PILLARS ACCORDING TO THE MINISTRY OF ECONOMY:

WHAT ARE THE MAIN INTERNAL OBSTACLES FOR NATIONAL INDUSTRY? Security

50%

Other

concerns 40%

A strong FTA network with over 45 countries

Talent development 30% Value Chain development

The promotion of engineering and R&D activities

29.3

20% R&D development

21.2

A human capital-oriented strategy

15.7

17.9

10%

15.7 2.7

12.5 11.9

The Energy Reform

Other 29.3

Each year, Mexico produces over 100,000 engineers

International image

Uncertainty 43.4

Exchange rate volatility WHAT ARE THE MAIN Dependence on the US

EXTERNAL OBSTACLES FOR NATIONAL INDUSTRY?

MEXICO-US TRADE BALANCE (US$) 13 12 11 10 9 8 7 6

January

February

Sources: Mexico Automotive Review, Banco de México, AMIA, INA

March

April

May

June

LIGHT-VEHICLE SALES IN MEXICO'S MAIN EXPORT MARKETS (millions of units) Canada

▲▲1.90

Germany

US ▲▲17.48

Brazil

▲▲2015 ▲▲2016 ▲▲2017*

▲▲1.95 ▲▲2.02

▲▲3.46 ▲▲3.63 ▲▲3.77

*Annualized data

▲▲17.54 ▲▲16.75

▲▲22.48 ▲▲1.98 ▲▲1.99

Europe Asia

Argentina

▲▲0.59

▲▲0.72 ▲▲0.82 77.1% US 8.9% Canada 2.9% Germany 1.8% Colombia 1.7% Brazil 1.4% Argentina 0.7% Chile 0.4% China 0.4% Puerto Rico 0.3% Peru 4.4% Other

WHERE DOES MEXICO HAVE THE BEST POTENTIAL TO DIVERSIFY ITS EXPORTS?

LIGHT-VEHICLE EXPORTS BY COUNTRY

Latin America

39.1

Other 20.6

28.8

countries

11.4

21.3

25 Technology

20 Market diversification

30%

New product / service development

40%

No answer

10 5

Other 50%

WHAT MAIN FACTORS WOULD INCREASE COMPANIES' COMPETITIVENESS?

China

Japan

India

3.54 3.71

20%

3.42 3.67

17.5 15.8

2015 2016

5.04 4.97

9.6 10%

LARGEST VEHICLE MARKETS (millions of units)

17.84 17.86

4.4

Human capital

24.66 28.03

31.03

Germany

——2012 ——2013 ——2014 ——2015 ——2016 ——2017 July

August

September

October

November

December

VIEW FROM THE TOP

GROWTH OPPORTUNITIES FOR NUEVO LEON AND THE COUNTRY MANUEL MONTOYA Director of CLAUT

Q: What impact will Kia’s arrival have on Nuevo Leon and

not only for Nuevo Leon but for the whole country. We still

how will it help the cluster attract new members?

import many components from abroad, so this is a great

A: Before Kia, we did not have light-vehicle production in

opportunity for automotive players to explore.

Nuevo Leon. Kia’s production represents new exports and a new opportunity for growth for Nuevo Leon. There are

Q: What challenges has the industry faced considering the

new companies establishing in the state and there is already

incentives offered to Kia and other players by the past

one Korean company in the cluster. We are waiting for Kia’s

administration?

production to ramp up. That will attract more companies

A: It is not a big issue because Nuevo Leon has changed

and create more business. Some players were already in the

its policies and it has given hardly any incentives to new

state and now they are producing for Kia.

companies. The case of Kia was very special. An OEM is an important player than can attract many more companies

Q: What are the competitive advantages Nuevo Leon can

to the state. However, investors do not establish in Nuevo

offer to new Tier 1 and Tier 2 suppliers coming to the state?

Leon because of incentives, they come to the state because

A: Nuevo Leon has the advantage of a well-established

they find good suppliers and a skilled talent pool compared

industry that has been in place for more than 30 years. After

to other regions of the country. The skilled people we have

NAFTA was signed, the first companies started to arrive and

here are highly productive and a company looking for a

they were the ones that helped the region develop its strong

quick start has to have good and prepared talent.

local supplier network. These companies have also been responsible for training the local human capital, creating

Q: How can the government help local companies grow

a skilled talent pool for all future investors. These factors

and improve their operations?

have created confidence among new entrants, who know

A: I think the main priority here is to reduce the number

they do have a strong foundation to start their operations.

of activities related to complying with the government’s regulations. Companies that export may recover the VAT,

Q: How are local companies integrating into the automotive

but the problem is that the paperwork companies have

supply chain and what are the main areas of opportunity?

to do is too complicated, especially for SMEs. For larger

A: I think the main opportunity is in the Tier 2 level. Most

companies, it is not that much of a problem because they

Tier 1 companies have already invested in Mexico but there

can survive without that rebate. But for smaller players,

is still a lack of participants in the lowermost tiers of the

a slow process can affect their cash flow. Regulations

production chain. We have a good supplier base of Tier 2

regarding imports and exports are also in constant flux,

companies in Nuevo Leon — all local players — but they are

which is another problem for smaller players.

mostly focused on commodities such as plastic injection, stamping and foundries. Nuevo Leon has good foundries,

Q: What is your perception of the stance of US companies

steel foundries mainly, but we lack other activities like

given the nationalistic rhetoric of President Trump?

die casting and aluminum injection. There are hardly any

A: The presence of US companies is very important in

forging companies in the country, either for cold or hot

Nuevo Leon. They are the main foreign investors in the

forging. Strengthening the supplier base is an opportunity

state. Companies are still investing in Nuevo Leon and the ones that made previous investments still remain. All we have are political speeches from President Trump and his

The Automotive Cluster of Nuevo Leon (CLAUT) is a civil

administration. Companies from both sides of the border

association made up of leading suppliers, academic institutions

are interested in maintaining a good relationship between

and government branches related to the automotive sector in

Mexico and the US because any changes in regulation

Nuevo Leon

would lead to negative effects for both parties.

INSIGHT

COLLABORATION SOMETIMES MORE PRUDENT THAN COMPETITION JAIME GONZÁLEZ Director of the Automotive Cluster of the Center Region Puebla – Tlaxcala (CLAUZ)

Recognizing that any investment arriving in one state impacts

2017 to fill the supply gaps in the country and to influence

the other, a group of businessmen from the automotive

companies that have yet to innovate their operations. “A

sector and the governments of Puebla and Tlaxcala decided

large area of opportunity in Mexico relates to the many

that it would be more prudent to join forces rather than try to

transnational Tier 1s and OEMs that still maintain design

compete against each other. This practical strategy resulted

operations in Europe, Asia or the US. This generates high

in the birth of a regional automotive cluster in 2017.

levels of auto part imports,” says González.

“It was a great achievement to have two state governments

The challenge Mexico faces is how to venture into collaborative

from different political parties at the same table. Having

design. “Once we have that, production can stay in Mexico. We

different points of view but among people who are willing

want to replicate a project where the Nuevo Leon automotive

to collaborate is the essence of the cluster,” says Jaime

cluster duplicated tools used abroad for use in Mexico. It

González, Director of the Automotive Cluster of the Center

operates under a subsidy from the Ministry of Economy in

Region Puebla–Tlaxcala (CLAUZ). In 2016, the value of Puebla

Nuevo Leon. We think we could achieve something similar

and Tlaxcala’s auto parts sector reached US$4.8 billion. This

in CLAUZ, having discovered that Puebla and Tlaxcala need

figure is equivalent to 5 percent of the national production

to work together instead of against each other because the

of auto parts, totaling approximately US$83 billion, of

competition should be outside the region.”

which 80 percent is exported. The cluster’s goal is to unite automotive companies, and initiatives are driven by three

Another project to boost innovation will map out all

parties: governments, the academic sector or the automotive

infrastructure and equipment in a virtual laboratory database

industry itself.

that will include descriptions of what is available to the companies in the region with a preferential price to members.

After these businessmen made the decision to form a

Allowing the equipment to be commercialized at a lower

working partnership, they hired Manuel Montoya, Director of

cost to companies in the cluster should reduce the number

the Automotive Cluster of Nuevo Leon (CLAUT), to assess

of companies that send R&D abroad, which companies do

and advise them on how to set up the cluster. The cluster’s

because they do not know there are universities, research

team worked on the model until it was ready to launch

centers or companies equipped with the machines they need.

in 2016. This is a cluster that operates with industry and

One of these locations is UPAEP, which has a strong research

regional governmental funding, but with regional initiatives

center specialized in plastics. The Iberoamerican University

from the governments of Puebla and Tlaxcala liaising with

of Puebla has an Institute of Design and Technological

their respective companies.

Innovation (IDIT) and ITESM is home to CeDIAM, a research center focused on automotive research.

To function more effectively three committees were created. One committee oversees human capital, just as in

CLAUZ’ short-term goal focuses on integrating Tier 1s into

other clusters. “This team intends to be a bridge between

the cluster because the projects they can complete will

students of every level who can join the operations, but

be larger. In a second stage, it plans to integrate Tier 2

we must still invest more in the workforce’s skills,” says

companies into Tier 1 projects. A third stage will integrate

González. Another committee was created to promote

new members to fill gaps in the supply chain. “The cluster’s

innovation. The cluster hopes that implementing better

role is to share industry analyses with the government as they

processes will lead to greater profitability, novel products

seek the attraction of specific investments,” says González.

and differentiation in the market as the industry becomes

“Attracting companies should be focused on completing the

more competitive. The third committee is focused on

supply chain to avoid having 20 companies dedicated to the

supplier development and has been working since January

same area” and competing for the same projects.

VIEW FROM THE TOP

CLEAR STRATEGIES FOR SUSTAINABLE GROWTH HÉCTOR SOTO Managing Director of the Automotive Cluster of San Luis Potosi

Q: How is San Luis Potosi innovating as one of the newest

following year, the Ministry of Economic Development

automotive clusters in the country?

for the state turned its attention to attracting BMW’s

A: Unlike other clusters, BMW and GM are active participants

investment to San Luis Potosi, although it took until Sept.

in the association as heads of our different committees, which

14, 2015 for the Automotive Cluster to be fully established.

has helped us attract more members. We organize supplier

It started with five members, three academic institutions,

days with our members, where Tier 1 companies can mingle

the Ministry of Economic Development and the Ministry

with smaller players that can satisfy their needs locally. The

of Labor and Social Welfare, collaborating with the two

idea behind these events is that potential suppliers strike

original committees in the state. We eventually created

deals with bigger companies right there, having a clear

the Development of Technical Capabilities Subcommittee

idea of which type of components they can supply and the

within the Human Capital Committee.

volumes that better adapt to their capabilities. The supplier days have been particularly effective to plan projects that

The cluster now has 42 members, mostly private companies

will come into effect in 2018, since they allow Tier 1 suppliers

and thanks to tangible results, our members asked for

to analyze different companies and their proposals.

two more committees to be created. The first will be an education committee focused on identifying the industry’s

To boost online business with technology, we created a

needs and creating programs that guarantee students

communications platform similar to a social network. The

graduate into employment. The second will be a supply-

platform is open to direct and indirect suppliers, as well

chain development group to boost logistics operations in

as service companies. No state is self-sufficient so we also

the state, as well as supply-chain safety standards following

accept companies from nearby states to the cluster, to

ISO 28000 and ISO 31000 standards.

complement San Luis Potosi’s existing supply chain. Digital communication helps collaboration at a distance. We have

Q: What are your expectations for how the cluster will

standardized profiles of each of our corporate members,

boost San Luis Potosi’s development in 2017?

which helps Tier 1s or OEMs when looking for a specific

A: In December 2016, we started negotiations with

component supplier. Since the platform is built with a social

the Japanese government along with the Mexican

network interface, executives can discuss opportunities

government for a five-year project. The initiative was

without having to wait for scheduled business encounters.

finalized in March 2017 and the project started in July

All data is protected and the platform is only open to

2017. Through this collaboration, 20 Japanese experts

cluster members, which proved crucial for attracting more

will come to Queretaro, Guanajuato, Aguascalientes and

members.

San Luis Potosi to help local companies participate in the automotive production chain, becoming suppliers for

Q: What additions to the new cluster have most contributed

Japanese Tier 1s and OEMs.

to its evolution? A: The cluster’s first contribution to the industry was the

Supply-chain development should be a priority for

creation of the Human Capital Committee and the Supply

national industry and we plan to offer new opportunities

Development Committee of San Luis Potosi in 2013. The

to national SMEs. There are still challenges for the industry in terms of human capital, especially considering that by 2020, companies will need to fill approximately 300,000

The Automotive Cluster of San Luis Potosi is a civil association

positions in the Bajio region, 50 percent of which will be in

of private companies, academic institutions and government

production operations. The cluster is also collaborating with

entities, focused on San Luis Potosi’s development in the

the Ministry of Economy to identify the industry’s needs, to

automotive sector

adapt education plans accordingly.

VIEW FROM THE TOP

AMBITIONS FOR MEXICAN AUTO PARTS ÓSCAR ALBIN Executive President of INA

Q: What is Mexico’s current position in auto parts

certain standard. This level of quality is not defined as a

production and what are the country’s goals for 2017?

rule to participate in the Mexican market.

A: Auto parts production remained stable in 2016, increasing approximately 1.5 percent compared to 2015.

Addressing this issue is one of the country’s priorities but

This was mainly due to stronger light vehicle production

it is difficult to fix. Canada solved a similar problem when

in the US, which fueled our exports there and to Canada.

signing NAFTA by incorporating quality norms from the US.

The final results of 2016 showed production of close to

Mexico decided to write its own norms but the process has

US$83 billion of auto parts and our forecast for 2017 is

proven to be a real ordeal because we lack the technical skills

to grow between 2 and 3 percent. Mexico is the sixth-

or testing facilities necessary to develop these regulations.

biggest auto parts manufacturer globally, only behind

NAFTA renegotiations present an opportunity to write a

China, the US, Japan, Germany and South Korea. Provided

specific chapter focused on quality standards for the whole

vehicle production remains on schedule and the US

region. This would save us years of work and it would be an

market keeps growing, we will be close to US$100 billion

excellent boost for product quality.

in auto parts production by 2020. This would catapult us to fourth place in the international ranking, neck and

Q: What led to China becoming such an important presence

neck with Germany.

in the international aftermarket industry? A: All countries buy vehicles but only 12 are responsible

Q: How many Mexican companies participate in auto parts

for the world’s automotive production: China, the US,

manufacturing operations?

Japan, Germany, South Korea, India, Mexico, Spain, Canada,

A: Approximately 25 percent of total auto parts production

Brazil, France and Thailand. These are the most important

comes from Mexican companies, mainly Tier 2 and Tier

markets for original equipment components. Auto part

3 suppliers. There is a limited number of Mexican Tier 1

manufacturing has developed around those countries and

providers acting as true multinationals with significant

few have ventured to export to other regions.

production or sales operations abroad, but this happens in other countries as well. Design and engineering for vehicles

Normally, the only components that travel overseas are

and auto parts is concentrated in the US, Germany, Japan,

those destined to the aftermarket and to be successful

South Korea and France, so most leading suppliers come

in this kind of venture, companies must invest heavily

from these nations. Mexico, among several other countries,

in marketing and localization strategies. In 2007, China

is gradually seeing more leading national suppliers and

decided to become the aftermarket supplier for the entire

several local companies have set international standards

world, forcing other countries like Mexico’s manufacturers

in the automotive industry.

to compete with Chinese imports. Almost 40 percent of the components used in the Mexican aftermarket are imported,

Q: What is the biggest problem for the Mexican aftermarket

mostly from China. The market has become extremely

and how can the industry address it?

price-competitive and the only way for Mexican companies

A: We have a severe problem related to indiscriminate

to compete is to abide by strict quality policies that override

importation of low-value soft components, particularly

the low prices China can offer.

from Asia. A lack of proper Mexican norms has allowed entry to all sorts of components, regardless of their price or quality. We are not against auto parts imports and Mexico is

The National Auto Parts Industry (INA) is an association

a very open country with practically no added trade tariffs.

formed by auto part manufacturers that wanted representation

Mexican companies are also prepared to compete against

before Mexico’s government. Its goals are to promote the

foreign components. But this is only true for parts of a

growth and sustainable development of all its members

VIEW FROM THE TOP

HOW CAN MEXICO RENEW ITS HEAVY-VEHICLE PARK? MIGUEL ELIZALDE Executive President of ANPACT

Q: How open is the government to updating the scrappage

We have also asked the government to increase the total

scheme?

number of applications available in the program. Austerity

A: The government has been open to revisiting the

policies have led the Treasury to limit the number of units

scrappage schemeâ&#x20AC;&#x2122;s guidelines and there have been several

that can be destroyed but to reduce the average age of

adjustments to the program. The remuneration a person or

the fleet we should be scrapping up to 20,000 thousand

a company can receive for their vehicle was increased, but

units yearly for the next 10 years.

it cannot surpass 15 percent of the cost of the new vehicle. The downside is that due to the volatility in the dollar-peso

Q: What are the main issues that need to be addressed to

exchange rate, the increase in dollars has not been that

improve the schemeâ&#x20AC;&#x2122;s performance?

much. With the January dollar-peso exchange rate, the

A: The program needs to become more attractive for

limit value of MX$336,000 is close to US$18,970, which

owner-operators. Otherwise, applications will continue

was indexed to the National Producer Price Index (NPPI).

to be wasted. The 3,000-unit limit was established by

We lobbied for the government to index the incentive

the Treasury to promote vehicle renewal among owner-

to the dollar-peso exchange rate but were unsuccessful.

operators and small businesses but the US$18,970

Nevertheless, the NPPI is still above the inflation rate. The

remuneration might not be enough for these users and

scrappage scheme is evolving despite obstacles that hinder

the government needs to take into consideration that this

its appeal, such as owner-operators.

demographic might not be part of the banking population.

In 2015, 7,250 vehicles were destroyed through the

To address this issue, we proposed a chain program that

scrappage scheme. But budget restrictions led the

allows two companies to participate in the scrappage

government to establish a limit of 6,000 units per

scheme per application. The original initiative permitted

year. Of that total, 3,000 vehicles can be scrapped by

each company to present an old vehicle and receive

transportation companies, while the remaining incentives

remuneration for the purchase of a new unit. The chain

are destined to owner-operators. In 2016, applications

program involved two participants, a bigger player looking

reserved for companies were allocated by September and

to buy a new vehicle to renovate a used but still functional

the program did not reset until January 2017. This means

vehicle, and an owner-operator wanting to scrap one of its

that by 2017, four months of applications had accumulated.

old vehicles in exchange for the used unit. Unfortunately,

In May, the authorities removed the 3,000-vehicle limit on

this is more complicated and has not yet come into effect.

companies owning more than five vehicles, so all 6,000 applications could be used by larger fleets. If the 6,000

Q: How are other heavy-vehicle associations responding

limit is reached prior to January 2018, owner-operators

to the changes in the scrappage scheme?

could still use the scrappage program up to 3,000 more

A: The limited remuneration value in the scrappage

units. However, it is not enough to scrap 6,000 units per

scheme has also been a problem depending on the type

year, especially considering that at that pace it would

of vehicle to be renovated. For trucks, US$18,970 is close

take us 30 years to replace the 180,000 vehicles that are

to 15 percent of the value of a new unit. Buses, however,

21 years or older and should not be on the roads now.

require a bigger initial investment and might cost twice or even three times as much as a truck, so US$18,970 is not as useful. Associations like CANAPAT are now lobbying for

Tractor

the incentive to be much greater for bus operators and

Manufacturers (ANPACT) has represented heavy vehicle and

we are completely supportive, considering approximately

engine manufacturers since 1992, promoting the development

60 percent of the applications for the scrappage scheme

of the transportation industry in Mexico

are for bus units.

The

National

Association

Bus,

Truck

and

VIEW FROM THE TOP

DOMESTIC MARKET GETTING GREENER BUT COSTS A HURDLE GUILLERMO ROSALES Director General of AMDA

Q: What are the main barriers to growth in the electric

extreme devaluation the peso suffered of almost 20 percent.

and hybrid vehicle segment and how can the government

OEMs are doing everything they can to keep consumers

boost sales?

from feeling the devaluation, which has helped the market

A: Hybrid and electric models remain a very small percentage

maintain its momentum. But preventing prices from moving

of all new vehicle sales, totaling 8,260 units at the end

naturally is also affecting distributors’ revenue margins.

of 2016, which barely represents 0.5 percent of Mexico’s sales. Growth will continue but the main restriction to the

Q: How can OEMs minimize the negative effects of

success of hybrid and electric vehicles remains price. The

currency volatility?

cost of electric technology has restricted these vehicles to

A: Prices are set by automakers but profit cuts are divided

medium and high-end models because most of the Mexican

between the OEM and the distributor. Both players must

population has low purchasing power. The average price of

also sacrifice part of their earnings to offer deals and special

cars sold in the country is MX$280,000 (US$15,300). While

promotions to keep attracting new clients. For OEMs, the

10 years ago the price difference between a combustion

situation is not as serious because they can dilute their losses

engine model and its hybrid counterpart was approximately

with cost-reduction strategies and other financial instruments.

40 percent, today that gap has narrowed to 20-25 percent.

But dealerships see a direct impact on their profit. Their only possible countermeasure is to increase sales volume.

Q: How is volatility in the dollar-peso exchange rate

This, however, has not been an option for some industry

impacting the revenue margins of OEMs and distributors?

participants. The gradual price increase above the inflation

A: Some of the reasons behind currency fluctuations

rate has softened the blow for some distributors. But the

originate in external factors such as speculation and

measures have been slow because companies do not want

uncertainty, so neither the industry nor the government have

to jeopardize their position in the market.

much control over them. Mexico has experienced exchange rate instability since 2014 and the situation was aggravated

Q: How ready are Mexican clients to discard their negative

due to imbalanced public finances.

perception of Chinese vehicles? A: Any company wanting to participate in the local market

A weak peso favors the operations of local manufacturers

must bring products that are superior to the standard

with export activities. Labor and certain parts are sourced

available. Chinese companies suffer a handicap due to the

locally, while other parts are imported from regions with

negative perception many Mexicans have of Chinese products.

currencies that have also lost ground against the dollar.

Their challenge is to build an individual reputation. BAIC, JAC

However, volatility and a price-sensitive environment have

and any other brand wanting to come to Mexico will find

forced the Mexican market to detach from price-fixation

market niches to compete in but they will have to build brand

standards set by the global industry. Companies set

awareness among potential consumers. Vehicles coming from

prices in dollars but these have to adapt to the reality of

China are no longer cheap products — their price difference

the domestic market. As a result, vehicle prices in Mexico

with Italian or German models is only 10 percent. The Chinese

may be different to prices in the US. Between 2007 and

industry’s product-development process can compete with

2016, car prices have increased below the average inflation

that of any other brand in the market.

rate and as the peso weakens against the dollar, the effect becomes more substantial for OEMs and distributors. The industry started increasing prices more substantially in March

The Mexican Association of Automotive Distributors (AMDA)

2016. Since then, prices have increased monthly above the

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

average inflation rate, rising 8 percent between April 2017

distributors and dealerships located in more than 210 cities

and April 2016. These price surges do not compensate for the

across Mexico

VEHICLE SPOTLIGHT

ASTON MARTIN DB11 With the debut of the DB10 in the James Bond movie Spectre, Aston Martin hinted at what the new DB generation might look like. Mexican fans have the opportunity to see for themselves with the arrival of the DB11 to Aston Martin’s Mexico City dealership at a price of US$315,000. The DB11 has just about enough from the old DB5 to make it recognizable as part of the DB family but it immediately suggests a more powerful core thanks to its aerodynamic lines and surface details. Just like the DB10, the DB11 has a new grill, complemented with all-new LED head and taillights, as well as a clamshell hood that gives it a more elongated and expressive image. The exterior features are wrapped around a bonded aluminum frame that makes the car lighter and stronger, while increasing interior space. Aerodynamics in the DB11 go beyond controlling airflow over its bodywork. Thanks to the Curlicue and Aston Martin Aeroblade innovations, the Grand Tourer can let air flow through its bodywork. With the grill-like vent Curlicue in each front wheel arch lining, the car can reduce its frontend aerodynamic lift. Meanwhile, Aston Martin Aeroblade enhances stability at the back thanks to air intakes positioned at the base of the C-pillars.

The Aston Martin DB11 is priced at US$315,000 Underneath the hood, the DB11 has a new twinturbocharged, 5.2-liter V12 engine that makes this “the most powerful and most efficient ‘DB’ production model in Aston Martin’s history” according to the brand itself. The engine can deliver 600bhp of power at 6,500 rpm and 700Nm of torque at 1,500 rpm, allowing it to reach 100 km/h in just 3.9s and a maximum speed of 322 km/h. The chassis, suspension, steering and electronics have also been tuned to match the engine’s capabilities according to three settings: GT, Sport and Sport Plus. The DB11 is also the most fuel-efficient DB model in the family, according to Aston Martin. The engine can restrict cylinder use during low-demand periods leading to less fuel consumption. The result is a combined fuel consumption of 11.4 liters/100km.

Nissan Kicks manufactured in Aguascalientes

LIGHT VEHICLES

Mexican light-vehicle production is in the midst of challenging times. On the one hand, low oil prices have decreased US demand for compact vehicles. On the other, the latest investments in the country are starting to ramp up, pushing production forward, while companies continue to introduce production lines to the country, attracted by cost and logistics advantages. New competitors are also arriving to the domestic market, including Chinese brands that seek to redeem their countryâ&#x20AC;&#x2122;s image.

The second chapter of MAR 2017 analyzes the challenges and opportunities that light-vehicle OEMs have and the strategies they are implementing to improve their operations, reduce costs and increase their market share in this competitive environment. New plants will be featured, while production and sales goals are discussed as the market keeps evolving in line with the usersâ&#x20AC;&#x2122; needs. The effect of economic and political changes mentioned in the first chapter will also be revisited to give a more rounded perspective on the future of light vehicle OEMs.

CHAPTER 2: LIGHT VEHICLES 38

ANALYSIS : Sales Slow Down But Production Rises Again

VIEW FROM THE TOP : Mayra González, Nissan Mexicana

VIEW FROM THE TOP : Alfons Dintner, Audi México

ANALYSIS : Assessing The Big Three

VIEW FROM THE TOP : Radek Jelinek, Mercedes-Benz México

VIEW FROM THE TOP : Horacio Chávez, Kia Motors México

VIEW FROM THE TOP: Pedro Albarrán, Hyundai Motor de México

ANALYSIS : He Who Rules Social Media Will Rule The World

INSIGHT : Torben Eckardt, Volvo Car México

VEHICLE SPOTLIGHT : 50 Years of AMG

VIEW FROM THE TOP : Edgar Pacheco, Honda de México

INSIGHT : Eric Pasquier, Renault México

INSIGHT : Kotaro Watanabe, Subaru México

VIEW FROM THE TOP : Philipp Heldt, INFINITI Mexico and Latin America

VIEW FROM THE TOP : Patrick Yang, BAIC de México

ANALYSIS

SALES SLOW DOWN BUT PRODUCTION RISES AGAIN After a year of moderately successful results in terms of production and exports, Mexico is now back on a growing track fueled by longstanding players and the arrival of newcomer Kia. Sales, on the other hand, are now slowing down after two years of record-breaking growth

Beating the initial expectations from early 2016, the light-

not include Audi’s numbers, though, since the company

vehicle industry grew past its results from 2015 in terms of

cannot publicly disclose localized information regarding

production and exports, albeit barely. Between January and

production and exports until the parent releases its yearly

May 2016, the picture was grim and the numbers suggested a

earnings report. The latest figures Audi has reported for

possible contraction in overall results for the end of the year.

Mexico show production from September-December 2016

However, a turnaround in June mainly fueled by Kia starting its

totaled 10,746 vehicles.

manufacturing operations reinvigorated the industry, leading to continuous growth that maintained throughout 2017.

For 2017, projections are more positive. Solís says the industry is expected to grow its production to a total of

At the end of 2016, the industry achieved a 2 percent rise

3.5 million vehicles and if the industry keeps its current

in production, according to AMIA. The group’s Executive

momentum, that goal could be easily reached. Furthermore,

President, Eduardo Solís, says internal industry factors kept

according to Andrés Lerch, Advisory Partner and Leader

the sector from better results. “Production was hampered

of the Operations Transformation Area at EY Mexico's

by the reduction in vehicles produced as some OEMs

Automotive Center, the country could eventually overtake

switched vehicle platform.” Growth was mainly driven

India and become the sixth-largest light vehicle producer

by Kia, which launched operations in May, as well as a

globally. At the moment, the country occupies the seventh

24.7 percent increase in production volumes from Honda

position behind China, the US, Japan, Germany, South Korea

and 33 percent from Toyota. Although Mazda presented

and India.

considerable production growth of 78.2 percent by the end of 2015, its results fell 18.2 percent in 2016. FCA, Ford and

By July 2017, companies manufactured a total of 2.17 million

Volkswagen also showed slightly lower figures, while GM

light vehicles and almost all companies show signs of

and Nissan remained stable.

recovery. Kia keeps ramping up its operations and in seven months it has already produced more than in its first eight

Exports, meanwhile, increased only by 10,000 units.

months of 2016. Ford’s negative streak continues, however,

Most brands decreased their exports with the exception

posting an 18.6 percent decrease in production, followed

of Honda and Mazda, which boosted their numbers by

by Mazda with a 5.1 percent decrease. Meanwhile, after a

26.6 percent and 33.6 percent respectively. Kia was the

year of growth, Honda is slowing down by 19.8 percent.

main reason why exports did not fall by the end of the year, considering the company contributed with 93,107

Sales, however, show a reverse trend. After two years

units against zero from the year before. Overall results do

of strong growth of 19 percent in 2015 and 18.6 percent

PRODUCTION, EXPORTS, SALES LIGHT (MEXICO) MEXICO'S LIGHT VEHICLE PRODUCTION, EXPORTS AND SALES (thousands of units) 4.0

——Production

——Exports

——Sales

3.5 3.22

3.0 2.5 2.0

2.89

2.93

2.35

2.42

2.55 2.26

2.14

0.5

2010

*Annualized data Source: AMIA

2.76

2.77

2.64

1.60

1.5 0.82

3.46

3.72 3.02

1.85

1.0

3.40

0.90

0.99

1.06

1.13

2011

2012

2013

2014

1.35

2015

2016

1.47

2017*

30 25

24.47 28.01 27.26

GLOBAL LIGHT-VEHICLE LIGHT VEHICLEPRODUCTION PRODUCTION(millions (MILLIONS) GLOBAL of units)

4.43 4.12 3.77

3.70 4.00 3.77

3.40 3.47 3.72

2.67 2.82 3.05

2.27 2.33 2.45

6.03 6.06 6.14

9.14 9.07 9.43

11.93 12.24 11.93

South Korea

India

Mexico

Spain

Canada

5 0

China

2015

2016

Japan

Germany

2017 annualized

Source: AMIA

GLOBAL LIGHT VEHICLE EXPORTS (MILLIONS)

in 2016, the market is in neutral. Overall sales have

GLOBAL LIGHT-VEHICLE EXPORTS (millions of units)

incremented by just 1.4 percent between January and

July 2017 compared to 2016 and some strong players are already on track for weaker results. Nissan, the

4.44 4.50 4.22

4.65 4.65 4.73

Source: Source: CAAM, JAMA, VDA, KAMA, SIAM, AMIA, ANFAC, Automotive News, Data Center

best-selling brand in the country, has contracted by 1.1 2.92 2.58 2.57

2.76 2.77 2.98

percent, followed by GM with a 10.5 percent decrease,

Mexico

South Korea

Volkswagen with 2.7 percent and Ford with 10 percent. However, the latest entrants Kia and Hyundai are keeping up their pace, reaching growth rates of 66.5 percent and 20.6 percent, respectively. The premium segment has also shown signs of strengthening since 2016. By the end of that year, the market had grown 18.6 percent with brands

Germany

like Mercedes-Benz and BMW leading the charge with

2015

sales rising 34.4 percent and 20.1 percent, respectively.

Source: AMIA

Japan

2016

2017 annualized

The trend continued into 2017 between January and July although at a somewhat tempered pace of 28 percent and 17.4 percent.

BEST-SELLING MODELS IN 2016 Versa

90,543

Regardless of variations in sales numbers, the market split remains unchanged. Considering numbers between January and July 2017, Nissan holds a 25 percent market share, followed by General Motors with 17 percent and Volkswagen

Aveo

with 16 percent. The Nissan Versa still occupies the coveted

80,052

position of best-selling model, followed by the Chevrolet Aveo, the Volkswagen Vento, the Chevrolet Spark and the Nissan March, replacing the New Jetta. While in the same period of 2016 Nissan had five models among the top 10

Vento

63,201

best-selling cars, the Tiida lost its footing, leaving the brand with only four best-selling models: Versa, March, Sentra 2.0 and Tsuru. This last remains strong despite Nissan halting its production earlier in 2017.

Spark

60,598

Guillermo Prieto, Executive President of AMDA, says that the most likely outcome will be to reach sales of 1.7 million units, which would represent single-digit growth for the end of the year. Although Prieto also has a best-case scenario

New Jetta

in which the country keeps its double-digit growth for one

60,561

more year, results presented by AMIA support his singledigit forecast. Source: AMIA

VIEW FROM THE TOP

THE VISION OF INTELLIGENT MOBILITY MAYRA GONZÁLEZ President and Managing Director of Nissan Mexicana 40

Q: Mexico is Nissan’s fourth most important market

A: Mexico has not yet defined a new model for how

globally. How will the company maintain its growth here?

Nissan's, or even Mitsubishi’s, operations will change but

A: After eight consecutive years of being the leading brand

globally this acquisition will only strengthen the alliance

in Mexico and with a market share of 25 percent during our

between Renault-Nissan and now Mitsubishi. After we

2016 fiscal year, our goal is to continue with our winning

acquired 34 percent of Mitsubishi’s stock, the alliance

formula. Our latest target is to surpass the 406,995 units

became the third most-important automotive group

sold in FY16, which is a record in itself because no other

in the world. The alliance sold over 10 million vehicles

brand has managed to sell that many vehicles in Mexico in

around the world during the first half of 2017. The three

a single fiscal year. Nissan’s innovative approach has been

companies complement each other and I think the best

one of the pillars of the company’s success, with a strong

of this venture is yet to come. We still need to define

vehicle portfolio that allows it to participate in almost

how each company will take advantage of the others’

all market segments. Our manufacturing operations have

manufacturing infrastructure, supply chain, distribution

also helped to strengthen our presence in the country and

network and technology. Negotiations on how the new

to offer competitive prices to our clients. We now have

alliance will impact each country are ongoing but Carlos

two plants in Aguascalientes, another in Morelos and we

Ghosn, Chairman and CEO of the Renault-Nissan Alliance,

will open our fourth plant, also in Aguascalientes, by the

says the addition of Mitsubishi could transform the alliance

end of 2017.

into the most important automotive group in the world.

Our financing arm, NR Finance, has been key to growing

Q: What role does Mexico play in Nissan’s global

our market share in Mexico, reaching demographics that

manufacturing footprint?

we could not service otherwise. Our distribution network

A: We manufacture a new vehicle in Mexico every 34

has also grown to more than 230 points of sale and we are

seconds and our production line in the Aguascalientes’

now transforming the image of our dealerships with the

A1 plant is flexible enough to incorporate five different

implementation of the Nissan NREDI 2.1 global standard

models in the future. Mexican manufacturing has become

across our Mexican network. The goal of NREDI 2.1 is to

a corporate standard for our global operations, having

create attractive dealerships with more open spaces that

attracted US$5 billion in investment from Nissan since 2007.

foster enjoyable interaction between our customers and our vehicles. All the information they need will be at hand.

Aguascalientes was the first location to manufacture the

Dealerships will be much more modern and technology will

Nissan Kicks crossover with an investment of US$150 million.

be the basis for all our operations. This is an international

Since this model was the official vehicle of the Rio Olympic

effort and the first NREDI 2.1 dealership in the world was

Games of 2016, the first batch produced was sent to Brazil.

inaugurated in May 2017 in Playa del Carmen.

Subsequently, production went to our local distributors. The Nissan Kicks allowed us to compete in a market segment

Q: How will Nissan’s recent acquisition of 34 percent of

that we had not explored in our 53 years in Mexico. Now we

Mitsubishi's stock boost the company’s position in the

can proudly say that so far, in the current 2017 calendar year

global market?

2017, we are leaders in the small crossover segment as well. Q: To what extent are Mexicans participating in Nissan’s

Nissan Motor Corporation is a unit of the Renault-Nissan Alliance.

R&D efforts?

The company is the largest OEM in Mexico with sales of over

A: Mexico led the Kicks' production and the vehicle’s design

400,000 units in 2016 and four manufacturing plants, three of

was a collaboration between Nissan’s R&D centers in Rio de

which are focused on Nissan models and one on INFINITI vehicles

Janeiro in Brazil, San Diego in the US and Atsugi in Japan.

These three centers brought their vision to Mexico and our

there was no charging infrastructure available. We could not

local engineers were responsible for ensuring the vehicle’s

wait for the government to start developing this market so

quality and implementing all the necessary modifications

we invested our own resources in the country’s charging

and improvements to the original design.

infrastructure and launched the first electric vehicle. Nissan LEAF became the first EV to be launched in Mexico and the

Mexican talent has been a decisive

country’s best seller, with more than 270

factor in elevating the quality of our

units sold to date.

manufacturing operations. The country’s challenge will be to generate enough talent to support the production of 4.9 million vehicles by 2020, 1 million

25%

Nissan’s market share in Mexico

To this day, Nissan has the largest charging network with over 230 charging points across the country. If

of which will be produced by Nissan.

we include the public infrastructure we

With the Nissan University program in

developed alongside the government,

Aguascalientes, the company can also help develop this

universities and parking spaces, more than 170 charging

talent and generate new opportunities, both for the company

points add to those 230 chargers throughout our

and the country. Our university has become an aspirational

dealership network.

institution because it helps students develop the necessary practical knowledge to fill jobs at Nissan and its partners.

Although the electric and hybrid vehicle market is growing of its own accord, most efforts have come from OEMs and

Q: How is Nissan transforming its value proposition to

the private sector. The government needs to develop state

incorporate global automotive trends?

incentives to boost sales.

A: The Nissan Tsuru was a flagship model for Nissan in Mexico. We manufactured a total of 2.4 million Tsuru

Q: What opportunity does Nissan see to participate in the

vehicles until production stopped in May 2017. Its sustained

growth of on-demand driver services such as Uber and

success was thanks to it representing a reliable and

Cabify?

affordable mobility solution for the Mexican population.

A: These services are already important to the brand. We

But after three decades, we decided it had accomplished

foresaw an opportunity to create a specialized product with

its mission. We hope to satisfy consumers with the entry

our financing arm that targeted these clients. This led to the

versions of the Versa, March and Tiida models.

Versa becoming the preferred vehicle for services like Uber and Cabify. Nissan has built strategic alliances with these

Nissan is now moving on to a new era driven by Intelligent

companies and we signed more than 25,000 contracts

Mobility. Terminating the production of Tsuru was the first

through NR Finance’s Private Driver Program in the fiscal

step we took into this new era. We sold 1,000 units of a

year 2016. Approximately 95 percent of all financed vehicles

commemorative edition and followed with the launch of

for on-demand driver services were Versa models. We are

the new Nissan GT-R in May 2017, when we formalized our

optimistic about growth in the on-demand driver market,

promise to the public to provide innovation and exciting

especially considering the room these platforms have for

driving experiences.

development in Mexico.

Our new mission is to revolutionize mobility globally through three principles. The first, Intelligent Driving, will focus on how to incorporate new technologies to make driving much more efficient and eventually autonomous.

THE NEW MEMBER OF THE ALLIANCE

Intelligent Power, the second cornerstone of our new initiative, will guide Nissan on the use of alternative-

The Renault-Nissan Alliance acquired 34 percent

energy sources. Finally, Intelligent Integration will create

of Mitsubishi in 2016 for US$2.3 billion. With this

connectivity between vehicles, the Cloud and road

acquisition, the Alliance became the third most

infrastructure. These three branches of Intelligent Mobility

important automotive group in the world. Carlos

are the key to reaching our Double Zero target of zero

Ghosn, Chairman and CEO of the Renault-Nissan

emissions and zero road fatalities.

Alliance and CEO of Renault and Nissan has now left the latter's leadership to Hiroto Saikawa to become

Q: How important is the electric and hybrid vehicle market

Chairman and CEO of Mitsubishi and help the company

for the brand’s operations in Mexico?

get back on a growing track. The plan is for Mitsubishi

A: Nissan was one of the pioneers in the electric vehicle

to lean on the technological and financial backbone of

market. When we decided to launch the LEAF in Mexico,

Renault-Nissan to boost its operations.

VIEW FROM THE TOP

INDUSTRY 4.0 A REALITY IN MEXICO’S LATEST OEM PLANT ALFONS DINTNER President of Audi México 42

Q: Why did the company choose San Jose Chiapa, Puebla

Q: What do you see as the main opportunity for Mexico

for its plant and supply chain over more industrialized areas?

to develop its local supplier network?

A: We did a lot of research before establishing facilities

A: If all suppliers were already equipped with the latest IT

in Mexico. San Jose Chiapa, Puebla offered us the

systems, the entire value chain would be more competitive.

freedom to build our plant how we wanted. We visited

This is part of the idea behind Industry 4.0 and a challenge

several industrial parks in the country but none offered

all around the world. Materials and components need to

us the same possibilities to work according to the Audi

spend as little time traveling as possible so communication

Production System. This location is also excellent for

and supplier integration is crucial. We need intelligent

logistics, with a direct connection to the Atlantic and the

systems to know where components are and how we can

Pacific through rail infrastructure. The existing supplier

shorten our logistics and manufacturing cycles.

network was another advantage. Most importantly, the people in Puebla are well-educated.

Q: How is Audi innovating to incorporate Industry 4.0 practices in its new plant?

Producing premium quality cars with is not a big challenge

A: It can be hard to translate technology from theory to

for us. The Audi Production System has set global standards

practice but our plant in Mexico is an example of how

that have allowed us to efficiently build our operations in

Industry 4.0 can be integrated right from the construction

Mexico. The real challenge we found when we arrived in

of the plant itself. We built our facility in San Jose Chiapa

San Jose Chiapa was that there was little infrastructure. It

in record time and before we moved all our manufacturing

was hard for our people to build something from scratch

equipment to our body shop, we modeled the facility on

in this environment but they knew why this project was

a computer.

important and how it would benefit Audi. We received lots of support from our colleagues at Volkswagen in Puebla

We projected that same model onto the production

city and the Mexican authorities put the right infrastructure

floor with a laser, so our team knew where each machine

in place for us to establish the newest smart factory in the

should be and how to secure it to the floor. We projected

Audi production network.

the arrangement of 670 robots plus a number of connecting conveyor belts for our body shop and every

Q: How has Volkswagen’s presence in Mexico helped Audi

interconnection between machines was already digitally

in its early development stages?

mapped beforehand. In the end, instead of isolated

A: In the 53 years Volkswagen has been in Mexico, the

work modules, we had a completely interconnected

industry has evolved significantly. We are using many of

construction and later manufacturing system.

the same suppliers as our colleagues and Volkswagen has attracted even more companies to the region thanks to

Production is monitored through our control center and

our new manufacturing presence. The supplier network

vehicles are traced with radio frequency identification

includes around 180 companies, including those with whom

(RFID) antennas. All manufactured cars are traced during

we continue to negotiate. In fact, 100 of these companies

each step of the process; the computer knows the model

were already located in Mexico and 64 of them built new

and color of the car, its features and its destination.

plants specifically to support our operations.

The system displays which machines are operating and information on any piece of equipment in the factory,

Audi is the only premium brand manufacturing in the country

all in real time. This means we can monitor every car in

and competition between suppliers is essential because it

the plant from any Audi site in the world. Our logistics,

helps OEMs maintain the highest quality standards and to

manufacturing and IT experts work together in the

remain cost-competitive in their manufacturing operations.

control center to determine how the plant is running and

where potential improvements can be made. Some of our

Audi took 750 Mexican engineers to its headquarters in Ingolstadt

suppliers already send their components with RFID tags, so we can be sure that everything is on its way and gets to the right place at the right time. The information we gather from the control center is also available to our suppliers, so we can perfectly manage just-in-sequence operations with our partners. Q: What is the ratio between automation and talent in Audi’s Mexican operations? A: Each stage in the plant has a different level of automation. The body shop is 87 percent automated. Final assembly is mostly handled with manual labor and we always make sure we maintain the highest levels of comfort and ergonomics to support our people.

200,000 Applicants to Audi’s training center in San Jose Chiapa

150,000

Vehicles Audi expects to manufacture per year in Mexico

Q: How did Audi’s expectations regarding local talent compare to what the company found in Mexico? A: It was clear we needed to bring people from Germany to train our local workforce and implement Audi’s technology in Mexico. It was also clear we needed to train people from Mexico in Germany so they could learn

Audi has 670 robots in its bodyshop plant in Mexico

everything about the Audi Production System. Around 750 Mexican experts received training at our headquarters in Ingolstadt and other sites in Europe. Additionally, we secured an agreement with the local government to build a training center in San Jose Chiapa.

180

Suppliers in the NAFTA region

Once the training center was ready we had over 200,000 applicants, which speaks volumes about the interest in working at Audi México. and Canada. So far, we have received excellent feedback We had to develop a strict selection program to choose

regarding the quality of our products. The launch in Mexico

the best people for our operations. More than 5,000 local

took place in February 2017 and for the US in April. In

employees are directly working at Audi México. Many of

addition to the Q5, we are also manufacturing the SQ5

our staff members from Germany and other European

and will soon start with the hybrid variant of our Audi

countries are now returning home, opening further

Q5 in Puebla. Altogether, we expect to produce 150,000

opportunities for locals to build their careers within Audi.

vehicles per year.

Q: How have Audi’s advances shaped the company’s goals

Q: Why does Audi not publish its production numbers

for 2017?

monthly as all other members of AMIA do?

A: We have incorporated the latest manufacturing

A: We are part of Audi AG in Germany and as a publicly

technology into our production site in Mexico, including

traded company we have to follow market regulations.

a new welding process to fuse steel and aluminum. Our

This means making all information available worldwide

operations have advanced as planned. We started our

at the same time. Audi AG publishes global production

production on Sep. 30, 2016 with vehicles destined for

figures in its quarterly reports. However, we can say that

the European market. As the level of individualization in

production and export figures show a healthy operation

Europe is very high, this was a challenging task. All features

in our new plant in Mexico.

and equipment available resulted in high complexity right from the start of production. Audi is a German premium automaker founded in 1909 that is

We successfully managed the project and delivered the

now part of the Volkswagen Group. The company’s headquarters

planned volume for the market launch on time. Our next

are in Ingolstadt, Germany, and it has specialized production

target for 2017 was to produce vehicles for Mexico, the US

sites in Hungary, Belgium, India, China, Brazil and Mexico

ANALYSIS

ASSESSING THE BIG THREE The Big Three are not so big anymore in Mexico. With the exception of GM, which has managed to maintain its market share, US OEMs have lost ground against Japanese companies and Korean newcomers. Their growth projections do not seem much more favorable

They were the trailblazers. Ford, GM and FCA, the Big

Juan Manuel Díaz de León, Automotive Practice Director

Three, first entered the Mexican market in the 1930s and

of Overlap Consulting Mexico. “Meanwhile, new OEMs

were instrumental in building the manufacturing dynamo

have a clean slate with regards to service and reputation,

that Mexico is today. As new OEMs arrived with their brands

which could work to their advantage.”

in tow, the American giants have had to battle for every sale. All three retain significant market share – 6 percent

However, word-of-mouth remains as important as ever

(Ford), 19 percent (GM) and 6 percent (FCA), according to

to create a good reputation and even more so when the

AMIA figures for 2016 – but Japanese and Korean brands

development of social media and its role in marketing

are growing in popularity and altering the landscape.

are considered. Unfortunately for the American OEMs, the buzz surrounding them has been less than favorable

Between 2010 and 2016 the Mexican market practically

since the second half of 2016.

doubled, moving to 1.6 million units from the 834,024 vehicles sold in 2010. But only GM has held its share. In

After US presidential candidate Donald Trump threatened

2010, Ford, GM and FCA enjoyed 10 percent, 19 percent

OEMs that manufacture vehicles in Mexico with export-

and 9 percent of the market, respectively. Brands like

related tariffs and then continued his assault into his

Toyota and Mazda are gradually gaining ground and the

presidency, Mexicans reacted.

early numbers from January to July 2017 provided by AMIA show Kia and Hyundai as other strong competitors

The first victim was Ford. Already taking heavy fire from

with shares of 6 percent and 3 percent respectively. The

Trump’s official Twitter proclamations, the company

Big Three have been unable to extend their share in the

dropped its own bomb onto the Mexican market. After

face of tougher competition but neither are they losing

announcing in early 2016 a US$1.5 billion investment for

much ground, showing their resilience. In the same

a new plant in San Luis Potosi, the company went back

period, they posted a market share of 5 percent (Ford),

on its word and in January 2017 declared that the project

17 percent (GM) and 7 percent (FCA).

was officially canceled. According to a statement issued by Mark Fields, CEO of Ford Motor Company, the decision

A strong customer-oriented approach and a focus on

had nothing to do with Trump’s threats of imposing a

aftersales has helped relative newcomers like Kia and

35 percent border tax on Mexican imports. He also said

Hyundai make inroads. “Some more established OEMs

that the production intended for San Luis Potosi would

struggle to renew their operations and keep using certain

move to the existing plant in Hermosillo. However, the

bad practices, which ends up affecting their sales,” says

damage was done.

FORD, GM, FCA (sales) GM'S, FORD'S AND FCA'S SALES (thousands of units) 320

——GM

——Ford

308.6

——FCA

280

256.1

240 200 160

158.6

120 80 40

193.7

198.4

93.7

217

244.9

171.4

103

86.5

92.3

80.5

81.4

87.5

2010

2011

2012

2013

2014

2015

88.8

103.9 99.2

2016

*Annualized data Source: AMIA

FCA Fuente: Secretaria de economia

FORD

97.5 80.2

2017*

MARKET SHARE (2010) BRANDS' MARKET SHARE (2010)

23.1% Nissan 19% GM 13.3% Volkswagen 10.2% Ford 9.3% Chrysler 6% Toyota 4.8% Honda Source: AMIA

MARKET SHARE (2016) 11% Mazapil

3% Mazda 2.3% Renault 1.7% SEAT 1.5% Mitsubishi 1% Suzuki 0.73% Peugeot 0.7% BMW

0.65% Audi 0.6% Mercedes-Benz 0.32% Lincoln 0.3% Fiat 0.25% MINI 0.23% Acura 0.73% Others

2% Sahuaripa

9% Cananea 2% Morelos BRANDS' MARKET SHARE (2016) 7% Nacozari de Garcia 2% Eduardo Neri 5% Fresnillo

2% Aquila

4% Ocampo

2% Alamos

25% Nissan 19.2% GM 4% Caborca 1% Chinipas 12.8% Volkswagen 2% Sierra Mojada 47% other 6.5% Toyota Source: CGM, Ministry of Economy With figures to March of 2015 6.4% FCA 6.2% Ford 5.5% Honda 1

Source: AMIA

11% Mazapil

2% Sahuaripa

9% Cananea

2% Morelos

3.6% Kia 3.4% Mazda 2.3% Hyundai 1.9% Renault 1.5% SEAT 0.96% Audi 0.95% Suzuki

0.91% BMW 0.9% Mercedes-Benz 0.5% Peugeot 0.4% MINI 0.15% Lincoln 0.14% INFINITI 0.62% Others

7% announcement Nacozari de Garcia 2% Eduardo The brought anger Neri from Mexican

the shift will save the company US$1 billion compared to

5% Fresnillo Aquila consumers, leading to drops 2% in sales and the cancellation

its original production plan focused on San Luis Potosi.

Ocampo 2% Alamos of 4% contracts from Mexican fleets. “Ford took a hit mainly 4% Caborca Chinipasaround its plant because of negative media1% attention

Sales at GM have also taken a hit, although the company

2% Sierra Mojada other construction’s cancellation47% in San Luis Potosi,” says

has kept a lower profile regarding Trump’s proclamations.

1 Carlos de Nava, Director General ofMarch Grupo Alden. Source:López CGM, Ministry of Economy With figures to of 2015

AMIA reports that sales of the brand fell by 10.5 percent

“Many clients canceled their orders and the brand was

between January and July, totaling 142,943 units sold

criticized on social media. Nationalism and protectionism

compared to the 159,733 in 2016. In contrast, the company

are returning to influential economies and Mexico

grew 20.6 percent in 2016 with total sales of 308,624

experienced this in its own way.”

vehicles.

Among the companies cutting ties with Ford were

FCA, too, reacted to the new uncertainties pock-marking

construction company Coconal and tourism company

the landscape. Sergio Marchionne, CEO of the company,

Grupo Experiencias Xcaret, both of which sent letters

issued his own statement saying that in the event of a

to the automaker’s distributors canceling further vehicle

border tax, FCA was ready to pull its production activities

acquisitions.

out of Mexico and take them back to the US. “The repatriation of the Ram heavy-duty truck is possible,”

Sales numbers for the first half of 2017 illustrate the

says Marchionne. “The infrastructure to execute that

fallout for Ford. AMIA figures show that between January

is in place and, given the right motivation, it could be

and July 2017, Ford’s sales dropped 10 percent, to 46,845

accomplished quite easily.” Unlike Ford and GM, the brand

from 52,054 during the same period of 2016. This, after

has grown 4.9 percent in the first seven months of the

the brand posted sales growth of 13.4 percent in 2016.

year, compared to 2016.

Ford has also been decreasing its production volumes

Although conditions have not been the most favorable for

in Mexico since 2014. Furthermore, after canceling the

American OEMs in Mexico, the domestic market’s growth

San Luis Potosi project, the company announced that

still presents a recovery opportunity for them. “Despite

the vehicles that were to be manufactured in Hermosillo

uncertainty created by US President Trump’s comments

would now move to China. According to Joe Hinrichs,

and potential changes in his country’s relationship with

President of Global Operations at Ford Motor Company,

Mexico, there is still high demand,” says López de Nava.

VIEW FROM THE TOP

NEW VENTURES AND FUTURE STRATEGIES RADEK JELINEK President and Director General of Mercedes-Benz México 46

Q: What strategies are you implementing in Mexico to retain

increases of over 45 percent. The launch of the new E-Class

Mercedes-Benz’s global position as the leading brand in the

was also a success in Mexico and we are now planning the

premium segment?

release of the cabriolet and coupé versions.

A: We moved from third place in the premium market to pole position among premium carmakers by closing the sales gap

Mercedes-Benz expects success in the SUV segment in 2017,

with our competitors, year after year. Having closed 2016 as

as well as for our C and CLA models. We are also launching

the number one premium brand globally, we have mimicked

a facelift for the GLA and limited editions such as the AMG

that in Mexico in the first two months of 2017. Our battle with

43 GLE Coupé. We will have a new surprise each month and

Audi and BMW in Mexico is interesting because it is a close

expect 2017 to be as interesting as 2016.

race in total sales numbers. This encourages us to find better and new ways to stand out in the market and we strive to be

Q: How likely is it that Mercedes-Benz will bring the new

the number one brand by the end of the year. We achieved

Maybach G 650 Landaulet to Mexico?

34.4 percent growth by the end of 2016 in Mexico, which is

A: We have already registered interest in this vehicle. Only 99

almost twice BMW’s increase and over four times what Audi

units of this limited edition will be available around the world

grew. We expect to achieve double-digit

and it will cost approximately MX$20 million

growth once more in 2017.

(US$1.1 million). There are many collectors

Despite uncertainty and challenges related to exchange rate volatility, we expect the premium segment to remain strong in 2017.

50th

Anniversary of the AMG brand

in Mexico and the new Landaulet, the 300 units of the S 650 Maybach cabriolet and all our other collector’s editions are part of our strategy to merge new technology with Mercedes-Benz’s mysticism and legend.

Our peers have more conservative goals for the year but I think during uncertain times people tend to

Economically, these models generate small returns but they

buy more. Additionally, Mexican automotive prices are more

keep clients captivated by the brand.

attractive than other markets. Q: Why did Mercedes-Benz choose to enter the pickup Q: Which flagship models led Mercedes-Benz toward its 34.4

market?

percent growth?

A: Our more than 35 models allow us to compete in most

A: The first model that changed the market’s dynamic was

market segments but we continuously analyze the areas

the SLS AMG with its sporty design and gull-wing doors.

in which we do not yet participate and try to adapt our

Posterior A-Class models and other families started using

philosophy to them. We will not offer a standard pickup but

the same design language, combining sportiness with

a top-of-the-line, luxury model. There is a niche we can enter

elegance. Mercedes-Benz has transformed its image to

with this model, planned for release in Mexico and North

appeal to a younger generation, which has made us even

America in 2018. Diversification and evolution is paramount

more approachable to new clients.

to brands’ survival and globally, our only competitor in this segment will be Volkswagen with its Amarok model.

Our models have been welcomed with open arms by the local market. We do not hold extensive inventories so our main

Q: How important is the hybrid market for Mercedes-Benz’s

problem is vehicle availability. J.D. Power awarded us top

international strategy?

marks in its Customer Service Index, ranking Mercedes-Benz

A: It is one of our main priorities and we could even classify

as the top premium brand surveyed. Traditionally, our best-

it as a life-or-death factor for Mercedes-Benz. Demand is

selling model in Mexico is the C-Class, followed by the CLA

growing as clients become more aware of their impact on

family. But the SUV segment showed the most growth, with

the environment and hybrids are our route to meet stricter

Maybach G 650 Landaulet

emissions regulations. Electric mobility is the future and we

and Daimler already has a center in Silicon Valley working

consider plug-in hybrid vehicles as the best stepping-stone

closely with some of the startups in the region.

for the Mexican market because of its flexibility. There are many changes on the way, one being the creation of a new

Q: What is your view on mergers between automakers to

brand for all our hybrid and electric models. We presented

facilitate technology development processes?

the EQ concept at the Paris Auto Show, a new brand under

A: Cooperation has been present for many years in the

the Mercedes-Benz name that will allow us to showcase these

industry, mainly focused on reducing costs through

vehicles without losing the brand’s traditional appeal.

economies of scale. Particularly when managing volume, collaboration between companies is a powerful tool to

We plan to introduce four new hybrid models to the country,

reduce production costs for certain components. We have

two of which, the GLE and S-Class, will arrive in 2017. The GLC

many agreements with Nissan for part development although

and the C-Class will reach the market in 2018. In addition, we

we have always made sure to keep the actual design of the

are launching a fully electric Smart that will debut in 2017.

vehicles separate. Autonomy is important and it is part of

This model is perfect for the city and a safe bet in the electric

Mercedes-Benz’s identity, whether concerning quality or

market thanks to its small size.

image branding.

Hybrid technology is also part of our AMG line and we just

Q: What are Mercedes-Benz’s expectations for its Formula 1

presented a new GT concept at the Geneva Auto Show. This

participation following Nico Rosberg’s departure and Valtteri

will be the third vehicle fully designed by AMG, following

Bottas’ appointment as the new team member?

the SLS and the original GT. AMG will celebrate its 50th

A: Few people know Formula 1 has featured hybrid technology

anniversary in 2017 and we will release two limited editions:

for the last three years. The hybrid engines are state-of-the-

500 GT C vehicles and 300 GT R models.

art, delivering 800hp with six cylinders and 1.6L capacity. Ten years ago, this was inconceivable but this year, we expect our

Q: How is Mercedes-Benz innovating in connectivity and

car to be 3 or 4s faster than in 2016 thanks to aerodynamic

mobility technology?

adjustments. Everything is changing for Mercedes-Benz in

A: Daimler just announced the creation of a new company

Formula 1 and even though we are still favorites, there could

called CASE, meaning Connected, Autonomous, Sharing,

be surprises for our fans.

Electric. It will resemble a startup but will collaborate closely with Mercedes-Benz, allowing us to compete with

I have high expectations for Valtteri Bottas; he will be a great

all the new technology development companies and data

partner for Lewis Hamilton. The championship is important

applications. These innovations present a challenge for

for this year’s strategy and we will invest heavily to make the

Mercedes-Benz, the oldest automaker in the market. In

Mexican Grand Prix the party of the year once again.

response, the board decided to change the company’s mindset in 2015, making our innovation process much more agile. Technology development will still include areas like

Mercedes-Benz is a German automaker and part of the

safety and driving performance but we will complement

Daimler AG holding. The company participates in the

it with updates matching global trends. Collaboration

premium segment and it was responsible for the first

with research centers and academia will be imperative

gasoline-powered car

VIEW FROM THE TOP

IMPROVING SALES, CUSTOMER SERVICE HORACIO CHÁVEZ Managing Director of Kia Motors México 48

Q: After growing over 400 percent in 2016, how confident

financing, the most attractive factor that helps garner trust

is Kia about reaching its 80,000-unit sales target for 2017?

from our customers is having the most extensive warranty in

A: Between January and April 2017, we achieved 91.8 percent

the Mexican market of seven years or 150,000km.

growth in sales. Local operations have also strengthened since we started producing the Forte locally in May 2016. This model

Q: How is Kia positioned among its competitors in terms of

was previously imported from Korea and so was subject to

sales and aftersales services?

import tariffs. In 2017, the most important factor to increase

A: We use studies by J.D. Power as a reference. In 2017, Kia

our sales volume will be national production of the Rio. We

occupied the sixth position among non-premium brands.

started production in January with the Rio Hatchback and

We are not yet participating in J.D. Power’s aftersales studies

we have also launched the Rio Sedan. Locally producing 100

because the volume of repairs and maintenance we manage

percent of the units that we sell in Mexico will help us reach

is still too low. Our cars are still relatively new compared to

our target of 80,000 units sold.

other brands and need few services but we will participate in 2018. By 2019, we hope to be rated among the top three

Q: How did the company successfully penetrate the market

companies with the best levels of satisfaction in the country.

and grow sustainably? A: We implemented an aggressive growth strategy following

Aftersales services offer the greatest opportunity in

four pillars. The first was launching the brand with attractive

Mexico. People always doubt whether repairs made to their

products to position ourselves well from the outset. Sportage,

vehicle were necessary or not, so Kia developed a global

Sorento and Forte are our high-end models, which we

tool called Customer Value Innovation System (CVIS) that

launched initially. Then we brought the more economical Rio

personalizes the service. When a new vehicle is sold, the sales

and Soul. The second pillar of our strategy was boosting brand

representative must download an application to the client’s

awareness through marketing. We broke many rules about

smartphone, which generates dates for maintenance and

how brands should start in a new country. We had a strong

reminders for services. Drivers can schedule appointments

presales campaign with the “Kia on Tour” events, visiting all

or reschedule, and the application shows the car’s status and

cities where we planned to work and scheduling test drives.

when it will be ready after servicing. Even the payment can be handled through the application. We started implementing

Our third pillar of growth is based on developing our

this innovation in 2016 with 30 dealerships and Mexico will

distribution network. We selected the best in terms of

be the first country where 100 percent of the dealerships will

customer service, managerial and financial capabilities to

integrate the application.

create a network of 73 dealerships that opened in just 12 months. We added 12 more sales points in July 2017, which

Q: How do you expect your participation in the hybrid vehicle

will take us to 97 percent national coverage. Each dealership

market to grow, especially in Mexico?

on average costs US$3.5 million to build. The final pillar in

A: During 2016, we were less confident about introducing

our strategy refers to our differentiating policies. We created

a hybrid vehicle to Mexico but after the environmental

Kia Finance, our financing arm that works in collaboration

contingencies in Mexico City, we saw sales of hybrid vehicles

with BNP Paribas, the largest bank in Europe. Along with

from competitors dramatically increased. We have seen there are great opportunities to launch greener vehicles here. Kia had considered launching a global product in Mexico, which

Kia Motors was founded in December 1944 as Kyungsung

could have important differentiators from a traditional car.

Precision Industry, initially manufacturing bicycles. The company

The Niro is a special vehicle designed from the beginning as

began producing cars in the 1970s. It has since joined forces

a hybrid. It is the first light SUV born as a hybrid, designed to

with Hyundai to create the Hyundai-Kia automotive group

be aerodynamic and avant-garde.

VIEW FROM THE TOP

TOP 5 CARMAKER BRINGS PRODUCTION TO MEXICO PEDRO ALBARRÁN Managing Director of Hyundai Motor de México 49

Q: How much did 2016’s product launches change growth

I expect to see general light vehicle sales receding slightly

projections for 2017?

compared with 2016’s sales. The results in 1Q17 were positive

A: We enjoyed growth in sales to almost 37,000 units in 2016,

growing 8 percent, but we are not far from reaching the cycle’s

from approximately 25,000 sold in 2015. We could have

peak. Volatility in the dollar-peso exchange rate remains a

sold many more cars as demand exceeded supply. We were

concern coupled with increasing inflation rates, forcing clients

not prepared for such high demand; all units in stock were

to choose longer-term financing plans.

sold, which is a good problem to have but a growth barrier nonetheless. We introduced two new SUV models to Mexico,

Q: What role has financing played in Hyundai’s evolution in

the Creta and the Santa Fe, increasing our product line to

Mexico?

six models. Both vehicles enjoyed great success and helped

A: Hyundai sold 55 percent of its total vehicles with financing

us reinforce the idea that Hyundai is a complete brand. We

through its collaboration with Bancomer and BNP Paribas. A

now have a balanced portfolio with three sedans and three

further 15 percent of clients use their own financing solutions.

SUVs and for 2017, we expect Creta to be our flagship model,

Our main collaboration with Bancomer has proven effective

followed by the Tucson and the Grand i10.

and swift. Clients only need to present an official ID and can receive an answer on any financing plan almost immediately.

Our expectations for 2017 are to sell 45,000 vehicles with

Bancomer is probably the strongest bank in automotive

probably three more product launches, two sedans and an

financing and almost 55 percent of the population using any

SUV. The seven-seater Santa Fe was already launched in June

type of banking product already has a relationship with the

2017, Accent will be available in August 2017 and we will have

bank. Bancomer has created specialized plans for Hyundai,

a final release in October 2017. This will allow us to compete

making it a constructive relationship so far.

in new market segments and reinforce our presence in the country. Regarding our dealership network, we closed 2016

Q: What are Hyundai’s plans for production facilities in

with 50 distribution points and our goal is to open five or six

Mexico?

more in 2017. We do not think we need many more dealerships

A: We are going to bring our Accent production to Mexico,

so our goal is to consolidate the ones we already have.

integrating it to Kia’s plant in Pesqueria, Nuevo Leon. There is nothing confirmed in terms of production volumes or a solid

Q: How do you face challenges caused by exchange-rate

date to start manufacturing but it will happen in the second

volatility?

half of 2017. Hyundai’s production was designed into the plans

A: We understand that this is how market cycles work and

for Kia’s manufacturing site in Nuevo Leon.

Hyundai has enough experience in international markets to face these challenges. We would have preferred to face

Although uncertainty in the Mexico-US relationship slowed

something like this years from now because we are newcomers

our development process, it did not impact our production

to Mexico. The dollar-peso exchange rate has been a challenge

plans. These decisions were taken years ago and we will not

since 2016 but we managed to grow more than the industry’s

change them overnight in response to a transitory situation.

average, showing the strength of the company in Mexico and

If complications persist, Mexico will not feel the effects until

worldwide.

three or four years from now but I do not see this happening.

Hyundai increased prices 6 percent in 2016, in line with industry levels. But this price adjustment barely tempered

Hyundai Motor is a South Korean OEM and the fifth-largest

the 20-percent variation in the dollar-peso exchange

automotive

rate. We absorbed much of the extra cost to protect our

established its corporate presence in Mexico in 2015 and it

customer base.

currently sells six different models in the country

manufacturer

the

world.

The

company

ANALYSIS

HE WHO RULES SOCIAL MEDIA WILL RULE THE WORLD Social media has become an extremely effective communication tool, as well as a relevant player in both sales and new business' projections. Thanks to US President Donald Trump and his Twitter account, the automotive industry has learned this the hard way

When Jack Dorsey, Noah Glass, Biz Stone and Evan

Trump’s Twitter campaign was mostly based on attacking

Williams launched the first version of Twitter in July 2006,

automotive companies around the world. After coming up

they probably did not imagine their invention would one

with his infamous wall, Trump’s attention turned to NAFTA, the

day become such a powerful tool, capable of turning the

automotive industry and Mexico’s success in attracting foreign

business world on its head. Social media has become an

investment. In several campaign speeches, Trump threatened

extremely effective communication tool, with platforms that

to slap a 35 percent tax on cars entering the US from Mexico

reach around the world. According to Statista, 97 percent of

and publicly shamed Ford for announcing it would move its

all businesses globally use it in their marketing strategies,

entire compact production to Mexico and invest US$1.6 billion

resulting in a total expenditure of more than US$17 billion

in a new plant in San Luis Potosi.

in the US alone. Once elected, Trump’s weapon of choice started to fire again. The market’s globalized nature is forcing more and

After Ford announced it would cancel its latest investment

more players to embrace it as part of their day-to-day

in Mexico, the president tweeted his thanks for the 700 new

activities. The automotive industry is no stranger to these

jobs the company would create in its Michigan plant, along

circumstances. Facebook and Twitter have proven crucial

with the US$1 billion investment plan and 2,000 jobs that FCA

for automakers to survive in a competitive environment.

planned for the US. The only US OEM remaining was GM but it

No wonder: according to INEGI, 57.4 percent of people in

was not long before Trump threatened the company directly

Mexico are internet users and 70.5 percent of internet users

with another tweet: “General Motors is sending Mexican made

are under 35 years of age. Although these people might not

model of Chevy Cruze to U.S. car dealers-tax free across

go online with the specific intention of buying a car, INEGI

border. Make in U.S.A. or pay big border tax!”

specifies that 88.7 percent of all internet activity is related to finding information while 71.5 percent of the time people

According to GM, most of the Cruze vehicles sold in the US

log into their social media accounts.

are built in its Ohio plant. However, the threat was effective enough to put GM on its toes and for its stock to decline

There is a definite marketing opportunity that cannot be

by 24 cents that same day. Toyota went down the same

overlooked. According to Mayra González, President and

rabbit hole after Trump’s next shot. “Toyota Motor said will

Director General of Nissan Mexicana, the company focuses

build a new plant in Baja, Mexico, to build Corolla cars for

a huge part of its resources on its digital presence. “These

U.S. NO WAY! Build plant in U.S. or pay big border tax.”

platforms allow us to connect with our clients on a more

The statement was incorrect since the company’s new

personal level, sharing the emotional response we want

investment will be in Guanajuato. Nevertheless, Toyota’s

them to feel with our vehicles,” she says. OEMs know sales

stock fell 64 cents that same day and by the next had

paradigms have changed and while customers might still visit

dropped a total US$1.24, ending at US$119.84.

dealerships and browse for a while, most arrive with a clear idea of what they want. This is particularly true of the millennial

Trump’s declarations put such uncertainty on Mexico that

generation. INEGI specifies that almost 30 million people in

according to Bloomberg, several currency traders joked about

Mexico fit into this category. “Millennials are tech-savvy and

the country buying Twitter instead of blowing up its reserves

they make informed decisions based on in-depth research,”

to counter the effect of these threats on the Mexican peso

said Miguel Luz, Marketing and PR Director of Hyundai Motor

against the dollar. The fact that someone thought of it shows

de México. “We have turned our marketing strategy around so

the impact that 140 characters have on the world’s economics.

that 70 percent of our investment is in digital platforms. Social

Ari Fleischer, a former White House press secretary, told The

networks have become one of our main tools.”

Washington Post in a Jan. 3 article that Donald Trump’s Twitter account is the greatest bully pulpit that has ever existed. “In

Perhaps the most interesting development is how social

140 characters, he can change the direction of a Fortune 100

media has impacted investor confidence within the

company, he can notify world leaders and he can also notify

automotive industry over the past year. US President Donald

government agencies that business as usual is over.”

INSIGHT

SWEDISH AUTOMAKER CHANGING FOR THE BETTER TORBEN ECKARDT Managing Director of Volvo Car México 51

Change is not always easy. Hard decisions must be made

fully compare with how Mexicans operate. “In Sweden, when

when companies are not performing as well as they hoped.

you ask someone for something and they cannot do it, they

Torben Eckardt, Managing Director of Volvo Car México, says

say ‘no.’ That ‘no’ is absolute and is non-negotiable,” he says.

it is better to suffer a six-month painful transition rather than

“In Turkey, when you ask for something and people say ‘no,’

deal with a bad operation for years to come.

they actually mean ‘maybe’ and they are willing to negotiate to find the best deal for both parties. In Mexico, no one says

“Volvo’s approach in Mexico has not been the best in previous

‘no’ and that creates uncertainty.

years, which is why our new strategy will focus on improving all neglected aspects of our operations,” says Eckardt.

This does not only affect Volvo Car México internally. Eckardt

Although the brand’s sales grew 20 percent in 2016, which

has also found that this approach creates false expectations

was above the industry’s overall performance of 18.6 percent

on the part of consumers, which in the end, affects the brand.

growth, its overall market share remains at 0.1 percent with

“This is not the way we want to work,” he says. “We want to

1,607 units sold by the end of 2016. As the new Managing

be honest about our capabilities and we will not overpromise

Director of Volvo Car in Mexico, Eckardt was not pleased with

and underdeliver anymore.”

what he found after arriving to the country. As proof of the company’s willingness to establish clear and “Our distributors were underperforming both in terms of

honest goals, Eckardt concedes that Volvo’s previously stated

business management and customer service,” he says. Eckardt

target of reaching 15 percent growth in sales by the end of

took office in June 2016 working as a part-time consulting

2017 is too ambitious. This is mainly due to the company’s

partner and assumed his position full-time on Oct. 1, 2016. By

restructuring of its dealership network and the challenges

Nov. 15, 2016, he had already shut down the biggest dealership

the country has faced with a volatile dollar-peso exchange

Volvo had. “This is an indication of the commitment we have

rate. “Our dealer network is not completely ready and our

to improving performance,” he says.

numbers have suffered in 2Q17,” he says. That being said, Eckardt expects that once internal changes are finalized

Eckardt’s improvement strategy puts Volvo in a tough spot.

between 3Q17 and 4Q17, Volvo will reap the benefits of a

On the one hand, the brand has shut down six dealerships and

possibly growing premium market, which by 2016 grew by

service points while on the other, the latest findings from J.D.

18.6 percent compared to the numbers from 2015.

Power’s 2017 Customer Satisfaction Index show a decrease in general satisfaction in sales in Mexico. “We know clients

Eckardt has high expectations for Mexico and he is sure

expect to have showrooms and repair shops close by but we

Volvo will be able to mimic its success in the European

decided not to rush into looking for a distribution partner,”

market. The brand is also bringing the new generation of the

says Eckardt. “We want to find the right fit for our customers.”

XC60 to Mexico in August 2017, which according to Eckardt

This is taking more time than he expected, however. Eckardt

will be another flagship product for Mexican customers to

has found a cultural barrier that has complicated the way

understand the true Volvo experience. The company might still

the company does business. “In Mexico, there is too much

be looking for a new distribution partner but in the meantime,

eagerness to please and promise things. The most common

the company already has plans to open a new showroom

words I hear are ‘don’t worry,’” he says.

in Santa Fe in August 2017 and another one in Puebla by the end of that month. Before the end of September, Volvo

Eckardt is now learning to navigate the Mexican penchant to

will open a third dealership on Presidente Masaryk avenue.

say “yes” when asked for something. Although his previous

“Opening three new showrooms in just two months shows we

experience in Turkey and Sweden have shown him two

take Mexico seriously, that we are stronger than ever and that

different points of view of how to do business, they do not

we will achieve our goal of 15-20 percent growth by 2018.”

VEHICLE SPOTLIGHT

99,237 Global sales in 2016

44.1% Sales growth in 2016

50 YEARS OF AMG AMG’s first win at the 24-hour Circuit de Spa-Francorchamps race back in 1971 set a standard for sports cars. A total of 18 victories and 32 podium finishes in 2016’s racing season honored this standard for vehicle performance. The company famously stands out as an engine manufacturer and is now in charge of Mercedes-Benz’s new eight-cylinder engine production, enhanced with its own V8 engine development. AMG’s collaboration with Mercedes-Benz, launched in 1990, led to the creation of the Mercedes-AMG brand, boosting technology development for both companies. Now, the once upon a time two-man company founded by HansWerner Aufrecht and Erhard Melcher is celebrating its 50th anniversary with more than 1,500 employees and sales of 99,237 vehicles in 2016. To this day, Mercedes-AMG continues to develop its broad portfolio, adding 10 new vehicles in 2016 alone. The brand’s lineup now encompasses over 50 models, ranging from sporty four-cylinder compacts to large 12-cylinder vehicles, SUVs, coupés, cabriolets and roadsters. Among the most popular launches of 2016, Mercedes-AMG released the GT R, GT Roadster and GT C Roadster models. As part of the celebrations for AMG’s anniversary in 2017, the company will also launch the AMG GT C Coupé, which will be equipped as the special Edition 50. “We’re on the road to worldwide success with our strategic portfolio expansion and can look back on a sensational year,” says Tobias Moers, Chairman of the Board of Management of Mercedes-AMG GmbH. “In addition, our AMG GT series, which was developed entirely in-house, is now available as a broad-based family, with which we have impressively demonstrated our expertise as a sports car brand.” Technology is one of Mercedes-AMG’s cornerstones for advanced sports car performance. As part of the company’s one man, one engine philosophy, each of Mercedes-AMG engines is hand-crafted by only one engineer, ensuring not only quality but exclusivity in each of the brand’s units. The company has also worked on axles and suspensions specifically designed for AMG models. It has even delved into lightweight trends with the intelligent aluminum construction used in GT models. Mercedes-AMG is now moving one step forward, translating Formula 1 technology into the first commercially available street-legal hypercar in 2017. The car will have a power output of 1,000hp, fourwheel drive and an all-electric front axle.

VIEW FROM THE TOP

OPENING DOORS TO SMART MOBILITY EDGAR PACHECO Sales Subdirector of the Commercial Division at Honda de México 54

Q: How is Honda dealing with the peso depreciation against

Q: How is Honda approaching the environmental element

the dollar and the resulting increase in car prices?

related to its vehicles?

A: Mexico is one of the cheapest places in the world to buy

A: In anticipation of 2025 mileage regulations established

a car, which proves an advantage for the end customer.

by the Environmental Protection Agency in the US, we

Margins are narrow in automotive sales in general but the

began working with hybrids before they attracted attention

situation is aggravated when cars are imported. Having plenty

in the market. These became more popular due to pressure

of choices available in the country is another contributing

from environmental policies such as the No Drive Day

factor to maintaining stable prices. The introduction of new

vehicle restrictions in Mexico City and the State of Mexico,

brands led to a price war because all players want to protect

rather than consumer concern for the environment. Some

their market share. We have a strategy in place to fight the

years ago, we marketed two hybrid vehicles that were

peso’s depreciation against the dollar but we are developing

not as successful as we had hoped. Now the need for

sustainably and not accelerating ahead of market conditions.

environmentally friendly vehicles will inspire new launches.

The decreasing dollar price is helping all brands level their margins but further price increases are to be expected.

The purpose of the new Civic launch is to lower the engine grading to comply with EPA standards and to downsize

Q: How will Honda’s technology help the company justify

the cubic capacity of new vehicle engines. Honda’s VTEC

these price increases?

system improves the volumetric efficiency of an internal

A: Since last year we have seen great success with the Civic,

combustion engine and helps a 6-cylinder engine work with

which sells in greater quantity than the Accord. The latter

the same capacity as a 3 or 4-cylinder one.

has been our flagship product since we came to Mexico but unfortunately, the large sedan segment has been

Q: How is Honda working to improve its internal processes

decreasing. The Civic now has new technology and a new

and the customer experience?

engine that is the same as that installed in the CR-V, our

A: We tell car owners openly what is damaged or replaced

best-selling model. This 1.5L turbo engine was unveiled last

on their cars when they arrive at the dealership. We charge

year and outputs the same horsepower as the previous

transparently, which also generates customer loyalty. Our

model using a small engine. This makes the vehicle lighter,

quality is rated excellent by customers just as our aftersales

eco-friendlier and in line with international EPA standards.

services is. Instead of aiming to be the cheapest on the market, we offer customers a level of distinction. One

Another advantage of our product line is the inclusion

specific worldwide problem with Takata, the provider whose

of continuously variable transmissions (CVT). We tested

airbags were unsafe for use, affected Honda’s aftersales

CVTs against traditional configurations and we think it is

service. We presented information about the incident to the

the best and most intuitive one. Some people complain

Federal Attorney’s Office of Consumers (PROFECO) and

about the CVT’s responsiveness because many want to hear

we organized a recall to replace these faulty components.

the gear changes. However, many test drivers loved this characteristic because of its responsiveness and it has been

Honda's main area of opportunity is in data management.

well-received by the market.

With social media, our data sources have only expanded so we must find a way to include all this information. To change faulty airbags, we have struggled to contact all

Honda was founded in 1948 in Hamamatsu, Japan and opened

vehicle owners. We have the original owners’ information

its first US storefront in Los Angeles in 1959. What began as

for the entire Honda vehicle park but cars change hands

a nimble operation with eight industrious associates quickly

over the years and there is no public record that tracks the

grew to astounding heights in vehicle production and sales

used-car market.

INSIGHT

LACK OF MANUFACTURING PUTS LIGHT ON AFTERSALES SERVICE, QUALITY ERIC PASQUIER Director General of Renault México 55

Local production can be a major advantage for controlling

within the first six months of 2018. “This pickup model has

costs, especially in a volatile currency exchange-rate

been launched in Colombia, Argentina and Brazil,” says

environment, but sensible product launches and an integrated

Pasquier. “The Duster Oroch will build upon the Duster’s

image might be enough to get ahead in the local market,

good name in the Mexican market and it will also help us

according to Eric Pasquier, Director General of Renault México. This is the challenge the French automaker faces in Mexico as it imports 100 percent of its products. “Without a local manufacturing presence, it is hard to deal with an unpredictable exchange rate that ultimately impacts our revenue,” says Pasquier. The euro exchange rate is not favorable for the imports-based Renault and if conditions worsen, Pasquier fears the company will not be able to commit to growth beyond a 2 percent market share. “What is most important is to always aim for a balance between sales volume and revenue for the company.”

“

diversify our portfolio even more.”

What is most important is to always aim for a balance between sales volume and revenue for the company”

Pasquier hopes to capitalize on the domestic market’s expected growth of approximately 5 percent to improve the

To counter its lack of manufacturing activities in the region

company’s share. Renault holds a 1.9 percent market share

and achieve sales goals, Pasquier has focused on aftersales

in Mexico and its highest participation historically has been

services, financing for 60-70 percent of Renault’s overall sales

2.6 percent. Between 2015 and 2016 the brand’s sales grew

in the country and a strong lineup of quality products.

by 23 percent but this is not enough, says Pasquier. “If you do not have at least a 5 percent market share in a country,

Pasquier says that previously, Renault had a lineup for

it is like having no presence or brand awareness,” he says.

Europe and another for the international market. “Now, we

“Although reaching a 5 percent share in Mexico is still a long

are striving to build the real image of Renault in Mexico. We

way into the future for Renault, we are set on recovering our

are marketing vehicles with fewer differences to those in

2 percent share quickly. We must, however, be cautious of

Europe.” The company unveiled two models that follow its

factors that could damage our operations.” Although the SUV

global image: the new Koleos was launched at the end of 2016

segment is Renault’s priority for the time being, the brand

and in May 2017 Renault released the Captur, both with the

has also detected a growth opportunity in the sedan market

same design as their European counterparts.

with large fleets such as those used by companies like Uber. The Renault Logan has been particularly successful with on-

The Koleos and Captur are part of Renault’s SUV portfolio,

demand driver companies, according to Pasquier, although

complemented by the Stepway and the Duster. With these

he stresses that the brand must not neglect market segments

models, the company already participates in the compact,

where it has already gained ground.

mid-size and full-size SUV subsegments and according to Pasquier, Renault plans to introduce a mini SUV that

The company is also participating in the electric-vehicle

will complete its lineup and allow it to compete in all

segment. To accompany the compact Twizy, Renault expects

subsegments. SUVs have shown strong growth in recent

to launch its Zoe model from Europe but Pasquier believes

years, according to data from AMIA. SUV sales increased

this will not be finalized in 2017. Pasquier sees an opportunity

17.8 percent between 2015 and 2016, representing 19.5

for the vehicle but he acknowledges the Mexican market is

percent of the country’s overall sales in 2016. Although

not ready to incorporate such costly models until it improves

the Captur will be the company’s only new launch in 2017,

its charging infrastructure and the government provides the

Pasquier is already planning the release of the Duster Oroch

right incentives.

INSIGHT

DRIVER EXPERIENCE, SAFETY BEFORE SALES KOTARO WATANABE Director General of Subaru México 56

Vehicle brands must constantly evolve with technology,

improved, “especially in areas that enable us to understand

preparing for the future without losing sight of user

the needs of our customers or areas where improvement is

experience. Among Subaru’s goals is to design cars for a

required.” He believes a strong distribution chain is important

more enjoyable life. The vehicle maker has been building its

because people do not enquire about budgets online, they

reputation by inspiring trust among Mexicans for over 10 years

ask where to buy.

with a focus on the driver. Its target? To conquer 1 percent of local market sales by 2020.

The OEM wants Mexicans to become familiar with its diverse portfolio of products, such as the Boxer engine, which Subaru

“Our plant does not aim to produce in volume. We are

firmly believes is the optimum design for driving enjoyment.

interested in quality for our customers,” says Kotaro

The Subaru Symmetrical All-Wheel Drive system is another

Watanabe, Director General of Subaru México, who adds

interesting market proposition for customers. Designed

that the company’s objective is to identify its customers in

to optimize both traction and balance, the entire system

any given country and establish the brand using the same

lies along the centerline of the vehicle, balancing weight

methods already working in other countries. Before expanding

distribution to provide optimal performance and control.

to capture new clients’ attention, the OEM wants to care for the clients it already has and improve its aftersales service.

As part of the company’s plans to promote its driver-focused vehicles in Mexico, it will launch the Subaru Global Platform

Watanabe recognizes that gaining a loyal clientele is a

(SGP), a cutting-edge redesign of the body and chassis that

team effort. His goal is to reinforce Subaru’s service quality

advances performance and delivers a new type of superior

together with its dealerships by first understanding how their

driving experience. SGP reinforces the vehicle’s rigidity by 70-

operations cross over. The next step is to improve mutual

100 percent compared to current models, stabilizing handling

capacity, mechanics’ skills and the service that sales advisers

and shock absorption by 40 percent. These security-focused

provide. Its commitment to Mexican clients led Subaru to open

changes to technology are different from others brands,

offices in the capital city in 2016, and the first Auto Parts

according to Watanabe.

Warehouse in Mexico City. The brand’s Lineartronic technology, a continuously variable Watanabe explains that his team is not looking for massive sales

transmission, not only makes driving quieter and smoother,

at the moment. It wants to strengthen direct communication

it makes the Subaru Boxer engine and Symmetrical All-

channels using the internet and has implemented a

Wheel more efficient. This keeps the engine in its ideal

development plan to consolidate its countrywide distribution

power range to deliver class-leading fuel consumption and

chain. During the last 10 years, Subaru has grown in the US,

reduce CO2 emissions. In terms of security, the product Eye

especially in the Sun Belt states just next to the border with

Sight, a driver-assist technology, helps with movement in

Mexico. Through customer contacts received via the internet,

traffic, optimizes cruise control and warns the driver if the

it has detected that many Mexicans, especially those who

car leaves the lane.

frequently cross the border, are already familiar with Subaru’s quality. Success in Mexico will rely on matching the quality of

The company’s objective is to sell 2,000 units in 2017 but the

local service to the brand’s standards.

priority to improve service and processes stands. After the brand announced the next SUV, the new Subaru XV, another

To cater to those limited to online information about Subaru’s

surprise is lined up for the Mexican market in 2017. The

vehicles, the company made big changes to its homepage and

seven-seater SUV Ascent, a new concept announced at the

established a social media campaign launched in September

New York International Auto Show in April 2017, will replace

2016. Watanabe says online service quality can always be

Subaru’s Tribeca SUV.

VIEW FROM THE TOP

FUTURE LOCAL MANUFACTURER SEEKS FURTHER GROWTH PHILIPP HELDT Managing Director of INFINITI Mexico and Latin America 57

Q: What are your strategies to build on the steady growth

to Mexico. The brand also teased what the new QX80 could

the company has experienced?

look like at the New York Auto Show, which shows what the

A: Over the last three years we have experienced accelerated

future could be like for our top-of-the-line SUVs.

double-digit growth. Nevertheless, 2017 is a more challenging year for everyone in the industry. As a brand, we expect

Q: How is your manufacturing venture in Mexico advancing?

to keep growing and strengthening INFINITI’s presence in

A: INFINITI experienced a record year in 2016, not only in

Mexico but at a slower pace than we did in previous years.

Mexico but worldwide with over 200,000 vehicles sold. To cater to this growth, the company has increased its

Our geographic expansion has been a priority for the brand

production footprint beyond Japan, reaching the US, China,

through 2016 and the first half of 2017. Sales success has

the UK and now Mexico with the new COMPAS joint-venture

driven INFINITI to grow its dealer network, offering a better

between Daimler and the Renault-Nissan Alliance. The plant

service to our clients and increasing brand awareness in

located in Aguascalientes will satisfy global demand and

the country. Our dealership network now has a total of 12

address the domestic market. We have not yet decided

INFINITI Centers, up from the nine we had at the end of 2016.

which product we will manufacture there but we know it

One of the cities we targeted was Cancun. We also expanded

will be a further addition to our current lineup. The project

our presence in the Mexico City metropolitan area with a new

is advancing on schedule and we expect to start production

dealership in Toluca and another in Satelite. The latter was

by the end of 2017.

our latest opening and it is now the biggest dealership we have in Mexico and in Latin America.

Q: In terms of technology, how is INFINITI innovating to address the latest trends in the automotive industry?

Q: How are you adapting your portfolio to ensure the

A: We just presented our innovative variable-compression

brand’s success in the market?

turbo (VC-T) engine. Having variable compression in a

A: We plan to continue growing our product portfolio just like

combustion engine has been a long-pursued dream in the

we have done since 2015 and particularly through 2016. This

automotive industry because it allows for the combination

past year we introduced our completely new QX30, which

of high-performance and high-power configurations with

allowed us to compete in the compact crossover segment.

fuel-efficient results. INFINITI is the first brand to present a

We also launched a makeover of the QX60, which is our best-

production-ready design. We expect to include this engine

selling SUV, and new versions of our best-selling sedan, the

in at least one of our products in the near future.

Q50, including a new top-of-the-line version called Q50 400 Sport featuring a new twin-turbo V6 engine with 400hp. This

Our VC-T technology strengthens our vision of launching

model is allowing us to participate in the high-performance

industry-first developments. INFINITI was the first automaker

sedan subsegment, which we had not previously explored.

to introduce a 360° camera, an active hydraulic suspension, fully electronic or Direct Adaptive Steering (DAS) and a

In 2017, we have already launched the new Q60 coupé. This

Safety Shield comprised of an array of cameras and sensors

is a renovated version of the coupé we already had but

that allow the vehicle to brake by itself while driving forward

it now incorporates the new image of the brand in terms

or backward and to stay in its lane.

of design and technology. We will make further product announcements in 2017 but we do not have defined dates for their arrival. Our Q50 2018 will include several enhancements

INFINITI is the luxury unit of Nissan. The brand was created

in terms of exterior design, especially for the high-end

in 1987 and it started selling in the US in 1989. INFINITI is

versions. INFINITI already presented its new QX50 concept

present in over 50 countries and currently sells over 200,000

at the Detroit Auto Show, so it could arrive in the near future

vehicles globally

VIEW FROM THE TOP

CHINESE OEM MAKING ITS MARK IN MEXICO PATRICK YANG Director General of BAIC de México 58

Q: How has BAIC grown to be one of the main OEMs

2017. Subsequently, we will establish our five-year plan to

internationally and what role do you expect Mexico to

show the country how ambitious we are.

play in your global strategy? A: BAIC’s internationalization began on June 22, 2013.

Q: Considering the lack of precedent set by Chinese OEMs

Being a young company gives us room to do things

in Mexico, how will you build trust to participate in such

differently and to stand out from other automakers in

a competitive market?

the market, especially Chinese OEMs. We purchased our

A: Previously, another Chinese company tried to market

technology from SAAB in 2009 and built the BAIC brand

its products in Mexico but was not successful. This led us

incorporating global ideas and technology. In addition, our

to come up with a new way to promote our brand and

partnerships with Hyundai and Daimler supported us with

our products. From the experience of this company and

experience, adding to the knowledge provided by our auto

our own experience in other international markets, we

parts division and our merger with Inalfa. These alliances

determined that we needed a formal distribution channel

allowed us to create an international business model and

to properly target the Mexican market, just like other

to offer the best solution to our clients.

international OEMs. This would allow us to showcase the vehicles and provide the necessary aftersales service for

After putting our globalization efforts into motion in 2013,

our clients.

we chose several countries as strategic markets for our operations. One was Mexico, alongside Russia, South

Aftersales was a major area of opportunity for Chinese

Africa and Brazil. Up to that point, Brazil was a promising

carmakers venturing into Mexico so before introducing our

region but changes to the country's automotive market

vehicles to the market, we made sure we had the support

moved our focus to Mexico and South Africa. Our goal

of local auto parts branches. We already have a spare parts

is to build production sites in all these countries and in

center in Mexico City and we plan to build another two in

December 2015 we signed an agreement with the South

the Bajio region and the north of the country.

African government to build a new plant with an US$800 million investment. The project started in August 2016 and

Our future investment will also show our long-term

the plant is expected to begin operations in the second

commitment to Mexico. We will offer financial support for

half of 2018. It will allow us to target the entire African

our customers through Chinese and international banks.

continent.

We are currently working with Banorte in Mexico and have an alliance with JP Morgan in the US. Additionally, we have

Following the same strategy, we plan to have a

a partnership with ICBC from China, HSBC and Santander.

manufacturing facility in Mexico to manage our exports

We are trying to use as many resources as we can from

in the region. We will first focus on neighboring countries

international companies to build our own strengths and

in the Caribbean and Latin America, eventually moving

advantages. We are a Chinese company but we are also a

to North America. Chinese companies are known for

global player and through these strategies we can create

working fast so we expect to decide where, when and

trust with clients and with the Mexican government. Right

how much we will invest in Mexico by the second half of

now, we are in Mexico and we are established as a Mexican company as well.

BAIC stands for Beijing Automotive Industry Corporation, a

Q: Why did BAIC choose Grupo Picacho as its main

company that and is present in 44 countries including Mexico

distributor in the country?

via the distributor Grupo Picacho. BAIC has joint projects in

A: Before signing an agreement with Grupo Picacho we

China with Daimler, FCA and Hyundai

carried a two-year study of the Mexican market. We talked

with several dealership groups and discovered that many

and by 2022 when Beijing hosts the Winter Olympics, the

of them were not confident investing in and distributing

city aims to only have electric taxis. These vehicles are

a Chinese brand. Each of our dealerships required an

an attractive solution for the government to reduce its

investment of approximately US$1 million so it was a risky

carbon emissions and ease traffic conditions and we have

decision for them. After several discussions with Grupo

the necessary experience to support companies that want

Picacho, we reached a mutual understanding.

to integrate electric units into their fleets.

The Group’s directorate visited BAIC’s operations in China and saw the results of our current joint-ventures with Daimler and Hyundai. Noticing that we had more than 58 years of experience, a healthy background with the

BAIC's goal is to hold 3 percent market share by 2020 59

Chinese government and a strong market share in our home country, it signed the agreement and both parties

We will not sell electric cars to the Mexican public in the

were pleased with the decision.

short term. Most investments in electric technologies go to establishing charging stations. Without the right program,

Q: Where does BAIC see the biggest opportunities to

the investment is not a practical alternative but we are

market its products?

working with the government to find an adequate solution

A: After our two-year analysis, we concluded that Mexico

for public transportation and leasing operations.

City and its neighboring states represented more than half of the total automotive market in Mexico, allowing us to

Q: How do you see China and Mexico’s relationship

determine the best locations for our distributors. The first

improving after BAIC’s move into the country?

was established in Mexico City in June 2016, the next in

A: We see this as an excellent opportunity for our

Cuernavaca in July and the third distributor in Queretaro

commercial relationship with Mexico to grow further.

by the end of October. Another four dealerships were

China’s President Xi Jinping visited Mexico in 2013 and

opened before the end of 2016. We will continue to focus

President Enrique Peña Nieto went to China in 2014. Both

on the center of the country, the Bajio region and the north

have met at several international conferences and both

of Mexico due to the growth levels we have seen through

countries are hoping to do more business.

2015 and 2016. Three years ago, China opened its borders to more imports Q: What opportunities does BAIC see for its electric car

and I think there are many products we could source from

offering?

Mexico. There is a definite opportunity to improve our

A: The electric car market is not as big as we imagined

bilateral relationship and BAIC’s investment will boost

it would be, not only in Mexico but in the whole world.

this exchange. We do not want to focus on numbers in

Even in China, electric vehicles are a small percentage

Mexico but on market-oriented growth. Our goal is to hold

of overall sales, though Beijing is currently the biggest

3 percent market share by 2020. In addition, we plan to

market for electric cars with almost 10,000 units in use,

expand beyond the domestic market, so our production

mostly as taxis. In 2017, the plan is to double that number

base in Mexico will have an even greater reach in the future.

Mercedes-Benz Tourismo

HEAVY VEHICLES

As stricter regulations are enforced, heavy-vehicle manufacturers must follow proper guidelines in their manufacturing practices. However, this entails an upsurge in price that will not sit well with users. This presents a challenging situation as the government pushes for a more aggressive renovation strategy for the vehicle park while refraining from offering the proper incentives to carry it out. The global economic situation presents an additional impact as the volatile exchange-rate environment hampers domestic growth.

The Heavy Vehicles chapter offers an insight into the most important heavy vehicle players in Mexico. Producers present the new technology that will help them to comply with environmental standards and to improve vehicle performance. New regulations are analyzed to highlight their impact in manufacturing, exporting and sales operations, taking into consideration the latest market demands. Companies also share their strategies to counter the negative effects of the pesoâ&#x20AC;&#x2122;s weak position in this dollar-dependent sector.

CHAPTER 3: HEAVY VEHICLES 64

ANALYSIS : Dollar-Dependent Market Needs Incentives to Grow

VIEW FROM THE TOP : Miguel Elizalde, ANPACT

VIEW FROM THE TOP : Leonardo Soloaga, MAN Truck & Bus México

INSIGHT : Carlos Pardo, Navistar Mexico

VIEW FROM THE TOP : Jan Hegner, Daimler Buses México

VIEW FROM THE TOP : Enrique Enrich, Scania Mexico

TECHNOLOGY SPOTLIGHT : Mitsubishi Electric Automation’s Redundant Control System

INSIGHT : Nozomu Harada, Hino Motors Sales México

INSIGHT : José Martínez, MASA

VIEW FROM THE TOP: Moshé Winer, Volvo Group México

ANALYSIS

DOLLAR-DEPENDENT MARKET NEEDS INCENTIVES TO GROW A plethora of factors combined in 2017 to put the brakes on the country's production growth and domestic sales are also seen lagging the results of the previous year. Currency volatility, nationalistic rhetoric north of the border and slower export markets are among the main culprits hindering the sector

Even though Mexico enjoys a better position in the global

projections for heavy-vehicle manufacturers. After the peso

ranking of heavy-vehicle manufacturers and exporters

hit rock bottom at approximately MX$22 in January 2017,

than in the light-vehicle industry, conditions have not been

makers could no longer hold prices at previous levels,

favorable for the market in general, leading to a decrease

putting pressure on both OEMs and end clients. “We

in production volumes. Sales posted relatively strong

deliver quotes with a certain price and an expected profit

results in 2016 but growth will not last for long, according

margin but these change before we deliver the vehicle,”

to industry insiders.

says Enrique Enrich, Director General of Scania Mexico. To counter these negative effects, companies have adopted

Total heavy vehicle production accounted for 150,889

different strategies depending on their priorities and areas

vehicles in 2016, which represented a decrease of 21 percent

of expertise. Daimler Buses, for example, chose to change its

compared to figures from 2015. As a result, exports also

invoicing to pesos in an effort to provide clients with more

took a heavy hit, ending the year down 32.4 percent from

certainty. “We know that 80 percent of our clients invoice

the previous period for a total of 106,161 units. Miguel

their operations in pesos and for this reason we changed

Elizalde, Executive President of ANPACT, links this decrease

our own pricing to pesos in March 2015,” says Jan Hegner,

in operations to a slowing market in Mexico’s main export

CEO of Daimler Buses México. Others, such as Scania, have

destinations. “[Demand in] the US, Canada, Colombia,

chosen to grow their focus on service operations, betting

Ecuador, Chile and Peru has decreased significantly,” he

on loyalty and a closer relationship with the client.

says. “Almost 95 percent of Mexico’s heavy vehicles go to the US and we have not yet recovered our presence in

Price volatility has also limited the evolution of the vehicle

the Colombian market, which was our second-main export

market, which is currently stuck at Euro IV environmental

destination in 2012.”

regulations when the world is already moving to Euro VI. “We want to implement new engine and emission-control

Early numbers from INEGI show a stable operation for

technologies but we need the support of the government,

2017 but Elizalde expects a further reduction in Mexico’s

including incentives to cover the 30 percent increase in

production of 20 percent. Between January and May 2017,

vehicle costs inherent to these technologies,” says Jaime

55,468 vehicles were produced while 40,974 of those were

Jaime, President of CANAPAT. Current conditions do not

exported. Elizalde says that an increased investment in

allow for technology renovation. OEMs and associations

infrastructure in the US could fuel the market once more

agree that without incentives, clients are not willing to invest

but the erratic rhetoric of President Donald Trump clouds

15-30 percent more in a new vehicle, while manufacturers

ANPACT’s vision for the rest of the year.

refuse to absorb that cost.

Within the domestic market, conditions seemed more

The country is still far from reaching its goals of replacing

favorable until 2016. Though moderate, both retail and

the 180,000 vehicles that according to ANPACT are 21 years

wholesale numbers showed an increase compared to

of age or older. To boost vehicle renovation, the government

2015. Retail sales totaled 45,339 vehicles while wholesale

has put in place a scrappage scheme but that has its own

numbers reached 46,162 units. This represented growth of

limitations. Due to budget limitations, regulations from the

11.29 and 10.39 percent respectively. This upward trend will

Ministry of Communications and Transportation dictate that

not be as strong in 2017, though. Figures from January to

only 6,000 units of over 10 years of age are eligible to be

May 2017 show signs of deceleration for both retail and

scrapped and receive a remuneration of up to MX$336,000

wholesale. INEGI reports 17,700 units sold through retail and

(US$18,970) per year, 3,000 from large fleet managers and

16,033 in wholesale, which represents growth of 7.07 and

3,000 from owner-operators. Both the monetary and unit

8.22 percent compared to the numbers from 2016.

caps are an obstacle, according to Elizalde. “At that pace, it would take us 30 years to replace [all vehicles],” he says. “To

Being an industry mostly valued in US dollars, uncertainty

reduce the average age of the fleet we should be scrapping

in the dollar-peso exchange rate has greatly impacted sales

up to 20,000 thousand units yearly for the next 10 years.”

VIEW FROM THE TOP

A ROCKY ROAD FOR HEAVY VEHICLES MIGUEL ELIZALDE Executive President of ANPACT

Q: What is the outlook for Mexico’s heavy-vehicle

could decrease by 16 percent. This is the same growth rate

manufacturing operations?

the industry saw in 2016 so in reality, we could go back to

A: Mexico ranked sixth in heavy-vehicle production in 2016

the same sales levels posted in 2015.

and the country still maintains its number one position as an exporter of fifth-wheel tractor trailers. Regarding overall

Mexico has an ideal potential market of between 60,000-

vehicle exports, the country was ranked fourth globally.

70,000 heavy vehicles per year, if we compare it to

By 2016, production decreased over 20 percent and the

countries that have a healthy renovation strategy. The

preliminary numbers for 2017 indicate a further reduction of

most we have sold is approximately 53,000 and more

20 percent. Heavy-vehicle exports to our main destinations

than 180,000 vehicles are 21 years old or more. We cannot

including the US, Canada, Colombia, Ecuador, Chile and

replace 180,000 vehicles in a single year, which is why

Peru have decreased significantly, negatively impacting

60,000 to 70,000 is a more realistic goal.

the country’s production numbers by a total of 40-50 percent. Almost 95 percent of Mexico’s heavy vehicles go

Q: How will an expensive dollar impact the adoption of

to the US and we have not yet recovered our presence in

stricter environmental technologies?

the Colombian market, which was our second main export

A: SEMARNAT is in charge of the adoption of Euro V/EPA07

destination in 2012.

and Euro VI/EPA10 technologies and the application of NOM044. The official rule has not been published yet due to the

Q: What do you see as the main opportunity for the heavy

lack of ultra-low sulfur diesel availability but the adoption

vehicle industry after NAFTA is renegotiated?

of new technologies to comply with stricter environmental

A: Current regulations have been excellent for promoting our

regulations can represent an added investment of between 10-

exports so ideally, we would like to keep them that way or

20 percent. With the increase in dollar prices seen in January

improve them for the benefit of both countries. Following US

2017, that difference has increased over 30 percent, which is

threats to impose border tariffs, Mexico decided to increase

why it is important to improve the country’s renewal strategies.

local content in production but this would also be a challenge

We expect regulations to be published in the first half of 2017.

for national industry. The heavy-vehicle sector works with

These would be gradually implemented from January 2019,

one of the highest rates of regional content in NAFTA, at 60

which is also the government's timeframe for offering 100

percent. This percentage is high enough and anything higher

percent availability of ultra-low sulfur diesel (ULSD).

would risk making the region uncompetitive. The liberalization of fuel costs is another obstacle, as it also Q: How have exchange rates affected the domestic

increases the total cost of ownership of the vehicle. Fuel

market’s development?

represents 25-35 percent of a company’s operating costs

A: Against all odds, the domestic market maintained

and will imply a revision of either tariffs or subsidies for

growth in 2015 and 2016, even after challenges related to

both transport and logistics operations. The combination

the dollar-peso exchange rate. Truck sales are currently on

of the adoption of new technologies and added fuel

the rise, following the economy’s overall development, and

expenses will leave operators unable to take on aggressive

we expect them to stabilize later in the year. In contrast,

renovation strategies.

bus sales are much more dependent on government programs and vehicle-renewal cycles. We might be looking at an accelerated purchase effect, fueled by the

The

OEMs’ commercial strategies. Although we grew in the first

Manufacturers (ANPACT) has represented heavy vehicle and

months of 2017, we do not see this momentum keeping

engine manufacturers since 1992, promoting the development

pace throughout 2017. Our projections show that sales

of the transportation industry in Mexico

National

Association

Bus,

Truck

and

Tractor

VIEW FROM THE TOP

WORKING TOWARD A STRONGER MARKET PRESENCE LEONARDO SOLOAGA Managing Director of MAN Truck & Bus México

Q: MAN has set goals for 5 percent market share in the truck

world. In 2015, the country was the largest truck exporter

segment and 18 percent in the bus segment. How successful

globally. The supplier network is strong and extensive and

have you been?

we are confident that local players are capable enough to

A: Between January and April 2017, we reached a 2.7 percent

address all our requirements regarding quality. Our strategy

market share in trucks and a 16.4 percent share in the bus

is to keep growing our local content, understanding the

segment. There are still areas of opportunity for the company

needs of our customers.

but we are well on track to reach our proposed goals by the end of 2018.

Thanks to the arrival of BMB Mode Center to Mexico, we will now be able to transform vehicles to suit the needs

In past years, we have grown at a rate of 15-20 percent

of our local customers. We will perform these changes

year-on-year both in sales and production in our plant in

with local supplies, guaranteeing the same quality as if

Queretaro. We expect to continue delivering the same results

these vehicles were originally manufactured with these

in 2017 and in the near future. Although we currently do

specifications.

not plan to export to the US, our operations in MAN Latin America are promoting our exports. Twenty Latin American

Q: How have the traditional VW and MAN families evolved

countries have increased their exports by 40 percent so far,

and how are you integrating the latest additions to the

including Mexico.

company’s product portfolio? A: We are developing new vehicles with our body

Q: How has the company evolved in terms of client

manufacturing partners, always integrating the latest

relationships and what new contracts have you closed?

advances in technology, innovation and alternative fuel

A: Grupo IAMSA is one of our main clients at the moment

applications, such as natural gas. The goal is to complement

and we are working to strengthen our relationship by

our existing product line by identifying the best opportunities

offering new products and services. We are in the final

in the market. In 2016, we released six new models to the

stages of delivery for the last contract we signed with the

market and by the end of 2017 we expect to deliver two or

company. We have also closed other major negotiations in

three more. As a result, MAN Truck & Bus México will have

2017. Two of the most important contracts were with ADO

one of the most complete portfolios in the market.

and Heineken. BRT models will be one of our new alternatives and we Q: What development plans does the company have to

expect our vehicles to be available by the end of 2017. That

achieve 30-40 percent national content in its production?

being said, midibus models are still a crucial part of our

A: We are restructuring our engineering and purchasing

portfolio. Our 15.190 model, for example, doubled its sales

divisions in an effort to make them more oriented toward the

in the first months of the year.

development of Mexican suppliers. We are already in contact with several local companies who are now participating in

Q: What goals does the company have in the natural gas

the development of some of our components. Mexico is one

segment after presenting its Volksbus 17.280 OT chassis at

of the most important heavy-vehicle manufacturers in the

Expo Foro? A: Among our new projects, natural gas units are also a focus for this year and we are currently in the testing phase for

MAN Truck & Bus is a subsidiary of the Volkswagen Group.

some of our new models. We believe that natural gas units

The company is headquartered in Germany and focuses on

will be a relevant alternative for Mexico’s transportation

the production of buses, light and heavy trucks. In Mexico, the

landscape and we are preparing to take advantage of this

company manages the VW and MAN brands

opportunity.

Q: How successful have cab-over models been in Mexico and

Q: What are the main advances the company has worked on

how are regulations promoting the adoption of these units?

in terms of driver and passenger safety and connectivity?

A: Mexican operators are gradually accepting cab-over

A: In terms of safety, MAN units can currently be equipped

models because they understand the benefits the vehicle

with three systems. First, our adaptive cruise control

can offer in terms of cargo volume, maneuverability

(ACC) technology, powered by the â&#x20AC;&#x153;MAN Tempomatâ&#x20AC;?

and visibility. Cab-over trucks are also more versatile

system, constantly monitors the area in front of the

when it comes to inner-city deliveries and are safer than

vehicles, helping the driver maintain a safe distance

conventional models. In the light-truck segment, acceptance

between the truck and the vehicle in front. The system can

for these vehicles is growing considerably and we expect

adjust speed when it detects the vehicle in front slowing

that trend to translate to the heavy-vehicle market.

down. Second, the lane guard system (LGS) can alert the driver when the vehicle is leaving its programmed lane,

Q: What strategies has MAN implemented in the cargo

ensuring timely maneuverability and avoiding potential

sector to achieve a greater position in the market?

accidents. Third, the emergency brake assist (EBA),

A: We are participating in different events organized by

together with the ACC and LGS systems, helps the driver

transport associations such as CANACAR and ANTP. We

if the truck approaches an obstacle. EBA alerts the driver

target shows oriented toward owner-operators, as well

and activates the braking system, minimizing and in ideal

as SMEs and large companies, so they can understand

conditions, avoiding an accident.

what kind of solutions we can offer their business and the integral service portfolio we offer to cover all their

The company has also made connectivity one of its main

fleet and transporting needs. We are also participating

objectives. All units are equipped with our CAN LOGGER

in the Logistics Summit & Expo because it is an excellent

fleet-management system, which allows the client to monitor

opportunity to show our products and technology to

the performance and physical condition of every vehicle.

companies participating in the logistics sector. Expo

This helps the company track its shipments, improving fuel

Transporte ANPACT in Guadalajara is also a priority for

consumption and anticipating maintenance procedures, thus

the company. This is the biggest event in the region for

reducing operating costs. The system can be configured

transportation companies and we are ready to show

according to the needs of each client and the platform can

our latest innovations and our most recent launches in

be escalated to perform telematics operations, helping the

November.

client consult information remotely.

INSIGHT

JOINT PROCUREMENT STRATEGY ENSURES GROWTH CARLOS PARDO Vice President and Managing Director of Navistar Mexico

Its backstory is interwoven with the US industry, but Navistar

Despite joint innovation projects with Volkswagen, Navistar

continues to see a strong future in Mexico’s automotive

will not be leaving its OnCommand Connect program

sector, backing up that faith with investments despite the

behind. In addition to a standard telematics service with

nationalistic rhetoric from President Trump that has impacted

GPS, the program provides real-time information on the

the local industry. Carlos Pardo, Vice President and Managing

physical and mechanical status of the vehicle, and also

Director of Navistar Mexico, says the company’s focus is on

on driving habits. Navistar boasts 5,000 units connected

Mexico rather than on what could possibly happen in the US.

with OnCommand technology and the target for the end

“Uncertainty definitely does not help. Although we do have

of 2017 is 9,000 connected vehicles in Mexico. Along with

a Plan B plan should the worst happen with NAFTA, I do not

its OnCommand technology, Navistar also developed

think that it will come to this. It is in the best interest of the

a program called “Repair Advocate” for fleets, which is

three countries to have a strong treaty.”

managed by experts that advise clients of any anomalies, alarms or mechanical updates to keep their fleets running in

Navistar’s confidence in the country’s automotive future is

optimum condition. The service, Pardo says, will help clients

reflected in its recent investments and changes in production.

develop a more profitable business.

In 2016, the OEM announced it would produce a vehicle for GM at Navistar’s plant in Springfield, Ohio, meaning that

Navistar’s telematics services are embedded in a strategy

current US production of Navistar’s medium-sized trucks will

the company follows to create loyalty among clients. It has

be transferred to the manufacturing site in Escobedo, Nuevo

also installed a training center for clients, distributors and

Leon, by late 2017. “Our site in Escobedo represents around

employees and hopes to soon open new centers in Monterrey

50 percent of our worldwide production. It is by far the most

and the Bajio region. The company is also working alongside

important site for Navistar,” says Pardo.

Anahuac University to develop online courses and degrees. “The goal is to have the best sales force and technicians in

With only one manufacturing shift and two in paintwork and

the country,” Pardo says.

cabins, Pardo says the Escobedo facility can easily add a second manufacturing shift. “There is still a lot of room for

Pardo projects 15 percent company growth in Mexico by the

growth.” Should there be any doubt regarding the company’s

end of the year, which he acknowledges is “an aggressive

confidence in the country, Navistar has also invested in a

projection but we have the support of our clients and

new metal forming area at the plant to stamp metal pieces.

the market behind us.” This will not be dependent on the scrappage scheme, since the number of units the government

Pardo also believes that Volkswagen’s acquisition of 16.6

will permit in the scheme is limited to 6,000. “While the price

percent of the company’s shares will help Navistar consolidate

ceiling offered is adequate, there are more than 400,000

its position in the Mexican market. “Although the company

vehicles in Mexico that should be scrapped,” says Pardo.

will continue operating in an independent manner, we will

“With such a small budget dedicated to the replacement

see an impact in terms of cost reductions, which will help us

scheme, the country will never reach its environmental or

improve our competitiveness, profitability and technology.”

safety goals in heavy vehicles.” Until the low-quality units are taken off the roads, Pardo says, there is no point in

Pardo believes that Volkswagen’s strategy for procurement

introducing stricter pollution regulations.

for both businesses will not hinder the development of a local supply chain. “In terms of content and cost, having a single

Navistar is the second-ranked heavy truck manufacturer,

procurement strategy does not imply not having regional or

second in urban buses and third in medium-sized trucks in

local suppliers. What makes sense for us is having local supply

Mexico. “Navistar was one of only two OEMs that grew in

with global negotiations.”

2016, three market points to be specific,” Pardo says.

VIEW FROM THE TOP

NEW BUSES AND NEW SHOPS TO KEEP THEM RUNNING JAN HEGNER CEO of Daimler Buses México

Q: Mexico is the number three market for Daimler Buses

professional and quality information to help them in their

globally. How will you keep growing your presence here?

decision-making process. Lastly, all our Center Bus service

A: We have been a leading player in Mexico for the past

points are built to enhance the comfort of our operators

19 years. This country is so important for Daimler that we

and are available 24 hours a day, 365 days a year. It takes

developed a unique bus for the domestic market that is

a dealership approximately one year to become a certified

not sold anywhere else in the world. This model, the Boxer,

Center Bus point. Personnel must be trained, including

has been the most-sold bus in the country for many years.

collaborators, managers, technicians and the entire sales

In 2016, we unveiled new innovative solutions that are fully

force. Currently there are four Center Bus service points in

oriented toward the needs of our clients, including the new

Mexico and our goal is to open two more by the end of 2017.

Toreto bus. Other strategies include the launch of the Safety Bus system, which makes Daimler buses the safest in the

Q: How are you protecting revenues against the peso’s

market, and the inauguration of Center Bus service points

weak position versus the US dollar?

across the country that guarantee our customers receive

A: The Mexican market requires constant vehicle renovation,

constant attention. Our broad and technological product

which is why despite the unfavorable economic conditions

portfolio and an aftersales service approach has helped

the country might face, the industry remains stable. This

us maintain our foothold in the market, coupled with our

helps us have a clear perspective of how the market will

financing solutions supported by Daimler Financial Services

behave. Whatever economic certainty we can offer to

México and a strong distribution network.

our clients is a key factor in maintaining our company’s profitability. We know that 80 percent of our clients

Q: Now that Safety Bus will be available in Mexico, how

invoice their operations in pesos and for this reason we

do you expect that to boost demand for Daimler units?

have changed our own pricing to pesos since March 2015.

A: A high percentage of bus accidents are caused by human

In an effort to keep this from harming our finances, we

error. Passengers want to travel safely and bus operators

have established a nationalization strategy for our parts

want to offer safe travel. With Safety Bus, we can offer a

and components-sourcing operations. We follow that same

special platform for the bus segment, with state-of-the-art

strategy with our spare parts portfolio.

technology that can decrease accidents and minimize their impact. We have shown the advantages of Safety Bus to

Q: How has the Toreto been received in Mexico and what

clients around the country and we think it will be a great

are your projections for this model?

incentive for companies to renovate their fleet.

A: Marketing Toreto was an excellent idea. The bus was designed to meet the mobility demands of large cities,

Q: In terms of distribution, what advantages does the

including Mexico City. We sold 150 units in the first six

Center Bus program offer to clients?

months of the year and we are confident that its success

A: Center Bus is our innovative concept for the care,

will continue during the second half of the year. We see

preservation and maintenance of Mercedes-Benz buses. It

Toreto as an opportunity to renovate the microbus fleet in

is a joint service offered by dealerships and our aftersales

the city. This will transform Mexico’s vehicle park and will

division, with the goal of increasing customer satisfaction.

reinforce our commitment to urban mobility.

We already have a highly experienced distribution network and the services offered by Center Bus will take it to the next level. Our objectives with Center Bus are to offer

Daimler Buses is a subsidiary of the Daimler Group focused on

a service that is 100 percent specialized in buses, with

production and commercialization of bus units. The company

trained and qualified technicians. Facilities are adapted to

manages three brands globally: Mercedes-Benz, Setra and

optimize response times and clients always receive clear,

BharatBenz

VIEW FROM THE TOP

NEW BET ON MEXICO ENRIQUE ENRICH Director General of Scania Mexico

Q: How does Scania plan to develop a greater presence

and Monterrey are limited in the number of orders they

in the truck segment?

can fill. These two companies represent 90 percent of our

A: Mexico remained the biggest market for Scania buses

vehicle production capacity, which means that any new

for the second year in a row in 2016, although we are

orders were frozen for the first quarter of 2017.

still number 27 in the market. We relaunched our truck portfolio in 2016 and have already delivered significant

We are looking to establish new relationships with body

orders including one for the Mexico City fire department.

manufacturers, especially in the urban and natural gas

We see this as an important market for the company

segments. We are firm believers in free competition and

to drive our growth. Scania achieved 50 percent market

clients must be free to choose whichever body manufacturer

share in 2016 in the coach segment, which means there

they prefer. Companies previously limited the body options

is little room for further development.

clients could choose from, which I believe is still a sign of the weak consumer rights that exist in Mexico.

Our new bet is that in the next four years, over 30 percent of the trucks sold in Mexico will be cab-over units. Changes

Q: What opportunities exist for Scania to develop its

in regulations to NOM-012 regulating truck size will result

own bodies?

in a full renovation with cab-over vehicles. We expect

A: Body manufacturing is a truly artisanal process and

massive growth for companies dealing with cab-over units

the market is completely different to what we know

and Scania is already participating in that market.

about chassis production. A company’s portfolio must be immense and competing with companies with years

Q: How did Scania’s service network growth help the

of previous experience would be exhausting. In countries

company maintain a strong foothold in the country?

like Finland and Poland, Scania does have a body

A: In 2016, we inaugurated 12 service points across

manufacturing branch but they are isolated efforts with

the country, nine of them within our clients’ facilities.

focused investments.

These companies designated a large area to tooling and spare parts services and dedicated personnel to clients’

Q: What will the Next Generation Scania initiative bring

operations, making it easier for clients to take units to the

to the Mexican market?

closest service point. Our three other service points, located

A: This project was launched in Europe and will not reach

in Veracruz, Hermosillo and Culiacan, are open to the public.

the Mexican market until the country embraces Euro VI regulations. The new vehicles are more fuel efficient and

This marked another record for the company and we still

clients will be pleased with the results they offer.

have expansion plans for 2017, expecting to open two more service points in Tijuana and the south of Mexico

We are distributing our current lineup in Mexico, which

City. We need one more operation in Mexico City because

has many advantages over American trucks, including

our current service shop is already full and working 23

pneumatic suspension in the cabin, user-friendly

hours a day.

transmission, improved visibility and innovative braking technology. Safety is one of our priorities and our

Q: How rapidly do you expect demand for heavy vehicles

emergency braking systems have demonstrated their

to grow in Mexico?

efficiency under the worst conditions. Many of our Mexican

A: We see a smaller market in 2017 compared to 2016 and

clients are now demanding this system in new vehicles.

the production capabilities of body manufacturers will play a pivotal role in this process. We stock chassis in case

Q: How successful have Scania’s natural gas units been

of extra orders but our body manufacturers in Queretaro

in the market?

Next Generation Scania R 500

A: Scania placed a huge bet on natural gas vehicles but

manufacturersâ&#x20AC;&#x2122; timeframes. These companies normally

institutional uncertainty has limited the adoption of these

took 60 days to deliver a vehicle but in 2016 the waiting

units in several cities. Tijuana spent two years developing

period extended to 90 days. We are positive about the

a new public transportation project with natural gas units.

future of the Mexican market and we have changed our

But due to a lack of permits to establish a natural gas

quotations to dollars to counteract these challenges.

station, the private operator decided to purchase diesel

Clients understand because they know we tried to delay

units. Other cities have had similar problems in terms of

these measures as much as possible.

regulations, forcing natural gas to take a step back. Q: What are your growth expectations for 2017 after the In 2015, I expected Scaniaâ&#x20AC;&#x2122;s natural gas units to represent

record numbers Scania achieved in 2016?

25 percent of our total volume by 2017 but our volumes

A: 2016 was not only a record year in sales but also in

remain less than 3 percent of vehicles. Our natural gas

manufacturing activities, signed service contracts and

success is directly linked to exogenous factors so it is

sales of spare parts. Even though vehicle sales were

difficult to predict when we will reach the original goal.

favorable, our growth in these three other areas was

We need government transparency in regulations in order

even more noticeable. Our vehicle park in Mexico grew

to continue developing this industry.

10 percent while our aftersales division grew almost 30 percent, demonstrating a much more solid position in

Q: How will the peso-dollar exchange rate volatility

the market.

impact Scaniaâ&#x20AC;&#x2122;s operations in 2017? A: Volatility affects our sales department so we are

By the end of 2016, we managed 63 percent of our fleet

always trying to be more efficient in terms of costs and

through a maintenance policy. Although this level is

training. If the peso devaluates 50 cents, our previous

common in Europe, these numbers are unheard of in the

efforts are diminished but this forces us to be constantly

Mexican industry, making it a record for Scania and for

prepared. Although we assemble our bus chassis locally

the country itself. We value this much more than a sales

in Queretaro, we import components valued in dollars

number because it required greater effort in terms of

from Europe and Brazil.

team development and corporate structure.

Currency volatility motivated us to develop our aftersales operations. If we focused solely on selling vehicles, Scania

Scania is a global enterprise with a service and sales network

would already have failed. We deliver quotes with a

covering 100 countries as well as offering financial services.

certain price and an expected profit margin but these

Its production facilities are located in Europe, South American

change before we deliver the vehicle, aggravated by body

and Asia

TECHNOLOGY SPOTLIGHT

MITSUBISHI ELECTRIC AUTOMATION’S REDUNDANT CONTROL SYSTEM Automation can be a key to higher efficiency but if the

visualization and data acquisition with SCADA MC Works64

system fails, the entire production line can crash. In this

of Mitsubishi Electric and easy configuration with an

case, redundancy may be just what a company needs.

integrated engineering system, GX Works3.

Mitsubishi Electric Automation complements its integrated

control platform Series iQ-R with a superfluous function

“The redundant controller in the new Series iQ-R can

module to create a redundant process management system

reduce damage and unscheduled stops in production

for applications that require highly reliable control. The

when a controller fails,” says Deana Fu, Product Manager

process CPU of the new Series iQ-R/Redundant System

of Mitsubishi Electric Automation. “Engineers and plant

is designed for industrial applications in oil and gas, water

managers can be at peace knowing that with Mitsubishi’s

management and process automation in manufacturing

redundant system, the plant’s critical operations will

operations, as well as in manufacturing processes that

continue without significant efficiency losses or inferior

require high availability to guarantee continuous production.

production quality.”

The system ensures close to 100 percent operability to prevent costly and harmful interruptions. The system can

Besides its redundant control benefits, the Series iQ-R

manage emergency stops and processes that require strict

platform also provides clients with security functions to

synchronization to avoid potential bottlenecks.

protect intellectual property and the plant’s safety. The system includes a database in an integrated SD memory

Series iQ-R/Redundant System can ensure close to 100 percent operability

card that provides functionality to all registries without the need of an external server. The Series iQ-R operates in a CC-Link IE Field network with deterministic performance in industrial Ethernet, improving response times and input/ output synchronization. The integrated design of the Series iQ-R allows managers to consolidate all production lines into a single control

Among its main characteristics, the redundant control

rack. The system can hold up to four CPUs per rack in any

system of the Series iQ-R includes multiple-level redundancy

combination of sequences or control processes. In addition,

thus reducing single-point failures, high availability in

controllers can be mixed and standardized in a single

multiple levels to improve the system’s reliability, extensive

platform, simplifying spare part inventory.

INSIGHT

JAPANESE OEM BANKS ON ACROSS-THE-BOARD QUALITY NOZOMU HARADA President and Director General of Hino Motors Sales México

Quality is crucial when deciding between two products.

Environmental Protection Agency (CalEPA), “hybrid

Hino Motors is more than aware of this, so the Japanese

technologies reduce fuel consumption from heavy-duty

company is determined to make quality the company’s

vehicles significantly. Fuel economy improvements for these

flagship characteristic. “We want to offer high quality

units have been reported to range from about 10 percent to

across all businesses,” says Nozomu Harada, President and

50 or 70 percent depending on the level of hybridization,

Director General of Hino Motors Sales México. Though Hino

hybrid architecture and duty cycles.”

may not yet enjoy the same popularity as more-established competitors, the Japanese OEM is growing steadily

Harada expects price considerations to play an important

in Mexico. “Right now, we hold a 4 percent share in the

role in people choosing to use hybrid technology, particularly

Mexican market. By 2017 we expect to increase this market

the fact that a hybrid vehicle decreases operational costs.

share to 5 percent,” says Harada. While the 4 percent mark

“Usually, the biggest expenses of operating a heavy vehicle

might seem low compared to the 50 percent participation

come from three different sources: fuel, maintenance and

the company has in the Japanese market, maintaining the

the operator’s wages. With a hybrid vehicle, we expect to

steady growth it has been experiencing is more important.

decrease fuel consumption levels and thus overall prices.” Contributing to green transport while increasing market

Harada says that to increase the company’s market share

share is, in most cases, easier said than done. But Harada

and maintain its sales levels, Hino Motors plans to expand

has a plan to position Hino in the Mexican market through

its product line. In addition to its medium and large trucks,

quality. “Hino’s strategy is based on three quality pillars.

the company is introducing a smaller truck in Mexico

These are: product quality, customer service and a strong

and a long-haul tractor in the near future. “Transport

aftersales service.”

technology is constantly changing. We believe that for inter-state transport, larger trucks will still be the preferred

The distinction between these three factors is pivotal.

transportation means but smaller trucks will become more

“Product quality is directly related to the trucks and engines

popular for inter-urban travel,” says Harada.

we sell and the service clients get from sales people or service consultants,” Harada says. Hino values quality

Hino’s contribution to the transport sector exceeds the

in its products, the mechanic’s service and skills and its

scope of truck sizes. The Japanese OEM offers green

customer service. The products come from Hino’s plant

options, including hybrid and natural gas engines. Its

in Japan, which ensures they arrive with the best quality,

product offering complements Volvo and Daimler’s existing

and Hino’s service points in Mexico are home to mechanics

hybrid products and natural gas engines offered by Scania

who are trained in-house to be skilled workers. The OEM

and Daimler. The use of hybrid engines is expected to play

is focusing on drivers because they have the most contact

an important role in the reduction of pollution in Mexico

with distributors. This implies contacting them and offering

in the coming years. Unlike diesel engines, vehicles with

training programs or product information on a regular basis.

hybrid engines do not generate the same amount of nitrogen dioxide particles associated with several health

Hino Motors is also implementing a service feature that has

conditions. “Hino wants to contribute to Mexican society.

been widely successful in other industries, Hino Passports.

We are concerned about the environment and want to play

“The passport is intended for the unit so even if the vehicle’s

our part in taking care of it,” says Harada.

operator changes, the new operators still have reason to use Hino’s aftersales service.” To further encourage the use

The use of hybrid engines not only contributes to improving

of Hino’s aftersales service, Harada is working to increase

the quality of the environment but also has a positive

locations. At the end of 2016, Hino had more than 70 service

impact on cost reduction. According to the California

points but Harada’s goal is to reach 100.

INSIGHT

REWRITING THE CONCEPT OF PASSENGER MOBILITY JOSÉ MARTÍNEZ Director General of MASA

A stressful commute ruins everybody’s day. Living in

The transition toward safer rear-engine buses required a

a city where traffic is endemic can mean numerous

few corporate sacrifices. “We are not participating in the

problems for its citizens in the shape of long commutes

front-engine bus market, which is the most popular,” says

and delivery times, bad air quality and high noise levels.

Martínez. “We are focusing on offering a product that can

To address the root of the problem, MASA, an old player

improve mobility in Mexico.” He says approximately 70

of the Mexican public transportation industry, aims to

percent of the market in Mexico is front-engine buses, 20

reshape mobility, improving passenger comfort, safety

percent are low, rear-engine buses while other models

and drivers’ wages.

represent the other 10 percent. MASA holds between 10 and 15 percent of the rear-engine market.

Mexico City has the second-worst traffic in the world, according to TomTom’s Traffic Index. The company also

The company is currently working with Metrobús, in a

calls Mexico City the worst in the world for day-long

partnership that Martínez expects to continue as both

traffic jams. This is unsurprising considering there were

Metrobús and MASA are collaborating with SEMOVI

5.5 million cars registered in the city in 2016, according to

to generate “feeder” lines. Feeders are smaller bus

SEMOVI’s data, and 250,000 more are added each year.

lines that connect Metrobús’ users with surrounding

While many are analyzing how to address this problem,

areas. “We already have 15 sub-feeder units and we are

MASA is acting to improve mobility through better bus

helping Metrobús to develop one or two more feeder

options, making curing Mexico’s greatest ailment part

lines.” Martínez believes these feeder lines are convenient

of its core.

both for MASA and for mobility as they will eventually transport more people than current Metrobús lines.

“MASA aims to improve mobility in Mexico,” says José Martínez, Director General of MASA. The company is

MASA’s goal for 2017 is to sell 150 units, doubling sales,

experienced in dealing with Mexico City traffic thanks

says Martínez. Volvo’s targets for MASA are even more

to a history that can be traced to the 1940s. After its

ambitious. “Volvo MASA aims to have 20 percent of the bus

acquisition by Volvo Group in 1998, MASA’s core business

market in Mexico by 2020,” he says. To achieve this, Martínez

shifted toward the sale of rear-engine buses in Mexico,

says that MASA will need to introduce new products and

which Martínez sees as a tool to improve mobility in the

to transform the market itself. “By increasing the quality

city. “Now, MASA has refocused on improving mobility

of transportation, passengers will be happier and use the

and supporting society and the authorities by developing

services more, but this will take time. Volvo’s MASA strategy

new ways to transport people.”

is to continue using front-end buses for cargo and to use these new models for passenger transportation.”

Rear-engine buses are preferable for urban mobility with benefits beyond passenger comfort. Besides

In the short-term, MASA will focus on selling to

incorporating more efficient engines that optimize

governments. It is looking toward Queretaro, Monterrey,

fuel use, moving the engine to the back is also more

Torreon, San Luis, Hidalgo, Puebla and Tijuana as

comfortable for drivers as the cabin will be cooler and

potential locations. There are also market opportunities

less noisy. Martínez explains the importance these buses

in compressed natural gas (CNG) engines favored by the

will hold for drivers: opportunities for better wages.

government. “Our largest clients will be city governments

“Nowadays, bus drivers are under constant pressure to

interested in sustainable solutions,” says Martínez, who

transport larger numbers of paying passengers,” he says.

sees a bright future despite misconceptions. “The market

“Better paid drivers will be less stressed and feel less

has changed in the past 20 years, but operators are now

pressure to drive faster through the city.”

much more prepared.”

VIEW FROM THE TOP

CHANGE AND INNOVATION DRIVE GROWTH MOSHÉ WINER Commercial Director of Volvo Group México

Q: What are the main concerns of heavy-vehicle users and

step for us, having been a one-stop shop for 18 years.

how can Volvo address them?

Although that was a good strategy, we had to adapt to

A: Clients buy our products to offer their own services in

the needs of the market. This has pushed us to compete

a timely and effective manner, which means that a broken

in new segments. Our complete models participating in

unit stuck in a warehouse is not generating any money.

the lower end of the coach segment, including the 8300,

Our offering goes beyond a bus; it is a profitable mobility

were efficient vehicles but less attractive in terms of design

solution. We need to deliver quality products and back

or cost-effectiveness. Now, we can offer our B410R and

them up with efficient support services. Close contact with

B290R chassis to body manufacturers and they can add

customers is essential, especially if they service and repair

their own interior and exterior design without losing the

their own units.

performance of a Volvo bus.

We train mechanics and operators on how to best service

Q: What are your goals for the chassis market?

our buses. We also have maintenance contracts with several

A: We plan to keep growing our chassis supplier arm so we

fleets, relieving clients of any worry regarding maintenance.

also have to work on our market image. We are establishing

The Mexican market is becoming more open to servicing

new relationships in the market and body manufacturers

contracts and we already have 600 deals within our existing

are becoming our partners, although they remain our

client base. In addition to maintenance services, we have

competitors in the luxury segment. Clients need to test

an expansive availability of spare parts. We can solve 96

our vehicles to appreciate Volvo is now a strong alternative

percent of our clients’ demands immediately and only

for chassis. In just one year we sold 200 chassis and many

4 percent of orders have to be scheduled for later. Our

were bought by returning clients.

network of 50 distribution and service points is essential to guarantee this level of efficiency and to meet our objective

Q: What is Volvo’s position in the urban segment and how

of keeping all Volvo vehicles up and running as long as

is the company innovating to grow its position?

possible.

A: The urban segment is the biggest branch of the bus market and Volvo has focused on maintaining its leading

Q: What factors drove Volvo’s success in 2016?

position in the BRT segment, participating in special

A: Two factors propelled our growth. One was the success

tenders. We became BRT promoters in many cities and

of the 9800 model, a major update from the 9700 model

work closely with the government and operators across the

in terms of design and technology. The 9800 is taller and

country. We are also a strong competitor for low-entry units

wider with top-quality noise-canceling technology for

and were the first company to offer these models in Mexico.

passenger comfort. It is also lighter and 5-7 percent more fuel efficient than its predecessor. This new generation of

The next step for Volvo is the introduction of Euro VI buses

buses includes our safety technology package, which is a

into the urban segment, even though NOM-044 established

major pull factor for owners and also for passengers. The

Euro IV as the industry standard until 2020. Mexico is

system includes an emergency brake assist that stops the

invested in having the best technology to control pollution,

bus if it gets too close to the car in front and a lane-keeping

particularly in Mexico City.

assist that sounds an alarm and makes the driver’s seat vibrate if it detects the bus leaning toward the other lane. Volvo Buses is one of the leading coach and urban bus

The creation of our chassis offering for third-party body

companies in the world, with operations in over 140 countries.

manufacturers was an outstanding success. Of the 755

The company delivers over 10,000 vehicles every year with the

units we sold in 2016, 200 were chassis. This was a huge

help of over 7,000 employees worldwide

Mercedes-Benz 6-cylinder diesel engine OM 470, Euro VI

SUPPLY CHAIN

As new OEMs establish in Mexico, the local supply chain is expanding to satisfy growing demand. Foreign investment continues to arrive but there is a pressing need to develop the national supply chain further so Mexican companies can participate in the US$79.3 billion auto parts market. Integration between international and domestic companies is integral to this process. Only through collaboration can smaller companies become true players in a highly competitive and demanding market.

The Supply Chain chapter offers insights regarding both direct and indirect suppliers within the automotive production chain. Both national and international players are included in this section, all with an expert opinion on the development of the industry and Mexicoâ&#x20AC;&#x2122;s most urgent needs in the manufacturing sector. Challenges are also discussed, particularly regarding the countryâ&#x20AC;&#x2122;s deficiencies in terms of raw material production and advanced-process integration. Production goals from OEMs are matched with suppliersâ&#x20AC;&#x2122; growth potential, offering a complete perspective on the entire supply chain.

CHAPTER 4: SUPPLY CHAIN 80

ANALYSIS: Supply Chain Short On Local Development

VIEW FROM THE TOP: Óscar Albin, INA

ROUNDTABLE: What are the Main Priorities for Boosting the Local Supplier Network’s

Capabilities?

INSIGHT: Alejandro Veraza, TI Automotive

INSIGHT: Carlos Turner, Katcon Global

VIEW FROM THE TOP: Fidel Otake, GKN Driveline Operation in Mexico

VIEW FROM THE TOP: Tom Gravalos, Pirelli Mexico

INSIGHT: Luis Villalba, ZANINI de México

VIEW FROM THE TOP: Gonzalo Esparza, Tachi-S México

VIEW FROM THE TOP: Luis Moreno, OSRAM México

TECHNOLOGY SPOTLIGHT: Universal Robots' Adaptable Working Arms

INSIGHT: Rodrigo Mosqueira, PolyOne de México

INSIGHT: Miguel Avalos, Air Design

INSIGHT: Arcan Ergur, Teklas Automotive Mexico

INSIGHT: Jesús Vizcarra, SuKarne

INSIGHT: Pablo Paredes, Trelleborg Mexico City

Eduardo Basurto, Trelleborg Sealing Solutions Automotive Hub North America – Mexico

INSIGHT: Adonai García, Mirka Mexicana

INSIGHT: Daniel Romero, Schunk Electro Carbón

INSIGHT: Roberto Cánovas, Coats México

100

PLANT SPOTLIGHT: MACIMEX, Manufacturing Meets Innovation

ANALYSIS

SUPPLY CHAIN SHORT ON LOCAL DEVELOPMENT Mexico’s development as an automotive manufacturer gave way to a strong supplier base with national and international experience. But many raw materials and specialized components are still imported, leaving a gap in the chain that is an open opportunity for local players, if they can rise to the challenge

According to ProMéxico, there are approximately 345 Tier

The country has been slow to develop a local supplier base

1 suppliers in the country, plus more than 1,000 lower-

that can address the most basic needs of large Tier 1 and

tier providers. Analyzing the Ministry of Economy’s FDI

2 suppliers. Investment research and analytics platform

figures for each state shows that Nuevo Leon, Puebla

Market Realist states that approximately 47 percent of the

and Guanajuato stand out as the regions with the highest

production cost for any vehicle is related to raw materials.

investment received in automotive and auto parts-related

However, 43.6 percent of the Mexican production is oriented

operations in 2016 with US$798 million, US$664 million

toward electrical parts, carpets, seats and transmission

and US$587 million, respectively. At the end of 2017’s first

and clutch parts, leaving much room for development in

quarter, however, the leaders were Aguascalientes, San

the Mexican industry. ProMéxico also outlines the market

Luis Potosi and Nuevo Leon with US$287 million, US$169

opportunity that exists in several auto parts and system

million and US$162 million. By the end of 2016, the auto

markets, highlighting electric and electronic engine

parts production market represented US$79.3 billion, 3.6

components, electric and electronics systems and exhaust

percent below the market value in 2015, which stood at

parts as segments with over 70 percent market opportunity.

US$82.2 billion. With the last OEMs arriving to the country by 2019, more Óscar Albin, Executive President of INA, is not concerned

suppliers are expected to enter the market and complement

about this decrease. He says the variation was mainly

the existing supply chain. Nevertheless, participation from

due to the volatility in the dollar-peso exchange rate

local companies is imperative to ensure a healthy and

and that production values had not only maintained but

competitive operation, although technology advances

increased. “Auto parts production remained stable in 2016,

may hinder many local entities. “Mexican companies are

increasing approximately 1.5 percent compared to 2015,”

not ready to face the technological challenges presented

he says. “This was mainly due to stronger light-vehicle

by the industry; they are more focused on surviving,”

production in the US, which fueled our exports there and

says Alberto Torrijos, Partner and Consultant at Deloitte

to Canada.” Albin expects the local production market to

Consulting Group. “If these companies do not offer an

keep growing, reaching 2 to 3 percent by the end of 2017.

added value, their products will be commoditized, which

Early figures from January to April 2017 already show an

will be a huge problem in the next five years due to the

increase of 4.8 percent in auto parts production for a total

extreme competition in the market.”

of US$27.4 million. Government participation is paramount to take Mexican While it is true that the country has gone a long way in

companies to the next level. To address these concerns,

strengthening its supplier base, there are still opportunities

the government launched the ProAuto program in 2014 as

to tackle. According to Alejandro Calderón, President of the

a financing aid for companies wanting to participate in the

National Association for Representatives, Importers and

automotive supply chain. Managed by the development

Distributors of Spare Parts and Accessories (ARIDRA), almost

bank Bancomext, ProAuto focuses on financing plans of

80 percent of the national auto parts production is exported,

up to MX$40 million (US$2 million) for small and medium

while more than US$40 billion worth of components are

enterprises (SMEs), particularly in areas the government

imported to complement the national offering. Airton

sees as having the most potential for the development

Cousseau, Vice President of Dongfeng Motor Co. and former

of the local production chain. Priorities include forging,

President and Director General of Nissan Mexicana, in Mexico

stamping, machining, plastic injection, molding, pressing

Automotive Review 2016, addressed the impact of most raw

and die forming. The project has been successful in

materials being imported, including electronics, plastics, steel

promoting growth among national SMEs and according

and chemicals, which represents the largest proportion of

to Eduardo Muñiz, Automotive, Aerospace and Logistics

total cost per car produced. “Mexico is competitive in terms

Financing Director of Bancomext, by the end of 2016 the

of labor and energy prices among other aspects but these

bank had already granted 220 loans reaching a total of

only represent 8 percent of a vehicle’s cost,” he said.

MX$200 billion (US$11.3 billion) in financing.

VIEW FROM THE TOP

MEXICO’S COMPETITION LIES BEYOND THE AMERICAS ÓSCAR ALBIN Executive President of INA

Q: What are the main challenges that members of the

Q: Which regions are the biggest threat to the NAFTA

local supply chain will have to face during 2017?

region’s original equipment manufacturing?

A: Companies in the original equipment segment will

A: Imports from Germany, Japan and South Korea are

face two main challenges during 2017 and the coming

understandable, considering the number of OEMs from

years. First, they must address the topic of human capital

these countries that have moved into Mexico. Although

availability. Suppliers are facing a lack of skilled talent and

many suppliers have followed them with local installations,

the industry is demanding more workforce, particularly

automakers still need to import certain components like

in the Bajio region and the north of the country. This gap

engines and transmissions from their home countries

between supply and demand is creating high staff turnover

because order volumes do not justify local production

and a need for better talent attraction, development and

efforts. China, however, does not have any manufacturing

retention plans. We think this situation will force companies

presence in the NAFTA region, which means that 100

and new investors to look at new cities and states where

percent of its exports are destined to non-Chinese OEMs.

the industry is less developed than in Guanajuato or

This is a great opportunity for regional suppliers, as long

Queretaro. Several locations have strong potential, such

as Chinese companies respect standards of fair play, and it

as Tlaxcala and Hidalgo in the center, as well as Durango

does not matter if components are manufactured in Mexico,

and Zacatecas in the north.

the US or Canada.

The second challenge suppliers will face is renegotiating

Q: What are your expectations regarding Chinese

the NAFTA agreement. This is a key component in

companies as potential investors in Mexico?

Mexico’s success because 90 percent of our exports

A: Right now, 80 percent of Mexico’s supplier network is

go to Canada and the US. We are certain that we will

made up of Mexican, American, German and Japanese

leave these negotiations with better conditions for the

companies. Korean players are just starting to grow their

automotive market. Both countries need Mexico’s low-

presence and we welcome all potential Chinese investments.

cost manufacturing because it is the only way for North

Chinese companies are interested in bringing vehicle

America to remain competitive internationally. Europe has

production to Mexico and targeting the NAFTA region. To

low-cost partners such as Turkey, Tunisia and Morocco,

this day, China is the largest automotive manufacturer in

while Japan and South Korea are supported by Thailand,

the world, producing approximately 25 million vehicles per

Malaysia and the Philippines. Powerful European and Asian

year, 95 percent of which stays in China.

countries are not going to give up their cost-competitive advantages and their tariff restrictions to enter the NAFTA

For these companies to conquer other markets they must

market are capped at 2.5 percent. The US government

invest in those regions and outsource their production, just

knows this and the country is trying to figure out how to

as Japan did when it wanted to target the US market. It

protect the region against imports coming from outside

took Japan many years to be successful but today, no one

the NAFTA market.

can deny the relevance of Japanese brands in the NAFTA market. Similarly, China’s presence in the NAFTA region will

Currently 80 percent of all imported raw materials come

not be short-lived once it secures its place.

from the US so most auto parts exported within NAFTA contain US components. Meanwhile, auto parts coming from Europe and Asia are unlikely to have any NAFTA

INA is an association formed by auto parts manufacturers that

content. If the US imports something from anywhere

wanted proper representation before the government. Its goals

but Mexico, it misses out on 100 percent of the regional

are to promote the growth and sustainable development of its

content it could have contributed to this part’s production.

members, as well as the automotive and auto part industries

ROUNDTABLE

WHAT ARE THE PRIORITIES FOR BOOSTING LOCAL SUPLPLIER NETWORK'S CAPABILITIES?

Foreign investment has strengthened the local supplier base with leading international Tier 1 and Tier 2 suppliers. However, the country has failed in building its own provider network to address the needs of these larger companies. Investors agree that although Mexico presents attractive business development conditions, raw materials and other components must be imported to build products at an affordable cost and with the quality the industry desires. What should be the priorities while building Mexico’s supplier base? Companies also have that well-defined after years of trying to decrease costs and provide an added value to their customers.

Mexico has developed complete production lines from Tier 1 to Tier 2 and 3 suppliers, moving away from its original maquila idea. Engines, seats, control panels and many other components can be completely manufactured in the country from the tiniest wire to its connectivity features. Most OEMs have based their strategies on quality, costs and logistic advantages. Quality has to be the main driver for the local supply chain, along with the possibility of being a benchmark in terms of costs.

MARIO RODRÍGUEZ CEO of Arbomex

Communication and integration are also vital for any client throughout all levels of the production, design and logistics process. Advanced manufacturing operations must also be a priority. Software and basic engineering processes are still carried in the companies’ headquarters. However, each day more and more universities collaborate with companies to encourage innovation and entrepreneurship among students.

Mexico has made huge progress but there is still a long way to go. Our local content has increased by double-digits in the last four years and although the market’s development has boosted this, our own involvement in the local supply chain has made a considerable difference. Our goal is to help suppliers enough to create added value for us. We need more Mexican suppliers that want to become international players. This should be the business plan of any new industry participant, going

RENÉ SCHLEGEL President of Robert Bosch México

beyond supplying Mexico to the rest of the region or even world. This takes time, however, and requires better financing schemes for small and medium-sized corporations here. The country has made progress in this regard and the government is already ahead of other Latin American countries where central banks remain part of the corporate financing structure.

At a Tier 1 and Tier 2 level, the local production chain is robust and most of our competitors are already in the country. But we do see opportunities for Mexico to grow in raw material supply at competitive prices. Stainless steel, for example, is hard to come by locally, as are quality tooling components and manufacturing equipment. The biggest opportunity for Mexican companies lies in product and technology development. The country has become highly competitive in manufacturing and

CARLOS TURNER CEO of Katcon Global

assembly but growth is only sustainable if the industry moves into added-value activities. Most R&D and engineering facilities are located outside Mexico so the moment the global industry finds a more cost-effective way of manufacturing components than those applied here, the country will lose its competitiveness.

There are several factors that could greatly benefit our global competitiveness, among them the development of a high-tech raw materials national supplier network. Our industry requires high-grade, specialized steel, which unfortunately we have to import to satisfy our clients’ demand. Currently there are no companies in Mexico producing such raw material specifications, or if available, they cannot supply the large volumes the industry needs. The Mexican supplier network needs to revisit the top 10 or 20 needs of the industry considering what is being imported to Mexico in processed or semi-processed form and setup discussion forums to properly address

JOSÉ CANALES CEO of MACIMEX

those needs in a coordinated manner.

The Mexican industry faces two pressing needs. The first is for local companies to invest in certifications and process optimization. OEMs and Tier 1s no longer focus on just-in-time processes. The goal now is just-in-sequence, which means suppliers must now become part of their clients’ production line, delivering the products the line needs in the exact moment, quality and quantity it demands. Companies that cannot meet these standards will be left out. The second priority for Mexico is to grow availability of products that are not manufactured locally. At the moment, almost 60 percent of all automotive components are imported, including electronics and casted parts. The lack of quality parts is

ALBERTO TORRIJOS Partner and Consultant at Deloitte Consulting Group

forcing the industry to lose confidence in the capabilities of the local supply chain, incentivizing imports.

Local industry faces two main challenges. Mexico is full of good suppliers that are too small to participate in the production supply chain. These players do not have the right infrastructure to promote their products or supply the large volumes customers require to the right quality standards. As a result, they fall short when competing against international companies. The country also needs to learn how to utilize the skills of Mexican engineers to grow in segments where Mexico is not currently participating. Tooling manufacturing is an area of opportunity. The country has the talent to design these components but we still cannot compete with markets like Portugal and China on price. Development of the local supply chain will only occur

DANIEL ROMERO Americas Automotive Division Manager of Schunk Electro Carbón

with training for companies and if large Tier 1s and OEMs share their best practices with smaller players.

OEMs come to Mexico accompanied by their Tier 1, Tier 2 and sometimes even Tier 3 suppliers, creating a strong international supplier network. However, the country has neglected the development of its own local suppliers. Mexico has a strong incentive strategy oriented to foreign players while local SMEs receive little support when establishing business lines or when looking to enter the automotive industry. The government needs to change that if we are to develop our local supply chain. At the same time, Mexico must continue attracting investment related to research and engineering activities. These kinds of projects have gradually become more common and they are a crucial factor in developing the country’s supply capabilities.

ANDRÉS LERCH Advisory Partner and Leader of the Operations Transformation Area at EY Mexico’s Automotive Center

INSIGHT

SUPPLY CHAIN FORCES EFFICIENCIES ELSEWHERE

“

Since suppliers based in Mexico do not make up as strong a supply chain as it could be, we have to import more raw materials than we would like”

countries, to date the absence of automation is one of Mexico’s selling points. If a company were to automate a process, it could do so in Germany, France or Canada,” he says. TI Automotive is a strong participant in the industry. At least 40 percent of the Mexican automotive industry uses one of TI Automotive’s products and Veraza says that there is still room for growth with new companies like

Alejandro Veraza, Managing Country Director of TI Automotive

Daimler and Audi, as well as Ford’s increasing operations,

A weak supply chain continues to be an area of

The company has remained a steady player in the industry,

opportunity for the Mexican automotive industry, while

consistently gaining market share, partly because of its

also forcing companies to find efficiencies in other areas

focus on safety. “All clients want safety to be taken care

of the manufacturing process, says Alejandro Veraza,

of,” says Veraza. “Not only do buyers want products

Managing Country Director of TI Automotive, which

that adhere to high-safety standards, companies look

develops and produces automotive fluid systems. “Much

to contract suppliers with safe distribution channels and

of our product content comes from the US, Canada and

in-house processes.”

despite the San Luis Potosi plant suspension.

Europe. Since suppliers based in Mexico do not make up as strong a supply chain as it could be, we have to import

TI Automotive ensures everything within logistics,

more raw materials than we would like,” says Veraza.

manufacturing and personnel respects health and safety

“Knowing what raw materials cost has led us to make

standards. “Safety has become the most important topic

our logistics and distribution operations as inexpensive

in the automotive industry,” he says. In an attempt to

as possible, negotiating with suppliers and looking for

make the products they offer for traditional fuel-engines

efficiencies in-house when possible.”

even safer, the company continue to develop technology that reduces the complexity of vehicles by using fewer

While improving the industry’s supply chain has long

components. “The lower the number of seals or joints in

been on the agenda of both the government and private

a system, the lower the probability of leaks,” says Veraza.

companies, Veraza says that in most cases the investment needed to start producing new components largely

Although TI Automotive excels in high-risk components

exceeds the benefits. “The acquisition of new equipment

such as fuel distribution and braking systems, Veraza says

for Mexican companies keen to branch into new products

the company does not foresee a market share reduction

makes manufacturing these components comparatively

due to the shift from combustion engines to electric

more expensive for new entrants.” TI Automotive,

vehicles. The company has already taken measures to

which has more than 120 manufacturing locations in 29

participate in electric vehicle development and Veraza

countries, has chosen to source the needed pieces from

says this will ensure TI Automotive maintains a healthy

outside Mexico. “We have been able to source these

market share.

pieces from less convenient locations from suppliers that require less financial cushioning as they already supply

“We do not expect our gasoline products to become

several other companies,” says Veraza.

obsolete as soon as 2025, when many believe that electric cars will overtake fossil-fueled cars in market

Although the supply chain remains an opportunity area,

penetration.” Particularly for Mexico and Latin America,

Veraza believes the country and the industry should

Veraza believes the adoption process for this new

focus on its most important selling point: human capital.

technology will take longer, so he predicts an extended

While automation can be beneficial for safety reasons,

need for their current components in the local market.

companies that choose to bring production to Mexico

“Until electric recharging technology develops, we see

tend to be looking for competitive personnel. “Although

gasoline and diesel cars dominating the automotive

automation can offer competitive advantages in other

sector in most geographical areas.”

INSIGHT

PLACING TRUST IN MONTERREY FOR DESIGN CARLOS TURNER CEO of Katcon Global

The Mexican automotive industry is dominated by international

One reason behind Katcon’s expansion efforts outside

companies that mostly bring manufacturing operations to the

Mexico is that what appears to be an opportunity with the

country, generally leaving design, innovation and engineering

arrival of a new OEM to the country may in fact turn into a

operations in their home countries. Carlos Turner, CEO of

threat for the local supply base. Arriving OEMs tend to bring

Katcon Global, thinks the next big step for suppliers is to offer

their trusted Tier 1 suppliers from their home countries to

their manufacturing capabilities in tandem with local design

mitigate risk. “The early stages of an OEM’s establishment

and engineering to their clients in Mexico.

represent a threat as much as an opportunity for local suppliers,” he says. “With new OEMs coming to Mexico,

Turner has an ace up his sleeve to give Katcon’s Mexican

new suppliers arrive each year, adding competition and

operations a boost. “Having engineering capabilities in

increasing installed capacity for many commodities. Even

Mexico is a proven advantage for OEM’s that choose Katcon

when they do not bring their suppliers, OEM’s prefer to

as their supplier. It benefits the development process to

work with a global partner if they already have operations in

provide technical solutions locally without the unnecessary

Mexico. This is why we believe it to be imperative to become

delays and complications of having to touch base with

a global supplier in today’s automotive environment.”

headquarters all the time,” he says. But Turner wants to go a step further by increasing its Monterrey Engineering Center’s

Katcon Global chooses to innovate in its offering, helping

responsibility in their R&D and innovation projects as well.

automakers meet stringent environmental regulations around the globe. The Environmental Protection Agency’s

The company has design and engineering services in

goals of reaching fuel efficiency of at least 23.1 km/L and

Monterrey, Michigan, Luxembourg and Shanghai. Projects are

CO2 emissions of no more than 101 g/km led the company

assigned to each office depending on the clients’ location and

to experiment with advanced materials for lightweight

each center’s expertise and workload. Instead of depending

components. This is in addition to its established

exclusively on the 3.4 million vehicles manufactured in Mexico

operations focused on exhaust parts. These innovations

and its potential growth, the company makes global plans

are all happening in the company’s R&D center in

to drive its own expansion. This means also competing for

Monterrey. Katcon began studying the application of

business in China’s 28 million-vehicle market, while looking

advanced materials in automotive components in 2014,

to supply components for the 12.2 million vehicles made in

starting with a manufacturing cell focused on carbon-

the US and the combined production of more than 23 million

fiber components. In 2015, the company took another

cars from Japan, Germany, South Korea and India, the other

step toward lightweight trends, working on steel and

four largest car manufacturers in the world.

aluminum substitution for structural components, using composites instead.

China became Katcon’s largest market in 2016. According to Turner, in 2017 the company will generate over 50 percent

Even as advanced materials become a priority for Katcon,

of its global turnover from this market. China has fueled

Turner understands that new technology-development

Katcon’s growth of approximately 17 percent per year since

processes can be a precarious investment. “Not all

2014 and will continue to generate a substantial portion of

technology developments are embraced by the market

its revenue growth over the next couple of years. Turner sees

and in the automotive industry, new products must be

the company’s growth accelerating in 2017 thanks to the new

thoroughly tested to ensure their reliability and safety

contracts Katcon has closed with Chinese OEMs. “We will

before moving them into volume manufacturing,” he

grow at an average of 24 percent per year until 2020 and

says. “If the technology proves effective, manufacturing

we will need to open two more manufacturing facilities in

process must also be evaluated for potential obstacles in

China by the end of this year, plus at least one more in 2018.”

production, supply or even international trade.”

VIEW FROM THE TOP

OPERATIONAL EXCELLENCE A TOP PRIORITY FIDEL OTAKE Vice President of the GKN Driveline Operation in Mexico

Q: What new client relationships have you established and

capacity to meet the requirements of the automotive sector,

how important will Audi and BMW’s operations be for the

contributing in the evaluation and creation of technical and

company?

specialized training programs while bringing companies

A: We have started a relationship with our customer

closer to Guanajuato’s technical specialization centers.

Mercedes-Benz in Mexico. This company, along with Audi and BMW form a distinguished group of German

Q: With the growth in electrification, how attractive do

automobile manufacturers that have settled in the country.

you think your eDrive solutions will become in the near

Globally, GKN has a long history with all of them but the

future compared to your CVJ and AWD systems divisions?

operational relationship in Mexico is relatively new. It is

A: We expect this portfolio to be very attractive. Our eDrive

crucially important to quickly establish GKN’s Mexico

division is growing fast based on the near future expectations

operations as a provider of excellence for the premium

and how the world is moving toward electrification. Mobility

sector, as it is already recognized for other markets where

in big and megacities will demand less CO2 emissions and

the company operates.

eDrive — both hybrid and full-electric — solutions will be crucial to meet these requirements. GKN Mexico is part of a

Q: How are you helping local players develop and

global Engineering web that supports the GKN innovation

participate in the automotive chain?

strategy and new developments, so we are already involved

A: We are supporting the creation of forums that help

in the development of these advanced components.

suppliers show their range of products and solutions. GKN is also sharing and developing tools to improve local providers’

Q: GKN Driveline represents the largest percentage of GKN’s overall revenue. What are its growth expectations for 2017? A: North America accounts for 33 percent of GKN Driveline

GKN Driveline is focused on manufacturing traditional and

revenues and it is crucial to have an integrated North

electrified driveline systems. The company works with 90

American manufacturing strategy to supply this large

percent of all car manufacturers globally, with 46 manufacturing

market. With the addition of new OEMs to Mexico, GKN

locations and over 26,000 employees

Driveline’s projected growth in Mexico is 20 percent for 2017.

VIEW FROM THE TOP

10 MILLION TIRES AND COUNTING TOM GRAVALOS CEO of Pirelli Mexico

Q: How are Pirelli’s investments in Guanajuato developing

growth that is not just for the sake of growing means our

and what challenges have you encountered?

business is developing long-term viability. In the premium

A: Pirelli announced a further US$200 million investment

segment, we are one of the market leaders.

in 2015, which will bring our total investment dedicated to Mexico to about US$620 million. The new plant we are

We want to be the premium brand of choice for the Mexican

building now in Guanajuato will cover 70,000m when

consumer, the supplier of choice for the Mexican distributor

completed, bringing our total combined capacity to

and the employer of choice for Mexicans in the automotive

produce between 7 and 7.5 million tires per year across

industry. We are building solid foundations for this to

two plants. We expect most of these tires to be exported,

happen. Six years ago, there were 28 people working for

either directly or indirectly. The project is moving forward

Pirelli in Mexico, today there are more than 1,700 of us.

well. We broke ground in June 2016 and we expect to start producing tires in the new plant during the second half of

Q: What new products are you going to launch from

2017, by which time we will have a total workforce of more

Pirelli’s new factory?

than 1,800 associates in the two plants.

A: At the moment, our factory is focusing on products that are mainly designed for North America, although some are

Q: How do you expect this production increase to impact

also for the global market. In Mexico, we produce a series of

your operations in the original equipment segment?

“Plus” tires, such as the P7 All Season Plus, Scorpion Verde

A: It is a positive step at a time when many new carmakers

All Season Plus and the P Zero All Season Plus. These tires

are coming to Mexico. We were the first in the Bajio to invest

are designed for the replacement market.

in a modern plant and are well ahead of our competitors. We celebrated the production of our 10-millionth tire made

Building on the world-famous P Zero line, we are already

in Mexico in 2016 and five years of production since the first

producing the next generation and new Scorpions are in

tire was manufactured in the state of Guanajuato. Pirelli has

the making. Our R&D team in Mexico continues to grow. The

become a part of the community and we are delighted to

company’s 24 engineers, of which 22 are Mexicans, work in

be in Silao, Guanajuato.

a world-class laboratory. We perform R&D and laboratory activities for other facilities around the world.

Our factory produces tires for Audi, Volkswagen, Ford, BMW, Mercedes-Benz and for the Challenger Hellcat. All the tires

Q: What is the global strategy to face the changes in the

for these models are designed and manufactured in Mexico

global automotive industry?

for local and export markets. Globally, BMW and Mercedes-

A: Globally, the car business is clearly growing but more so

Benz are our customers and we have expectations that when

in the premium category, and that is our target market. This

their Mexican plants are ready to find a tire supplier, we will

allows us to follow our customers, the carmakers as well as

have the opportunity to participate in that business. We also

aftermarket companies, to markets where premium cars are

have ongoing relationships with Asian carmakers. But even

sold more widely, such as the US, Europe and China. We tailor

though Kia, Mazda, Honda and Toyota are now all in the area

our tire technology to make new cars better, and carmakers

we do not supply them from the Guanajuato plant. This does

appreciate this quality service.

not mean that we will not do so in the future. Q: How is Pirelli performing in Mexico’s aftermarket and

Pirelli is a premium tire manufacturer established in 1872 and

retail segments?

the single supplier for F1 tires since 2011. The company has

A: We are gaining market share and continue to open new

19 manufacturing facilities in 13 countries and a commercial

retail locations throughout the country. Targeted strategic

network across 160 countries

INSIGHT

RIDING NEW AUTOMOTIVE TRENDS LUIS VILLALBA Site Manager ZAM of ZANINI de México

Guanajuato seems to be the big winner regarding investment

almost every automaker in the world and many of its clients,

attraction. Its success has rubbed onto its neighboring state,

such as Audi, Nissan, GM and Volkswagen, are positioned in

which many suppliers seem to favor due to its high level of

Mexico. “ZANINI de México satisfies most of the country’s

industrialization, central location and skilled labor. Queretaro

domestic needs for wheel trim,” says Villalba. Besides wheel

is home to many leading industry participants, one of them

trim, ZANINI offers chroming and other metal finishing

with almost 20 years of history in the state.

solutions that help components be thinner and lighter.

In 1998, ZANINI Auto Group decided to expand beyond

“ZANINI’s dedication to innovation has set the industry

Europe and Queretaro was its preferred destination to enter

standard for plastic interior and exterior functional trim,”

the North American market. The company is now one of

says Villalba. This innovation-driven vision is leading ZANINI

the leaders in wheel trim applications. According to Luis

to explore new trends. The company is delving into safety,

Villalba, Site Manager ZAM of ZANINI de México, ZANINI's

autonomous driving and sensorization, using its experience

volume represents supply for one in every five wheels

to integrate radar components behind the vehicle’s exterior

produced on the planet. The company already works with

plastic components with permeable metallic finishing.

VIEW FROM THE TOP

SUPPLIER SEEKS TO BECOME TESTING CENTER FOR OTHER LOCAL PLAYERS GONZALO ESPARZA President of Tachi-S México

Q: How has your project for the construction of a design

in training local talent and absorbing part of the activities

and testing center (TSELA) evolved?

normally developed by Japan or the US. Our priority now

A: Our project was defined as a design, testing and

is to speed up the training process to be able to run all

advanced engineering center. We are about to complete

design processes for new projects locally. We also plan

the last stage of our testing lab that will include a

to offer our new testing capabilities to other companies

state-of-the-art sled machine. That will give Tachi-S the

that might gain a competitive advantage by running their

capacity to run 100 percent of all testing required by the

tests locally.

automotive industry, not only for seating systems but for many other components. We will be ready to serve the

Q: How prepared do you think the local talent is to

local and regional industry, and we are making progress

participate in these types of operations? A: Local talent is well-prepared. However, there are many companies coming to the region, so it will be difficult to

Tachi-S is a Japanese independent seat manufacturer with

convince specialized talent to stay with the company long

over 60 years of experience in the industry. The company

enough to take them to the technical level they must reach.

supplies 4 million seats annually around the world thanks to its

That is actually delaying our development but we expect

manufacturing operations in Europe, Asia and North America

our operations will stabilize soon.

VIEW FROM THE TOP

ADVANCED LIGHTING A FUTURE MARKET OPPORTUNITY LUIS MORENO SP Business Director of OSRAM México

Q: What growth opportunities has OSRAM detected in the

called LEDVANCE, from the rest of the company’s operations.

original equipment and aftermarket segments?

The sale of LEDVANCE was finalized in the spring of 2017.

A: The automotive industry is the most important segment

Our company is now more driven by high-tech products

for our Specialty Lighting (SP) division, including both

and applications and OSRAM is fully committed to the

aftermarket and original-equipment operations. In the

development of new technology by developing long-term

latter, the company sees significant growth opportunities

strategies based on innovation. This is particularly important

particularly in the premium-car segment. We participate

in the automotive industry, considering that we expect LED-

with most OEMs in the country including Ford, Volkswagen

based lighting to grow at a compound annual growth rate

and FCA and now that BMW, Audi, Mercedes-Benz and

of 9 percent between 2015 and 2020. Before the carve-

INFINITI are arriving to the country, we expect a boost to

out, OSRAM destined 6 percent of its revenue for R&D

our original equipment operations.

applications but now, that number has grown to 8 percent, leading to an increase in R&D expenditure in the SP division

The aftermarket also presents attractive opportunities.

of 22 percent. Between 2016 and 2020, the company plans

Unfortunately, we have to compete with products that have

to invest €2 billion (US$2.2 billion) in R&D activities. Even

both a lower cost and lower quality, which has proven to

though Mexico is still focused on LED, our goal is to keep

be a challenge. Our strategy is to educate our customers

investing in new technologies, including laser modules for

regarding the advantages provided by OSRAM, while

headlamps and OLED applications.

developing a strong product portfolio that can participate in all market segments. Original equipment is our biggest

Q: What is OSRAM’s overall growth forecast and how does

market in Mexico and we have established close and strong

that translate to its Mexican operations?

relationships with our clients in this segment. That being

A: OSRAM is already a leader in the lighting industry and

said, our growth opportunity in the aftermarket is much

our growth in the automotive industry will be sustained

larger and we have implemented a much more aggressive

by our existing and new relationships with Tier 1s and

strategy to improve our position.

automakers. Specifically in Mexico, our growth in 2016 has been superior to the country’s GDP and our goal is to

Q: Regarding advanced lighting technologies, where does

maintain that success in 2017. According to its “Diamond”

OSRAM see the biggest opportunity for the automotive

innovation and growth initiative, OSRAM’s global goal

industry?

between 2017 and 2020 is to reach annual revenue

A: LED, OLED and laser-lighting technologies all have strong

growth rates of 8 percent with total sales between €$5

development potential in the automotive market. However,

billion (US$5.5 billion) and €$5.5 billion (US$6.1 billion).

LED appears to be the preferred innovation in Mexico.

We have established a five-year strategy for our Mexican

Laser is still practically unknown in the domestic market

operations and advanced lighting development is a main

and OLED could be a second stage in the development

priority. We also want to consolidate our distribution and

of LED technology. Advanced lighting technologies are

supply operations both in the original-equipment and the

predominantly found in the premium and luxury market,

aftermarket segments, making our operations as cost- and

mostly because of the price-driven nature of that segment.

time-efficient as possible.

Q: What is the company’s R&D commitment and what opportunity is there in lighting components with

OSRAM is a leading German company with more than 100

connectivity and self-driving applications?

years of experience in the lighting market. The company

A: In 2016, OSRAM completed its carve-out process,

has four divisions including Speciality Lighting and Opto

separating the traditional lighting division, which is now

Semiconductors, both with automotive applications

TECHNOLOGY SPOTLIGHT

3 kg Load capacity of the UR3

5 kg Load capacity of the UR5

10 kg Load capacity of the UR10

SMALL AND ADAPTABLE WORKING ARMS No safety guards? No problem. When Universal Robots developed its line of collaborative robots, it kept in mind flexibility, ease of use and cost. The UR robot looks and acts like a human arm, does not require a protective cage, allowing direct interaction with human operators, and has attracted a growing customer base across industries, including automotive. Installing traditional industrial robots entails a hefty investment in additional infrastructure such as safety cages for the robots and enough space for the units to move without affecting other robots on the line. Universal Robots helps to eliminate those added costs by combining automation equipment with human labor. UR robots mimic the movement and flexibility of a human arm with six degrees of freedom, a maximum linear speed of 1m/s and a maximum rotational speed of 180° per second. Thanks to their flexibility, the automotive industry has embraced these robots in high-quality and precision-driven operations such as engine foundry, laser-cutting, press-forming and molding. The company offers three different models that adapt to clients’ size and load capacity requirements. The smallest model, UR3, can automatize tasks in a 500mm radius with a load capacity of 3kg. Its small size makes it ideal for gluing, tool handling, welding and painting in tight spaces as it only needs 128mm of available space for its base and weighs 11kg. UR5 has a load capacity of 5kg and an action radius of 850mm. This model is mostly used for repetitive pickand-place operations and testing procedures. Its installation diameter is 21mm wider than the UR3 and it weighs 18.4kg. The largest option in Universal Robots’ portfolio is the UR10, with an installation diameter of 190mm and a weight of 28.9kg. This robot can handle tasks that require a load capacity of up to 10kg in a radius of 1300mm. Its size and weight make it ideal for more robust applications such as packing, pallet placement and montage. Their collaborative makeup includes sensors that detect when human operators touch the equipment, stopping it entirely. The robots can also be programmed to work more slowly in areas where human contact is more likely. The company also strives to make its robots as user-friendly as possible, which means that their programming is simple enough to restart operations by pressing just a couple of buttons. An added bonus is versatility: the robots can be relocated and reprogrammed nimbly depending on the clients’ manufacturing needs.

INSIGHT

COLOR PALETTES FOR THE TRENDS OF TODAY AND TOMORROW RODRIGO MOSQUEIRA Senior Business Manager, Color and Additives of PolyOne de México

Identifying trends is never easy, and predicting them before

but also minimize harmful volatile organic compounds,

they are fully evolved is even harder. PolyOne decided

while delivering production flexibility for customization.

several years ago to take on this challenge and get ahead of

Mosqueira says: “When you look at the entire painting

automotive trends.

process, you will see it is not very ‘green.’ On average, a well-controlled plastics painting operation still generates

Technology advances and changes proposed by PolyOne have

scrap from over 10 percent of production, and unfortunately

one objective in mind, delivering the best possible technology

no current process exists for these scrap parts to be

solutions to improve driver experience. “Every year, PolyOne’s

recycled.” By adding color at the injection molding press,

InVisiO designers investigate global inclinations and perform

Mosqueira believes auto parts producers can improve

color research. The team develops unique palettes that

production speed and efficiency. “Estimates show that

resonate with both rapidly evolving developments and

OEMs can reduce scrap rates to 2 percent or less,” he adds.

longer-term societal trends,” says Rodrigo Mosqueira, Senior Business Manager, Color and Additives of PolyOne de México.

Another argument in favor of paint replacement is that

Customers can use these assessments as inspiration for their

the trend toward vehicle customization is accelerating.

own designs and future product launches, and as a way to

“We believe customization is one of the most important

differentiate themselves from the competition.

consumer trends for automotive,” says Mosqueira. Color is a crucial component of customization and differentiating

Initiatives beyond color preferences are influencing new car

a component at the molding stage allows for greater

designs, such as weight reduction through customization

customization without additional cost. “With standard

metal replacement, elimination of paint and desired

manufacturing processes, you would need to stock large

color harmony among plastics components. To reduce

inventories of multiple paint colors,” Mosqueira says.

environmental impact, automotive companies are opting for

”But molding in color at the press enables OEMs and

lighter materials that limit fuel-consumption, such as Henkel’s

part suppliers to produce only the required amount and

use of resins, aluminum and magnesium for interiors that make

customize small volumes, at competitive costs.”

cars lighter. A recent weight reduction success by PolyOne involved an underbody brace for high-performance cars. The

In the very near future buyers might be able to enter

company worked with its customer to replace aluminum with

a dealership and choose the color of the vehicle’s

a thermoset composite material, reducing the component’s

steering wheel, interior panels, gear shift knob and other

weight by 17 percent without compromising structural rigidity.

components to truly reflect the personality of the driver. PolyOne sees this happening within the next two years.

While lightweight composites for structural components

PolyOne’s product offerings and manufacturing facilities

could benefit the industry, Mosqueira believes it may take

in Mexico gain relevance at a time when the hunt for cost-

some time before they are widely adopted. To accelerate

efficiency and competitiveness has made the automotive

this process, he recommends open communication between

industry look for new production methods.

OEMs and the companies in their supply chain. “OEMs are open to new technologies, but collaboration with the entire

Despite discussions about trade treaties within North America,

supply chain is critical for success because each participant

Mosqueira is confident about the future of the automotive

needs to understand the innovations that are possible for use

industry in Mexico. “Automotive investments are not done

in next generation product designs.” PolyOne is also helping

in one day. These decisions are well planned, new ventures

automotive customers to replace conventional painted

will not disappear from one day to the next,” he says. “We do

plastic parts with those colored at the injection molding

foresee challenges but at the same time believe that the best

machine. Molded-in-color parts not only help reduce costs

is yet to come for Mexico and its automotive manufacturers.”

INSIGHT

LOCAL PARTNER SOLIDIFIES POSITION IN CUSTOMIZATION MIGUEL AVALOS Director General of Air Design

More than 50 car brands compete in the Mexican market,

tooling components. Other companies are subject to long

each of which produces several models to cater to different

timeframes to follow the vehicle’s design process.” What

market segments. Although standard models are the bulk of

gives Air Design the upper hand in the market is being able

new vehicle sales, special and limited editions have found a

to give a second wind to products in a mature stage of their

niche in which to compete regardless of the vehicle’s price or

lifecycle. Limited or special editions are normally released

make. Buyers can choose from an array of options, ranging

two years after the model hits the market and that is the

from a racy limited-edition VUHL 05RR to one of the 1,000

window of opportunity that Air Design targets.

special-edition Tsurus that Nissan released to commemorate the end of this model’s production. To help automakers

A clear perspective of how the market is moving can help

develop special units, Air Design is a valuable local partner.

companies to remain ahead of the game. “Sedan and hatchback models are already well-equipped in standard

Miguel Avalos, Director General of Air Design, says the

versions. Furthermore, there has been a gradual change in

company evolved with an industrial focus, mainly targeting

the clients’ preferences,” says Avalos. Drivers began to move

the automotive industry. Unlike other companies in the

from subcompact cars to large trucks and SUVs as stronger

supply chain, Air Design stands out as a player with a

economies increased purchasing power. Particularly in the

strong design and engineering process. Finding its niche

US and Canada, Avalos sees an opportunity in the large

in the special-edition market, it realized that the best way

truck and pickup segment. “The best-selling model in the

to compete was by offering in-house product development

US is the Ford F-150 pickup with approximately 800,000

and manufacturing. “We conceptualize our designs digitally

units in 2016, followed by the Chevrolet Silverado. Only in

and once we move onto the prototyping phase, automation

2017, the market is expecting sales of 10 million pickups in

also plays an important role. Coupled with our ability to

the US, fueled by low gas prices,” he says.

design and manufacture molds in-house, we can offer a well-rounded solution to clients,” he says.

Analyzing these trends, the company saw an opportunity of between US$5,000 and US$20,000 in accessories for every

The major obstacle for Air Design was establishing enough

unit. According to Avalos, only in the US, the market for vehicle

credibility to participate in the market. The team became

customization is approximately US$60 billion. Deducing

experts in design of special-edition components and now

from this number, the size of Mexico’s vehicle park and the

Air Design participates as a Tier 1 supplier. “We evolved

US$18 billion worth of aftermarket components, Avalos sees

from a very artisanal process to incorporating digital and

a US$5 billion potential market for special edition accessories

technological advantages,” he says. “Keeping up with the

in Mexico. “We can definitely see an increase in demand for

latest trends in the market helps us offer attractive and

special-edition vehicles and more experience in dealerships,

revolutionary options to clients. Integrating styling and

which now offer more equipped units to the clients,” he says.

advanced material concepts, we achieve best-practice quality installing equipment in the most effective way.”

Dealership profitability fuels the growth of the special component market. Margins in the automotive industry are

The company detects a potential threat from players like

generally low and in Mexico, they are barely above 1 percent.

Magna and Faurecia that are venturing into special-edition

The situation is worsened by the weak position of the peso

component development. But Avalos remains confident,

against the dollar. As companies try to maintain stable prices

citing Air Design’s time-effective development process.

for vehicles, revenue margins are reduced. Avalos believes

“We can develop an entire customization kit for a vehicle

that the opportunity for distributors lies in aftersales services

in less than 10 weeks thanks to our fast prototyping

and customization alternatives. “Only in this latter segment,

process and our in-house development of molds and

profit levels are between 30 and 50 percent,” Avalos says.

INSIGHT

GLOBALIZATION LEADS TURKISH LEADER TO MEXICO ARCAN ERGUR Plant Manager of Teklas Automotive Mexico

Mexico’s political stability has helped attract OEMs to the

compete with their European counterparts in terms of price,”

country, resulting in a thriving domestic supply chain. Since

he says. The company is still exploring local opportunities

Lázaro Cárdenas’ government in 1934, Mexico has enjoyed

and negotiating with Tier 2 suppliers that could be validated

stable power transitions that continue to this day. Other

by Teklas’ OEM clients in the near future. “So far, we are right

countries are less fortunate and in many of them companies

on schedule with our Mexican operations.”

cannot enjoy the advantages of healthy domestic production. Turkey is among the countries impacted by

Teklas already works with most OEMs in the European

geopolitical conflicts, which have hindered the development

market and it has established global contracts with

of its Tier 1 suppliers. The arrival of globalization turned the

companies like Volkswagen, BMW, Volvo and GM. “We have

tables, letting Turkish companies like Teklas find their export

a 30-percent market share in Europe and although we are

niche and eventually expand to other regions.

just starting production in Mexico for the North and South American markets, we see great potential, an even bigger

Thanks to its growth in exports, the fluid circulation systems

opportunity than in China,” says Ergur.

and windscreen-wiper manufacturer was able to invest in other countries in a short amount of time. Its first foreign

The company will follow two strategies in the Americas. It will

investment was in Bulgaria in 2006 and by 2011 the company

begin its production operations in the second half of 2017 to

had already ventured into China as well. It came to Mexico

supply Volkswagen and Audi, BMW and Volvo by 2019, and

in 2016. The company is currently in the development phase

subsequently GM, Daimler and Tesla can be added to its client

of its production site in Mexico and once it is ready, the goal

portfolio for the Mexico plant. The company will also manage

is to expand within the NAFTA market.

imports from Bulgaria to cater to GM in the US and Mexico, FCA and the Volkswagen Group. As its Mexican production

“Our plans in North and South America are rooted in

facility is completed, Ergur’s plan is to transfer all components

globalization,” says Arcan Ergur, Plant Manager of Teklas

that are sourced from Bulgaria to be manufactured in Mexico.

Automotive Mexico and the person in charge of developing the company’s position in the Americas. OEMs are looking

Teklas’ current production in Mexico will be oriented toward

for suppliers that can keep up with their global footprint to

fluid circulation systems. This is the company’s main product

save costs and maintain the same level of quality across their

line and Ergur sees cooling and heating-line components

entire production network. “Vehicle and auto part designs are

for internal combustion, hybrid and electric engines as the

becoming more global, which means we have to be present in

priority. Once the plant ramps up its operations, Teklas

more countries to strengthen the production chain.”

will introduce air-intake systems to Mexico, mainly for turbocharging applications. “Gasoline and diesel prices

Once Teklas had decided to establish operations in Mexico,

have become a concern for many manufacturers, making

the company performed an analysis that concluded

turbocharger components a critical component to improve

Aguascalientes was the best option to invest in. Safety and

the vehicle’s performance,” says Ergur. According to

the government’s involvement in industrial development

Markets and Markets, this segment is expected to grow

were two defining factors for Teklas’ new investment, Ergur

at a compound annual growth rate of almost 8 percent

says. The company outsourced the plant’s construction

globally, reaching a market size of over US$18.5 billion by

project to a Mexican company in July 2016 and the complete

2021. This shows a clear opportunity for Teklas, coupled with

infrastructure was expected to be ready by mid-2017. Ergur

the 20-percent increase in gasoline prices in Mexico at the

is also building its supplier base, leaning on Teklas’ existing

beginning of 2017. “Electric vehicles are also a priority in the

network in Europe. “At this early stage, even companies

industry and we are focusing on innovating in our portfolio

located in Mexico that are already our suppliers cannot

to cater for models between 2019 and 2025,” says Ergur.

INSIGHT

MEAT PRODUCER COOKS UP LEATHER NICHE JESÚS VIZCARRA President and Director General of SuKarne

The manufacturing industry might seem like an odd place

60 percent will go to companies based in Mexico. Vizcarra

for a meat producer but demand requires supply and that

reiterates the company’s focus on Mexico: “We want to

equation sometimes makes for strange bedfellows. When

offer a local solution to companies that need high-quality

the arrangement creates benefits on both sides, it also

materials, so they need not purchase leather overseas and

makes perfect sense.

incur extra costs.”

Booming demand for leather interiors has caused the

Though the company plans to use the same business model

automotive industry to outshine footwear producers’

that has been successful in the meat industry, Vizcarra also

demand for the material. This has created an opening for

recognizes how long relationships with clients can take to

companies like meat producer SuKarne, which until recently

consolidate. The company would ultimately supply OEMs

had been content to dominate the meat sector, its main

indirectly, by working with companies that handle the

niche for 30 years. “We began to enter the industry by

interiors of cars for seats and steering wheels specifically. This

working with highly specialized tanners such as Bader

will include international companies, several of which already

and Midori that are certified by automotive companies,

use SuKarne. “SuKarne is working with 15 international

expanding our operations into the maquila industry,” says

companies and three Mexican automotive suppliers,”

Jesús Vizcarra, President and Director General of SuKarne.

says Vizcarra. SuKarne’s meat is produced in Mexico and Nicaragua and the company’s products have presence in a

The Economist reported a 40 percent increase in demand in

handful of Asian, European and South American countries

Mexico between 2013 and 2015, just within the automotive

and is building its leather capabilities to export leather to

sector. Until 2014, 80 percent of the leather used in all

more markets. But SuKarne’s meat business shares the

industries was imported but new players are emerging as

automotive industry’s principal export destination: the US

Tier 3 suppliers to carmakers. The Guanajuato Chamber of

purchases 70 percent of its exported product.

the Tanner Industry (CICUR) cites demand for leather at over 150,000 pelts per day to satisfy automotive demand.

The company’s leather supply division estimates 1.6 million pelts will be produced in 2017. “We are the top leather

“The governments in each Mexican state have evidently

supplier in the country, handling 40 percent of Mexico’s

worked hard to develop the automotive value chain, so

production, so we have many plants that are certified by

entering this industry is pivotal for the future of SuKarne,”

the Federal Government and the United States Department

says Vizcarra, echoing AMIA’s view of the industry as a

of Agriculture (USDA),” says Vizcarra. Working to these

“catalyst of growth in Mexico.” The new entrant into the

standards has meant the company has had to acquire

automotive supply chain opened a distribution plant in March

specific certifications and quality standards over the years

2017 in Leon, Guanajuato, which will supply the country

for various clients. Today SuKarne can guarantee quality

for the moment but the company prefers to be closer to

in-house processes and supply Tier 1, 2 or 3 automotive

the client long-term. “Our teams want to be located near

companies with leathers to their specification.

companies that see us as long-term suppliers and not as opportunists.” That would also help the company integrate

SuKarne’s philosophy is to reach more people every day,

into the industry, to understand its needs and avoid simply

with the best products and accessible price tags. “It is crucial

supplying companies that look for a one-off saving.

for me to offer quality at a reasonable price. To guarantee this quality, our control of livestock is based on traceability.”

The distribution center will supply the wholesale market

Tracing every step of the process from birth of the livestock to

initially, up to its capacity of 33,000 tanned pelts per week,

its arrival at SuKarne’s facilities is the main advantage Vizcarra

40 percent of which will be exported and the remaining

sees for the automotive industry and its high standards.

INSIGHT

STRENGTH IN INNOVATION AND DIVERSIFICATION

“

Clients place high importance in quality”

Pablo Paredes, General Manager of Trelleborg Mexico City

form partnerships, the company prefers to work with large players that provide long-term projects supplying OEMs. The company’s 100 years of experience and Swedish roots underpin its reputation and helped it become the preferred brand of the European market, says Paredes. The

Mexico is home to a price-driven automotive market. But

sealant expert’s international operations span North and

the competitive prices offered have neither stopped clients

South America, Europe and Asia, and NAFTA has allowed

demanding high-quality products to export, nor do small

Trelleborg to supply Tier 1 and 2 companies, as well as

drops in sales affect the impetus of international players to

OEMs with operations in Mexico from its US plant. Over

produce quality, says Pablo Paredes, General Manager of

60 percent of the US branch’s production is destined to

Trelleborg Mexico City.

companies based in Mexico. “We can provide continuity to

“

companies in global markets,” says Paredes.

“After 10 years of experience in the automotive market, we have found that even in price-oriented product segments such as seals and gaskets, clients place high importance in quality,” says Paredes. This vision has encouraged the company’s faith in the sector since, according to Eduardo Basurto, Customer Service Adviser of Trelleborg Sealing Solutions Automotive Hub North America – Mexico, even after a small drop in sales in the US, Trelleborg’s qualitydriven operations have led it to participate with large internationals like Bosch and Continental. Technology development trends in the last three years have contributed to Trelleborg’s global growth in the automotive industry, except in the US in the first months of 2017. Basurto

Automotive sales represent 26 percent of (Trelleborg Sealing Solutions') income, meriting the creation of a department called AutoHub” Eduardo Basurto, Customer Service Adviser of Trelleborg Sealing Solutions Automotive Hub North America – Mexico

sees dips and peaks as normal in any industry and identifies trends in automation, hybrid technology and intelligent

Through 10 years of supplying several industries in Mexico,

vehicles as a signal that combustion engine production

the most important of which has been the automotive

will drop in five years’ time. Since Trelleborg is present

sector, Trelleborg has branched into mining, aerospace

in both ecological and traditional engine productions, its

and oil and gas, solidifying its reputation for supplying

team expects it to thrive in spite of any economic or market

high-quality products. “Trelleborg Sealing Solutions

trend fluctuations. The company invests approximately

is our most important division and automotive sales

20 percent of its income in innovation to stay ahead of

represent 26 percent of this division’s income, meriting

oscillations and product preferences.

the creation of a department called AutoHub to cater to the automotive supply chain,” says Basurto. Although it

“Our core business revolves around sealants for any piece that

has not reached excessive specialization in one industry,

needs it,” says Paredes. Door panels, sensors and instruments

namely automotive, the Sealing Solutions division trusts

all require seals and Trelleborg manages innovative technology

the sector to evolve and plans to remain a part of this

in precision seals such as liquid silicone combined with plastics

evolution to stay in the race. “Some companies may be

and polytetrafluoroethylene composites. The company looks

concerned by over-specialization in one industry and the

for new compounds as needed, adapting to certifications

increasing numbers of Asian companies in Mexico are

and vehicle innovations. It can also draw on preapproved

imposing a bleak panorama on national companies that

compounds when clients ask, which allows it to compete in the

depend on automotive manufacturing,” says Paredes. As

Mexican export market contributing to vehicle safety, weight

Japanese, Korean and Chinese OEMs import their supply

reduction and comfort. “We create work plans with companies

chains, which distinguishes their brands’ manufacturing,

for up to 15 years, demonstrating long-term commitment to

Trelleborg is not afraid of this influx. “Our reputation

clients and the industry’s evolution.” Amid many options to

precedes us,” says Paredes.

INSIGHT

GROWTH THROUGH SEGMENT AND MARKET DIVERSIFICATION ADONAI GARCÍA Managing Director of Mirka Mexicana

Change is part of nature, though that does not always

The original equipment sector currently represents half of

mean it is easy or quick. Companies must adapt to new

Mirka’s business in Mexico but aftermarket or automotive

technologies and, as a leading innovator in the abrasives

refinishing trade (ART) segment is the company’s largest

industry, Mirka understands how difficult a transition

operation worldwide. This business accounts for 20 percent

process can be for its customers. The company has found

of Mirka’s Mexican operations and García has plans to level

ways to show the advantages of clean and effective abrasive

the field for both sectors. “We would like 30 percent of our

solutions and that success is now propelling Mirka toward

business in original equipment, 30 percent in ART operations

new market opportunities.

and 30 percent in other industries,” he says.

“All companies seek to reduce costs but that does not

Innovation will be critical for Mirka to reach its goals and

necessarily mean buying the cheapest alternative,” says

García is confident about the company’s capabilities. He

Adonai García, Managing Director of Mirka Mexicana.

says that Mirka’s facilities in Finland are among the most

“Mirka’s products might not be the cheapest but they help

advanced manufacturing sites in the world for abrasive and

our clients meet quality standards and increase efficiency

micro-abrasive solutions. Micro-abrasives are most effective

and productivity.” With its unique technology of Abranet

for manufacturing processes with narrow tolerances, like

family products, the company found a niche among

the production and rectification of engine and transmission

companies searching for a cleaner environment, better

components. The company already participates in these

health conditions, cost reduction and improved dust-free

kinds of projects and in 2016, started working with MACIMEX

sanding in their refinishing operations. Abranet proved to

on crankshaft production. The company was using abrasives

be at least 30 percent more effective than other abrasive

incapable of reaching the tolerance required for the final

refinishing products, providing a better cost-benefit

product, forcing it to find a new solution. “Clients are looking

relation. Today, Mirka’s sales are 70 percent oriented to

for innovative products and specialized services, in line with

the automotive industry, with 50 percent of its business in

what we have created in the automotive sector,” says García.

the original equipment sector. While remaining a Finnish

“We use these technologies to strengthen our position in the

family-owned company, Mirka is one of the most influential

automotive sector and to make our way into new industries.”

players in the abrasives market, competing with companies such as 3M and Norton Saint-Gobain.

The company is already enjoying a fruitful period and it has high expectations for the years to come. García says 2016

Although the advantages of its products were clear,

was excellent for Mirka, with 25 percent growth compared to

one of the main obstacles Mirka faced from clients was

2015 and 2017 looks to be one of the best years yet for the

fear of change. The company also participates in the

company. García says Mirka plans to maintain steady growth

aftermarket segment, which is a much more traditional

for the next five years, at approximately 25 percent per year.

sector. “Clients are used to doing things in a particular

His priority is to consolidate the company’s existing client

way, so introducing new technology confronts certain

base, while looking for growth opportunities within these same

reluctance,” explains Adonai García. Mirka leveraged its

companies. Mirka also has defined a plan to find new clients,

experience in the original equipment sector to permeate

including Chinese companies that will arrive to the country.

the aftermarket segment. As shops and distributors

The company already works with some of them and ART is

became aware of Mirka’s relationships in the original

its strongest segment. “We see definite growth opportunities

equipment segment they began to test the company’s

considering the potential for Chinese manufacturing activities

products and Adonai García found that paint companies

in Mexico,” he says. “These companies are looking to diversify

were particularly important when gaining the favor of

their target markets and manufacturing and potential exports

potential new clients.

are definitely the most interesting factors.”

INSIGHT

SMALL PARTS, BIG IMPLICATIONS DANIEL ROMERO Americas Automotive Division Manager of Schunk Electro Carbón

Parts supplied to OEMs must meet the same quality

in this segment by the ELCA brand which represents

standards to be sold under the vehicle’s branding and the

approximately 20 percent of its automotive sales. In

importance of a small part cannot be underestimated. As

Mexico, the company traditionally manufactured only

consumers demand more comfortable vehicles, Daniel

original equipment components but its constant growth

Romero, Americas Automotive Division Manager of Schunk

in the aftermarket led Romero to delve into manufacturing

Electro Carbón, says that even Tier 4 or 5 suppliers have to

operations that could also target this segment.

ensure they meet rising expectations. For its original equipment operations, Schunk Electro Schunk Electro Carbón, a subsidiary of the German Schunk

Carbón sources its raw materials from its sister company

Group, is innovating based on its customers’ needs.

in Austria, including the powder mix. But doing the same

“Companies are introducing much more comfort to their

for aftermarket components would be too expensive. “The

vehicles, especially Asian players,” says Romero. “The growth

standards are different in the aftermarket, so companies

opportunity with Asian companies is immense.” The company

cannot justify the investment in manufacturing components

has already established a relationship with Denso, one of

with the same materials as original equipment,” Romero

Toyota’s main suppliers, and Schunk Electro Carbón has been

says. “Instead, we found a way to source the powder

recognized as the best carbon-brush manufacturer within the

mix locally from one of our sister companies in the US

entire Schunk Group. Schunk Electro Carbón produces carbon

without compromising our quality standards. Now, we

brushes for all electric motors in the vehicle. Brushes are the

receive a premixed powder that we finish mixing in our

connecting part that transmit electrical current from a static

Mexican plant. This has helped us reduce our logistics and

to a rotating part in a motor or generator, so without them

manufacturing costs by 40 percent.” Romero says that part

there would be no movement in an array of components in

of Schunk Electro Carbons’ success has been its customer-

the vehicle, including the engine itself.

oriented approach, which has guided its manufacturing and technological development process. The company

“Our customers set minimum requirements for us to

has a zero-defect policy and a goal to solve all customers’

meet. Then we develop products with raw materials of

requirements within 24 hours. Schunk Electro Carbón is

several grain sizes and different specifications to surpass

also constantly innovating its product line and working

their expectations,” explains Romero. Motor brushes are

hand in hand with its customers through simultaneous

manufactured using a sintering process in which metal

engineering processes to offer adequate solutions for all

powder is compacted and sintered below its melting

motor applications.

point. This creates components with defined shapes and high strength as well as improved electric and thermal

The company’s strategies have proven successful with a

conductivity. Depending on the quality of the powder mix,

compound annual growth rate of almost 5 percent in sales

brushes can have better conductivity and higher wear

since 2012. “Even with the uncertainty that plagued the

resistance, which is where Schunk Electro Carbón can

second half of 2016, we managed to increase sales nearly

innovate to make its products more competitive. “A clear

5 percent that year.” Regarding production, the company

example is our work for start-stop motors,” says Romero.

has increased its productivity each year by 10 percent since

“These brushes require more energy and voltage to function

2014 thanks to the implementation of lean manufacturing

while remaining operational for at least 300,000 cycles.”

and best practices, preventive maintenance operations and visual factory concepts. “Our good results have helped us

The company has built strong relationships in the original

reach double-digit growth in our EBIT in 2016. For 2017, we

equipment segment thanks to its hard-wearing components

forecast almost 10 percent growth in sales, maintaining our

and also has presence in the aftermarket. Schunk is known

EBIT in double-digits,” Romero says.

INSIGHT

SEWING SUCCESS: THE IMPORTANCE OF THREAD ROBERTO CÁNOVAS Director General Mexico & CA of Coats México

A vehicle’s performance is based on the sum of its parts

quality, this proves an attractive sourcing alternative for

and many of those parts are held together by thread. In the

Tier 1s and Tier 2s looking to optimize their production

automotive industry, thread used in everything from car seats

costs and lower their logistics overhead, he says. The

to airbags must be manufactured to withstand challenging

company is optimistic about its business opportunities in

conditions of abrasion, wear, sun exposure, flexing and heat

Mexico and Cánovas expects to capitalize on the growth

for an average car lifetime of 14 years, says Roberto Cánovas,

of the automotive market. Cánovas says the company has

Director General Mexico and CA of Coats México.

now located its entire production of airbag thread for the US market in Mexico. “We have a plant in Tlaxcala solely

Coats, one of the founding members of the London

dedicated to airbag thread manufacturing,” he says. “The

Stock Exchange and a leading global industrial threads

plant transforms polyester, nylon and cotton into the final

and consumer textiles company, has developed specific

product, while our factory in Orizaba focuses on color

technologies for the automotive market, where weight and

and finishing.”

resistance are fundamental for product success. Innovation and new technologies have helped add new glues and epoxy

Coats originally had three plants in Mexico — Tlaxcala and

resins to the company’s traditional portfolio of industrial

Orizaba plus a third in Xochimilco. When the company

threads and textiles. The company, founded in Scotland

implemented its environmental strategy Azteca in 2016, the

in the 1750s, manages different brands in its automotive

Xochimilco plant was shut down due to lack of compliance

portfolio including its flagship product Neophil, a range of

with the ecological standards of the region where it was

industrial threads that include nylon and polyester and is

located. Sustainability has now become a priority for

ideal for the automotive industry, particularly for airbags.

Coats and it has put in motion two projects to modernize its operations. In Orizaba, the company plans to build

As a safety component, airbags must be sewn with excellent

a new water-treatment plant that will be ready no later

quality thread to withstand the explosive speed of their

than May 2018. Paint and metal-finishing operations are

deployment, which means that the thread must keep its

among the most water-consuming operations in automotive

integrity while the bag inflates and after a person collides

production and Cánovas says thread-dyeing is heavily

with it. Coats’ Neophil solution provides a three-ply twisted

water-dependent.

bonded thread made up of three nylon filaments that are “precision twisted and bonded to create a circular cross-

The company’s second project is oriented to power

section that is consistently uniform throughout its length,”

consumption in its Tlaxcala operations. “The plan is to

according to the company’s website. Compared to a single-

create a joint-venture that will allow us to source green

ply monochord thread, Neophil distributes the load among

energy,” he says. “Modernization is a slow process that can

three independent plies, which means that if one breaks,

take many months and even years but we hope to reduce

the stitch is not compromised. Its broad portfolio allows the

our energy consumption and be connected to green energy

company to participate in the production of door panels,

generation by 2018.”

spare wheel covers, steering-wheel covers, carpets, floormats, car headliners, convertible tops, gear stick covers, seat belts,

Cánovas says Coats has only been in the Mexican automotive

seat covers and seat trims. “The automotive sector represents

industry for five years but the company is ready to grow its

roughly 25 percent of our global operations,” says Cánovas.

footprint. “We trust in the quality of our products and we are looking for clients that demand technology that only

In Mexico, Coats has the advantage of being the sole

Coats can offer,” he says. “We expect to keep expanding in

thread manufacturer focused on the automotive industry.

Mexico, probably reaching double-digit growth thanks to

Coupled with its manufacturing flexibility and production

the automotive market.”

PLANT SPOTLIGHT

28 million Crankshafts manufactured by MACIMEX to date

MANUFACTURING MEETS INNOVATION In the fast-paced environment of the automotive industry, a company cannot hold its leading position without offering added value to its clients. Founded in 1979, MACIMEX is among the largest independent crankshaft manufacturers in the world. The company’s two manufacturing plants are strategically located close to Mexico’s original automotive clusters, one in the Tenango Del Valle area in State of Mexico, only 45 minutes west of Mexico City, and the other in Ramos Arizpe, Coahuila. Together, the facilities can meet the requirements of MACIMEX’s customers in Mexico, Canada and the US. For more than 38 years, MACIMEX has served global OEM’s in the automotive, agricultural, recreational and off-highway industries, delivering approximately 28 million crankshafts. The company’s expertise allows the company to deliver highperformance components under low or high-volume annual demand requirements, machined from cast and forged raw material, spanning a full engine range from one to eightcylinder configurations. MACIMEX’s high-precision machining and technical capabilities include internal and external milling, gear-shaping, auto-balancing and lightening and central thru-hole drilling. The company can also perform special processes such as induction hardening and plasma nitriding. Its manufacturing sites also include advanced production equipment such as automated assembly cells, state-of-the-art CBN grinders, seven-axis machining centers, as well as high-pressure and ultrasonic washers. Beyond manufacturing, MACIMEX has evolved in its operations to the point of becoming a strategic engineering and product development partner for its customers. “We are not only fostering product improvement initiatives but also looking for ways to improve manufacturing results and new materials development,” says José Canales, CEO of MACIMEX. The company’s Research, Innovation & Advance Development Center (Centro I2DEAS) allows it to convert its technical manufacturing capabilities into highly skilled and experienced operations capable of satisfying all its customers’ needs, from crankshaft prototyping requirements to high-performance and up to 300,000 annual-unit production requirements. “Our philosophy is to be at the forefront of technical advances in the field of complex precision machining and heat-treatment processes, thus allowing our company to become a highly competitive partner to our customer base,” says Canales.

101

Lamborghini Huracan Spider

TECHNOLOGY & DRIVER EXPERIENCE

Technology and innovation are not only reaching manufacturing operations. Cars are becoming more advanced in themselves, transforming into another device rather than just a transportation solution. Connectivity is now essential, paving the way to what one day will be fully automated driving. Driver experience has also been enhanced beyond measure in terms of safety and performance although companies must remain careful to address the latest regulations regarding fuel efficiency and emissions. Although OEMs are driving this transformation, suppliers must also adapt their offering to integrate new trends and maintain their position in the market.

Technology & Driver Experience provides a detailed look at the latest trends in the market regarding fuel efficiency, performance and overall driver experience. Innovation is explained from a supplier standpoint, focusing on disruptive changes that will transform car platforms and user interaction. Luxury OEMs also present their views on how technology is changing and what they expect from the vehicle of the future.

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CHAPTER 5: TECHNOLOGY & DRIVER EXPERIENCE 106

ANALYSIS: Performance, Comfort at Forefront of Innovation

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VIEW FROM THE TOP: René Schlegel, Robert Bosch México

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VIEW FROM THE TOP: Mario Rodríguez, Arbomex

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VIEW FROM THE TOP: Martín Rosales, Goodyear México

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BRAND SPOTLIGHT: Morgan, Elegant Nostalgia

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VIEW FROM THE TOP: José Canales, MACIMEX

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INSIGHT: Guillermo Echeverría, VUHL

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TECHNOLOGY SPOTLIGHT: Goodyear Eagle 360 Urban

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INSIGHT: José Solana, Ferrari Mexico

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INSIGHT: Mario Olea, Bentley de México

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INSIGHT: Martin Josephi, Lamborghini, Aston Martin & Morgan Mexico

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VIEW FROM THE TOP: Martin Josephi, Lamborghini, Aston Martin & Morgan Mexico

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INSIGHT: Eduardo Henkel, Rolls-Royce Mexico

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VIEW FROM THE TOP: Joseph ChamaSrour, Jaguar Land Rover Mexico

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ROUNDTABLE: How Will New Technological Trends Impact Vehicle Development?

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ANALYSIS

PERFORMANCE, COMFORT AT FOREFRONT OF INNOVATION From brake-assist tech to lane-changing safety advances, the modern car is a far cry from its origins as simply a means of getting from Point A to Point B. And in this new era of advanced connectivity, not only does today's vehicle talk to you, it lets your applications 'talk' to each other.

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Gone are the days when cars were just a means of

Engine developers have also felt the impact of increased fuel-

transportation. As technology evolves and more brands

efficiency standards. Eight-cylinder engines, the once-upon-a-

participate in the market, automakers seek to stand out by

time normal configuration for most vehicles, are now reserved

improving driving performance while creating mobility spaces

only for high-performance sports and luxury brands like Aston

that indulge comfort and enhance connectivity with the

Martin and Ferrari. Downsizing has become a priority for

digital world. Performance and passenger experience have

volume brands, resulting in engines of three and four-cylinder

generated two paths for automakers to focus on during their

engines. Models from volume brands like Ford and Nissan that

product-development process, each with its own end-goals

demand high power are now equipped with turbochargers to

and challenges for both OEMs and suppliers.

get the most out of a small engine configuration. According to market research company Markets and Markets, turbochargers

Performance, on one side of the coin, has focused on

are expected to have a compound annual growth rate of 7.63

enhancing the driver experience by delivering vehicles

percent and a potential market size of US$18.5 billion by 2021.

with a higher power output while also delivering more fuel efficiency. To manage this, OEMs must perfect a vehicle’s

The other side of the coin is to improve passenger experience.

design to improve aerodynamics and reduce drag, using

This focus has created a new business for developing better

lighter materials in as many components as possible.

electronics that provide connectivity between the car and

Previously, these were mostly concerns for sports car

mobile devices, and for components that ensure greater

brands but drastic times call for drastic measures. The US

comfort for the passenger. “Cars will become an extension

Environmental Protection Agency and the National Highway

of your office or your living room,” says Torben Eckardt,

Traffic Safety Administration have set fuel efficiency and

Managing Director of Volvo Car México.

consumption standards for 2025 at 54.5 mpg (23.17 km/L). This represents an increase of almost 50 percent

Infotainment solutions have now evolved to the point of being

from the latest standards presented by the US Bureau of

as advanced and complex as cellphone platforms. Moreover,

Transportation Statistics, at 36.4 mpg (15.5 km/L).

software developers like Apple and Google have now developed their own automotive systems: CarPlay and Android

The 2025 efficiency goals are under revision once more

Auto. The line dividing automotive suppliers and IT providers

after automakers and US government representatives

is blurring as technology companies become more involved in

expressed concerns over their impact on production costs

the development of new vehicles. “Particularly when managing

and the final price for users. Nevertheless, fuel efficiency is

volume, collaboration between companies is a powerful tool to

an ongoing trend that all automakers are trying to follow.

reduce production costs,” says Radek Jelinek, President and

That puts the spotlight on suppliers participating in the

Director General of Mercedes-Benz México.

production chain. Raw materials suppliers have found a market niche in the use of lightweight materials including

Samsung Electronics is a clear example of the importance

metals like aluminum, as well as polymers and composites

technology companies are placing on the future of the

that can be used alongside steel. The introduction of

automotive industry. To take advantage of the business

these new alternatives to steel has also led to the use of

opportunities in the industry, the company acquired the sound

more adhesives to replace traditional welding techniques.

system giant Harman International Industries. “The close of

“Components are now made of plastic even when they have

this transaction opens the door to create substantial growth

a structural or mechanical role,” says Juan José Zaragoza,

opportunities and to deliver greater benefits for customers

Marketing and Sales Manager and Mexico Country Leader

worldwide,” said Young Sohn, President and Chief Strategy

of DuPont Performance Materials - NEP/HPS. “Polymer

Officer of Samsung Electronics, and Chairman of the Board

components have made vehicles not only lighter but safer.

at HARMAN, in a statement issued after the completion of

Auto parts now have a higher impact resistance, have a

the acquisition. “We see transformative opportunities in the

longer lifespan and are better adapted to manage harsh

car and a future that seamlessly connects lifestyle across

environmental conditions.”

automotive, home, mobile and work.”

VIEW FROM THE TOP

A CLEAN FUTURE FOR THE INDUSTRY RENÉ SCHLEGEL President of Robert Bosch México

Q: How are you reacting to changes in the automotive

all have their merits. We must only consider issues such as

industry and new trends favoring mobility alternatives?

effectivity, efficiency, availability and ease of distribution to

A: The idea that the car industry is changing is wrong.

determine how best we can apply each of these alternatives

What is evolving is the transport and mobility industry; the

to transport people or cargo. We still see great potential for

automotive industry is an important part of that. Companies

the internal combustion engine too, mainly because of the

that cannot identify this wider framework are doomed to

energy density in carbon-based fuels. Further improvements

stagnate or even disappear. The car is just a means to an end,

in terms of efficiency and cleanliness for this type of

to transport people and goods from one place to another.

powertrain remain promising options for many applications.

The real concern facing the industry is how to improve mobility by transforming existing solutions or by developing

Q: How has Bosch’s R&D initiative in Guadalajara evolved and

new ones. Companies must identify client needs and react to

what has been your experience concerning Mexican talent?

them, offering the fastest, most convenient and cost-efficient

A: The project has been a success although it was not

solution that damages the environment the least. We want

easy at the beginning. The center in Guadalajara is heavily

to provide important input to drive such solutions.

oriented toward development, which is still not common in Mexico, and we had a hard time selling the idea internally in

Q: How is Bosch working to develop cleaner and

the beginning. We developed the project in collaboration

environmentally friendly solutions for its clients?

with Bosch India starting with 11 people in 2014. Today,

A: Developing cleaner products has been one of our core

we have 280 engineers working at the site and we have

values since the company was created. Bosch strives for

proven that there are very skilled and talented people in the

safer, cleaner and more comfortable solutions across all

country, capable of delivering projects on time, on cost and

the industries we serve. These three factors are driving

on spec. Our employees in Guadalajara come from different

innovation in the mobility sector too and we assign

STEM backgrounds (science, technology, engineering and

considerable resources to develop technology around them.

mathematics), creating an interdisciplinary environment

We spend approximately 10 percent of our turnover on R&D

that fosters innovation. Our demand for R&D projects in

activities, which amounts to nearly US$10 billion per year.

Mexico is now booming, both from internal and external customers domestically and internationally.

Q: What opportunities do you see for Bosch in alternative powertrain applications?

Q: In what ways do you see the automotive industry being

A: There has been tremendous progress in electrification

affected by external influences?

and how energy is being produced. But getting your energy

A: During uncertain times, companies and investors need

from a plug does not mean using clean power. There are

to separate the wheat from the chaff, reinforcing calm

still challenges the industry must address including making

among investors, associates, academia and politicians where

electrical energy storage and charging more efficient,

possible. Companies must keep advancing, cautiously maybe,

lighter, faster and cheaper. But the fact that these challenges

but never stop innovating or offering the best possible value

exist represents a great opportunity for the industry to

to their customers and stakeholders. Standing still because

meet considerably more challenging standards. There are

of uncertainties is not an option, prudence is.

plenty of energy alternatives the industry could embrace, used individually or in combination. Some players are still interested in hydrogen. Chemically, this substance is one

Robert Bosch is a leading supplier of automotive components,

of the simplest molecules available in abundance, which is

including gasoline and diesel systems, electrical drives, starter

precisely what makes it interesting. But we don’t think there

motors and generators. The company generated US$82.4

is just one solution. Gasoline, natural gas and electric engines

billion in sales in 2016 and US$3.7 billion in EBIT

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VIEW FROM THE TOP

NEAR-NET GEOMETRIES, HEAT TREATMENTS, ALUMINUM TO STAY CURRENT MARIO RODRÍGUEZ CEO of Arbomex

Q: What are Arbomex’s goals in terms of material and

Q: How will Arbomex address the growth of electric and

process innovation?

hybrid cars in the industry?

A: Our main strength is our vertical integration between

A: The three main drivers for the automotive industry are

iron foundry and precision machining. This integration

mobility, connectivity and alternative energy sources.

gives us enough competitiveness to stand up against our

By 2035, we expect electric vehicles to take over the

international counterparts. In terms of innovation, we have

market and we are preparing to face this development

substituted steel products with heat-treated iron. Our next

accordingly. We must take the elimination of camshafts

step is to develop a foundry process for iron that can replace

as a likely scenario and that will lead the company in two

steel without the need for an additional heat treatment.

directions. The internal combustion engine, although it may be limited, is unlikely to disappear and we want to be the

We are waiting to obtain the first patent for a camshaft

best camshaft company in the world. At the same time,

manufactured through a foundry process of iron and

we are targeting the heavy vehicle industry, particularly in

steel. This will be a disruptive improvement for the engine.

parts that are expensive to manufacture. We plan to move

Combining both materials will result in less weight, lower

toward other types of components, delving into near-net

costs and better injection-system performance. We need

geometries and new materials like aluminum.

to work on our testing processes, to assure our clients that this component will provide better quality at a lower cost.

Q: How has Arbomex’s possible joint venture with a Japanese company evolved?

Q: How can Arbomex solve engine and injection-system

A: The company wants to take advantage of the experience

problems to improve vehicle efficiency?

Arbomex has in the Mexican market but recent exchange

A: There is a trend to change the traditional Otto cycle

rate volatility and the situation between Mexico and the US

in an engine to the Atkinson model and that puts a lot of

has slowed the process. But negotiations have not halted

pressure on the camshaft. This component operates the

and we hope to finalize the deal before the end of 2017.

valves that will allow air to enter and exit the cylinders thus controlling the moment fuel is injected to the engine. We

Q: How can Mexico attract further investment in advanced

have a specialist dedicated to analyzing several types of

manufacturing and design processes?

engines and establishing a benchmark of the advantages

A: Software and basic engineering processes are still

each presents. That way we can offer several solutions

carried out abroad. Most design centers in Mexico focus

for our clients to choose whatever works best for their

on small changes and product adaptations according

performance, cost and efficiency objectives.

to the region but the base design is done in Germany, Japan or the US. Each day more and more universities are

Suppliers are increasingly involved in the design process

collaborating with companies to encourage innovation

for new components. This allows us to analyze and test all

and entrepreneurship among students. Some institutions

aspects related to a new part, along with its manufacturing

already have excellent manufacturing and material

conditions and related costs. That is how we designed

research centers but the industry would benefit from

a solution for one of our main customers. The system

more integration with them.

previously had only one cam and we added another two. That way, according to the fuel demand and speed stability, one or maybe two cam actions could reduce fuel

Arbomex is a Mexican company that specializes in engine

consumption. Our improvements may be advantageous in

component manufacturing. This includes camshafts, foundry

terms of manufacturing or logistic costs and the client must

and machined precision parts. Its main export destinations are

decide how best to alter its operations.

the US, the Czech Republic, Germany and China

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VIEW FROM THE TOP

EXCELLENT RESULTS DESPITE CHALLENGES MARTÍN ROSALES President and Managing Director of Goodyear México

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Q: How did external factors impact Goodyear ’s

of infrastructure for vehicle manufacturing indicate that

performance in Mexico in 2016?

by 2020 there will be 5 million vehicles produced per year.

A: We saw excellent year-end results in 2016 compared to

Those vehicles will require the type of tires that we decided

2015, which was challenging within the context of an economy

to produce in Mexico. The old vehicle park needed tires for

with slower growth. The projections for GDP growth for 2016

13 or 14-inch rims. Everything that is currently bought in

were overestimated and the Mexican peso’s value weakened

Mexico is for 16-inch rims or larger and that vehicle platform

unexpectedly following the US elections. In 2015, the currency

requires production of high-performance tires. They must

devaluation was associated with oil prices, so when we worked

also meet increasingly complex technical specifications.

on our plan for 2016 we did not anticipate these challenges.

Few manufacturers in the industry can meet the technical

Changing circumstances forced us to revise our plan, adjust

requirements of cars being sold today.

decisions and act on a larger scale. The plant we will open in 2017 will have top Goodyear We have grown in volume by improving the mix of products

technology, even more advanced than our other 50 sites

we sell and increased profitability by efficiently handling

around the globe. The quality of our staff and processes

our costs, finally leading to the financial results of 2016.

will afford us high-performance products to fit vehicles to

Alongside other Latin American countries with different

be produced in Mexico. Even though the plant will begin

economic contexts, Mexico’s automotive industry registered

production in the second half of 2017, we have already hired

record production levels in 2016 and new vehicle sales in the

more than 400 personnel for the 1,000 direct jobs we want

local market helped spur our double-digit growth.

to create.

Q: What is Goodyear’s participation in the original

Q: How adept is the local workforce in skills they will be

equipment segment in Mexico?

using at Goodyear’s high-tech facility?

A: We always maintain our position as the first or second-

A: We have been recruiting a completely Mexican workforce

biggest brand in the country, both in car and SUV

for the new plant. Last year, we developed the content of

applications. This latter segment is growing quickly along

several school programs that could be useful for the plant

with the light truck segment, especially in the north of

in collaboration with the National College of Technical

Mexico. We participate in original equipment in all vehicle

Professional Education (CONALEP), located in San Luis

platforms as part of our company strategy, preparing for

Potosi. We took 100 people to be trained outside of Mexico

the consumer trends of the future.

for four months and teams went to the US, Slovenia and Brazil for onsite training at Goodyear plants. This allowed

Q: What need will Goodyear’s new production plant in

them to see our quality standards and become familiar with

San Luis Potosi address when it starts operating in 2017?

the technology they will handle.

A: Our plant’s production will begin in mid-2017. In April 2015, we invested US$550 million to create the new Mexican plant

More than 4,000 candidates applied, which confirms the

and construction is progressing as planned. During 2016, 3.4

availability of local talent. In each of the plants they visited,

million vehicles were produced in Mexico and projections

weekly reports were made of the process evolution and our plant managers did not want to let the Mexican students go because they were so good. It did not surprise us that

The Goodyear Tire and Rubber Company is a multinational tire

the talent we found in Mexico was more than qualified and

manufacturer founded in 1898. Goodyear generates sales of

we confirmed this when we sent them outside the country.

over US$15 billion per year from Goodyear tires and its related

These trainees came back to Mexico and began to train

brands: Dunlop, Kelly, Fulda, Sava and Debica

other people who will be part of our plant’s operations.

Q: What are the main trends driving innovation for

compromising performance. The damaged part will have

Goodyear’s operations?

no contact with the road and the Eagle 360 Urban will

A: There are two major trends in the automotive industry.

begin to self-repair thanks to recent advances in artificial

The first is looking for energy sources or alternative fuels

intelligence.

that are eco-friendly and the second is to improve the driving experience, particularly as the industry moves

Q: How is Goodyear innovating to improve the impact its

toward autonomous vehicles. In alternative fuels, the most

products have on the environment?

commonly seen advances are in electric cars. 'Goodyear

A: From a manufacturing perspective, Goodyear does

innovatively designs and creates new products for electric

many things around the globe to show its ever-growing

vehicles in preparation for the market of the future.

commitment to the environment. An example is the new San

Driving an electric car is a much quieter experience than

Luis Potosi plant, which will be a zero-waste-to-landfill and

driving a gasoline-fueled car and this must be taken into

zero-solvent facility. It will use natural gas, energy-efficient

consideration when developing new products for this

LED lighting and top-notch dust-collection equipment.

segment.

Some of these environmentally friendly initiatives are standard for all our facilities.

Another innovation that Goodyear unveiled at the Geneva International Motor Show was its latest concept tire, called

From a product perspective, there are also several factors

Eagle 360 Urban. It is designed for the cities of the future,

that make Goodyear products more efficient for customers

which will have vehicles that are not only silent but also

and their vehicles. We have technologies such as FUELMAX

autonomous. Among the advantages of the concept tire

or our Efficientgrip tire line that lower rolling resistance. This

is that by being spherical, it allows the vehicle to move in

not only lessens our clients’ fuel-related spending but also

any direction. One of the most interesting developments

decreases emissions, thus helping the environment. These

we worked with was that when the tire detects water or

initiatives, technologies and products are strong statements

a surface variation it can adapt its shape, or if it senses a

to our unbroken commitment to the environment and our

defect on its surface, it will rotate to compensate without

customers’ satisfaction.

BRAND SPOTLIGHT

MORGAN, ELEGANT NOSTALGIA There is a brand of unique cars that evokes the nostalgia of

“We decided to add the 3 Wheeler to our product catalog and

classic cars but with modern technology included. Morgan has

it worked very well. People fell in love with the brand, with

been in the market for 120 years, preserving its personality and

the cars that look very classic. It is a relatively new product

surviving the times. The brand has even stayed in the family

that they had made in the 1950s and now revived. It is for

through the years. To date, the British company is most known

people who like vintage designs,” said Martin Josephi, Director

for its Aero 8 model, the Classic and the 3 Wheeler.

General of Lamborghini, Aston Martin & Morgan Mexico.

The success of the Morgan Motor Company was founded

With the help of Lamborghini, Morgan managed to bring

on an icon, the Morgan 3 Wheeler. This brilliant but simple

its fun vehicles to Mexico in 2016, updated with new

design by Henry Fredrick Stanley Morgan became one of

technology. Its power train is a V-twin fuel injected engine,

the most successful lightweight cars of the early days of

which gives it the motorcycle sound, and is mated to a

motoring. The three-wheeler, which the company describes

Mazda 5-speed gearbox.

as simple design done brilliantly, is fitted with a powerful motorcycle engine and a simple transmission in a light-

There is nothing like the unique design of the three-wheeled

weight chassis. The market in Mexico for different types of

car but Morgan also has a line called Classic. Josephi says

vehicles is growing due to urbanization, overcrowding in

that it is so well-designed that it is hard to differentiate

cities and parking lots. At the beginning, when Morgan’s

between a 2017 and 1958 version because the craftmanship

team was deciding whether to export these types of models

has been preserved and the manufacturing is done by

there were doubts, but the country’s need for alternatives

hand. The Classic that was brought to Mexico comes with

persuaded them to take the risk. Fortunately, the

a 6-cylinder twin-turbo engine that gets 300hp, and an

expectations of the agency and the factory were exceeded.

excellent gearbox, according to Josephi.

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VIEW FROM THE TOP

PREPARING TO FACE FUTURE TRENDS JOSÉ CANALES CEO of MACIMEX

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Q: Considering the automotive industry’s development,

A: During 2016, we focused on the consolidation of our

how is MACIMEX positioned to meet its clients’ demands?

current projects, fostering new partnerships with our

A: MACIMEX's current manufacturing footprint is more than

existing customer base as well as making new inroads with

capable of satisfying all our customers’ needs from both our

potential Asian and Korean customers, particularly those

locations: our Tenango del Valle plant in the State of Mexico,

with established Mexican or NAFTA engine-manufacturing

and our Ramos Arizpe facility in Coahuila. Historically, we

operations. Additionally, MACIMEX pursued and started

have provided goods and services to not only NAFTA-

preparing for new projects oriented toward non-automotive

located customers but we have also exported directly to

industries such as recreational and off-highway customers.

South America, Europe and Asia with highly competitive advantages.

Our growth projections are developed based on five- and 10year strategies, in line with our products’ lifespan. However,

MACIMEX has demonstrated efficiency at providing

our main objectives for 2017 are to guarantee the success

end products that meet the strictest end-customer

of new standard operating procedures we have put in place

specifications, from prototype design to end-of-program

for 2017 and 2018. We want to optimize our operational

lifespan, as well as from low to high annual volume demand

capabilities and most importantly, develop a clear connection

either per SKU or set of SKUs, according to product families

between our manufacturing operations and the company’s

ranging from 5,000 units up to 300,000 units per year.

R&D efforts, led by MACIMEX’s I2DEAS (Innovación, Ingeniería y Desarrollo Sustentable) center, in close coordination

Q: Last year, you said that lightweight trends were crucial

with our corporate direction “SIQ” (Sistema de Innovación

in your line of business. How are these affecting your

QUIMMCO). Our company goals are to ensure these research

processes?

and development activities materialize in the form of new or

A: The industry is shifting either to lightweight vehicles

more efficient processes, products or a combination of both

— those utilizing three and four-cylinder engines — or

to benefit our clients and meet their needs.

high-performance cars with either six or eight-cylinder turbocharged engines. To be competitive in these product

Q: With the evolution of electric and hybrid powertrain

segments is quite different. One requires highly flexible

applications, what does MACIMEX’s future look like?

and quick change-over and turnaround manufacturing

A: The electric vehicle revolution is a trend that under the

processes, while the other demands super high-speed

traditional scenario could hinder any company dedicated

manufacturing operations to deliver three and four-cylinder

to traditional engine components. However, we do not see

crankshafts in a competitive way. Our company is working

this as the case for MACIMEX. If we analyze the annual

in both arenas, developing state-of-the-art manufacturing

global demand for engines versus the projected demand for

lines and ensuring total satisfaction for our customers

electric vehicles, particularly on a region-by-region basis,

focused on six and eight-cylinder engines.

we do not forecast a demand greater than 20 percent for electric vehicles by 2035. Thus, instead of shrinking,

Q: What was MACIMEX’s main focus in 2016 and what are

opportunities most likely will increase for companies

your expectations for 2017?

such as ours. Our target customer base will be required to explore and divert resources to the development of electric vehicles, providing us an important opportunity to

MACIMEX was founded in 1979 as a subsidiary of Grupo Quimmco.

expand with them as they explore new opportunities. At the

The company is one of the largest independent crankshaft

same time, the niche market for high-performance six and

manufacturers in the world. MACIMEX has two manufacturing

eight-cylinder engines will most likely expand, thus giving

plants in Mexico, in the State of Mexico and Coahuila

us greater opportunities in this field.

INSIGHT

“

RACING PILOTS PUT MEXICAN ENGINEERING TO THE TEST

Everything can be done better with its next generation” Guillermo Echeverría, Director General of VUHL

supply global demand. The company is focused on optimizing its production process and one of Echeverría’s goals is to grow VUHL's local supplier network. “This is a midterm goal for our company,” he says. “We have been able to increase our local supply for several specialized processes.” The challenge VUHL faces to increase its local content is the specialization of its operations. “Our products are

Mexico is globally attractive as a high-quality manufacturing

highly demanding in terms of performance and aesthetics,”

destination for the automotive industry but not as a

Echeverría says. “We are in constant communication with our

technology development hub. According to Guillermo

suppliers, ensuring each part arrives on time and according

Echeverría, Director General of VUHL, this status can only

to specification.” After having developed the next generation

be gained by sustainable results over time.

of its debut model, the VUHL 05RR, Echeverría still sees innovation as the driving force behind VUHL’s growth.

As the only active Mexican supercar OEM, VUHL had to

“Everything can be done better with its next generation,”

work with the strictest quality standards to attract both

he says. “Our R&D team is on a continuous search to make

investors and customers to its products. After taking its

every part of the car lighter, stronger and better performing,

initial steps in 2008, VUHL is now growing its brand in the

squeezing in some mutations from time to time.” The car was

international automotive market with dealerships not only

unveiled at the Goodwood Festival of Speed, which according

in Mexico but in the UK, Kuwait, France and the US. To

to a statement from Iker Echeverría, Technical Director of

gain this presence, the brand had to rely on a heavily R&D-

VUHL, “is a mecca for performance car aficionados and the

oriented strategy and an out-of-the-box proposition that

perfect place to reveal the stunning new 05RR.”

could distinguish the first VUHL 05 from other supercars with years of experience in the market. Mexican at its core,

Echeverría and his team have worked to promote the image

VUHL’s development is now an international effort in terms

of Mexican engineering and the VUHL brand throughout

of production and final assembly. The car’s carbon fiber

the world. One of the company’s latest successes was its

body — the reason for its lightweight characteristics and

participation as a partner in the Race of Champions in Miami

high-power performance — is manufactured in Canada,

in January 2017. The VUHL 05 ROC Edition was specially

while the final assembly is done in Mexico.

modified to handle the demanding conditions of the Miami race track and some of the best drivers in the world, such

With an investment of MX$65 million (US$3.7 million) the

as Jenson Button and Sebastian Vettel, had the opportunity

company opened its manufacturing plant at the Technological

to race in one of the white, orange and black 05 ROCs. “We

Innovation Park in Queretaro in 2016. Fully ramped-up, VUHL’s

think we are walking on the right path and are happy to see

plant has a production capacity of 60 vehicles per year.

our first customers now buying their second VUHL 05 from

However, for Echeverría, 25 cars are more than enough to

us,” says Echeverría.

VUHL 05

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TECHNOLOGY SPOTLIGHT

GOODYEAR EAGLE 360 URBAN Have you ever wondered why parallel parking is so complicated? It would be much simpler to just pull over next to a free space and slide into it horizontally. However, tires and current directional systems do not allow for such simple measures. That could change thanks to Goodyear and its “smart” Eagle 360 Urban tire concept. “A revolution will take place at the intersection of autonomy, mobility and connectivity,” Jean-Claude Kihn, President of Goodyear Europe, Middle East and Africa, told the 2017 Geneva Auto Show. “Tire technology will be even more important than it is today. To safely navigate their surroundings, the autonomous vehicles of the future will need to learn to cope with the millions of possible unknowns we face in every day driving experiences.” Unveiled at the Geneva show, Goodyear’s concept of a spherical tire is expected to be 3D-printed and will employ artificial intelligence, which would allow it to feel and interact with its environment, deciding and transforming accordingly. The Eagle 360 Urban would be suspended by a magnetic field, allowing autonomous vehicles to move in every direction in a fluid motion to better maneuver across urban areas.

Eagle 360 Urban was revealed at the 2017 Geneva Auto Show The company wants to manufacture the Eagle 360 Urban with bionic skin printed with a super-elastic polymer. This would make the tire as flexible as human skin, allowing it to expand and contract as needed to maintain control of the vehicle regardless of the terrain. The tire’s skin would be covered in sensors to obtain road information. That would help the Eagle 360 Urban make the decision to open holes and grooves in rainy conditions or change to a smoother surface in dry environments. The tire’s smart nature would also allow it to self-repair. Sensors locate the damage to the tire’s skin and rotate the tire to create a patch. During the process, there is no need to stop the car. In case of severe damage, the Eagle 360 Urban can connect with a service station to arrange a quick replacement.

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INSIGHT

MORE THAN A CAR, A UNIQUE EXPERIENCE JOSÉ SOLANA Managing Director of Ferrari Mexico

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After seventy years of history, Ferrari has become the poster

a popular model as a family option, according to Solana,

company for aspirational brands and Mexican clients are no

joined by the California, which is a convertible. The 488

strangers to its effects. José Solana, Managing Director of

Spider is currently the brand’s most popular model in the

Ferrari Mexico, says a new generation is looking at Ferrari

country, which Solana says is mainly because of its convertible

and Ferrari is looking back. “Successful clients between 20

nature. Standardization is not a concept high on Ferrari’s list of

and 30 years of age are now our most avid customers. The

priorities. “People come with a defined idea of what they want

generational change brings much more informed clients.

and we help them make that vision a reality by customizing

They are aware of the technology in our cars and await

the car’s every detail,” says Solana. Clients can choose the

special editions coming to the market.”

color of the interior leather, of the brake calipers and even of the seat’s stitches.

The brand’s dealerships in Mexico City, Guadalajara and Monterrey sold 40 vehicles in 2016. Compared to the 1.6

In addition to all possible vehicle configurations, Ferrari has

million vehicles of all brands sold in Mexico every year, 40

several special and limited editions available and Solana says

might not seem impressive. But only 7,000 Ferraris are

Mexican clients actively bid for these vehicles. For Ferrari’s

produced every year. North America is the largest market

70th anniversary in 2017, the company launched the LaFerrari

for Ferrari and the US alone represents 45 percent of the

Aperta at the Paris Autoshow in 2016 as a commemorative

company’s total sales, buying over 3,000 units. Mexico is

edition, announcing that only 200 units would be available

only 0.5 percent of Ferrari’s business, according to Solana,

worldwide. Solana says that two Apertas have already been

but the country is still more attractive than other European

sold to Mexican clients and they are expected to arrive in the

markets such as Spain.

country by the end of 2017. The only downside to coveting limited editions like the Aperta or the new 812 Superfast

Clients can have different priorities when choosing a car but

presented at the Geneva Auto Show, aside from price tags,

with a Ferrari, the most relevant technological feature is its

is that the plant in Maranello, Italy chooses which clients are

engine. With a V8 or V12 configuration, Ferrari’s engines are

eligible to buy them. Ferrari holds client records showing

among the most powerful engines in the market, delivering

how many cars they have purchased and how many they

between 670 and 780hp. “The engine has always been

still own, to reward clients who have been the most loyal

the most attractive feature in a Ferrari. Its performance is

to the brand.

unparalleled and even its sound is alluring,” adds Solana. Ferrari cars can easily reach speeds over 300km/h in off-

Whether regular or limited edition, once clients have their car,

track conditions. Formula 1 has had a massive impact on how

they have access to all the events the company organizes as

Ferrari’s technology evolves. The LaFerrari model includes

part of the Panorama Ferrari calendar. The carmaker organizes

a 200hp electric motor connected to a kinetic energy-

driving experiences year-round where clients can use their

recovery system, which is a similar system to that used

cars to their full potential. Twice a year, the Festival Ferrari in

by the Ferrari team’s. Formula 1 car, also helped introduce

the Hermanos Rodríguez Autodrome is open the entire day

engine configuration systems for different environments

for track driving. Ferrari also offers specialized driving courses

and road conditions. Now, cars can adapt to rainy or snowy

under the Corsa Pilota program, covering everything from

roads at the touch of a button.

how to sit properly to how to use the world-famous engine to its full potential. Although these courses are normally located

In Mexico, four cars stand out as the brand’s flagship models.

in the US, Canada and Italy, Ferrari’s new initiative Corsa Pilota

The F12 Berlinetta is the top of the line, followed by the 488

Around the World brought the brand’s Italian training team

that took the 458’s place with both its coupe and cabriolet

to Mexico for the second year in a row in 2017. “Our clients

Spider versions. Being a four-seater, the FF has also been

not only buy a car, they buy a whole experience,” Solana says.

INSIGHT

A PARTNER CAN GET YOU A LONG WAY MARIO OLEA Director General of Bentley de México

Constant evolution is the key to success, now more than

This is no easy feat considering that the Continental and

ever. With shorter average development cycles of 24

Mulsanne models weigh over 2 tons on average. Thanks to

months and new technology advances regularly hitting the

the incorporation of lightweight components in the cars’

industry, companies must be prepared to invest in R&D,

internal structure and engine technology development

engineering and services to remain competitive. Bentley

however, the brand can offer clients a true sportscar

found the perfect patron in the Volkswagen Group back in

feel. The company has a long racing history, including

1998 and the group continues to inject resources to ensure

participating in the 24 hour Le Mans race, which helped it

the brand’s constant evolution and technological growth.

perfect its engine technology. Today’s Bentley models can go from 0 to 100km/h in just 4.1 seconds, operating with

At the turn of the century, Bentley sold approximately

either of two engine configurations, V8 or W12. Olea says

2,000 vehicles per year. After Volkswagen’s involvement

that the W12 configuration is the most in-demand by clients,

and following an investment of US$2 billion in Bentley’s

as it can deliver between 582 and 640hp.

plant in Crewe, England, the company consistently grew until it surpassed the 10,000-car mark for the first time

Impressive credentials have not stopped the company

in 2009. In 2016, Bentley sold over 11,000 vehicles and

from improving its existing lineup. In 2015, Bentley took its

according to Mario Olea, Director General of Bentley de

range a step further, presenting its first SUV at the Frankfurt

México, the forecast for 2017 is to reach sales of 13,000

Motor Show. The Bentayga, built on Volkswagen’s MLP

units. Bentley will celebrate its centenary in 2019 but in

platform, became a cornerstone of the company’s positive

Mexico, it commemorated its 10th anniversary in 2016.

expectations and is currently the brand’s most popular model. “The Bentayga has helped us approach new client

In its 10 years in Mexico, Bentley has sold 150 units,

segments, including women who view Bentley’s other

maintaining stable sales numbers of between 15 and 20

models as too masculine,” says Olea. “Being an SUV, it has

vehicles throughout the years. “In Latin America, Bentley

advantages in Mexico on handling the difficult conditions

commercializes around 25 vehicles per year, making

drivers encounter on city roads and it offers an off-road

Mexico the biggest market by far,” says Olea. “Big growth

performance that outshines other Bentley models.” The

opportunities in the region are undeniable so by 2022, we

company is also riding the electrification wave and presented

might be looking at sales of 100 vehicles per year.” The

an electric concept at the 87th Geneva Auto Show called

company has plans to grow in Mexico and although it will

the EXP 12 Speed 6e Concept. Bentley is analyzing hybrid

still be part of the Volkswagen Group, Olea says Bentley

motorizations and according to Olea, it has leaned on much

will be more autonomous in its operations. “We aim to

of Volkswagen’s knowledge to evolve with this trend.

increase sales to 20-25 vehicles per year by the end of 2017, maintaining stable results in the coming years.” Pushing

With modernization, however, comes the risk of losing

Bentley to increase its sales was one of Volkswagen’s goals

originality. That is why Bentley has remained cautious

after acquiring the company. One of its main strategies was

in maintaining its DNA which, in Olea’s words, comes

to ditch the stigma that related Bentley with older people.

down to just one thing: perfection. “We will never give up

Today, the average age of its clients is between 30 and 45,

our artisanal approach,” he says. Even so, the company

according to Olea, but to manage that, the company had

is committed to technological improvement when

to grow in terms of technology and performance.

automation is necessary. The company keeps investing in new manufacturing technology and equipment and Olea

“Bentley offers the best of both worlds,” says Olea. “Since

says production of the Bentayga has sped up to take only

its conception, the brand wanted clients to enjoy a luxurious

150 hours, thanks to advances in robotics and automated

vehicle with a sports car’s performance under the hood.”

operations. It seems progress cannot be stopped.

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INSIGHT

A NEW WORLD TO CONQUER: THE SUV

“ 118

Some years ago, luxury cars were not sold as much, but since 2015 we have started to see unique cars arrive on the market with higher prices”

such as the Porsche Cayenne, of which 8,015 units were

Martin Josephi, Director General of Lamborghini, Aston Martin & Morgan Mexico

Brazil, Peru and Chile. The country makes up more than

delivered to Germany alone in 2016. Sales growth in 2017 is not expected to be as marked as the 30 percent seen in 2016. The company expects sales to grow 10 percent. But by 2018, with the SUV on board, the brand could grow 80 percent, according to Josephi. This is possible because as a brand with low volume production, when a new model comes out, sales peak. In Latin America, Mexico is the number one country in sales, higher than half the company’s sales in Latin America. The brand’s reputation rests on years of innovation and

Sales of performance cars, a natural market for luxury

performance and Lamborghini will continue to market

models like Lamborghini, are on the rise in Mexico thanks

its rapid race contestants. “Some years ago, luxury cars

in part to loan accessibility. But there are other worlds

were not sold as much, but since 2015 we have started

to conquer and the Italian brand’s first bet on SUVs is

to see unique cars enter the market with higher prices.

pumping expectations at the company, says Martin

Now that there is more presence of premium models and

Josephi, Director General of Lamborghini, Aston Martin

more marketing, this segment in Mexico is prospering,”

& Morgan Mexico.

Josephi says.

For Lamborghini, revolutionary thinking remains a staple.

Director General of AMDA Guillermo Rosales told Mexico

The company is always looking to make exotic vehicles

Automotive Review 2016 that a rise in the availability

with great performance, featuring the latest and most

of car loans has boosted the possibility for people to

exclusive technology, and it is applying those trademarks

buy performance vehicles, making it the “most active

to the Lamborghini Urus, set to arrive in mid-2018. These

category” of car sales. As financing is expected to

SUVs will use turbo V8 engines and are envisioned to

increase, all sports car manufacturers are likely to see

be hybridized in the future. As Lamborghini branches

sales for the more affordable models rise. The Huracan

beyond the sportscar market, by preparing for the SUV

is the lowest-priced model to break the Nürburgring

segment, the company is entering one of the fastest-

record and did so thanks to superior aerodynamics, which

growing areas of the automotive market, while the market

Lamborghini calls Aerodinamica Lamborghini Attiva. Its

for smaller cars remains stable.

2L V10 aspirated engine is not to be sniffed at though, which boosts torque to output 640hp.

Josephi says the possibility of launching hybrid models will depend on the SUV’s reception as much as the local

Beating the Porsche 918 Spyder with a time of 6 minutes

market’s development, since the Urus will have turbo

52.01 seconds on one of the most admired tracks, where

engines despite the target market being less likely to

brands put their vehicles’ performance to the test, the

take it to a race track. The Lamborghini plant is currently

Hurucan was a breakthrough for other brands. With it,

100 percent carbon-footprint neutral, taking its green

Lamborghini announced that a smaller car had arrived

intentions beyond what is offered to the consumer.

to outstrip them all. Its weight has been reduced to give

Lamborghini intends to keep possible environmental

the V10 an even better chance at excelling, 40kg was

damage to an absolute minimum during the production

dropped just through using carbon fiber. To keep the

process.

car grounded amid improved aerodynamics and lower weight, both the front and rear of the car have spoilers

The company’s optimism about the SUV project is evident

and adaptable intakes, to improve grip on curves.

in that they are expanding its carbon-neutral factory in Sant’Agata, Italy, exclusively for the SUV. “We are going to

“Our range of products has grown from the Huracan with

make thousands, looking for a larger volume but retaining

rear-wheel drive to the Aventador SuperVeloce and the

Lamborghini’s quality and prestige,” says Josephi.

Centenario, of which only 40 will be available worldwide.

Production of the model will not exceed 8,000 units,

Two of these models will arrive to Mexico in 2017,” says

however, protecting its exclusivity compared to models

Josephi.

VIEW FROM THE TOP

PERFORMANCE, LUXURY AND STYLE MARTIN JOSEPHI Director General of Lamborghini, Aston Martin & Morgan Mexico

Q: What value does Aston Martin place on the technology

could say that the DB family is the classic, timeless model

within its vehicles?

while Vanquish is the extreme version of Aston Martin.

A: The brand does not neglect technology within the car. Since we are not experts in this regard, we

Vantage models are a completely different platform,

started collaborating with Mercedes-Benz regarding

with a sportier focus. It can be compared to Lamborghini

infotainment. All the technology for the vehicle’s interior

models. Vantage cars do not come with much equipment,

is something in which Mercedes excels, so we worked

which allows the car to carry less weight.

alongside the company to include its technology in Aston Martin models. It is important to note that although we

Currently, we are working on a new generation of the

use Mercedes-Benz’s technology, the design remains

DB model. Although we only have the DB11 as part of

entirely Aston Martin’s. Our vehicles are very well-

this new generation, this particular car will serve as the

equipped, including a camera that provides 360° vision

base for Aston Martin’s new vehicles. It has a completely

and detection sensors that are placed all around the car.

new concept and does not share any characteristics with

Our vehicles offer a number of technology advances that

previous models.

no other sports car has. Q: What are Aston Martin’s goals for the new AMR brand? The DB11 model was the first model to reflect our

A: Rather than sales goals, our AMR brand has more of a

co l l a b o rat i o n w i t h M e rce d e s - B e n z i n te r m s o f

marketing focus. The brand includes only limited-edition

infotainment. This model in particular is equipped with

cars and has presented only two models so far. One is

up to 13 speakers. Although components like these can

the Rapide AMR, of which Aston Martin will only produce

add weight to a sports car, we believe the DB11 can afford

210 units, and the Vantage AMR Pro limited, with only 10

the extra cargo because it has its own driving options.

units for the entire world.

For instance, you can choose to drive the DB11 in its turbo configuration and hear the engine or you can opt for a more comfortable driving mode with a more silenced

Aston Martin will produce only 10 units of the Vantage AMR

cockpit. Q: What are the engineering and design differences between the DB and the Vanquish and Vantage models? A: DB models are the brand’s core family. These are our main cars and the model from which the rest of

When it comes to these vehicles, we do not focus on sales

our vehicles are derived. The DB9 shares a number of

but on displaying what the brand can do. The company’s

similarities with other models. For instance, the DB9

vision is for every model to have an AMR version in the

and the Vanquish have the same chassis, even though

future. I do not know if we will sell one of the Vantage

the Vanquish has a completely different body made of

AMRs in Mexico but we are already on the list to receive

carbon fiber. This characteristic is quite unique because

the Rapide AMR model.

few cars are made from this material. Carbon fiber allows the vehicle’s design to have certain curves that cannot be accomplished with aluminum, which results in a more

Aston Martin , founded in 1913 by Robert Bamford and

attractive and aerodynamic design. The engine also has

Lionel Martin as ‘Bamford & Martin LTD,’ has developed into

more horsepower and due to its sports nature, includes

an iconic brand synonymous with high performance and

improvements in the suspension and the car exhaust. We

elegance

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INSIGHT

ULTRA-LUXURY BRAND READIES ELECTRIC PROTOTYPE EDUARDO HENKEL Director General of Rolls-Royce Mexico

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Reducing CO2 emissions is a long-term global goal across

The brand is targeting sales of 18 cars a year in Mexico,

industries and the automotive sector takes a leading role.

although it does not expect a big promotional push. “Rolls-

From hybrids to all-out electric vehicles, car companies are

Royce does not have to launch huge promotional campaigns

coming up with solutions to comply with stricter eco-friendly

because the brand is well-known; interested customers

regulations and satisfy consumer expectations for cleaner

come to us to look for the vehicles,” says Henkel. Exclusive

rides. That includes the luxury segment, says Eduardo

vehicle brands have a different marketing model to volume

Henkel, Director General of Rolls-Royce Mexico.

brands. Marketing strategies are distinct and brands need to differentiate less between models and more between

Rolls-Royce, among the world’s most elite auto brands, is

individual units without making them ostentatious, he says.

responding with a prototype that is 100 percent electric.

Models such as the Wraith or the Ghost are so popular that

“There will always be someone with an ecological mindset

Henkel’s team does not promote their designs.

who wants an environmentally friendly model so the prototype is ready and waiting for that client. Designing

The company deliberately maintains small volumes, just

in advance is the most logical, most sensible and the

4,000 vehicles per year, to retain its aura of exclusivity.

best way to do business,” Henkel says. The company’s

By comparison, Bentley’s factory manufactures more than

environmental awareness extends to its Goodwood plant

10,000 vehicles per year. Quality comes at a cost and shows

in England, where care is taken with surplus and 60

in the details that include interior woods and leather. “In

percent of its waste is recycled.

other countries, the Phantom enjoys the highest sales. In Mexico, buyers think that the Ghost is a suitably-sized

The electric initiative brings the brand full circle, having been

car and prefer it,” says Henkel. Rolls-Royce describes the

one of the first companies to implement internal combustion

Ghost as a vehicle that encapsulates contemporary luxury,

engines. Rolls-Royce is no stranger to keeping pace with

complemented by modern features and unique details such

various advancements. BMW bought the Rolls-Royce brand

as a version with a 6.5L V12 engine.

in 1998 to combine German technological expertise with RollsRoyce’s known quality. Henkel says the German technology

Rolls-Royce’s global sales increased 6 percent in 2016

brought improvements to the suspension, brakes and engine,

in comparison to 2015, according to a company report.

while preserving the classic finishes and craftsmanship. “The

During 2016, it announced sales of 4,011 cars, delivered to

company mixes tradition with advanced technology aimed at

customers in more than 50 countries. This was the second-

the most exclusive customers in an increasingly demanding

highest sales year since the brand was created. Six of the

and competitive market,” Henkel says.

4,011 were sold in Mexico.

In Mexico, the company’s goal is to provide safety without

In May 2017, Rolls-Royce introduced a one-off custom-built

neglecting luxury. Rolls-Royce’s newest models are made of

car called the Sweptail with a price tag near US$13 million,

steel and although protective shielding can be incorporated

according to Business Insider. It was the most expensive

more easily, it requires a lot of personalized product

new car ever built. Rolls-Royce reported that a customer

development. “Some details must be modified in vehicles

contacted the company in 2013, asking for a unique car

to meet requests from the most exclusive customers, such

inspired by the luxury of the 1920s but also equipped with

as for armored cars. This was not possible with aluminum

high technology. “Models like these are proof of the quality

vehicle bodies, which makes it complicated for OEMs to

that the company can offer to satisfy customers, where

cater to this request,” says Henkel. To arrive at the finished

luxury represents a certain lifestyle. This is tangible when

product is a long process: Henkel says it takes 17 days just

someone drives any of the vehicles designed according to

to complete the interior.

their personality,” Henkel says.

VIEW FROM THE TOP

AVANT-GARDE STYLE, EXCLUSIVE CRAFTSMANSHIP, LATEST TECH JOSEPH CHAMASROUR Managing Director of Jaguar Land Rover Mexico

Q: How are Jaguar and Land Rover changing their portfolio

This new and exciting category of motorsport allows

to target a younger audience?

research and development with tangible benefits for the

A: Our two brands are focusing on a new generation of

future electrification of Jaguar and Land Rover vehicles.

clientele. Jaguar includes a broad vehicle portfolio with

Such developments are already being implemented in the

amazing and seductive products like the entry level XE

Jaguar I-PACE Concept electric car that was presented early

compact sedan, the F-TYPE sports car and our first SUV,

this year at the Geneva Auto Show. I-PACE will be launched

F-PACE. Our cars are aimed at customers who are looking

in the second half of 2018. It has an impressive performance

for high-performance luxury vehicles and who want the

and will deliver 700Nm of instant torque, 400hp and will

best-looking ride in its class. Several powertrains and

accelerate from 0 to 100km/h in approximately 4s.

different versions are adaptable and can be customized according to the client’s lifestyle.

Q: What characteristics do you think will be crucial in the value proposition of the light vehicle of the future?

In the case of Land Rover, we recently added the new Range

A: From the company's perspective, autonomous driving

Rover Evoque convertible, a compact luxury SUV awarded

is a major factor that will impact the cars of the future.

globally more than 200 times. The new version offers a very

Jaguar Land Rover is developing innovative technologies to

attractive silhouette with a power-folding soft top and we

enhance the driving experience and allow autonomous cars

are sure young adults will love this exclusive vehicle.

to go anywhere. Another important characteristic is engine efficiency. Jaguar Land Rover has developed a new family of

Q: What are the technology developments that are shaping

premium diesel and gasoline engines designed, engineered

Jaguar’s and Land Rover’s efforts in design and interior

and manufactured in-house with the goal of offering class-

comfort?

leading levels of torque, horsepower and refinement while

A: Our brands are distinguished in the automotive industry

reducing emissions and fuel consumption.

by their avant-garde style, exquisite craftsmanship and use of the latest technology. The latest example of innovation in

Q: How are you innovating in your traditional engines

overall design and interior excellence is the new SUV Range

to make them more fuel-efficient and environmentally

Rover Velar. This model uses groundbreaking technology

friendly?

and engineering such as matrix-laser LED headlights with

A: Jaguar Land Rover will expand its powertrain family,

full-beam illumination up to 550m and flush door handles

unveiling new technologies for both current and future

that increase aerodynamic efficiency. Inside, Velar debuts

vehicles. At the heart of its low-emissions strategy, the

our innovative 12.3-inch TFT virtual instrument cluster and

new four-cylinder Ingenium gas engine is now in production

our Touch Pro Duo infotainment system featuring two 10-

at Jaguar Land Rover’s £1 billion Engine Manufacturing

inch, high-definition touchscreens that provide an intuitive

Centre. Designed, engineered and manufactured in the UK,

interface with unrivalled performance and functionality.

Ingenium is the most advanced engine the company has ever developed. It will deliver up to 25 percent more power

Q: How involved are Jaguar and Land Rover in the hybrid

than its predecessors and offer fuel consumption reductions

and electric vehicle race?

of up to 15 percent.

A: We already have electric race cars for competition. Our Formula E team, Panasonic Jaguar Racing, is the newest participant in the championship with five races under its

Jaguar Land Rover is the largest automaker in the UK and

belt this season. Additionally, we have two cars that race

currently represents 30 percent of the UK's automotive

around the globe to showcase the company’s innovations

production operations. The company produces to export to

in green technology.

136 markets

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ROUNDTABLE

HOW WILL NEW TECHNOLOGICAL TRENDS IMPACT VEHICLE DEVELOPMENT?

The automotive industry is gradually transforming into a mobility industry and in this paradigm shift, technology will play a crucial role in determining how vehicles will evolve. Electrification is but one of the angles companies are now analyzing when constructing the car of the future. Autonomy is gradually making its way into the mainstream and with it, developments such as the internet of Things, connectivity and new ideas regarding what is best for the driver and for the passenger. Though the trend-setter might be automakers, suppliers will also have to change their strategy and offering to participate in a high-technology environment.

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The future will be autonomous and cars will become boxes of data, proving a new challenge especially for companies in the premium segment. Although we were previously distinguished by our drivetrain and performance, new technologies will shift clients’ focus. People will stop driving and will use vehicles as a platform to work on other activities. The car will have to know what its passengers want, your likes and dislikes and even how are you feeling health-wise. We are already on top

RADEK JELINEK President and Director General of Mercedes-Benz México

of these new trends, becoming the first company to release a production car with license plates for autonomous-driving tests in the state of Nevada. For 131 years, Mercedes-Benz has been a trend setter striving for constant innovation. That is what will make us move forward in the future.

We are currently working with artificial intelligence, connecting tires to the vehicle to send the driver information, adapt to surfaces or different climates to provide the correct displacement to prevent accidents. Tires will be able to connect directly with service centers when the car requires maintenance. Sending this information to the vehicle from the tires will be on the market sooner than we think. We have several products being developed for the passenger car and SUV segment, but for heavy

MARTÍN ROSALES President and Managing Director of Goodyear México

vehicles, tires in our product line contain a chip that provides this information. Located inside the tire, the chip reads performance and the load, monitoring the speed and continuous periods of driving. All this information allows us to investigate the needs of our clients and adapt our innovations to them.

Kia has been evolving in an interesting way. In terms of efficient powertrain technologies, we are already working on hybrid and electric vehicles and developing fuel cells. The company has evolved in autonomy with a program called DRIVE WISE. This sub-brand was created by Kia to incorporate automotive innovations into an improved driving experience. In the next decade, we will see autonomy become a reality. Approximately 30 percent of vehicles will have a

HORACIO CHÁVEZ Managing Director of Kia Motors México

certain level of autonomy by 2025 and by 2030, 20 percent of all cars can be fully autonomous. With this vision, we are developing technologies focused on security and comfort.

Cars will become an extension of your office or your living room. Clients will be able to choose if they want to relax, work or simply enjoy the ride, or if you want to drive and feel the excitement of being in control of the vehicle. The technology is already on its way but regulations and law enforcement are still missing. I think Europe will be the first to incorporate autonomous technology considering it is already working on agreements focused on what must be fulfilled for a car to be certified to drive by itself. California will probably follow given its technological advances and its apparent commitment to continue fulfilling the Paris Agreement.

TORBEN ECKARDT Managing Director of Volvo Car México

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Connectivity will differentiate cars in the future. Companies have mastered the technology that makes a car move, now they must master integrating new systems into their existing platform. The world is facing many challenges in terms of emissions, mobility and traffic and Nissan’s goal is to find the best way to help its clients overcome these hurdles. We want to empower clients to choose whether they drive their vehicles or let technology take over while they admire the landscape or simply make better use of their time. The company is investing heavily in these technological advances to be marketing cars with autonomous technology by 2020. The industry is moving quickly and people now want mobility rather than a vehicle. Nissan’s bet

MAYRA GONZÁLEZ President and Managing Director of Nissan Mexicana

is on Intelligent Mobility.

The classical individual car may not dominate mobility as much in the future as in the past. Our Automotive division became the Mobility Solutions division. This is not just a name change. Our aim now takes people and goods that move more into account than just vehicles. Sensors, the internet of Things, Big Data, machine learning and faster processing power with communication technology allows for much reduced latency in decision-making processes, which will help us reach considerable innovation. The possibilities regarding the application of these technologies in the mobility sector are endless and fascinating. Many companies

RENÉ SCHLEGEL President of Robert Bosch México

are looking to participate in this process, both from within and without the sector.

Autonomy is already a priority for the industry and it will only grow in importance as technology moves forward. The Renault-Nissan Alliance is already working on autonomous developments and we are very fortunate that we can take advantage of these innovations in INFINITI models. Our plan is to include more and more autonomous capabilities in our new vehicles. We are already featuring single-lane autonomy in some of our models and the next step is to integrate multiple-lane driving. Connectivity is also key for future vehicle developments. INFINITI cars are now equipped with technology to connect with mobile devices and use different applications but we expect our technology to keep evolving according to user needs.

PHILIPP HELDT Managing Director of INFINITI Mexico and Latin America

Honda Civic production in the UK

MANUFACTURING & INDUSTRY 4.0

The ultimate goal of companies establishing operations outside their home country is lowering production costs. However, that can no longer be achieved through cheap labor alone. Automation has become a need rather than an option, especially in a time-sensitive industry like automotive. With the arrival of the fourth industrial revolution, digital processes and integration are making manufacturing processes even more efficient as they integrate the entire production chain into a seamless process.

This section focuses on the companies that offer an added value to their clients in terms of manufacturing and automation operations. Industry 4.0 and its impact in the automotive industry are two of the main topics in this chapter, coupled with innovative manufacturing processes that are making their way into auto parts and car production. From metrology solutions to new manufacturing techniques, these companies share their experience and solutions in an already advanced market.

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CHAPTER 6: MANUFACTURING & INDUSTRY 4.0 128

ANALYSIS: The Future of The Industry

130

VIEW FROM THE TOP: Manuel Sordo, Universal Robots

132

VIEW FROM THE TOP: Omar Esparza, Mitsubishi Electric

133

VIEW FROM THE TOP: Arturo Zavala, Carl Zeiss de México

134

VIEW FROM THE TOP: Rafael Martínez, ART Robotics

135

VIEW FROM THE TOP: Sergio Bautista, ABB México

136

VIEW FROM THE TOP: Leonardo Romero, Helmut Fischer

138

VIEW FROM THE TOP: Gabriel Alvarado, Kronos

139

VIEW FROM THE TOP: Bernd Noack, FESTO Mexico

140

VIEW FROM THE TOP: José Figueroa, Marposs México

142

VIEW FROM THE TOP: Pedro Garza, Epicor

143

INSIGHT: Rafael Funes, LOVIS Mexico

144

VIEW FROM THE TOP: Gustavo Moya, Ixaya

146

INSIGHT: Gabriel Roldán, Gaden

147

INSIGHT: Patrice Gosselin, Averna

Mario Nieto, Averna

148

VIEW FROM THE TOP: Ricardo Martínez, SIMSA

150

INSIGHT: Gustavo Rojas, Grupo Gersa Monterrey

151

INSIGHT: Juan Barragán, Motorola Solutions de México

152

INSIGHT: Victor Ruiz, 3D Systems Latin America

153

INSIGHT: Eduardo Arizpe, Alturin

154

TECHNOLOGY SPOTLIGHT: ZEISS COMET L D 2

127

ANALYSIS

THE FUTURE OF THE INDUSTRY Without automation and process digitalization, producing a car every 34 seconds would be impossible for the largest manufacturer in the country. Just how advanced is technology in manufacturing processes? What exactly is the so-called Industry 4.0 and how can it help companies meet production and cost-reduction targets?

128

Rather than just one concept, Industry 4.0 is the conjunction

immediately by embedded quality-checking machines and

of several ideas and practices that lead to what is now called

manufacturing conditions can be adjusted accordingly.

a “smart factory:” automation, digitalization, data collection

Meanwhile, maintenance operations can be scheduled around

and analysis, connectivity and development of advanced

production deadlines without affecting the company’s overall

manufacturing solutions and human-machine interaction. It is

output. All information is digitalized and centralized so it can

called Industry 4.0 because it represents the fourth industrial

be available at any time.

revolution hitting the industry. The data generated is useless, however, unless it can be On its own, automation in the automotive industry is nothing

employed to further optimize the entire production floor

new. Robotics and automation equipment have become

while reducing response times between the company’s

standard, especially among OEMs and big Tier 1 suppliers

different areas. Executives must be aware of how much is

that depend on large production volumes. However, one

being produced to plan the accompanying raw material

of the elements of Industry 4.0 is how to implement the

purchases. Meanwhile, the sales department must know the

advantages of automated manufacturing into a production

amount of stock available to avoid saturating the company’s

planning process. That is where data collection and analysis

own production capacity. Connectivity is a key element to

come into play.

create a direct link between manufacturing, suppliers and clients and according to PwC’s Industry 4.0: Building the

Having automated processes allows companies to monitor

Digital Enterprise research of 2016, 50 percent of 2,000

each step of their production and how products and

executives surveyed in 26 countries think data and analytics

equipment are behaving. Component defects can be detected

are becoming more relevant in decision-making processes, 49 percent regarding the automotive sector alone. However, only 18 percent of the companies surveyed have a strong

COST REDUCTIONS EXPECTED PER INDUSTRY (US$billions and percentage per year until 2020) 0

data-analytics strategy.

Aerospace, defence & security

be immense, especially when factoring in different part

3.7%

Automotive

numbers, purchasing orders and product destinations. Many companies are still skeptical but cloud-based applications

have now become a standard in the industry, particularly to

3.9%

Chemicals

connect companies with their clients or suppliers. Even for

Electronics

3.9%

players clinging to more traditional models, companies such

62 3.7%

cloud with on-site benefits to bypass these objections.

as Epicor have developed hybrid solutions that combine

Engineering & construction

“New external challenges arise continuously that require

78 78

information to be available onsite, which means we cannot

3.4%

neglect the traditional ERP models,” says Pedro Garza,

Forest, paper & packaging 28

4.2% 4.2%

Industrial Manufacturing

Metals

Channel Development and Customer Advocacy Director / LATAM of Epicor.

52 52 3.6%

Many Industry 4.0 practices seek to improve existing production operations but there is a final branch that has

54 3.2%

Transportation & logistics

innovation as a priority. Advanced manufacturing solutions are also part of the new industrial revolution, which means

61 3.2%

0 Source: PwC

The amount of data necessary for these analyses can

that additive manufacturing, 3D scanning, virtual modeling 4

and many other solutions are permeating the traditional production process.

For example, 3D printing was previously used only

Although José Rogelio Garza, Deputy Minister of Industry and

in prototype production but as technology becomes

Commerce, told Mexico Automotive Review in 2015 that the

increasingly affordable and the reliability of metal

government’s goal is to transform Mexico from a low-value

3D printing improves, more companies are choosing

manufacturing location into a high-tech production hub, Juan

this alternative to reduce production costs. “Additive

Manuel Kuri, Country Manager of Siemens PLM Mesoamerica

manufacturing was previously considered too costly

told an Industry 4.0 seminar that Industry 4.0 practices will

and unprecise for mass production,” says Victor Ruiz,

not become a standard for the Mexican industry until 2030.

Managing Director of 3D Systems Latin America. “Now, it

As a low-cost manufacturing country, labor costs outweigh

has become a complement to traditional manufacturing

the cost benefits from implementing advanced automation

processes.” Collaborative robots are also making inroads in

solutions. However, equipment costs keep decreasing, which

the industry. Instead of large production cells with caged

means the country could soon face a paradigm shift in the

robots, companies can now install smaller collaborative

way it presents itself to potential investors.

equipment that can work with human operators. The automotive industry is one of the leading drivers in the The fourth industrial revolution is already underway. Yet,

implementation of Industry 4.0 practices and Mexico prides

not all players are ready for what it may bring. According

itself as a leading automotive hub. The question is, how ready

to PwC’s research, only 33 percent of the executives

is Mexico to embrace Industry 4.0?

surveyed think themselves prepared for the likely changes Industry 4.0 will spur. That number is expected to double by 2020, reaching 72 percent. The same survey shows that companies expect an average 2.9 percent increase in

THE INDSUTRIAL REVOLUTIONS 1712

Industry 1.0 Thomas Newcome builds

revenues due to digitalization, as well as an average 3.6

the first steam engine

percent annual cost reduction (3.9 percent when it comes to the automotive sector). 1870

Industry 2.0 electricity used for

For its part, Mexico remains a laggard in the implementation

industrial production

of these advances. “There are massive technology gaps in the automotive supply chain,” says Manuel Nieblas, Partner and Manufacturing Industry Leader at Deloitte Mexico. “SMEs are

1969

Industry 3.0 Programmable logic

practically unaware of the advantages these advances can offer and they do not have the necessary resources to invest in advanced manufacturing equipment.” Meanwhile, Alberto Torrijos, Partner and Consultant at Deloitte Consulting Group,

Today

Industry 4.0

believes that Mexican companies are not ready to face the

Communication between

technological challenges presented by the industry; they are

people, services and things

more focused on surviving.

Source: ABB

Simulation Augmented reality

System integration

Cloud computing

Autonomous robots

Industry 4.0

internet of things

Cybersecurity Source: GTAI

Big data

Additive manufacturing

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VIEW FROM THE TOP

ALL ROBOTIC HANDS ON DECK MANUEL SORDO General Manager LATAM of Universal Robots

130

Q: What strategies have helped Universal Robots to stand

manufacturing cells are highly inflexible, so companies cannot

out in the competitive robotics market?

easily relocate them to other production areas.

A: Innovation has allowed Universal Robots to take approximately 80 percent of the global market share in

Although collaborative robots do not have the same load

collaborative robots. Our goal has been to define the different

capacity as their industrial counterparts, their advantages are

aspects that make up a collaborative robot and so far, the

numerous. These units do not require cages or other types

largest names in robotics have not been able to compete with

of protection equipment. They occupy a small area and the

us in our specialty. The gap has narrowed over the years but

user can relocate them throughout the plant to complete

we are planning a new product launch for the end of 2017 that

different tasks. The robots have several sensors that detect

will once again put us well ahead of the competition.

human operators and slow the unit down if a person comes in close contact. If the person touches the robot, it stops moving

We started operations in Latin America during 2012 and

completely. This does not compromise the entire production

every year we have grown 250 percent on average. When

line, however, because operators need only press a couple of

we arrived in Mexico, Universal Robots was practically

buttons for the robot to resume its task.

unknown but over the last six years we have noticed exponential growth in our market presence. Although we

Q: How did Universal Robots consider the clientsâ&#x20AC;&#x2122; view

were competing against mature leaders in the robotics

of collaborative robots and operator safety issues during

sector, we discovered a previously untapped niche in the

development?

collaborative robot segment. Even companies like KUKA

A: We knew operator safety concerns would be one of our

that refused to accept these products are now entering the

main obstacles to enter the market. Every safety standard in

booming collaborative robot market because such products

place was related to traditional robotic applications, so there

have become mainstream.

was no precedent for our offering. New standards had to be created and even now there are still grey areas.

Programming ease was the decisive factor that allowed us to secure such a large market share. Our hardware and software

When we acquire new clients, we always recommend they

are developed in-house together with a simple interface that

perform a safety analysis of their operations to determine if

any person can learn to use in just two hours. Companies

collaborative applications are the best way to go. We have

can train operators who previously managed repetitive and

not encountered any obstacles to companies adapting to our

monotonous activities, giving them the opportunity to grow

solutions and many have helped us promote our equipmentâ&#x20AC;&#x2122;s

and supervise the functionality of an automation unit. The

advantages.

system is intuitive and just as easy to use as a tablet. Q: How relevant has Universal Robots become to the Mexican Q: What advantages do collaborative robots offer over

automotive industryâ&#x20AC;&#x2122;s growth in 2017?

traditional automation units?

A: BMW, FCA, Volkswagen, GM and many automotive

A: If we compare traditional industrial robots from 40 years ago

companies use our robots in Mexico. We have aggressive

with the machines of today, there are few physical differences.

growth expectations. Globally, we expect to keep growing

Programming and versatility have evolved but the technology

between 70-80 percent and plan to increase sales in

has remained practically unchanged. Advanced programming

Latin America by 300 percent by the end of 2017. We are

also requires a high technical aptitude, resulting in complex

negotiating with several OEMs that are new to Mexico and are

equipment that cannot be used by everyone. These robots

close to finalizing international deals. Latin America represents

also require large investments in installing protective cages

20 percent of our sales in North and South America and by

to isolate them from the rest of the production line. Robotic

2020 we expect that number to grow to 40 percent.

The automotive industry was the perfect target for Universal Robots due to the sector's familiarity with robotic applications.

80%

These companies are very open to technology integration and like to be early adopters when new alternatives arise. Our solutions allow companies to automate processes they have not previously considered. The potential for technology adoption in Mexico is immense, not only in OEMs’ facilities but with suppliers as well. Our robots are now included in several

Universal Robots' global market share

manufacturing activities, improving quality and efficiency at companies of all sizes.

300% Growth

Q: How easy is it to integrate Universal Robots’ solutions to

expectations for Latin America in 2017

existing automation infrastructure? A: Integration is simple. Our systems can be controlled using the most common programming languages and are compatible with all communication protocols available in the industry. We are always innovating with our platform and have collaborated with peripheral hardware developers. This will allow our clients to communicate, program and supervise their equipment via a mobile device. We understand the need for autonomy in the industry and are ready to offer modern solutions. Q: How can Universal Robots compete on total cost of ownership of the equipment? A: Our robots are designed to be maintenance free. The

35,000

Hours the robots can run without maintenance

equipment can run continuously for 35,000 hours and if any repairs are needed, the system being based on a modular architecture allows corrections to be made in a matter of

US$25,000

minutes. Our distribution network is equipped with all the necessary spare parts to offer repair services immediately

Approximate cost of a UR collaborative robot against a US$100,000 traditional solution

at all times. Our 100 sales representatives in Mexico are dedicated to sales and service operations, and our engineers are trained to operate and repair our products. Our robots are versatile so users can relocate them to any area they desire. Being truly universal means countless companies in the market that manufacture accessories could use our robots in diverse production applications. The company’s goal is to imitate a human arm’s abilities and offer our clients a high level of customization. Q: What opportunities exist for Universal Robots to target growing Mexican suppliers? A: There are thousands of companies competing at an entry level and the only way for them to participate in advanced manufacturing activities is by investing in automation. Our challenge is to promote our solutions among Mexican SMEs. A

195

Average days for return on investment

US$100,000 investment can be daunting, and this would buy a small traditional robot with a working space of 0.5m and the necessary infrastructure from some competitors. A Universal

Universal Robots is a Danish company that aims to integrate

Robots solution with similar capabilities represents an

collaborative robotic technology into all types of manufacturing

investment of only US$25,000. This is much more accessible

companies, regardless of their size. It is the market leader in

and companies usually see returns in just three months.

collaborative robots

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VIEW FROM THE TOP

DIVERSIFY TO COMPETE AS AN INDUSTRY OMAR ESPARZA Senior Manager, Global Key Accounts, Automotive, Mexico and Latin America at Mitsubishi Electric

132

Q: How is Mitsubishi Electric’s participation impacting the

Q: How can Mitsubishi Electric incorporate the latest

development of the automotive industry?

technological trends into its business development strategy?

A: Both private and public companies need to improve their

A: Market diversification is the key to developing our

technological processes for the country to keep growing.

presence. German companies often supported other German

Mexico has gone through a technological revolution in the past

companies, while Japanese players did the same. But to truly

10 years, moving from its low-cost manufacturing foundation

participate amid the new market challenges and technology

to a low-cost but high-quality production standard. Mexican

needs, we need to expand and overcome country borders. In

labor has evolved with the industry and companies now

Mexico, this is happening more often as we expand from an

recognize the country’s capabilities.

initial client portfolio of almost purely Japanese companies. The more open we are to European and US standards, the

Previously, 100 percent of the equipment used in

more we can collaborate with other players.

manufacturing operations was designed and manufactured abroad. Today, Mexican engineers participate in design

Open platforms are no longer simply an alternate business

processes to attract new investment projects. Mitsubishi

strategy because of the need for efficiency in the globalized

Electric has become much more globalized in that sense.

market. Now, compatibility is a requirement. Mitsubishi has

We no longer focus on talent and knowledge transfer. The

worked for years on this subject, developing what is called our

company is now looking for talent and potential around the

e-F@ctory concept. It operates under the same principle as

world, leveraging the needs of each region. We innovate so

Industry 4.0 or the internet of Things, based on connectivity

that our products will be adopted by capable local talent,

and obtaining crucial data from manufacturing processes.

and we identified Mexico as a country of opportunity. Our goal is to offer the best cost-benefit results depending Q: How could the current economic and political climate

on the technology clients acquire. We want companies to

boost the national industry?

understand how our technology works, so we are transparent

A: Exterior political challenges will push all companies in

about how their investment will develop. The last five years

the automotive sector to become more productive and

have been crucial for our presence in Mexico. The company

cost-effective. Regardless of size, all industry participants

is a strong player here and although we could grow

must make technology one of their priorities to remain

indiscriminately, our goal is to be selective with our partners.

competitive as part of a long-term growth strategy. Before, the lowermost levels of the production chain usually had

Q: What is Mitsubishi Electric’s perspective regarding the

few demands in terms of automation and technology

future of the automotive industry?

integration. The work was artisanal but relying on these

A: The market follows economic trends and though there may

types of companies left suppliers vulnerable. After years

be uncertainty at the moment, we are confident it will turn

of depending on imported components, bigger companies

out for the better. While NAFTA is a trilateral agreement and

are now helping the local supplier network to grow

Mexico has much to offer, we hope the political circumstances

and develop the necessary strengths to compete in an

serve as a lesson for the Mexican government regarding its

industrialized environment.

dependence on the US and therefore its vulnerability if it does not diversify. In the meantime, Mitsubishi Electric remains committed to its relationship with Mexico, demonstrated and

by the fact that we have opened new operations facilities in

expertise to a range of business segments. The company

Queretaro’s Technology Innovation Park. The country is the

also makes social contributions as a global, leading green

entry point to the Latin American market and we have to

company

move forward with our plans no matter what.

Mitsubishi

Electric applies

advanced

technology

VIEW FROM THE TOP

METROLOGY LEADER SEES SOFTWARE DEVELOPMENT OPPORTUNITY ARTURO ZAVALA National Sales Manager of Carl Zeiss de México

Q: What role will Industry 4.0 play in the development of the

Q: How much did Carl Zeiss’ industrial metrology division

Mexican automotive industry?

grow in 2016 compared to 2015?

A: One of Mexico’s main advantages is its cheap labor but

A: There has been a considerable increase in the acquisition of

once Industry 4.0 becomes standard in all companies,

metrology equipment in Mexico. Between 2015 and 2016, Carl

production costs in Europe and the US might match those in

Zeiss enjoyed more than 50 percent growth in domestic sales.

Mexico. If this happens, the only option for Mexico to remain

For 2017, we expect at least 25 percent growth. Metrology

competitive will be to move past its initial image as a low-cost

is becoming increasingly important in the Mexican industry.

and nontechnological manufacturing hub. We have tried to

OEMs establish quality standards among their main Tier 1

change our clients’ mindset regarding technology, especially

suppliers and these companies transmit those standards to

among SMEs, to accept and integrate it into their operations.

their entire supply chain, reaching even SME players.

Q: How is Carl Zeiss innovating and participating in the latest

Q: How important is Mexico to Carl Zeiss’ global operations?

manufacturing trends?

A: Foreign investment has helped local industry evolve but

A: We want to participate by developing software that helps

the real development will happen once small and medium-

companies integrate Industry 4.0 practices into their quality

sized Mexican players can add value to manufacturing.

processes. We have years of experience with hardware but Carl

Companies will create their own research and engineering

Zeiss’ future is in software and complex solutions that connect

centers, leading them to export technology from Mexico. Carl

equipment and automate quality processes. We are looking for

Zeiss is committed to helping these players grow. We have

alliances and merging with different software and technology

a product portfolio that targets Latin America and stands

manufacturers to develop new products and new markets.

out because it boasts lower prices achieved through cost-

We have a software development center in Munich to

effective strategies. Our Latin American clients receive the

implement this strategy. WEB is an example of a software

same technology as our bigger collaborators but at more

solution we developed to easily create statistical reports and

accessible costs. Providing financing schemes also helps to

to correlate data that allow for agile decision-making.

penetrate the market. We understand budget limitations can impede a company’s technological advancement. We

As part of our digital strategy, we are also building a web-

created leasing options for clients that need the equipment

store. Carl Zeiss has migrated its catalogs and all traditional

but lack the immediate liquidity to acquire it.

operations to the web so clients can configure their solutions to meet their needs and receive quotations for new equipment

The final alternative we offer to support clients is to become

accessories. Once Industry 4.0 becomes more prevalent, we

partners during their product-development process. We

want our equipment to be connected to an intelligent system

collaborate with research centers and have just opened a

that can schedule maintenance and repair operations in a

Demo Center in Monterrey fitted with our equipment, which

predictive way without the need for human intervention.

clients can use as their own research center. Monterrey was our first venture, mirroring the region’s tendency toward

Industry 4.0 is also present in our strategy related to 3D

innovation and entrepreneurship. Our goal is to have a Demo

scanners. Digitalization is a megatrend in the automotive

Center in every industrial hub in Mexico.

industry and coupled with additive manufacturing techniques, it teaches companies to become more flexible and efficient. 3D scanners provide enormous amounts of

Carl Zeiss is a German company with a specialized division

data that can be uploaded to the cloud, achieving greater

focused on industrial metrology. Carl Zeiss’ portfolio includes

interaction between the equipment, the design process and

CNC

the component itself.

metrology and image processing systems

coordinate

measuring

machines,

multidimensional

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VIEW FROM THE TOP

LOCAL LINK CHANNELS NEW TECHNOLOGIES TO MARKET RAFAEL MARTÍNEZ President of ART Robotics

134

Q: How have manufacturing changes in Mexico impacted

it is more expensive to maintain operations as they are rather

ART Robotics’ operations?

than modernizing the plant. Our results show that with a 30

A: Thirty years ago, almost 80 percent of all manufacturing

percent higher capital investment in stamping, companies can

activities were manual while only 20 percent were managed

achieve a 400 percent increase in productivity.

by automatic equipment related to stamping, welding and assembly, mainly because of the cheap nature of Mexican

Q: What added value does ART Robotics offer that convince

labor. It took us years to convince clients to automate their

clients to choose it as their technology integrator?

processes. Companies realized they needed to increase their

A: Our competitive advantage was to bring companies closer

production and started calling ART Robotics to transform

to the technology they needed to improve their operations.

their factories.

Twenty years ago, used stamping presses were mainly brought from the US and Europe. Once the equipment arrived,

Today, only 20 percent of all operations in automotive

companies realized they could not use it manually because

manufacturing are done manually. That being said, there

doing so would not just justify the investment. Machines

are still clear gaps in terms of technology when comparing

needed to be automated and the automation equipment had

plants with more than 20 years in the country against the

to be new for the line to work properly. Mexico is gradually

more modernized projects built in recent years. Mexico has

growing as a technology integration hub but the country is

a plan to grow its manufacturing floor capabilities and there

not mature enough yet. We saw an opportunity to become

are still areas of opportunity to address. ART Robotics acts

local partners for all these companies trying to modernize

as a link between international manufacturing equipment

their equipment and now we have become a supplier for all

consortiums and the automotive sector. We work with brands

tools needed for automating production lines.

like AFCO, Mayfran, Norgren, Schmalz, Knight Global, ATI Industrial Automation and Springer, and we supply equipment

Q: How advanced is Mexico’s technology environment

to companies working for OEMs such as FCA, Nissan, the

compared with other manufacturing hubs?

Volkswagen Group, GM and Ford, and their Tier 1 suppliers.

A: Mexico is still young when it comes to tooling and technology design and innovation, which is why most

Q: What strategies did ART Robotics implement to show

companies must work with foreign integrators. ART Robotics

clients the benefits of automating their operations?

is one of the few equipment companies that works as an

A: Automated stamping lines can be very expensive, incurring

engineering, manufacturing and distribution partner. We

an investment of over US$20 million, which means companies

implemented international development strategies, allowing

must understand the benefits of acquiring the equipment

us to keep up with the industry’s evolution.

before committing to it. Working a press manually with the goal of cutting expenses in terms of labor results in no more

Q: What are your growth projections based on the

than 100-150 hits per hour. However, taking the same line and

development of manufacturing operations in Mexico?

automating it can lead to an increase in production to 400-

A: We have maintained an annual average growth of 30

600 hits per hour. The industry realized that it cannot meet

percent thanks to our projects with companies allied to

its production targets without automation because in the end,

Volkswagen, Audi and Nissan. Our goal is to maintain that same rate for 2017. Many companies are reaching out to us, so we must prioritize where we can offer the biggest benefit.

ART Robotics was founded in 1988 in Mexico City and is

We are working on our 2020 strategy and deciding which

specialized in sales, distribution, installation and service

innovations to focus on. We are integrating key technologies

for stamping and assembly equipment destined for the

into our portfolio, such as Voxeljet 3D Printing and Jaten

automotive industry

Robotics’ automated guided vehicle systems.

VIEW FROM THE TOP

COLLABORATIVE ROBOTS COMING TO FACTORY FLOORS SERGIO BAUTISTA Local Division Manager of Robotics and Motion and Local Business Unit Manager of Robotics for ABB México

Q: What future do you see for collaborative robots in

Q: With Industry 4.0 practices gaining pace in the automotive

the automotive industry and how will they compete with

industry, what challenges or opportunities does Mexican

traditional robotics solutions?

talent face?

A: Collaborative robots will offer the best added value in

A: Mexico has skilled talent when it comes to basic technical

the automotive industry in final assembly applications for

operations. However, local talent must understand new

car interiors. Powertrain components will also provide an

technology and learn how to implement it. The Mexican

opportunity for this type of equipment, as well as electric

industry needs more digitalization, more connected

and electronic parts for harnessing, board manipulation

equipment, advanced protocols and increased data safety

and deck applications where human-robot collaboration

and Big Data applications. All these concepts are already

is needed. All these operations will open a niche with Tier

applied in the global automotive industry and people must

1 suppliers.

be able to understand that language and apply digitalized tools. Augmented reality will also redefine interactions for

However, these units will not compete with traditional

task development, engineering and design operations, as well

robotic solutions. Collaborative robots have a niche market

as how new processes are carried out in production plants.

and if a traditional robotic solution is the right one, it should not be replaced in favor of a collaborative robot. That could

Q: When do you think the benefits of automation will

put the entire manufacturing operation at a disadvantage

outweigh Mexico’s perks as a low-cost manufacturing hub?

and in the end, no added value would be gained.

A: The automotive industry must first define how processes will change in car manufacturing and implementation will

Q: What does ABB Ability bring to the manufacturing

follow. Automation will improve certain processes but

industry and how will it help Mexico take the next step

skilled human labor will still be needed within the same

toward Industry 4.0?

production environment. Mexico will remain an attractive

A: ABB Ability is a unified, cross-industry platform based on

low-cost manufacturing hub; the only difference will be

the concept of the internet of Things, Services and People.

the increased presence of automation. Nevertheless, the

This new initiative will provide simplification, collaboration

country needs to switch its focus to an added-value human

and digitalization to the manufacturing industry by

labor force focused on advanced knowledge and innovation.

collecting data through sensors and software that will be later monitored on-site and remotely to simulate and

Q: How important has the automotive industry been for ABB

optimize processes. Together, all these operations will build

in Mexico and what are your growth projections for 2017 and

the factory of the future. To make this a reality, ABB Ability

the near future?

is bringing together all the capabilities of ABB’s products

A: The automotive industry is critical for ABB in Mexico and all

and putting them in one single platform that can speed up

over the world. We have defined specific actions to strengthen

manufacturing operations. Clients will see improvements

our position in the automotive market and to grow our efforts

in performance, pre-engineering, connected services and

to support our customers. These initiatives are part of our

predictive maintenance.

2020 strategy, focused on delivering an excellent customer experience for all players doing business with ABB.

ABB is partnering with Microsoft and IBM to bring extra benefits to its customers. Microsoft Azure will be the Cloud platform that will ensure ABB Ability’s connectivity

ABB is an automation and robotics equipment manufacturer

features, while IBM Watson will provide industrial artificial

that works with industrial, transport and infrastructure leaders

intelligence capabilities for real-time understanding of what

in over 100 countries. The company has installed over 70,000

is happening on the production floor.

control systems around the world

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VIEW FROM THE TOP

DETECTING DEVIATIONS TO SMOOTH OUT COATING PROCESS LEONARDO ROMERO Senior Sales Manager of Helmut Fischer

136

Q: How can Helmut Fischer’s products augment automated

Q: What direct impact does Helmut Fischer’s equipment

production lines?

have on the production line?

A: The company has a strategy to extend our equipment’s

A: The equipment’s most important aspect is the effective

use beyond inspection and testing processes to the actual

measuring of coating thicknesses along the process. Some

manufacturing line. Helmut Fischer wants to move past taking

coating processes require numerous coats and detecting

isolated samples to integrate our testing probes into robots

deviations from the specifications at the end of the line

and other automation equipment. One possible application

could represent losses in scrap. The traditional way to

could be in the painting process. While robots paint the car’s

avoid this is to test random samples in a laboratory. This

body, our equipment can send testing values from several

is inefficient and if performed while the line continues

components to a computer in real time. This would provide

operating, it does not prevent more components being

the client with continuous access to data, removing the need

produced with the same flaw. Coating processes also

to download it from the equipment before analysis.

affect the parts’ dimensions and if they are not tested properly, this can affect assemblies further down the

The goal behind this innovation is to solve connectivity

production line.

issues with industrial applications and to ensure compatibility between different communication protocols. We are now

There is an added investment in coupling testing processes

participating in equipment design and data-collection

with manufacturing operations, which is possibly five

software. Having developed the technology in-house in

times what clients spend in traditional processes if

Germany, we are looking for anchor clients in Mexico to

applying X-ray technology. But this investment represents

test solutions that have already proven successful at our

savings in rectification after the process is complete

headquarters. We are collaborating with an axle manufacturer

and decreases scrap. We have simpler solutions that

in Guadalajara and exploring new projects with a spark plug

can be implemented with assisted robots to lower the

factory in Piedras Negras, Coahuila and an electric-motor

initial investment. Helmut Fischer’s products have the

manufacturer in San Luis Potosi for windshield wipers.

advantage of operating standard-free measurements that lead to precise results, which are improved once

Q: How advanced is the company’s technology

the equipment is calibrated.

development regarding automation applications? A: Our equipment is already manufactured with Ethernet

Q: What other innovations is Helmut Fischer incorporating

and Profibus ports to connect with the production line’s

in its testing equipment?

network. Additionally, the software features a Windows

A: One of the main inconveniences in the manufacturing

CE® platform so clients can design the testing process for

industry is when coat testing requires contact with the

each component. This aspect makes it possible to integrate

component. In painting operations for example, OEMs

additional programs for robot controllers. Our focus right

normally require up to three weeks to calibrate their whole

now is to find an appropriate partner to support our

process, painting a component several times to determine

solutions. We are not robot manufacturers so we need a

the most effective way for robots to apply the chemicals.

third party to fully automate our clients’ processes.

Operators tend to correct the process after each round. Integrating testing technology could eliminate this process and the related costs. Certain processes involving high

Helmut Fischer is a leading specialist in solutions for coating

temperatures or adverse environments make contact

thickness measurement, material analysis, microhardness and

impossible. We are developing new Terahertz technology

material testing. The company works in several industrial sectors,

that will require no contact with the sample and will reliably

wherever precision and metrological simplicity is needed

measure multiple layers of paint.

The only other multilayer alternative available in the market is ultrasonic technology. This requires complex calibration processes and can only be standardized for a certain paint color at a time. It also requires direct contact with the component and the application of a special gel as a coupling interface. Terahertz on the other hand, is based on pulsed laser technology and signal refraction. The solution is in the last development stages in Germany and we are looking for a client to invest in its application to see it in action under real manufacturing conditions. Once we obtain satisfactory results, we will bring Terahertz to Mexico. Q: What is the extent of your relationship with the Mexican automotive industry? A: Early in 2016 we finalized negotiations with a German OEM to collaborate in their new plant in Puebla. We are supplying the company with testing equipment for anticorroding inorganic coatings, mostly used in brake and drive components. Helmut Fischer is helping the company ensure its production is in line with the expected geometric tolerances and environmental standards related to heavymetal content in automotive parts. Our X-ray technology performs Restriction of Hazardous Substances (ROHS) testing on all plastic components that require a metal coating. One of the newest carmakers to enter Mexico uses similar equipment for rear-view and side mirrors. Those two contracts are already secured and we are negotiating with a third OEM to collaborate on a new plant in San Luis Potosi. Q: What are the companyâ&#x20AC;&#x2122;s expectations for Mexico following the entry of these OEMs? A: The automotive sector represents over 60 percent of our business in Mexico. Our goal for 2020 is to reinforce our position in the market and increase the number of Helmut Fischer machines used in the industry. The company has years of experience in other countries that have moved onto R&D activities and the technology arising from those advances is now migrating to Mexico. We have a direct relationship with OEMs testing large components but we also have business opportunities with Tier 1 and 2 suppliers right down to manufacturers of the smallest parts. We want to diversify our reach and delve into applications whose relevance might not be obvious for our equipment. We have enough expertise in inorganic coatings but have found that our X-ray technology can also be efficient for testing organic solutions such as adhesives used for rubbermetal joints. There are many new companies in the market tapping into this technology and we want to explore the potential business opportunities for Helmut Fischer.

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VIEW FROM THE TOP

DIGITALIZATION CREATES SMART HR EFFICIENCIES GABRIEL ALVARADO Latin America Vice President and General Manager of Kronos

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Q: Kronos has a wide range of solutions and products. What

analyzes a company’s team dynamics. We have deduced that

is the company’s unique impact on the automotive industry?

one of the reasons for staff turnover is that employees tend to

A: Kronos has a positive impact in three different areas

feel they are treated unfairly. Kronos’ software takes this into

of the automotive industry. We focus on managing work

consideration, such as whether team members prefer working

productivity, as well as controlling and reducing labor costs.

the morning or the evening shift, or if they are open to working

Our product collects information about the labor costs for

on Saturdays. Taking personal preferences into consideration

every manufacturing process, which helps us discern smart

helps increase productivity. Kronos specifically contributes by

ways to make these processes more cost-efficient. Reducing

reducing dynamics that damage this, creating consistency in

labor costs is not about firing workers but about correct and

processes and fostering a competitive environment in which

proper management. This can also relate to compliance with

employees are paid fairly.

governmental regulations, including monitoring compliance with local work regulations and ensuring employees receive

Mexican work culture is more focused on arrival and departure

all the benefits negotiated by their union.

times than productivity itself. We create an employee skills profile that includes information regarding how productive

Most existing efficiency software only focuses on machinery,

employees are, their work quality, their skills and certifications.

stocks and production lines and not human capital. Kronos

The algorithm can assign workers to tasks they are most

works with people and helps reduce those situations in

suited to, considering their personal preferences.

which they feel they are not being fairly treated and or that other employees receive preferential treatment. We support

Q: How does Kronos contribute to the digitalization process

an organizational culture, recognizing that every company

regarding human capital?

has different processes and policies defined by its human

A: I like to think of Kronos’ work in layers. First, we remove

resources department. Unfortunately, those processes can

the payroll’s manual control. We guarantee perfect paychecks,

become simply part of the company’s guidelines and are

ensuring employees are paid correctly. This is basic but it is

never used or followed because supervisors and department

important for employees when done right. Secondly, we

heads tend to apply their own rules. This creates a segmented

optimize the workforce by assigning the right person to the

work culture across teams. In these cases, we create a

right task at the right time. Thirdly, we focus on providing

corporate governing board to provide consistency in the

financial intelligence on a series of costs related to the lack

decision-making process, whether by supervisors, heads of

of productivity. For instance, when OEMs do not have the

departments or company directors.

necessary parts and components, halting a production line can cost them thousands of dollars. When this happens, we

Q: How does Kronos help deal with high staff turnover?

mitigate all idle time by implementing a backup plan.

A: In Kronos, we believe that for a company to succeed, employees must be engaged, committed to their work and

The last part is related to analytics. We create dashboards

emotionally attached to the company. Companies are not

so clients have on-screen real-time business indicators.

made up of products or machinery but of people. To build

This tool automates decisions, processes, productivity and

commitment to the organization, our Workforce Institute

corporate-government tasks. We keep an eye out for ways to complement the functionality of our services so we recently acquired Datamatics Management Services, which

Kronos is a US-based multinational workforce management

has provided us with data analytics tools. Having invested in

software and services company, employing more than 5,000

Cloud services, we now have information from over 20,000

people worldwide. Its powerful tools and services help

clients saved there. This provides us with data to discern and

companies efficiently manage and engage their workforce

convey practices that generate further value.

VIEW FROM THE TOP

ROBOTICS, SELF-DIAGNOSTICS TO UPDATE, ADAPT BERND NOACK General Manager of FESTO Mexico

Q: What is FESTO doing to incorporate Industry 4.0 practices

pneumatics that will allow us to generate the volumes we

into its solution?

need. Another important opportunity area is supporting

A: The concept of Industry 4.0 has not yet been fully

machinery manufacturers. Unfortunately, we import most of

established in the industry. It will continue developing hand in

the machinery used in factories in Mexico. Imports total 80

hand with technology in the coming years. FESTO is working

percent of the machines used in industries such as pharma.

intensively with research centers, universities and clients to identify the industry’s needs and to generate adequate

Q: How is the deceleration of the US automotive industry

technology. The implementation of Industry 4.0 requires

affecting FESTO’s manufacturing operations?

capital and collaboration, with which FESTO can help. We

A: We have not felt the impact from the slowdown in US

want to participate in robotics and self-diagnosis, as well as

car sales. It is important to remember that the automotive

technical teaching and software development.

industry is cyclical and continues to be dynamic. Recent and projected investments in the industry reflect confidence

Industry 4.0 encompasses much more than just the internet of

in its performance but we are concerned about FESTO’s

Things. It involves Big Data, virtual reality, cyber-security and

dependence on the automotive industry, which represents

much more. The company is designating a lot of resources to

one-third of our sales. We are venturing into markets that are

technology development and to generating associations with

less familiar to us, such as home appliances, to balance out

institutions that foster technological improvements. Adapting

any fluctuations in the automotive industry. It is important

to Industry 4.0 practices is not only about developing new

to consider how the Mexican automotive industry will be

products but also about improving manufacturing processes.

affected by new technology trends. Engines or piston manufacturers will be affected by the introduction of electric

Q: Which has greater appeal for FESTO in terms of growth

vehicles. All sectors affected by this trend must prepare

opportunities: hardware or software?

themselves but FESTO is not fazed by the emergence of

A: Software and hardware developers are in a race to take the

electrically powered vehicles.

lead on Industry 4.0 practices in the automotive sector. Both types of developers are trying to venture into each other’s

Q: How can FESTO contribute to the development of the

business. The question we are now facing is whether software

manufacturing supply chain?

developers will manufacture cars or car manufacturers will

A: We are working to develop and strengthen our distribution

develop their own software and compete. I believe the trend

channel, so that companies can offer the same service clients

we will see is the latter. At FESTO, we are generating products

would get directly from us. We have limited resources so we

that require software and data management. We will generate

want to focus them on clients with whom we see the most

control systems, sensors and software to compete effectively

potential. SMEs have to become aware of how necessary

in the market. Technology development goes hand in hand

investing in technology is for their survival. Depending on

with alliances. Regardless of new software development, we

the industry, technology investment can reduce costs by 15-

are considering acquiring complementary companies in the

20 percent and in some cases, up to 30 percent. This is why

future to expand our product portfolio.

it is so important for SMEs to have available capital to invest in new technology.

Q: How close is FESTO to meeting its goal of doubling sales by 2020? A: I am convinced that the Mexican market will keep growing

FESTO is a leader in pneumatic automation, eletropneumatic and

as the Mexican automotive sector attracts new investments

electromechanical solutions. The company has presence in

from the likes of BMW and Audi. To reach our sales target

over 60 countries and it has more than 40 years of experience

we will develop new, less traditional sectors, such as mobile

in the Mexican market

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VIEW FROM THE TOP

ROBUST METROLOGY FOR ENGINE MANUFACTURERS JOSÉ FIGUEROA Director General of Marposs México

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Q: What is Marposs’ involvement in the Mexican automotive

characteristics and offer a customized product accordingly.

sector?

The machines used in Chrysler’s production are different

A: We started in Mexico in 1981 and our focus has been the

to those used at GM or Ford, so we always follow up and

automotive industry. At the beginning, we just managed

maintain close communication with the client.

a few businesses in the north of the country because we were established here as a supporting contact for foreign

Customized specifications mean challenging equipment

companies. Some of the Marposs equipment in Mexico was

development. We assign 25 percent of our annual earnings

purchased from other international branches. We support

to new product development in two areas, improving

them and those investments represent between 60 and 80

products to make them more reliable and developing new

percent of our work.

technologies.

We employ 70 people across the country. Our main clients are engine manufacturers of all brands that are currently working in Mexico. This

US$12

industry invoices around US$12 million a year so greatly merits participation

million: Marposs' invoices to the auto industry per year

Marposs’ products 10 or 20 years ago were drastically different but they have evolved thanks to the technology we have integrated. Our solutions are constantly being refined, because to continue competing in the market, we need to adapt to the market’s needs.

and innovation. This is not our only participation in automotive. We are developing many projects outside the country for

Q: What competitive advantage does Marposs offer

companies such as Ford and GM in the US, Volkswagen in

customers?

Germany and Nissan in Japan.

A: Equipment from other companies often requires clean rooms with a controlled environment for metrology

Our three offices are based in Atizapan in the State of

machines, to keep them calibrated correctly. We specialize

Mexico, in Queretaro and in Saltillo, Coahuila. Being spread

in selling robust equipment normally operated by hand

out across the country is a result of our founder’s vision;

at the worksite, which can be contaminated by open

Mario Possati believed in personalized customer service to

environments. This is why our products must be ergonomic,

guarantee quality. This is why Marposs has offices in every

easy to handle and resistant to moisture with a perfect seal.

industrialized country that manufactures engines. We have invested in machine interfaces. All electronic Q: How does Marposs develop its components?

peripherals can be adapted to the machines’ panels then

A: The development of Marposs components goes

directly connected to programmable logic controllers and

hand-in-hand with customer requests. We adapt to

data networks. We are getting ready for next generation

the technical specifications and requirements of each

technology. We use microprocessors that can share data

client for monoblock, crankshaft, camshaft and other

through the network and with sensors, to make decisions

component manufacturing operations. We analyze process

regarding auto-calibration. These compensate for external factors to improve the machine’s operations, which reduces operator errors such that in some cases they only need to

Marposs Mexico is part of a global group of companies launched

supervise the manufacturing procedure.

in 1952 to support all Marposs applications and products. As an ISO 9001-approved company, Marposs provides solutions that

Q: How are you taking part in and implementing Industry

improve manufacturing efficiency and product quality

4.0 in your operations?

A: Marposs is present during the first part of the process, the manufacturing area where all sensing systems capture data and compare it with the network. Our equipment has been developed to share data in real-time and to communicate with areas like computerized numeric control systems. If a piece is measured and a machine needs to correct its dimensions by five microns, the equipment must be capable of receiving a signal and applying the necessary recalibration immediately, so the next piece will be produced according to new specifications. This is a challenge for us but it increases the quality of the product and safety as the machine operates independently. 141

In the past when a machine was broken or there was a loss of control, the impact was very expensive or even caused accidents. We bought companies and equipment that can allow internal monitoring in real-time to avoid this, taking care of the details for manufacturers. Today, when a machine behaves strangely or detects something that needs to be fixed, it sends a stop signal to prevent any damage. Q: What benchmarks have you identified regarding cost reductions as they relate to clients? A: Every piece of equipment is different but all offer savings. Applications can be varied and difficult to sum up in just a number. We save time avoiding replacements in case of an equipment failure, reducing material waste and risks for the operator. Q: What are your plans to achieve further growth within the automotive industry in 2017? A: One of our plans was to acquire a workshop in Queretaro, where we will include a design department, manufacturing, assembly and new equipment installation. The site has been up and running since July 2017 and will help us cater to customers more effectively without importing equipment. Another goal is to diversify our market and start negotiating with the aerospace sector, which has been developing in Mexico in the five most important clusters. One cluster is in Queretaro, where the automotive industry is also flourishing, so the new plant will allow us to grow and attract new customers. Our interest in aerospace emerged as the number of aircraft passengers tripled in recent years. At the end of 2016, 90 percent of our income was derived from automotive and 10 percent from other industries. We want this ratio to be 60:40 and to do so we will dedicate equipment to the aerospace sector and implement Industry 4.0 practices.

VIEW FROM THE TOP

MORE DATA MEANS BETTER DECISIONS PEDRO GARZA Channel Development and Customer Advocacy Director for Latin America at Epicor

142

Q: How has Epicor aligned its technology development

Managing the quantity of information needed to offer strong

process to the emerging automation and Industry 4.0 trends

results to our clients is one of our main challenges. Our priority

in the automotive industry?

is to offer a stable platform and the best way to do this is

A: Industry 4.0 has become a priority in our innovation

through Cloud-based applications. This type of platform is

process. Keyboards are no longer the only data sources for

flexible enough for clients to receive the information they need,

ERPs as new sensors and interfaces become vital for collecting

while we manage all necessary updates and transformations.

data from manufacturing processes. Manufacturers are now including data transmission components in their equipment

Q: How are Epicor’s hybrid Cloud applications evolving to

so we must be able to connect with them.

reflect industry trends? A: There are companies that are still reluctant to adopt

Pirelli is a perfect example of how companies are changing

fully Cloud-based systems. In response, Epicor worked on

their products to receive more information. The company is

developing a hybrid Cloud application so certain processes

now adding a chip to its tires, which feeds information to

and bits of information can be kept onsite. New external

the manufacturer regarding wear, use and even how fuel

challenges arise continuously for our clients that require

consumption relates to the tire. All this data is collected by

information to be available onsite.

the ERP, helping Pirelli make decisions regarding its portfolio. Systems are becoming much more customized as new

The evolution of Cloud applications will depend on how

variables are analyzed according to the company’s needs and

ready our clients are to administer this change. Technology

the way clients use a certain product. We are opening our

integration is always a difficult process but we are trying

channels of communication and through the Cloud we receive

to market this as a way for companies to invest in their

all the information we need directly from our clients’ facilities.

employees. Training people in new ERP implementation and process digitalization is valuable for their career development

Q: How is data collection impacting your clients’ operations

and by taking this approach, the company ensures enough

and what challenges is Epicor facing to ensure sufficient

motivation during a difficult transformation process. We

connectivity and data management?

also have to take into account how ready the company’s

A: Processes are becoming technology-driven, impacting not

technology is to adopt innovations. Some clients are willing

only manufacturing activities. In marketing applications, for

to implement advanced ERP systems but after doing an

example, we have created a social ERP whose functioning

extensive analysis of their operations, we find out that their

resembles Twitter’s. The first phase of this project is to create

equipment cannot support these improvements.

an interdepartmental communication in our client’s operations. After that, we want to establish direct communication

Q: What level of standardization can Epicor implement in its

between the company and its clients through social media.

solutions and how does that affect the client?

The company will be able to monitor how clients interact on

A: Epicor’s solutions are known for their adaptability but

social media regarding its products. All this information will

radical changes to the platform are not recommended. Epicor

strengthen the ERP and it will help the company attack new

has implemented best practices in several ERP processes

market segments effectively.

and the client can choose what to implement and what to maintain from its previous process. We understand that we cannot be experts in everything and that companies know

Epicor is an ERP software developer focused on providing

which practices provide an added value. We negotiate the

solutions for manufacturing, distribution, sales and services

level of standardization to implement and the best results

applications. The company has more than 40 years’ experience in

come from creating hybrids of Epicor’s knowledge and the

corporate processes using Cloud, hybrid and onsite applications

clients’ best practices.

INSIGHT

RHETORIC SHIFTS FROM CONCERN TO AWE RAFAEL FUNES Executive Chairman of LOVIS and President of LOVIS Mexico

The tendency to treat manufacturing as an isolated activity

traditional ERP yields an average of 9 percent of the total

from other departments exists but no business can claim to

expected benefits, while LOVIS’ product yields 95 to 96

be cost and resource-efficient without having application

percent of the expected benefits.

integration that reaches beyond manufacturing. While the world is just beginning to understand that the best way to

“The return on investment of an ERP project averages 8

achieve this integration is through an Enterprise Operating

percent, while 100 percent return on investment made in the

System (EOS), LOVIS worked this out over a decade ago and

first year of an EOS is delivered that same year. The ROI made

is now battling to iron out bad habits among users of EOS’

in consecutive years is two to one,” says Funes. He adds that

ancestors, ERP.

the fact that ERP does not yield the expected results is a fault of the model itself.

“We created the EOS concept 13 years ago and explained it to clients as a replacement for ERP,” says Rafael Funes, Executive

Youssef and his partners point out that EOS and ERP have

Chairman of LOVIS and President of LOVIS Mexico.

similar objectives but their approaches could not be more different. “ERP is a top-down integrated approach, while EOS

According to research presented by Joseph Rahme Youssef,

is a bottom-up federated approach only providing enterprise

Gregory Zacharewicz and David Chen at the 25th Institute

operating functions that allow various heterogeneous

of Electrical and Electronics Engineers (IEEE) International

applications from different vendors.” In Funes’ words,

Conference on Enabling Technologies, an EOS is the path to

LOVIS’ EOS “has a universal, understandable, scalable and

developing a “smart factory” capable of dealing with rapid

configurable enterprise application. It is configured to fulfill

changes in market trends. “We believe that the EOS approach

client requirements without moving a single line of code.”

presents the best perspective for the future in the context of the internet of Things and Factory of the Future.”

An added benefit of LOVIS’ EOS is the time it takes to update the system. “A company typically takes four months

While EOS is beginning to receive sparkling reviews, Funes

to update its ERP and it costs around 60 percent of what

says the industry is wary of its implementation. “Companies

was originally paid. For each EOS client, the software update

tend to raise one of three main concerns. It is an online real-

takes around four hours and comes at no cost,” says Funes.

time solution, it is on the Cloud or they have already paid out

LOVIS contributions were recently mentioned in a paper

for an ERP solution.” Ironically, one of the advantages of an

published by the IEEE. “The paper says that EOS can be

EOS portrayed by Youssef and others in their research is one

considered a precursor of Industry 4.0 practices and that our

of the biggest concerns companies have: an online real-time

EOS development completely meets the expectations that

solution. “Most companies are so adapted to the offline ERP

researchers had of what an operating system should be able

model that they have built several mechanisms to cope with

to do,” says Funes.

it,” the researchers said. Funes says concern regarding Cloud security is a hurdle. while it should not. “We have much higher

In spite of all the advantages of an EOS, there are few

security standards than some governments,” he says.

early adopters in Mexico. Funes is confident that after the publication of IEEE’s paper, many companies will come around.

For Funes, the third concern related to money already spent

“The EOS has been permeating the automotive industry very

on ERP and consultancy services, is something unavoidable.

slowly. We are not planning to target global automakers in the

“You cannot consider the money spent on an ERP to be

very near future. We are selecting a handful to which we can

an investment since it does not yield the expected results

be genuinely helpful, specifically in operations.” The system

in terms of return on investment.” According to the LOVIS

is so advanced that it requires carmakers to understand it

Institute, with data from Panorama Consulting and LOVIS, a

deeply before deploying it worldwide.

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VIEW FROM THE TOP

LINKING MANUFACTURING OPERATIONS TO BUSINESS INTELLIGENCE GUSTAVO MOYA CEO and Research Director of Ixaya

144

Q: What advantages do Ixaya’s solutions offer

Our biggest opportunity to develop is with Tier 1 and Tier

automotive clients?

2 companies. OEMs are not forthcoming when it comes

A: Ixaya adds value by managing both software and

to sharing their software and ERP solutions, so it is more

hardware solutions, while linking manufacturing

difficult to enter that market. But they are not closed to

operations to business intelligence. Other companies

integrating other solutions that complement their current

focus on equipment specialized in certain activities,

systems, especially when it helps suppliers integrate

which means adapting to the local market may turn out

their operations. As Tier 1 companies become more

to be an expensive process. In contrast, we can modify

technologically oriented, Tier 2 and Tier 3 companies

our programmable logic controllers and equipment to

look to emulate these players, making our integration

operate just as the client requires, obtaining only the

process easier.

most relevant information regarding each process. Q: How easy is it for Ixaya to integrate its solutions with We are relatively new in the automotive market, with only

competitors’ ERP software?

three years in the sector. That being said, the company

A: Depending on the company’s level of integration we

has 11 years of experience working on complementary

can offer a specific alternative to meet its requirements.

systems for manufacturing and logistics operations.

There are companies that solely use Ixaya’s equipment, while others only activate our automatic data-collection

Ixaya had already participated with companies like PEMEX

solutions to complement their manufacturing solutions.

and eventually moved into the automotive industry. This

Our systems are certified by all major ERP’s in the market

led us to the realization that most clients did not have

including Oracle, SAP and even Microsoft Dynamics.

a company that could provide the level of integration between software and hardware that we can manage.

ERPs are transforming from a physical system to a Cloudbased application, allowing companies to integrate their

Q: How has the company’s success thus far influenced

operations around the world. Many Tier 1 suppliers are

Ixaya’s growth expectations in the automotive market?

looking for a way to connect these Cloud solutions to

A: Our sales in the automotive sector have grown

their local devices but lack the experience to do so. These

between 120 and 150 percent year on year since 2014.

hybrid architectures allow us to link directly with the ERP,

They now represent approximately 30 percent of our

offering an alternative to our Tier 1 and Tier 2 clients.

business. We detect considerable growth opportunities with these types of companies and are collaborating

Q: How can Ixaya support its clients in business

with local players to increase our presence. Just like the

intelligence activities?

automotive sector has OEMs, Tier 1 and Tier 2 players, we

A: Many companies see business intelligence as static

act as a direct link with our clients while incorporating

reports without any added value. However, the benefit of

smaller developers that strengthen our operations.

business intelligence is to mix previous data to generate

We integrate their solutions and adapt them to the

new information that can help your operations. Ixaya

automotive industry.

merges all the metadata generated by ERP software and consolidates it for the final user.

Ixaya has been developing high-level software for more than 12

Big Data is an important area of opportunity for many

years, generating solutions and cellphone applications to make

companies that did not know how to take advantage

businesses more efficient. The company offers ERP, business

of the information they were generating. The future of

intelligence and project management systems

manufacturing is for all equipment to be integrated,

transferring relevant data to the rest of the supply chain.

protection, other players can simply copy what you

Communication between clients and suppliers allows the

have created, which blocks the company’s development

process to be automatically adjusted.

strategy. I am not completely against this idea because I believe technology should be access-free. Source code

The Six Sigma strategy implemented by Toyota is

should be protected by copyright but not the idea itself.

based on managing only the necessary components to

You can patent software in the US and that has allowed

manufacture the product. Data collection and process

companies to commercialize many products. But this has

integration ensure effective resource management.

also opened the door to “patent trolls” that only protect

Technology integration is also a good strategy to prevent

an idea without creating a solution.

future problems, and its constant monitoring leads to productive maintenance and an effective decision-

Another obstacle startups face in Mexico is getting funds and

making process.

investors. When a company in the US fails to generate funding, it pivots and creates a new product from the original idea.

Q: What other integration opportunities exist between

This leads to what is now called a “unicorn” company, listed

Ixaya and its fellow software-developing companies?

in the stock market and valued at more than US$1 billion.

A: We are collaborating with Guanajuato’s government

But initial public offerings in Mexico are expensive and even

to create an IT cluster so Ixaya and other companies

though there are a few financial structures like stock market

can offer integral solutions to potential clients. Many

promotion companies (SAPI), it is complicated for startups

companies are creating automation solutions locally

to participate in the Mexican stock market.

that do not generally reach the market. Breaking into the automotive industry is challenging, so we offer these

Funding is more traditionally managed in this country and

players an entrance, while ensuring the client gets the

companies depend on the government or a bank trusting

best solution with guaranteed quality. We are one of

in their idea. The only other option is to get funding by

seven companies leading these efforts.

selling your products but during the developmental phase, this is difficult. After 11 years in the market, we

We also have operations in Salt Lake, Utah where we

know it takes us around four years to start selling any

are also collaborating with other local companies to

new idea we generate. Therefore, we try to create new

complement their services. In the US, we mostly focus on

products every two years to compensate.

general manufacturing activities but eventually transfer all knowledge to our automotive operations.

A collaborative environment is also necessary to promote research and development. Silicon Valley and other regions

Q: What challenges do you see in being a technology

in the US have successfully fostered innovation through

development company in Mexico?

co-working and networking, creating opportunities for

A: The most common barrier for software companies in

companies and entrepreneurs to integrate their solutions

Mexico is patent generation. Software cannot be patented

with complementary ideas. Although we have a similar

here since the Mexican Institute for Industrial Property

approach and some of our solutions are open source,

does not consider these products an invention. Without

Mexico is still quite protectionist in that sense.

145

INSIGHT

A ONE-STOP VALUE PROPOSITION GABRIEL ROLDÁN Director General of Gaden

146

Gaden’s value proposition is unusual: a company that offers

countries. Security guarantees must be equally safe across

repair services, original equipment manufacturing, distribution,

borders. Having Gaden as a strategic partner often secures

licensing and client representation. Director General Gabriel

business for foreign companies, as access to local service

Roldán describes Gaden as a one-stop-shop for specialized,

providers can make or break a sale.

high-technology products. Not all companies can easily manufacture or sell the products and services they manage.

“We support clients to make products last longer, creating a permanent partnership with them.” Counting commercial

Selling the majority of peripheral components for CNC

partners on every continent and as repairers of their products,

machines provides Gaden with its competitive advantage,

Gaden must ensure the same quality without fail, to protect

allowing it to distribute and repair parts economically.

clients’ reputation. Customer loyalty is the one-stop shop’s

Machine manufacturers are not direct competition because

reward for making sure products last up to another five years

the company’s goal is to renew product guarantees as

after Gaden services it. Conversely, Roldán recognizes the

though those products were original pieces, ensuring the

value of honesty to indicate when a part or machine simply

same durability. “Our staff aims to repair pieces at below

needs replacing. The “repair for less than 50 percent of a new

50 percent of the original price of a new part,” says Roldán.

piece” rule must also protect the client from fixing something

Being able to both manufacture and service parts gives a

that would be better value to replace.

broader perspective of the market and makes the company a comprehensive service provider.

As the company already has a working relationship with most automotive players in Mexico, its target going forward is to

“Depending on a company’s position in the supply chain, it

increase sales percentages. Venturing into new industries is

requests different volumes of product and service.” OEMs

also a possibility. “Tamsa and Alstom are examples of metal-

manage more machines and mass production, which can

managing companies but as their industry has stalled recently,

mean heavy wear and tear. The automotive industry presents

so have our services for them,” says Roldán. “We may see an

this challenge: sheer repetition of an action thousands of

increase in our aerospace participation to replace slowing

times a day that can deteriorate equipment rapidly. The

industries but while our diversity gives us stability, automotive

increase in manufacturing with aluminum also ups the ante

continues to be the strongest sector.”

on how quickly a machine will need repairing. More and more frequently, this metal is being integrated into Audi,

The company has no interest in doubling its efforts. Roldán

Mercedes-Benz, Land Rover and Ford vehicles thanks to its

sees more value in steadily reaching objectives, with care and

lightweight and environmental advantages. Aluminum boosts

attention to offer the right service the first time. “Clients come

fuel economy and absorbs twice the crash energy that mild

back to us because we offer something extra,” says Roldán,

steel can, improving safety.

describing the company’s precision and attention to detail, which makes him confident it will always receive positive

Gaden finds itself acting as a bridge between two entities, a

feedback. This is also thanks to its flexibility when automotive

foreign repair company and an equipment owner for example,

clients require on-demand service.

or the individual responsible for guaranteeing a product’s effective repair. “As an operations center for our suppliers,

As soon as the US political landscape stabilizes, Gaden’s

we sometimes offer warranties in their name. Our team must

development plan will fire up in full force. Irapuato is where

ensure they resolve the problem to respectfully represent our

Roldán is setting his sights to build an installation to house

clients,” Roldán says. This is the case for certain companies

the two representatives already generating business there. A

that require the Mexican team to provide services in Canada

team for the upcoming workshop in Irapuato and additional

and the US as well, homogenizing their service quality across

staff in Mexico City are probable next steps.

INSIGHT

SELECTIVE SUPPLIER OF QUALITY TESTING Patrice Gosselin Operations and Business Development Manager of Averna

Mario Nieto Sales Manager Mexico of Averna

Consumers know that buying cheap can be more expensive

experience seem insignificant compared to the history of

in the long run. Test and quality leader Averna suggests

auto part suppliers but in the realm of component and

that industrial companies should think similarly. Quality

systems testing, Averna is a veteran and part of the list of

comes at a cost, which Averna justifies because its network

companies boosting local manufacturing quality. Testing

is composed of talented individuals who are trained to help

is becoming widespread, leading to the establishment

in very specific cases. “Being a global company means we

of private facilities such as Intertek and Carl Zeiss’ new

have direct access to skilled engineers, many of whom are

Demo Center in Monterrey. Research centers also take

specialized in telecommunications, vision systems and RF

on the responsibility of quality testing, among them the

signal-processing,” says Patrice Gosselin, Operations and

Automotive Industry Development Center in Mexico

Business Development Manager of Averna.

(CeDIAM) and the High Technology Investigation Center (CIATEC). Private and public sectors contribute in different

The Montreal-based testing and engineering company

ways but both reflect the increasing participation of Mexico

has offices in Canada, the US, Europe, Mexico and Japan

in design and engineering operations.

that cover prototyping, test systems and products and precision assembly. While it has divisions in consumer

The automotive sector represents 25 percent of Averna's sales

electronics, telecommunications and aerospace, the automotive industry represents 15-20 percent of Averna’s global sales. “In Mexico, the sector accounts for up to 25 percent of what we sell,” says Gosselin. “We directly and indirectly supply OEMs, primarily working with Tier 1s and often within more than one country for each client’s

Integrating connectivity components also poses a safety

production line.” Continental’s design team is among its

issue to manufacturers. Beyond the normal difficulties of

global clients, for whom Averna tested the company’s

integrating any new technology into existing products,

active wheel-speed sensors. Averna also branches into the

a system that can take control of a vehicle cannot fail.

health sector, which draws parallels with automotive as the

“The possibility of putting passengers at risk makes quality

same high-technology processes are used. The quality was

control even more relevant for manufacturers,” says Nieto.

easy to transfer from automotive to medical manufacturing

The installation and operation of connectivity must be

because the health sector is subject to strict laws.

validated by a company like Averna. “We do not miss a trick when it comes to finding faults in components but we

Mario Nieto, Sales Manager Mexico of Averna, sees the

are also careful not to reject good parts, as disposing of

automotive industry as most closely linked to electronics,

and remaking components implies a cost for our clients,”

however. “Seven years ago, an iPhone could not connect to

says Gosselin.

a car but now the two connected entities can make calls, send emails, turn the air conditioning down and switch

Big Data facilitates the integration of processes and Averna’s

the engine on.” The same relationship is true for safety

service dubbed Proligent Analytics specifically manages

features, which is why Nieto considers the two industries

test results. “Reports are generated that fix processes and

to be comparable.

return data that can be used for further analysis of process quality. Proligent aims to eventually remove the need for

Averna has checked that electronics companies’ products

testing,” says Gosselin, “and our systems are advanced

enhance driver experience, improve vehicle safety and

enough to detect a faulty piece before it advances on

provide high-quality traffic and information services

the production line. Therefore, we can send a signal to fix

for as long as the market has existed. Its 15 years of

machines before they repeat the error.”

147

VIEW FROM THE TOP

UNEXPECTED BUT WELCOME GROWTH AND ALLIANCES RICARDO MARTÍNEZ President of SIMSA

148

Q: How did Ford moving production out San Luis Potosi

is regionally recognized and we plan to use their expertise

impact SIMSA’s business?

to make grinders.

A: We focus on powertrain manufacturers so we did not expect to benefit directly from the assembly

Another strategic alliance with Japan to rebuild spindles

plant’s introduction. We will participate in Ford’s

was formalized in 2017. Mechanical moving parts in any

new transmission plant’s production in Guanajuato,

machine, like tires and wheels on a car, are subject to

strengthening our ongoing relationship. SIMSA’s machines

wear and tear. NTC, one of the largest manufacturers

are already being delivered to the Ford plant. As BMW

we work with, currently sources all its spindle-rebuilding

and Toyota increase their presence in Mexico, we have

from Japan, implying lead-times of four to five months

begun quoting for machine deliveries to their suppliers

per spindle. Its 1,000 machines installed in Mexico replace

such as JD Norman Industries, which makes connecting

spindles frequently, forcing it to buy extra parts that cost

rods and axles. Other SIMSA participation includes GM’s

US$25,000-35,000 each. This waste of resources can be

new three-cylinder engine to be made in Saltillo. Our

avoided by SIMSA offering the service here in Mexico and

equipment, including grinders and polishers, will be used

we can offer turnaround times of three to four weeks. We

to manufacture that engine.

have a spindle room in the Aguascalientes facilities and the company is already 95 percent equipped. We are also

Q: To what extent has SIMSA’s refurbishing service been

sending staff to Japan to train further.

welcomed by automotive clients? A: Refurbishing has grown far more than I expected. Two

Q: To what extent will the NTC venture affect your

years after opening the plant, we reached full capacity and

relationship with other clients?

are already investigating an expansion. We did not expect

A: This venture has attracted interest from other companies

so much interest but until we introduced the service,

and will increase the value manufacturers can add to

refurbishing was not available in Mexico. Production

products in Mexico. We are considering developing a

grinders and balancers had to be sent to the US, Japan or

separate division to keep this joint venture specialized and

Europe to be renovated beforehand, so offering this service

not impose on our existing customers whose operations

locally has grabbed the attention of many large companies.

are unrelated to our NTC plan. Importantly, it does not pose a threat to our customers. On the contrary, a German

Q: What other areas of the company’s operations have

client of ours has expressed interest in participating in

been in the spotlight in 2017?

manufacturing tools. This synergy provides an opportunity

A: We are discussing an alliance with a French company

to reduce unnecessary transport of pieces and machines so

that refurbishes in the US to start making new machines in

unsurprisingly many want to be involved in the business.

Mexico and to deliver these worldwide. This will put us in competition with Europe, China, Korea and Japan. The plant

Q: How do you expect SIMSA’s continued growth in 2017

will be located in Aguascalientes, where we had already

will lead to new challenges?

found an excellent climate for manufacturing and a reliable

A: Last year we grew from scratch to a little over US$1.8

workforce. The skillset of those working in Aguascalientes

million in income to date. We have set a goal for three years from now to be making income of between US$8 million and US$10 million. Our biggest hurdles so far have been at

SIMSA sells machinery to the automotive industry. It is an expert

customs and sourcing within Mexico. Bureaucracy often

in refurbishing spindles and high-technology machines. The

complicates rapid imports, so we created a department

company also trains its service technicians to install equipment in

within SIMSA dedicated solely to handling these operations.

Africa, Asia, Europe, North and South America

We import key components such as drives and motors that

are not available in Mexico, primarily from the US, so our

their expertise. Making machines is a very specific, unusual

operations depend heavily on smooth customs processes.

task and especially to the technology standards that we maintain, so when inexperienced employees join our teams

Powertrains are changing mechanically due to hybrid and

they are always excited and keen to get on board.

electric cars entering the market. We do perceive a threat over the long-term because the market that contracts

Seeing two generations of workers, within one family in

us will change dramatically. However, I still see life in the

some cases, is heartwarming. As they learn to service

gasoline-powered market for another five or 10 years. We

machines we are proud to see the younger generation grow

certainly hope that powertrains of this sort continue to be

alongside their parents. Some of the new recruits have just

manufactured for much longer but we are reaching out

completed technical college certifications and they are all

to OEMs to see how we can help them with our existing

eager to learn.

operations in Mexico. We may be manufacturing some components for certain electric motors or axles in the

Q: How are you building a reputation as a Mexican company

future. We will have to adjust to the market and are planning

to compete against many established players?

accordingly, contacting foreign companies whose machines

A: It is a challenge in an industry that tends to prefer

are no longer made in their country. Landis-Bryant

buying from its own country’s suppliers, except Mexico.

precision grinders provide an example of a company that

German brands buy German parts, Japanese buy

focused on automotive machines in the 1980s, and which

Japanese but Mexican companies do not necessarily

we plan to rediscover. No longer made in the US, these

prefer Mexican suppliers. We believe this will change

grinders will be made by SIMSA in Mexico and will build

over time because Mexican talent and engineering is

off the branding that Landis established for this machine.

extraordinary. Overcoming this mentality is hard work that pays off, leading to programs under SIMSA’s charge

Q: How prepared is your current workforce for the changes

established by our customers, shipping machines to the

you plan to make to SIMSA’s business?

US beginning in the spring of 2017. This is a reflection on

A: We are bringing in new skilled workers who are

our dedication and trustworthiness. Our priorities remain

shadowing our experienced engineers. The seniority of our

finding resources and high-level expertise within Mexico,

personnel reaches 18-23 years working for SIMSA so we

ideally Aguascalientes, to incorporate local talent and

have faith in these knowledgeable technicians passing on

businesses into our supply chain.

149

INSIGHT

NARROWING THE COMPANY TECHNOLOGY GAP

“

A company without a platform that can clearly provide information about its key performance indicators is not reliable”

150

Gustavo Rojas, CEO of Grupo Gersa Monterrey

flexibility than large software developers. “Communication with ERP platforms is generally rigid and there is little room for individualization,” he says. The flexibility of Grupo Gersa’s system allows it to offer simpler solutions that can be much more cost-effective than a generalized ERP platform. This makes it affordable for smaller companies requiring less technology integration. Rojas explains that the standard company revenue to justify the integration of an ERP software like SAP or Oracle is about US$100 million annually. “But many successful players have

Automotive is a highly technological industry but not all

lower profit margins and are not catered to by other solution

industry participants can afford to implement complex

providers. Our goal is to meet their needs.” Automotive

control projects. Regardless of their purchasing power,

companies now account for about 70 percent of Grupo

Gustavo Rojas, CEO of Grupo Gersa Monterrey, says

Gersa’s client base. The company offers project integration

smaller suppliers along the production chain will still have

solutions to small suppliers and to large companies like GM

to assimilate new technology for project management, if

and Magna. The road to success has not been easy, though.

only to comply with their clients’ requirements.

Rojas explains that international investors tend not to believe in the technological abilities of Mexican companies,

“A company without a platform that can clearly provide

a complaint that is echoed by other national technology

information about its key performance indicators is not

developers such as LOVIS Mexico. “Most clients only choose

reliable.” Although the CEO thinks technology integration in

a local supplier when their budget is too low to contract a

the Mexican market will take 10 more years before becoming

multinational player,” says Rojas.

a true standard, he has already found a way to help smaller companies become much more technology-friendly.

To change this perception, Rojas has pushed Grupo Gersa to attain global quality certifications that prove what the

In between projects involving 100 robots or small

company can really offer. Grupo Gersa is certified as a Value

manufacturing cells with just two or three robots, there is

Provider by ABB, which puts Rojas and his team ahead of

a niche that neither big automation players nor small local

other competitors that act only as project integrators. The

technology developers can address. “Global integrators

company is also certified by most of the original equipment

are not interested in projects with 15-20 robots because

manufacturers in the automation segment, including Rockwell,

of small profit margins, while smaller players cannot cope

Siemens, FANUC and KUKA. Being certified by the Control

with their size and complexity,” Rojas says. Grupo Gersa

System Integrators Association (CSIA), a group of 500

has specialized in filling this gap. Along with automation

corporate members from 27 different countries, includes

projects, the company has created a business line focused

Grupo Gersa in a group of automation-project integrators

entirely on software development. As manufacturing

that strives for an integral vision between engineering and

demands more connectivity and integration, Rojas says

business skills. Rojas explains that this certification has helped

Mexico still lacks data-collection project implementation,

gain the trust of leading companies like Vitro that place CSIA

especially at a midtier level, encompassing connectivity

standards above even their own auditing processes.

between machines and data analysis for production planning. “Data collection at a base-level, on the production

The company has grown an average of 12 percent year-on-

floor, is required for manufacturing processes to work but

year since 2015 and the automotive industry represents two-

midtier connectivity remains an unexploited practice for

thirds of this growth. Rojas expects to deliver similar results

small companies.”

for 2017. “Demand for project integration services surpasses Grupo Gersa’s supply capabilities,” he says. Rojas says Grupo

Grupo Gersa’s software development offers similar

Gersa received multiple visits in 2016 from leading suppliers,

solutions to what clients might find in traditional

such as Saint-Gobain, Vitro, Michelin, Bridgestone and

manufacturing control and management platforms. But

Gestamp, that were looking specifically for local equipment

Rojas highlights that his company can offer much more

suppliers and project integrators in Mexico.

INSIGHT

EFFECTIVE COMMUNICATION PREVENTS REVENUE LOSSES JUAN BARRAGÁN Distribution Channel Director of Motorola Solutions de México

Companies are becoming more digital as equipment

says smartphones are not an efficient way to communicate

connects with ERP systems and automation dominates

in a production facility. Operators need to communicate with

most operations. Human-machine interaction is crucial to

several people at the same time, so they would have to make

achieve the key attributes of Industry 4.0 and to avoid costly

multiple calls. With a radio, communication is simultaneous.

downtime, meaning communication systems need to adapt to these new requirements, says Juan Barragán, Distribution

Motorola’s study shows manufacturers want two-way radios

Channel Director of Motorola Solutions de México.

that can connect with other devices including smartphones, tablets and computers. “Companies must now be connected

Unplanned downtime costs are directly related to equipment

with their suppliers at all times and we have developed

availability during manufacturing operations and how well

WAVE, a solution to connect suppliers’ cellphones with

the company manages its maintenance schedule. When

radios on the manufacturing floor,” says Barragán. WAVE

a breakdown is detected, systems must communicate

connects plant operators with all personnel who do not

effectively to prevent the entire production line coming to

have a radio.

a stop. In a Motorola Solutions 2015 study, Innovations in Plant Communications, 46 percent of CEOs, plant managers,

Motorola’s next step is Wi-Fi integration. Motorola Solutions has

operations personnel and engineers interviewed said digital

just released a new version of its equipment that incorporates

radios can reduce downtime by 10-20 percent.

Wi-Fi, opening a new dimension for its clients. “With Wi-Fi, data transmission broadens to communications that require

Motorola Solutions has focused on developing equipment that

more bandwidth, which complements the advantages that

addresses problems such as sound clarity and coverage to

radio frequency can offer.” Barragán expects Wi-Fi features

make manufacturing efficient. “Regardless of the complexity

to become standard across all Motorola Solutions’ products.

of the operation, production requires the coordination of

These are all based on the same equipment architecture,

different work lines and that is where our services can offer a

which he sees as the company’s greatest advantage to attract

clear advantage,” Barragán says.

new clients. Depending on their needs, clients can gradually add more features to their radio by simply acquiring new

Maintenance and repairs are examples of when machines

product licenses. Companies make the same initial investment

might communicate with operators. “Most companies have

in equipment and later decide how much functionality they

their own alarm displays for equipment malfunction and

want to add.

we are now communicating those alerts to our MOTOTRBO radios,” says Barragán. MOTOTRBO connects the machine

Motorola Solutions has positive growth expectations in the

and handles the alert registry for data collection. This helps

Mexican market, especially as more automotive companies

companies build statistical data that can lead to schedule

arrive to the country. The company has already established

maintenance and prevent equipment malfunction. David Bell,

close relationships with several automakers around the world

Vice President of Business Development at SmartSignal, says

and once these companies bring their operations to Mexico,

downtime can lead to losses of between 1 and 3 percent of

they are likely to build on this relationship with Barragán’s

a company’s revenue. Bell’s affirmation was later used by

team. He says the automotive industry is the second-largest

Motorola in its 2015 study to show that approximately 20

sector in the manufacturing division, only behind low-

percent of a plant’s production capacity is lost to downtime.

cost manufacturing maquiladora operations. “Automotive is a sector that likes technology and is accustomed to

Smartphone complexity and the potential to integrate

incorporating innovation into processes, so we see an

technology into smartphones would make them ideal devices

opportunity to grow our client base and bring more complex

to connect with manufacturing equipment. But Barragán

solutions to Mexico.”

151

INSIGHT

BUILDING TRUST IN NONTRADITIONAL MANUFACTURING

“ 152

Additive manufacturing was previously considered too costly and unprecise for mass production. Now, it has become a complement to traditional manufacturing processes” Victor Ruiz, Managing Director of 3D Systems Latin America

Additive manufacturing has so far been limited to the production of low-volume components and prototypes. However, Ruiz says the process does not refer to a single technology. According to the Loughborough University in the UK, there are seven different types of additive manufacturing: material extrusion, powder bed fusion, material jetting, binder jetting, directed energy deposition, VAT photopolymerization and sheet lamination. Although 3D printing is the commonly used name for these technologies, “depending on their needs, companies can choose exact finishing solutions for assembly tests or more rough finishing alternatives for first-concept modeling used in marketing campaigns,” says Ruiz. Having already conquered the design and prototyping market, 3D Systems’ goal is to move into the volume production market. “All our investments are focused on developing

Mexico is falling behind when it comes to advanced

affordable equipment that can deliver faster results,” says

manufacturing-technology integration. Companies are

Ruiz. The company has developed its Figure 4 manufacturing

not yet aware of all the different technologies they can

cell to deliver ready-to-use pieces from a photo-sensitive resin.

incorporate into their facilities, creating significant potential

“There are already companies testing our Figure 4 solution,”

for businesses that offer nontraditional manufacturing

says Ruiz. The company has established business relationships

solutions, according to Victor Ruiz, Managing Director of

with OEMs including GM, Volkswagen, Nissan and Ford, and

3D Systems Latin America.

suppliers such as Continental and Hella.

“Additive manufacturing was previously considered too

Technology has been one of the main reasons behind 3D

costly and imprecise for mass production,” says Ruiz. “Now,

Systems’ success but Ruiz says the company has a global

it has become a complement to traditional manufacturing

strategy to move beyond that. Companies expect to improve

processes.” Taking plastic injection as an example, traditional

their capabilities after introducing new equipment to their

manufacturing processes for a certain component require

plants and they expect a return on the investment. More than

not only the design of the part but also of its mold. This must

an equipment manufacturer, 3D Systems wants to become a

be validated through a series of tests and once approved,

consulting partner for its clients, helping them understand and

manufactured components must go through quality and

incorporate advanced manufacturing techniques into their

measurement validation. These steps involve iterations that

operations. “We help clients analyze how our equipment can

lengthen the process, incurring added costs for the company.

best support their operations by saving resources, shortening development cycles or simplifying production,” Ruiz says.

With 3D printing there is no added tooling required. The component is designed according to its final measurements

One of 3D Systems’ strategies to make its operations more

and if adjustment is needed, designs can easily be changed

appealing is the implementation of adequate 3D-modeling

in the modeling phase. There are still limitations, especially

and 3D-scanning technology. The company has developed

considering the time difference between traditional

its own software platforms to meet these needs. For 3D

manufacturing and additive manufacturing, but these

printing, the company created the 3D Sprint and 3DXpert

alternatives are gaining trust. In its Global 3D Printing Report

software. Regarding modeling, scanning and measurement

of 2016, EY highlights that approximately 29.7 percent of the

control, 3D Systems launched the Geomagic software family.

companies in the automotive and aerospace segment use 3D

Finally, for machining and tooling design for molds and dies,

printing for end-component production, while 21.6 percent

the company’s solutions are GibbsCAM and Cimatron. After

use additive manufacturing in tooling production. At the

installation of both hardware and software, the company

same time, according to 3D Systems’ estimates, the additive

offers the necessary training to use the equipment. “We

manufacturing sector has grown at a rate of 30 percent since

provide frequent training to our clients and we also offer

2012 and Ruiz’s projections are for the industry to maintain

certifications for companies that need them to incorporate

that same level of growth at least until 2025.

their operations into the production chain,” says Ruiz.

INSIGHT

ARTIFICIAL INTELLIGENCE: THE KEY STEP FOR INDUSTRY 4.0 EDUARDO ARIZPE CEO of Alturin

The fourth industrial revolution is based on two fundamental

is essential when starting new processes because it helps

ideas. The first is that systems must be capable of

managers avoid downtime and relocate resources to balance

interconnecting and sharing data on all the company’s

workload and available resources.

operations. Though this is a new idea, it has permeated the industry and most technology players are improving data

Even though process optimization is not new, Alturin’s value

collection and systems’ connectivity in preparation. The

proposition is modern. The company offers a consulting

second aspect, however, is still a work in progress. Once

service that is personalized to each client, so it can adapt

companies can gather information efficiently, it must be

artificial intelligence to the company’s needs. “Clients

analyzed in a way that supports automatic decision-making.

receive a unique solution depending on which variables must be analyzed,” Arizpe adds. Alturin works with three

Although startups are more frequently driving technology

companies in the manufacturing sector and is designing a

innovation, Mexican companies are rarely participants in

solution specifically for the automotive industry. “Our biggest

this trend. Alturin is using an attractive value proposition for

opportunity is with OEMs because securing this type of client

all manufacturing players to try to change the mindset of

would catalyze our operations.”

Mexican companies toward accepting artificial intelligence. Eduardo Arizpe, CEO of Alturin, explains that his system is

Although his focus is on manufacturing, Arizpe sees big

based on mathematic algorithms that take equipment past

opportunities for Alturin’s software in data analysis for sales

simple automation. The goal is for machines to learn based

and service applications. He believes vehicles would benefit

on their environment and make decisions on their own. “The

from being equipped with sensors that compile data on

platform works in a similar way to Spotify,” he says. “The

driving practices. The software could then build maintenance

recommendations users receive on Spotify are based on their

schedules based on the data. “This would be a win-win for the

playlists and favorite artists. This information is handled by

client and the automaker,” he says. “The former would be sure

a mathematical algorithm that analyzes data and generates

the car will always receive maintenance at the right time and

specific results for each profile, much like Alturin’s solution.”

the latter would know the customer was satisfied.”

In manufacturing operations, artificial intelligence can help

Until now, Alturin has operated only under its own capital and

companies generate optimal production routes without

Arizpe wants to keep it that way for as long as possible. “We

spending on an employee who manually tracks each step

want to develop our technology before raising government

of the process. “Our software can be directly linked to ERP

or private funding.” The company has aggressive growth

solutions. These platforms are key sources of data, the most

strategies and by 2020, Arizpe expects Alturin to be a strong

important factor in artificial intelligence,” says Arizpe.

player servicing local companies and other players in the US and Latin America. Particularly after the threats President

Harriet Green, General Manager of IBM’s internet of Things,

Trump made against Mexican manufacturing, Arizpe sees R&D

Commerce and Education businesses, reports that almost

as a priority for the Mexican industry, as well as technology

90 percent of the information currently gathered through

integration into all manufacturing activities.

internet of Things applications is unused. Until the linkage exists, Industry 4.0 will not become a reality. Moving a

The company has had considerable success in the market and

step further in transforming the industry, Alturin’s system

its only limitation is the size of its workforce. Six companies

compares key characteristics of new products to the

have requested a personalized solution but the CEO says

historical data of every other component the company ever

Alturin cannot handle the additional workload. “Once we

manufactured. That way, it can detect how to make the

can increase and train our team, we expect to sign five or six

production process much more efficient. Route optimization

clients by the end of 2017,” he says.

153

TECHNOLOGY SPOTLIGHT

154

ZEISS COMET L D 2 Reverse engineering processes and mold-design operations normally require 3D scanning solutions to ensure exact measurement of the component to be manufactured. ZEISS COMET L D 2 is the companyâ&#x20AC;&#x2122;s latest sensor for reliable 3D data capturing. The system allows customers to generate 3D data of components quickly and accurately. It is equipped with state-of-the-art sensing technology and a highperformance software. Its data-acquisition software colin3D ensures consistent results throughout the measuring process. It can generate false color comparisons for individual component analysis and documents measuring results.

ZEISS COMET L D 2 has five customizable measuring fields of view Thanks to its flexible set-up, ZEISS COMET L D 2 can be used for a wide range of applications including quality control and inspection, as well as design, rapid manufacturing, reverse engineering, tool and model making. The sensor is compact and light, making it easier to transport to different application sites. Its high light intensity and fast camera also gives it the flexibility it needs to work on different environments and to measure different object surfaces. The 3D sensor also has a minimal working distance of 760mm, allowing to work under limited-space conditions. The system comes with five measuring field of views that can be customized by changing the camera lenses: 45, 75, 100, 250 and 500, each with a larger measuring volume ranging from 51,300 mm3 to 48.6 million mm3. ZEISS COMET L D 2 system can recognize vibrations and changes in exposure in harsh ambient conditions, ensuring reliable data. That way, the user only needs to focus on measuring. The system has a resolution of 2448x2050 and is equipped with a tripod stand with a manual rotational and tilt axis for easy handling. ZEISS COMET L D 2 offers also an optional fully integrated rotary table, ZEISS COMETrotary, for automatic object positioning. The system is also compatible with a desktop computer or a laptop.

155

Audi's engineering operations in San Jose Chiapa, Puebla

TALENT & INNOVATION

One of Mexicoâ&#x20AC;&#x2122;s advantages as a manufacturing hub is its cheap labor. However, the sectorâ&#x20AC;&#x2122;s rapid development toward more automated solutions is diminishing this factorâ&#x20AC;&#x2122;s importance. To remain competitive, Mexico now must develop the proper talent the industry requires, focusing on the areas that remain a challenge for the country, including engineering, design and tool manufacturing. Equally important is the development of original research and design operations to offer an added value to all investors establishing in the country.

This chapter highlights the importance of human talent in manufacturing and engineering operations. The relationship between the industry and academia is vital in this section to understand how the country can evolve as a technology developer and not just as a parts producer. Companies and research centers also share their latest projects oriented toward local technology development and fostering an environment for advanced manufacturing processes.

157

CHAPTER 7: TALENT & INNOVATION 160

ANALYSIS: Mexico’s Challenge: Theory Versus Practical Application

161

INSIGHT: Yugo Hashimoto, Sumitomo Corporation de México

162

VIEW FROM THE TOP: Gabriel Aparicio, Kelly Services México

163

VIEW FROM THE TOP: Gerardo Kanahuati, Hays

164

Anna Czarnocka, Hays

INSIGHT: Raúl Pérez de Celis, Out Helping

Ricardo Iñurria, Out Helping 165

INSIGHT: Bryan Burstein, Adecco

166

INSIGHT: Andrés Sánchez, Randstad

167

VIEW FROM THE TOP: Mónica Flores, ManpowerGroup

168

INSIGHT: Germán Hernández, Spencer Stuart

169

ANALYSIS: R&D Remains Mexico’s Achilles’ Heel

170

VEHICLE SPOTLIGHT: VUHL 05RR

172

INSIGHT: Hans Schwerdt, CIM Co.

Muganes Musharrafie, CIM Co. 173

VIEW FROM THE TOP: Miguel Saldamando Flanagan, ceat and Técnica test

Israel Salas, ceat and Técnica test

Miguel Saldamando Rangel, ceat and Técnica test

174

INSIGHT: Sebastián Romo, Tridi

175

VIEW FROM THE TOP: Jesús González, CIDESI

176

INSIGHT: Alejandro Rojo, CIMA at ITESM Toluca

178

INSIGHT: Luis Trápaga, CIATEQ

179

VIEW FROM THE TOP: Gabriel Siade, CIDETEQ

180

ROUNDTABLE: How Will the Millennial Generation Impact the Industry?

159

ANALYSIS

MEXICO’S CHALLENGE: THEORY VERSUS PRACTICAL APPLICATION Investment in Mexico has created a talent war, mainly in highly industrialized areas, and has brought attention to the fact that the country needs more focused educational efforts. Stronger collaboration between companies and universities should ensure the industry is well-prepared for the expected growth in the industry This is a common scenario in Mexico: the day after graduation.

considered this lack of skills as a reason for significant

After five years of hard work, a student has fulfilled his dream

problems in terms of cost, quality and time.

of becoming an engineer. He loves cars and has landed an

160

excellent job in a leading automotive company. The new

Though this may be true, Mexico Automotive Review has

graduate is ready to take the next step in his professional

found that most executives have high confidence in the

journey and he is excited to apply all he has learned at

skills of new graduates. Companies have fought to become

school. But when he arrives for training, he realizes that he

more actively involved in the talent development process.

has almost no practical experience to apply to his job.

The dual-education program is an excellent example of this collaboration. German companies brought their experience

Education in engineering is thriving in Mexico. According to

on talent management to Mexico, developing a career plan

the OECD Science, Technology and Industry Scoreboard,

where students participate in real-life projects at a company

Mexico is eighth in the world for producing the most

while still at university. This provided future graduates with

natural science and engineering graduates, behind Korea,

the skills and knowledge needed for their job, eliminating

Germany, Sweden, Finland, France, Greece and Estonia.

the need for extensive training after leaving school.

Over 100,000 engineers graduate each year in Mexico. Data from ProMéxico show that the automotive sector alone

Players like Scania have also developed close relationships with

was responsible for over 875,000 direct jobs both in car

universities with the goal of transmitting the real needs of the

and auto parts production as of December 2015. “These

industry to academia. “Sometimes universities create a certain

students already know where the job opportunities are

degree program but neglect to include the technical side, so

and know they have an opportunity for a good quality of

the industry’s input is crucial to develop better educational

life,” says René Schlegel, President of Robert Bosch México.

plans,” says Enrique Enrich, Director General of Scania Mexico.

“[But] we have found that when people leave university,

“We have arrangements with several universities and some of

they do not know how to make the transition to work life.”

them have asked us to participate in their lectures.”

Although the talent pool exists, companies are still finding

The relationship between the private sector and academia

gaps between what students learn and what they need to

is crucial for Mexico to move on to a higher added-value

apply in their jobs. According to McKinsey & Company’s

offering as, according to Israel Salas, Commercial Director

Education to Employment: Designing a System that Works

of ceat and Técnica Test, “students, even from the best

report, only 42 percent of the employers surveyed within the

universities, are rarely aware of the intricacies of working

manufacturing sector considered new employees prepared

for an automotive company.” Adds Schlegel: “It is not the

for their job. Meanwhile, 40 percent of the Mexican employers

same to prove a hypothesis or conduct an experiment than

surveyed considered lack of adequate skills as the main reason

ensuring a process has enough replicability to last thousands

HOW MUCH CONFIDENCE DOES THE COMPANY for persistent vacancies andPREPARATION 36 percent of all employers HAVE IN THEjob VOCATIONAL OF NEW GRADUATES?

or even hundreds of thousands of cycles. Especially in the automotive industry, products must withstand the strictest quality tests to ensure the safety of our clients.”

HOW MUCH CONFIDENCE DOES THE COMPANY HAVE IN THE VOCATIONAL PREPAREDNESS OF NEW GRADUATES?

Schlegel, however, sees training as a necessity and something unavoidable, not only in Mexico but in all countries. “Theoretical knowledge will always be more important in school life. When

44.57% High 30.98% Neutral 11.41% Low 13.04% No Answer

Source: Mexico Automotive Review

11% Mazapil

2% Sahuaripa

9% Cananea

2% Morelos

7% Nacozari de Garcia

2% Eduardo Neri

students come to us, they need to learn how to apply the concepts they already know,” he says. “We understand that there are skills graduates need to learn and we do not mind investing in our new hires. Moreover, new people come with fresh theoretical knowledge that we might not be applying. It is a give and take and we see it as a natural process.”

INSIGHT

WANTED: TALENT AND MEANS TO GROW YUGO HASHIMOTO President of Sumitomo Corporation de México

Before companies can develop higher ambitions, the market

are particularly interesting for the manufacturing company.

and the company’s achievements must provide fertile

But rather than starting from square one, Sumitomo’s goal is

terrain on which to grow. Sumitomo has one side sorted: a

to develop the market it knows to its fullest and elaborate on

60-year history in the Mexican market with over 20 different

the company’s previous expertise. “Each country has its own

investments in the country. But the market is threatening

needs and characteristics but it is easier for us to adapt our

to falter. The company’s current focus is shown in 14 of its

already successful business models from other countries.”

20 investments targeting the automotive industry, and a maintained focus on manufacturing operations as it waits

Green technologies could also have their moment in Mexico

for the right conditions to expand further. Sumitomo is keen

when Hashimoto considers the market ready for these

on developing engineering and added value activities and is

initiatives. In Japan, the company is actively participating

eyeing up the means and human capital to do so, says Yugo

in the battery segment with a second-life proposal for used

Hashimoto, President of Sumitomo Corporation de México.

lithium-ion car batteries. Meanwhile, Sumitomo is one of the country’s developers of charging-station infrastructure. These

Hashimoto says the company’s main priorities are to improve

technologies could be introduced in Mexico once the market

its process quality and the skillset of its teams. “There is

matures. Although Mexico has integrated electric vehicles

talent in Mexico but we find limited hands-on experience

to its offering, it has yet to penetrate demand to the same

among specialists.” According to Hashimoto, the lack of

degree as combustion engines and the national charging

specialization to fill middle-management positions, both in

infrastructure only totals 154 stations. Meanwhile, Japan has

manufacturing and corporate activities, is a hindrance. His

over 40,000 charging points, exceeding the 35,000 gas

concerns are similar to those of C-level executives in the

stations in the country, according to the World Economic

industry, demonstrated by Hays’ Labor Report for Mexico

Forum. “We need consumers to lead the change but drivers

in 2016, which shows quality, operations and production

inevitably need charging infrastructure that incentivize

manager positions as most in demand from companies with

electric-vehicle purchases,” explains Hashimoto. “There is an

engineering and manufacturing activities. Sumitomo, among

opportunity to develop charging infrastructure for vehicles

other Japanese companies, is indirectly collaborating with

with fixed routes, which eventually would boost private usage,

several universities in Mexico to improve academic programs,

but we need the government’s cooperation to achieve this.”

and specifically offers expertise to the industry from abroad, providing an example to automotive hires in Mexico. “We are

There are other areas, however, that do not need previous

working with other Japanese companies and the Japanese

market development processes in which Sumitomo is

government to import experts to Mexican companies who

ready to participate. Hashimoto says that two of the

can train locals,” Hashimoto says.

corporation’s main interests are the internet of Things (IoT) and autonomous driving applications. “Autonomous

Hoping that the market evolves enough for Sumitomo to

technology will change the way we use and sell vehicles and

expand its capabilities in Mexico beyond manufacturing

we would love to be part of those changes.” The company

activities, Hashimoto says that Mexico should collaborate in

has allocated venture capital in Silicon Valley in the hope of

technology development processes, but not enough talent

integrating IoT technology within its other business units.

is ready yet. “Once we stabilize our current operations,

All these developments may only be plans but Sumitomo

we could find new business opportunities in the Mexican

has not averted its focus from Mexico and its manufacturing

market, for example in retail, transportation and even

advantages. The company is bringing new investment to

technology development segments.” The company has

support future production. “The value chain has evolved

several subsidiaries that could enter Mexican niche markets,

effectively and gradually more companies will engage in

according to Hashimoto. Leasing and transportation solutions

added-value activities,” says Hashimoto.

161

VIEW FROM THE TOP

ANALYTICAL STAFFING, OUTSOURCING SOLUTIONS GABRIEL APARICIO Director General of Kelly Services México

162

Q: How have you conveyed the advantages of outsourcing

employees and 12,000 temporary workers who form part

to your automotive clients?

of our “staffing” program. This allowed us to hire more than

A: The Mexican market is still developing and the arrival

30,000 people for our clients by the end of 2016.

of multinational companies has made outsourcing a more common solution in the industry. This is an opportunity for

Q: What are automotive companies demanding from

us to compete with the countless companies in the human

potential employees and how is Kelly Services addressing

talent sector. What makes Kelly Services stand out is its own

those needs?

workforce and experience in diverse operations.

A: Automotive companies demand basic operating profiles, professional technicians, as well as middle and

Although one of our strengths has been staffing operations,

upper-management candidates. We have just started a

our business model has evolved to offer the best solution

consulting process with a German wheel rims company

to the client. We identify the ideal profile the company is

entering the Mexican market. The client wanted to identify

looking for, design the best attraction strategies for this

the best location to establish its new operations based on

particular profile and then manage the hiring process.

its partners’ location and specific advantages the region

Our people must be well-acquainted with the client’s

could offer. The company analyzed the entire country and

work culture and policies since we also offer induction

the human capital and logistics opportunities indicated that

and training for all new employees. We normally manage

Nuevo Leon and San Luis Potosi were the most viable states

contracts lasting two to three years but we highlight Kelly

in which to build their new facility. Once the company had

Services’ low turnover thanks to our focus on service,

narrowed its options to these two regions, we performed

continuous improvement and client-oriented operations.

an in-depth analysis of the characteristics of the human capital in each state. We focused on skills, quality of

Q: How important is Mexico for Kelly Services, particularly

recent graduates and the company’s attraction capabilities

in the automotive industry?

according to compensation and the benefits it could offer.

A: Kelly Services was born out of many companies’ need for large quantities of workers for short periods of time.

Q: How much geographic mobility exists in Mexico and

The company has evolved and is now celebrating its 70

how can Kelly Services address this issue?

anniversary. With operations in more than 37 countries,

A: Geographic mobility is a hot topic and people wanting to

560,000 employees and approximately US$5.6 billion

participate in the automotive sector know they must go where

in sales generated, the company has become an icon in

the industry is. Demand for talent is there but the reality is

human capital outsourcing services, particularly in the

that one in every two graduates does not have the right skills

automotive industry, which now represents 27-34 percent

to participate in their work environment. Similarly, national

of our Mexican business. Our operations in Mexico are

tests show general deficiencies exist in science, math and

spread across 13 branches, although our focus is mostly

languages, obliging companies to look for applicants with the

toward on-site solutions. We know it is best to work in

best test scores even if they come from different industries.

clients’ facilities to create build-to-suit solutions. We have

One of Mexico’s main advantages is its young workforce.

more than 225 clients in Mexico, supported by 500 full-time

The disadvantages lie in the skills of these people and their geographic distribution. Most talent is centered in main cities in Mexico, primarily in the metropolitan area, Nuevo

Kelly Services was founded in 1946. It offers flexible talent

Leon, Jalisco and the Bajio region. Unfortunately, each city

administration services to companies of all sizes across the

does not always have all the profiles needed to satisfy the

automotive, aerospace, life sciences, financing, technology and

needs of the industry so it is important to find people willing

energy sectors

and capable of moving if necessary.

VIEW FROM THE TOP

DEEP KNOWLEDGE ACROSS INDUSTRIES A DIFFERENTIATOR Gerardo Kanahuati Managing Director of Hays

Anna Czarnocka Team Lead in Engineering and Manufacturing of Hays

Q: What is Hays’ value proposition to propel it above other

GK: There is a considerable difference between wages

recruitment companies?

for middle and upper-management positions. For

GK: Companies want the best talent and Hays’ value

example, a specialized position can pay a yearly salary

proposition is to meet that need before anyone else. Our

of between MX$350,000 (US$19,700) and MX$400,000

knowledge of the market and the intricacies of every industry

(US$22,500) while a top-level director or executive can

makes Hays a strong consulting firm. We see our biggest

earn approximately MX$1 million (US$56,200). Hays’ focus

competition in our clients’ human resources departments,

is on positions starting at yearly salaries of MX$650,000

so we aim for companies to see us as a strategic partner. We

(US$36,500), which is where talent scarcity is most

offer the same advantages to our candidates. Our goal is to

noticeable.

present them with the best opportunities for their profile before anyone else. This involves technical skills and an

AC: Companies are less interested in a candidate’s

understanding of where the person is in their career, their

experience in the industry and more in the impact that

life plan and what a new opportunity could represent.

candidate had in previous positions. This can imply higher salary demands but companies are willing to meet them

Q: How has the evolution of the talent market in Mexico

and offer training to candidates that appear capable. Amid

impacted the needs of Hays’ clients?

a common need to fill middle and upper-management

GK: Talent is increasingly in demand by the automotive

positions, Hays has worked to ensure consistency in its

industry and its scarcity is becoming more evident. Mainly

clients’ organizational structures and a healthy transition

Tier 1 and Tier 2 companies need people specialized in quality

in the case of any replacement. As recruiters, we try to

operations, whose abilities are not always transferable to or

bridge the gap between what companies are willing to offer

from other industries. There are companies creating their

and what the candidate expects in order to find the perfect

own talent development strategies but a lack of specialized

match for both. This must go beyond an economic offering,

profiles is undeniable. This has led to a wage gap between

particularly in middle and upper-management positions

what companies are willing to offer new hires and what

within the automotive industry.

people with the right skills consider fair compensation for their services. The result has been noticeable talent

Q: How has the recruitment process evolved to appeal to

migration from one company to another.

younger generations? GK: Social media has become crucial in Hays’ recruitment

AC: Mexican talent has become a commodity for our

process and we have moved from posting a new position

clients. For foreign investment companies, it is important to

toward making it attractive for the applicants. In the

contract Mexican expertise and they are willing to invest in

automotive industry, there is an added challenge caused

the necessary training to help people reach their potential.

by brand recognition. Most candidates recognize large

Hiring Mexican talent increases the company’s retention

companies and OEMs but not all the companies in the

level and competitiveness, ensuring continuity in the clients’

manufacturing chain. Therefore, we present the recruiting

operations and helping them understand how to do business

company and all the future development strategies related

in the country. Companies value loyalty in recruits and to

to a specific job offer.

retain staff long-term, many create development programs to show they offer professional growth opportunities. Hays is a leading global professional recruitment group.

Q: How does salary vary between middle and upper-

With headquarters in the UK, the group recruits qualified,

management positions and how does that impact

professional and skilled people worldwide for both the private

companies’ recruitment processes?

and public sectors

163

INSIGHT

OUTSOURCING A STRONG SOLUTION TO MEET TALENT NEEDS Raúl Pérez de Celis Partner and Director of Out Helping

164

Ricardo Iñurria Operations and Projects Director of Out Helping

The Bajio has grown to become the most dynamic region

company has already closed a deal with several new plants

in the country for the automotive industry. In Guanajuato

starting operations in the second half of 2017 and he expects

alone and counting Toyota’s upcoming arrival, there are six

more Tier 1 and 2 clients will follow the OEMs arriving to the

light vehicle OEMs, 75 Tier 1 companies and more than 200

region. These ambitious goals will require Out Helping’s best

Tier 2 suppliers. The Guanajuato Automotive Cluster reports

strategies as competition becomes fiercer. “The Bajio region

these companies generate approximately 40,000 direct

has become challenging as demand increases for personnel

jobs, each of which represents five indirect jobs related

at different levels of the organization and competition for

to logistics, technology and other peripheral services. Out

talented individuals is high,” says Ricardo Iñurria, Operations

Helping’s more than 15 years’ experience in human talent

and Projects Director of Out Helping.

management within the Bajio region gives it the expertise to work with Tier 1 and Tier 2 suppliers, as well as several

Iñurria says the most frequently required positions among

OEMs in the heavy vehicle sector.

automotive companies include quality, project and process engineers, as well as production supervisors and maintenance

The Bajio region’s development and contribution to the

technicians. These can be filled by industrial, mechatronics and

Mexican economy has gained it the nickname “Aztec

mechanical engineering graduates. There is also high demand

Detroit,” as reported in Actinver’s Regional and Sectorial

for high-school and technical-school graduates. Iñurria adds

Study of the automotive industry in Mexico. But no level

that Out Helping often acts as a link between the academic

of fame comes without challenges. Expanding demand for

and the industrial world as candidates seek an opportunity

engineers, technicians and operators means the country is

to balance theoretical and applied concepts through dual-

now facing a shortage of talent and the Bajio is one of the

education programs. In addition, the company aims to place

most challenging areas in terms of labor sourcing.

personnel with knowledge of TS-16949 certification processes and through LKS it can offer experience in Six Sigma, VSM

Several companies see outsourcing recruitment and staffing

and other lean-manufacturing tools. Beyond manufacturing

operations as the best option to contract employees, opening

operations, Out Helping also sees an opportunity for

the market up for companies like Out Helping that can

Mexican talent to participate in more advanced operations.

match employers with the desired staff. Raúl Pérez de Celis,

“We are welcoming the arrival of design and engineering

Partner and Director of Out Helping, says the company has

companies, attracted by the competitiveness of Mexican

managed over 120,000 employees since 2000, 50 percent

engineers both in knowledge and costs,” Iñurria says.

of whom work in automotive filling operator, technician and managerial positions. The recruitment company’s recent

As many foreign companies fill their top-management

joint venture with LKS has given it another ace to play,

positions with non-Mexican talent, it is imperative for local

offering added benefits to clients needing cost reductions,

candidates to master the English language. Iñurria explains

without jeopardizing profit. “While Out Helping delivers the

that graduates approach Out Helping with all the necessary

right human talent-management strategies, LKS’ expertise

technical abilities but a limited knowledge of spoken

contributes with continuous improvement methods that

English. This tends to be a deal breaker for many employers,

have been tried and tested in the automotive industry.

especially when top-level executives do not speak any

LKS also provides warehousing and inventory-streamlining

Spanish. “Candidates are often rejected because they

processes aligned with the logistics chain,” says Pérez.

might be able to read and understand a machine’s manual but cannot communicate with the equipment’s supplier,”

For 2017, the company aims to increase its annual revenue

says Iñurria. “The industry and academia should continue

by 23 percent, mainly leveraging its relationship with

promoting languages as a crucial part of the curriculum,

automotive clients and prospects. Pérez highlights that the

incorporating stronger English language programs.”

INSIGHT

TALENT-SEARCHING SOLUTIONS CRUCIAL FOR COMPANIES BRYAN BURSTEIN Commercial Director of Adecco

Skilled talent is among the hottest commodities for the

Automation and its inclusion in the industry is one of the first

automotive industry. Companies need capable people

areas of opportunity for talent development. “Local industry

at all levels, from operative positions to middle and top

is advancing but without integrating automation equipment

management, and candidates looking to participate in the

into its operations,” he says. Technology integration is the

automotive sector are in a privileged position. Adecco’s

second factor, in production activities, corporate processes,

Salary Index in 2017 showed 7 percent of the best-paid

all the way to communication strategies. Education is also

personnel in Mexico work in the automotive industry and

a fixer-upper, according to Burstein, which fits with the

production managers are among the best remunerated

opinion of many executives that think the industry would

positions across all industries. The high rewards for these

benefit from closer collaboration with the academia. “Our

positions reflect the reality of a lack of specialized talent

educational systems do not have the required flexibility to

in Mexico.

integrate professional practices and the only way for the country to improve is through the triple helix cooperation

“The country cannot cover demand for specialized labor,

of industry, government and academia.”

making talent-searching solutions crucial for automotive companies,” says Bryan Burstein, Commercial Director of

The final area of opportunity that Burstein points out

the human resources company Adecco. “Employee turnover

is flexibility. Younger generations are more focused on

directly impacts productivity. Companies have to find

maintaining a healthy work-life balance than on monetary

talent but then work hard to keep it. The Bajio region is

compensation. This becomes more important as people

particularly competitive for talent attraction at operative

move up the corporate ladder. He agrees it might be

levels.” The first decisive factor for most candidates at

difficult to grant flexibility at operative levels due to nonstop

an operative level is salary and the automotive industry

production lines but it is essential for middle-management

is competitive not only on salaries buy also benefits.

positions. “Employee productivity is vital in automotive and

“An automotive operator earns an average of MX$7,000

companies realize that giving more freedom to employees

(US$350) per month when other manufacturing sectors

leads to more targets met,” he adds. “In a globalized industry,

might offer salaries of MX$5,000 (US$250),” says Burstein.

we must include better practices to remain competitive not only in the automotive industry but in all sectors.”

The industry’s constant evolution forced executives like Burstein to look for new ways to attract potential candidates

Burstein says universities are incorporating industry

to fill positions in the industry. New hires no longer approach

needs into their programs, digitalization is becoming a

companies. Recruiters have to go into the market and look

priority for companies and flexibility is now a new norm

for a fit for each client. Burstein sees an opportunity for

in the working environment. Regardless of its deficiencies,

Adecco to take advantage of the industry’s development

Adecco is optimistic about Mexico’s international position

regardless of competition for workers. “Growth in the

in the talent market, which is reflected in the emphasis the

automotive industry has allowed us to improve and

company has placed on growing in the country. Mexico

integrate more technology into our operations,” he says.

represents 40 percent of Adecco’s income in Latin America

“It also has transformed our usual business model from

and is the number one emerging country for the company.

transactional processes to becoming a partner, creating

Adecco Mexico manages almost twice as many employees

retention and talent-development strategies.”

as Colombia, the second-largest market for Adecco in this region, totaling 27,000 Mexican staff members. The

The company’s Global Talent Competitive Index places

automotive sector alone represents 12 percent of the

Mexico in 74th place out of 118 analyzed countries and

company’s temporary recruitment operations and Burstein

Burstein sees four main areas the country could work on.

expects to double that participation by 2019.

165

INSIGHT

PRESENTING THE COMPANIES’ BEST FACE TO POTENTIAL EMPLOYEES ANDRÉS SÁNCHEZ Managing Director of Randstad

166

Understanding each other’s motivations is key for successful

When companies demand large numbers of people with a

business collaborations. To find the right person for a job,

high level of specialization, Randstad’s Recruitment Process

Andrés Sánchez, Managing Director of Randstad, thinks a

Outsourcing (RPO) solution can give the extra edge clients

company must also understand its own vision and how best

need. The company designates a team of several people to

to present itself to potential candidates.

work in its client’s offices to recruit large numbers of highly specialized talent. “This solution has been very attractive

The Dutch talent management leader Randstad has helped

in Latin America and we think it will be one of our main

many companies in the European market build their own

sources of revenue in Mexico, supported by our Permanent

employer branding to find the best talent for their needs,

Placement and Staffing services,” says Sánchez. The latter is

moving later to Asia and the US. Its next challenge is to

Randstad’s flagship solution with over 600,000 employees

conquer the Latin American market and according to

managed globally and 4,000 in Mexico alone.

Sánchez, Mexico and the automotive industry will play a crucial role in this strategy. This sector represents 5 percent

Although Randstad can help companies go a long way

of the company’s global revenue totaling over US$1 billion. It

in their talent attraction process, Sánchez acknowledges

also was one of the main drivers for Randstad’s investment in

that recruitment is a complicated endeavor. The automotive

Mexico. The company now has several Tier 1 clients and about

sector is growing and many companies are arriving to

25 percent of the companies Randstad has in the pipeline

the country. This creates a battlefield in labor attraction

belong to the automotive sector. Sánchez is confident that

activities as small suppliers and service companies must

by 2020, the automotive industry will become one of the

compete for the best talent with large and renowned

company’s main business verticals in the country.

multinationals such as Audi and Kia. Because of this, the executive stresses the importance of companies generating

Its investment in learning about the industry is one reason

a positive employer branding to attract more and better

Sánchez is so confident about Randstad’s potential in the

applicants. “Creating awareness among potential applicants

country. He says the company sources its own talent from

is particularly important in blue-collar industries such as

within the automotive industry and trains its sales people

automotive, because people tend to leave their current

on the latest trends of each of its business verticals. “Our

employers for the slightest improvement in monetary

strategy is not to grow aggressively but to know how best

benefits,” he says.

we can support our clients according to their operations and needs, based on our industry knowledge,” he says. Sánchez

Location is key when establishing employer branding,

agrees with Minister of Economy Ildefonso Guajardo and

according to Sánchez. New companies have to be careful

other government officials that there is more than enough

when choosing where to build their facilities to ensure

talent available in Mexico. With over 100,000 engineers

maximum talent attraction. Although they might compete

graduating per year, the challenge for the automotive

with more popular companies at a national or regional level,

industry is not volume but the lack of skills and level of

they will succeed if they are the best-known corporation

specialization these people have. To help its clients find the

in a small locality. Another important factor is word-of-

needle in the haystack, Randstad has developed its True Fit

mouth and how employees perceive the company. Many

methodology that analyzes the candidate’s affinity with a

corporations are now looking for employer certifications

potential employer from three different perspectives: Job

such as the Great Place to Work award. “Having close

Fit, Company Fit and Boss Fit. Randstad can offer its clients

contact with workers and learning how to improve their

a complete analysis on the number of people who can meet

relationship with the company is crucial to creating

the company’s requirements, where they are located and

employer branding and ensuring proper talent attraction,”

the salary level they are looking for.

Sánchez says.

VIEW FROM THE TOP

MOLD TALENT AT UNIVERSITY MÓNICA FLORES President LATAM of ManpowerGroup

Q: How popular have outsourcing practices become for

Q: What practices have you implemented to minimize

Manpower within the automotive industry?

talent theft in the industry?

A: The manufacturing sector accounts for 32 percent

A: The rise of a demographic known as “Continuous

of associates globally. ManpowerGroup provides

Candidates,” who are always looking for the next job

contingency and permanent workforce recruitment

opportunity, can make retention challenging. One in three

solutions and the number of employees in the automotive

candidates across the globe is a Continuous Candidate.

industry within the company grew 61.7 percent in 2016.

Mexico leads this trend with one in two, according to

ManpowerGroup has a specialized area for this sector

ManpowerGroup studies, far exceeding the global average.

that allows us to connect people’s potential with the right businesses. Our employees have a digital training

Organizations need to create a sense of loyalty in employees

platform at their disposal and receive more benefits than

and we know what people look for in an employer. Many

the minimum established by the law.

employees prefer a career plan to a high salary, so we offer career conversations and offer training to increase their

Q: How does outsourcing influence loyalty to the employer?

employability. This motivates them to stay and we receive

A: Outsourcing practices do not have a negative impact

positive feedback regarding their labor environment.

on employee loyalty. According to the last Ciett annual

Many also want to make a social contribution at work,

economic report, most associates would recommend

have flexible schedules, recognition and to use technology

agency work to a family member or a friend and 47

effectively. The four generations generally present in the

percent said staffing employment has helped them secure

workplace respond differently to work, authority, coworkers

a permanent position.

and benefits. Companies must identify each generation’s traits and create a welcoming environment for each.

Q: As competition becomes fiercer, how is ManpowerGroup making sure the right talent is available?

Q: How can the industry balance the need for qualified

A: We are facing a shortage of talent. In Mexico, 40 percent

talent with the cost competitiveness of Mexico’s workforce?

of employers are struggling to fill positions. While there are

A: Talent is the new capitalism because workforce

plenty of opportunities, the fields with the greatest demand

potential is now the catalyst for change and the major

are not attractive to the younger set. The hardest jobs to

agent of economic growth. ManpowerGroup identified

fill since 2012 have been skilled trade workers. Emerging

a need to improve productivity and reduce operational

economies such as Mexico should encourage young people

costs. Companies can adopt new initiatives like variable

to study professions in demand. These include technical

compensation based on achieved goals. But an alternative

careers and engineering and less in communications and

exists thanks to technology. The technology revolution

graphic design, for example. Current educational programs

is changing the way we work and conduct business.

do not focus on the abilities required today, such as English

Companies should automate repetitive tasks that do not

proficiency, problem solving, teamwork, and leadership. We

need a person and empower employees to take decisions

need to close the gap between graduate competencies and

and implement new manufacturing models. This can balance

those required by the labor market.

the cost of operations and talent.

Companies will pay an extra 22 percent for the right talent. Current educational models need to be redesigned

ManpowerGroup provides recruitment solutions across many

to combine classroom teaching with workplace learning.

industries as well as talent management, outsourcing and

Professional internships are crucial for young people to

professional development. It is present in 80 countries with

acquire experience and be job-ready.

more than 3,600 offices

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INSIGHT

FILTERING EXECUTIVE ELITE TO FIND THE BEST GERMÁN HERNÁNDEZ Office Manager of Spencer Stuart

168

The demand for manufacturing talent is advancing by leaps

executives. “Problems in Mexico arise from how things are

and bounds within the automotive sector but in R&D it is

done locally and the organizational culture. A company’s

lagging. For executive search firms, when demand for R&D

Mexican operations differ from those in the US or Japan,

operations begin to rise, opportunities follow, says Germán

which makes the adapting process more complex for new

Hernández, Office Manager of global executive search and

recruits,” says Hernández.

leadership advisory firm Spencer Stuart. Finding the perfect candidate for a position means it “We conduct searches for OEMs, Tier 1 and Tier 2 suppliers

is essential to make topics like compensation, desired

for management-level talent in commercial, operations

previous industry experience, training offered, languages

and manufacturing positions,” says Hernández before

needed, international experience, teamwork and

adding that he and his Mexico City colleagues have not

management variables clear to candidates. “We partner

been asked to search for large numbers of researchers or

with the client to define each competency and skill set

designers. “In R&D, there have been no large-scale R&D

required to create a document that serves as a navigation

operations in Mexico to date but we believe that once

chart to complete the search swiftly and efficiently,” says

Tier 1 and 2 manufacturing companies are consolidated,

Hernández.

demand will grow.” As for what makes a search swift and efficient, Hernández In the long term, research opportunities will be generated

points to those companies that have a formal succession

where assembly plants and Tier 1 companies begin to

process in place. “Those companies with a thoughtful

strengthen their capacities and generate products on

succession plan have the ability to move at an appropriate

global platforms. “The automotive industry will continue

pace, regardless if the need is immediate or long-term,” says

to grow because its cost structures are strong, it benefits

Hernández. “Some organizations develop these plans only

for the economy and Mexico’s proximity to the US and

for high-level positions but the reality is that a number of

Canadian markets gives an extra advantage to automotive

companies still fail to truly plan for succession.”

companies,” says Hernández. When recruiting for a company in the automotive sector, Hernández’ team looks

Hernández’s team must be flexible to adapt to the needs of

for Mexican talent but also widens the search to nearby

its automotive clients, often leading them to look at other

countries. In those instances, the search takes on a higher

sectors for potential sources of talent. At this moment,

level of challenges. According to Hernández, this is due to

Spencer Stuart’s team sees an intersection between

the fact that few countries enjoy the same level of leadership

automotive and aerospace due to both sectors having

experience found in Mexico’s automotive industry.

similar supplier chains.

The Brazilian market is not an ideal source of talent for

Spencer Stuart performs 80 to 100 searches per year in

Mexican positions because the country’s area of expertise

Mexico, 10 percent of which are related to the automotive

is different, explains Hernández, making it more complex to

sector. “Finding someone to lead a major industry player

import talent. Because of this, Spencer Stuart often looks

is a difficult job that takes preparation, experience and a

to regions such as the US and Europe, where leadership

selection process with filters that ensure candidates meet

roles demand similar characteristics to what Mexican

the requirements of the position,” says Hernández. “This

companies are looking for in their senior positions. But

is key for executive positions, which must be filled with

for expats, adapting to a new country’s culture has its

someone with a demonstrated record of success who will

challenges: learning the local language, understanding how

generate long- and short-term value for the company and

business is done and how to interact is generally difficult for

a have a genuine understanding of the company’s culture.”

ANALYSIS

R&D REMAINS MEXICO’S ACHILLES’ HEEL The country has moved forward at tremendous speed in the automotive world but the Achilles' heel of the Mexican industry remains a lack of R&D and engineering activities. Yet, there is hope for the country as more companies start betting on Mexico to participate in advanced manufacturing and engineering operations Technological trends could be highlighted as the main drivers

GDP. However, that number is barely above 0.5 percent.

pushing the industry forward. In manufacturing, Industry 4.0

Additionally, CONACYT enforced budget cuts at the

(or the internet of Things, depending on the region) is taking

beginning of 2016 of more than MX$500 million (US$25

companies by storm. As companies try to make processes

million). With barely a year to go till the end of Peña

more efficient by combining automation solutions with data

Nieto’s administration, it seems unlikely the country will

collection and connectivity features, the industry is becoming

reach its 1 percent target.

much more integrated among clients and within companies themselves. “Companies are constantly trying to gain

Looking at Mexico’s position in terms of education and

competitive advantages over their counterparts and Industry

technological development, there is still considerable room

4.0 is the next technological surge that will accomplish this,”

for improvement as well. According to the World Economic

says Bernd Noack, General Manager of FESTO.

Forum’s Global Competitiveness Index 2015-2016, Mexico is ranked 86 out of 140 in higher education and training, 73 in

Electrification and the boom in self-driving initiatives are also

technological readiness, 50 in business sophistication and

transforming the traditional business model of automakers

59 in innovation. However, according to that same index, the

and suppliers alike. The increased importance of sustainable

country is transitioning from an efficiency-driven economy

and integrated mobility has fueled these two technological

to an innovation-driven economy. Mexico Automotive

trends. Yet, Mexico’s participation in these trends is still

Review 2017 has also found worries among most industry

limited. “The ‘Made in Mexico’ brand is excellent but we need

executives who think that the current educational plans

to start working on the ‘Thought in Mexico’ approach,” says

do not cover topics oriented to the needs of the industry.

Guillermo Bilbao, Director General Mexico of PA Consulting.

Out of 184 executives surveyed, only 26 percent consider

Two main factors are holding the Mexican industry back: its

academic programs sufficient for the development of

international image and the expertise of its talent pool. Rafael

automotive operations.

Funes, Executive Chairman of LOVIS Holdings says, “Mexico is well-branded as a manufacturing country but not as an R&D

The country, however, seems to be moving toward an R&D

and engineering center.” René Schlegel, President of Robert

future. Marcos Pérez, Director of Product Development at

Bosch México, agrees, adding: “As development activities

Ford de México, issued a statement in January 2017 saying

were practically nonexistent in the ‘90s in Mexico, there are

Mexico has the advantage of being three times cheaper

almost no individuals with years of experience in these areas.”

than the US or Germany in technology-development processes. Nisssan’s González also showcases the

Most R&D efforts in Mexico originated in the private sector,

participation of Mexican engineers in the development of

as companies sought shorter response times, particularly in

Nissan’s products for the international market. “Our local

redesign and tropicalization activities. Companies like Ford

engineers were responsible for ensuring the Nissan Kicks’

and FCA established engineering facilities in the country

quality and implementing all the necessary modifications

and eventually suppliers caught up with this trend, including

and improvements to the original design,” NEEDS? she says. PROGRAMS COVER THE INDUSTRY’S

DO YOU THINK THE CURRENT EDUCATIONAL

players such as Bosch and Continental. These facilities also helped companies narrow the gap between industry and academia. One flagship example of this collaboration is the Nissan School program in Aguascalientes which, according to Mayra González, President and Director General of Nissan Mexicana, “has become an aspirational institution because it helps students develop the necessary practical knowledge to fill jobs at Nissan and its partners.”

DO YOU THINK THE CURRENT EDUCATIONAL PROGRAMS COVER THE INDUSTRY’S NEEDS?

President Enrique Peña Nieto has declared that by the end of his administration, expenditure in R&D activities in Mexico would represent 1 percent of the national

48.91% No 26.09% Yes 25% No Answer

Source: Mexico Automotive Review

11% Mazapil

2% Sahuaripa

9% Cananea

2% Morelos

7% Nacozari de Garcia

2% Eduardo Neri

169

VEHICLE SPOTLIGHT

170

VUHL 05RR Mexico might not have a locally designed volumeproduction vehicle yet but it has cracked the highperformance market. The VUHL 05RR is the country’s first road-legal lightweight supercar, according to VUHL, the family-owned company behind the car. Designed from scratch by the Echeverría brothers, Guillermo and Iker, the 05RR is the latest iteration of the VUHL 05, which was the company’s first venture into the supercar market. Although Mexican by design, the car is the result of an international effort. Its hybrid body is manufactured in Canada, while the final assembly is performed in Mexico under the guidance of industrial design company Adman Leku.

The VUHL 05RR can deliver 385bhp of power The car weighs only 640kg and has a weight distribution of 40:60 from front to rear. Its height is barely above 1.1m and it has a ground clearance of 0.1m. The 05RR can deliver 385bhp of power and 500Nm of torque thanks to its 4-cylinder, turbocharged engine with a displacement of 2,300cc, coupled to a Sadev six-speed sequential transmission. Compared to its predecessor, the 05RR is 55kg lighter and enjoys increased power and torque, by 100bhp and 80Nm respectively. The 05RR’s aerodynamics are also boosted by a flat underbody, front and lateral splitters, a rear diffuser and spoiler. As a result, the vehicle can reach a top speed of 254km/h. In terms of acceleration, the VUHL can go from 0 to 100km/h in just 2.7s and brake from 100 to 0km/h in just 30m. The core of the 05RR is a hybrid carbon-aluminum bonded chassis with a honeycomb structural floor, which is the secret behind its lightweight nature. The chassis or X-Vario platform is made of 6061-T6 aluminum and is connected to a suspension optimized for both road and track use thanks to its excellent torsional stiffness properties. In terms of safety, the car is equipped with a three-stage-programmed energy-absorption aluminum crash box, double-layer aluminum high walls and optional five-point, harness Schroth seat belts approved by the Economic Commission for Europe and the International Automobile Federation.

171

INSIGHT

TAKING ON THE INDUSTRY WITH A STRONG TEAM Hans Schwerdt Managing Director of CIM Co.

172

Muganes Musharrafie Project Manager of CIM Co.

Mexico stands out in the global industry as a manufacturing

Schwerdt says that one of the main reasons that CIM Co.

hub with distinct benefits in terms of labor costs and

stands out in the market is its outlay on training and talent

logistics, but it has not moved past this image in the eyes

development focused on understanding how its metrology

of many companies. There are players that strive to change

equipment works. “We like to invest in our people, not just

this situation and put Mexico on the map as a competitive

in theoretical knowledge but in practical applications.

region in terms of design and engineering. CIM Co. is

Because of that, we can compete with any GOM distributor

one of these companies, distributing 3D optical scanning

globally,” he says.

equipment for reverse engineering and metrology, CAD and CAM software and offering reverse engineering services to

The company stays true to its goals and the idea that a

companies looking to provide added value to their clients.

good team is the basis for growth. “The best equipment

3D scanning precisely captures the topology of a part

without people who know how to operate it, is useless,”

or tool and reverse engineering can help manufacturers

says Muganes Musharrafie, Project Manager of CIM Co.

understand how worn-out molds, tools and dies are made

The company has 39 employees in Mexico. “International

to enhance or reconstruct them.

companies tend to work with partners that have the same cultural background, but we have used our competitive

The idea behind CIM Co.’s value proposition was to offer

advantages to acquire business with OEMs and Tier 1s from

a way for clients to analyze components and tooling

several countries,” he says.

equipment, detecting potential flaws while reducing costs and time. After 16 years working in reverse engineering,

Schwerdt and Musharrafie agree that Mexico could explore

CIM Co. has collaborated on projects with OEMs and direct

design and engineering activities much more. President

suppliers located in Mexico, US, Italy, Spain, China and Brazil

Enrique Peña Nieto set the country a goal of investing 1

and smaller projects in other European and Asian countries.

percent of the national GDP in science, technology and

The company has helped them evaluate their processes

innovation activities by 2018, from the current 0.5 percent

and improve parts such as cylinder heads, engine blocks,

invested. “Most design and engineering takes place at the

complex plastic components and lateral body panels, as

company’s headquarters and Mexico is pushing to develop

well as turbine parts, housings and blades for aerospace

training programs and experience to grow from a maquila

companies.

industry into engineering that adds value,” Musharrafie says.

Since 2001, CIM Co. has been the distributor of the GOM

Musharrafie adds that the country should work on improving

brand in Mexico, focused on software and equipment

initiatives like the dual-education program that has been

for 3D measuring and testing. “Changes in technology

successful for German companies. “I would like to see

from tactile to optical required us to break paradigms.

more initiatives like the dual-education program to develop

When the industry standard was contact-measuring

industry practice and skills before students enter the job

equipment, we were among the first to apply scanning

market.” He highlights an opportunity for the education

technology to reverse engineering processes in Mexico,”

system to promote initiatives involving students in the

says Hans Schwerdt, Managing Director of CIM Co. “After

industry parallel to their studies as part of their curriculum.

benchmarking GOM as the brand and CIM Co. as the provider, we convinced customers to switch to our new

CIM Co. has ambitious development plans in the automotive

optical 3D-scanning technology." The company installed

industry and other sectors. The company is negotiating

its first GOM system at an OEM and a Tier 1 in 2003 and 14

several projects outside Mexico for new investments yet to

years later, it became the main 3D optical scanner provider,

be announced. “We are currently focused 70 percent on

with installations in all OEMs in Mexico.

the automotive industry,” Musharrafie says.

VIEW FROM THE TOP

Miguel Saldamando Flanagan (MSF), Director General, Israel Salas (IS) Commercial Director, Miguel Saldamando Rangel (MSR), Operations Director of ceat and Técnica test

INNOVATING AND DESIGNING UPSTREAM 173

Q: What are the main drivers for ceat and Técnica test’s

MSF: International companies operating in Mexico are

growth and how can you offer a competitive advantage

substituting imports with local products, which may promote

to your clients?

local design, force companies to design locally and lead to

MSR: We saw that many Mexican companies’ response

more best practices and newer technologies. We expect this

times are too long when repairs or assistance is required.

technological shift to be beneficial for companies that design

The market is large enough for all players but it is not

and build machinery like ceat and Técnica test.

easy to enter. To be successful, a corporate view that fully understands the client’s needs is of the utmost importance.

Q: What are your growth expectations for the short and

Some of our competitors lack an in-house automation

middle term?

department, which is a competitive advantage for us. It

MSR: We are expecting growth in the short term and have

allows us to provide comprehensive solutions. We remain

expansion plans for the next year to address the increase

competitive by building strong relationships with clients

in demand. In 2015, ceat grew by 500 percent compared

and by providing excellent services and solutions.

to 2014 thus we have to restructure ourselves to make this growth more sustainable. Continuing at this growth rate

Q: How can smaller companies, such as yours, compete

without implementing deep structural changes may be

with an OEM’s design center?

problematic in the midterm. ceat and Técnica test operate

IS: We do not directly compete with major design centers

separately, as one specializes in services and the other in

but collaborate with them to streamline their processes.

commercialization. Having distinct companies grants us two

OEMs’ design centers are significantly slower than a

access channels to potential clients.

smaller center due to the large number of processes they have to comply with. In large companies, decision-making

IS: So far, 90 percent of our processes are dedicated to

takes longer. While we must adhere to a company’s

the automotive industry, 5 percent to aerospace and the

internal processes, most of our clients acknowledge that

remainder is divided between energy and raw materials.

following every single step would make our processes as

Within the automotive industry, we are working mostly with

slow as theirs, so there is room for flexibility. Once we

Tier 1 and 2 companies and focusing on component and

establish contact with a new client, we discuss which

manufacturing inspection.

processes we should adhere to. This allows for the project’s completion in a timely matter while following

MSR: We plan to continue this trend and in the short term

their basic procedures.

we will focus on restructuring and boosting our international presence. We are constantly collaborating with research

Q: How would you describe the development of design

centers such as CIDESI and CIATEQ. These collaborations

processes for the automotive sector in Mexico?

will facilitate the creation of new partnerships later on.

MSR: Design practices for the automotive sector have expanded over the last 10 years. Many years ago, local companies did not see the added value that design

ceat and Técnica test supplies high technology products and

operations could provide, they were interested only in

services, to be applied to quality control of finished and semi-

manufacturing. This is changing as manufacturers acquire

finished products. Its experience in integral support branches into

best practices and new technologies.

consulting for technology solutions and engineering support

INSIGHT

A LONG WAY TO GO BUT 3D PRINTING ON ITS WAY SEBASTIÁN ROMO CEO and Founder of Tridi

174

In Mexico, 3D printing is still in its infancy. “Automotive

While there is potential for the use of 3D printing in mass

companies in other countries have been using 3D printing

production, Romo says, “there is still a long way to go.”

for manufacturing for over 20 years,” said Sebastián

This is feasible for other sectors such as aerospace, as

Romo, CEO and Founder of Tridi, “but this practice is new

an OEM may manufacture an aircraft every two weeks,

in Mexico.” Mexican SMEs find it hard to acquire US$5

allowing enough time to use additive manufacturing.

million equipment, he says, and OEMs are often interested

It stops being feasible when 7,000 or 8,000 pieces are

in manufacturing a great number of pieces so it is hard for

required per month. A simple piece may take an hour to

smaller companies to work with them. Romo says that one

be manufactured through 3D printing, while plastic injection

of the greatest challenges in Mexico is communicating the

allows thousands of pieces to be manufactured in that same

added value this technique can offer the automotive sector,

hour. Because of this, the process is also too expensive.

as many decision-makers struggle to grasp the advantages of the process.

To integrate 3D printing into the manufacturing chain the process needs to be faster. A piece that costs MX$150 to

Additive manufacturing, known as 3D printing, is growing at

manufacture through 3D printing may cost a few US cents

an accelerated rate globally and is increasingly permeating

through plastic injection. While additive manufacturing

traditional manufacturing practices. The global 3D printing

still needs to improve before being incorporated into

industry surpassed US$5.17 billion in 2015, according to

regular manufacturing processes, the technique has

Wohlers Associates, and has enjoyed an average CAGR of

successfully improved design processes by reducing

26.2 percent for the past 27 years. Advanced 3D printing is

time and costs.

increasingly used in prototyping and product development in a wide range of sectors, from dental and medical

Additive manufacturing will play a significant role in the

products to the automotive industry. Audi, for instance, is

automotive sector in coming years but applications will

incorporating metal 3D printing to manufacture spare parts.

come gradually, Romo says. He expects the process to gain

The company has described it as “faster and more cost

relevance in optimizing final components, for vehicle part

effective” for their purposes.

specialization, to test and validate automotive components and to manufacture tools. “The automotive sector is

The practice of 3D printing is not recommended for all

constantly on the lookout for cost-sustainable practices.

steps of the manufacturing process. Romo explains that

For this purpose, 3D printing is an attractive alternative.”

3D printing becomes advantageous when pieces cannot be manufactured through regular processes due to their

Romo has not seen an overpowering need for this practice

specifications. While it can be used to print molds for

in Mexico yet, as many Mexican companies receive their

other parts, its use is limited to 20 pieces because, to date,

designs from offices abroad. But he predicts local market

3D printing is mostly performed with plastics and resins.

demand will grow as an increasing number of companies

But that is changing as advances in materials widen the

bring their R&D divisions to Mexico. Companies of this

possibilities that can be used.

type now represent between 30 and 40 percent of Tridi’s clients for prototype creation. Tridi sees potential clients

Last year, polycarbonate was the most resistant polymer

in Tier 1 and 2 companies. “OEMs have a sufficiently

material for the automotive industry because at the time

large infrastructure to house printing equipment and are

it was too complex to print with fiberglass. Now, some

already incorporating these process,” said Romo, “but

3D printers can print exclusively with fiberglass, creating

there is plenty of potential in Tier 1, 2 and 3 companies,

extremely light and resistant pieces comparable to those

especially those that specialize in plastic injection and

made of metal and industrial plastic.

manual assemblies.”

VIEW FROM THE TOP

ADAPTING INDUSTRY 4.0 TO INNOVATIVE ENDEAVORS JESÚS GONZÁLEZ Director General of CIDESI

Q: How is CIDESI integrating new automation and

and increase their useful lifecycle. CIDESI is focusing on

advanced manufacturing processes?

hybrid manufacturing systems that can incorporate additive

A: Industry 4.0 is the global trend leading the industry and

solutions with traditional production techniques.

we align our efforts with this concept. CONACYT also has

175

strict instructions to develop and integrate technology,

CIDESI also has an interest in electronics development.

which we must follow to support national companies.

We manufacture components for Texas Instruments

The government and CONACYT have implemented Long-

that allow companies to connect their operations to the

lasting Research Programs (PILAs) to incentivize research

Cloud. These are essential to make the internet of Things

in Mexico and CIDESI is coordinating two investigative

a reality for industrial operations, connecting with all other

projects focused on Energy and Advanced Manufacturing.

intelligent manufacturing developments. We began micro-

Consortiums created by CONACYT among research

electromechanical (MEM) component production in May

centers with similar vocational goals provided CIDESI

2017, which will give companies a much more cost-effective

with the opportunity to lead advanced manufacturing

alternative when needed for custom-made applications.

and hydrocarbon ventures. We support Mexico’s transition

We will be the only player in the country with MEM

from a traditional manufacturing scheme. The country is

manufacturing capabilities, including design, simulation,

ranked the sixth most-attractive manufacturing location,

optimization and production operations.

but to remain competitive we must delve into intelligent manufacturing processes.

Q: What projects is CIDESI developing under the Innovation Stimuli Program (PEI)?

Q: How is Mexico evolving in technology development

A: As the leading center in PEI, 46 percent of the projects

strategies and its relationship with the US?

we supported were related to intelligent manufacturing.

A: Mexico is participating in technology development

Approximately 50 projects fell into this category, including

initiatives with several countries. CIDESI, in particular,

automation projects, human-machine interfaces and

is collaborating with the US government in Binational

collaborative robots. This resulted in an investment of

Intelligent Manufacturing Initiatives, part of a program

over MX$44,300 (US$2,514). Early in 2017, we delivered a

created by former US President Barack Obama and

collaborative-robot assembly platform for Ford starter engines

President Enrique Peña Nieto in 2013.

capable of manufacturing one component every 17 seconds, differentiating between four different types of starters.

The program focuses on sharing best practices in intelligent manufacturing developments. Few companies are betting

The PEI budget was cut by 30 percent in 2017 and

on intelligent manufacturing practices but some players are

CONACYT approved only 26 projects for CIDESI in

making this a priority, and local governments are supporting

intelligent manufacturing. This year, these initiatives

these initiatives. Nuevo Leon is a perfect example, where

account for approximately 25 percent of the number of

three major companies have established a goal to transform

programs supported by CONACYT and Big Data, SCADA,

their entire manufacturing platform to an intelligence-based

mobile applications and software will support the growth of

system by 2020.

intelligent and sustainable manufacturing practices.

Additive manufacturing solutions are another cornerstone for the industry’s development. High-value industries

The

like automotive and aerospace no longer consider

(CIDESI) is focused on creating high-value solutions for

simply manufacturing components as effective and are

its clients, based on applied research and experimental

considering re-engineering activities to restore used parts

development

Industrial

Engineering

and

Development

Center

INSIGHT

INNOVATION SPURS INDUSTRY EVOLUTION ALEJANDRO ROJO Director of the Research Center for Automotive Mechatronics (CIMA) at ITESM Toluca

176

Mexico’s low-cost manufacturing approach has prevented

Development (CENIDET), the San Luis Potosi Institute

the industry from identifying the country with strong

of Scientific Investigation and Technology (IPICYT) and

technology-development capabilities. But localized

the University of San Luis Potosi to develop a fuel-cell

efforts, fueled by relationships between the government,

commercial vehicle. The initiative aimed to show that

private companies and academia, are helping change

the government and academia could work together

this perception. The ITESM Toluca's Research Center for

to deliver a functional advanced-technology project.

Automotive Mechatronics (CIMA) is proof of Mexico’s deep

The project was finalized in 2016 and CIMA’s interest

desire to participate in R&D, and to contribute to shaping

was piqued. Drawing from this previous experience, the

the automotive industry’s future.

center’s team saw an opportunity to delve into the world of electric vehicles, focusing on the design of powertrain

Located in the State of Mexico, CIMA has a strong relationship

and chassis improvements, as well as on the development

with the region’s automotive companies. MACIMEX was

of powertrain, batteries and electric motors performance-

among the companies that sought the center’s collaboration

testing processes.

when developing its technological capabilities for rapid prototyping solutions. The relationship has gone one step

“There is no infrastructure in Mexico to evaluate the

further and now CIMA is helping MACIMEX embrace Industry

efficiency of electric vehicles, which means there is no way

4.0. “CIMA has evolved past its purely mechanical approach

to obtain torque-power curves,” says Rojo. “We decided to

and we are now integrating its Industrial Engineering and

submit an initiative to the Ministry of Energy and CONACYT

Information Technologies departments in our projects.

to develop the first test-bed for electric vehicles in the

Our most recent development is focused on Big Data

country.” CIMA wants to be able to characterize electric

applications,” says Alejandro Rojo, Director of CIMA. “Thanks

motors and transmissions by 2018, leading to the creation

to our previous ventures with the MACIMEX team, we have

of Mexico’s first testing lab for electric vehicles in 2019.

generated enormous amounts of data that we now have to

“We are working extensively with the National Institute

analyze to improve its manufacturing process and to make

for Electricity and Clean Energies (INEEL) and by 2019 we

prototyping projects more efficient.”

hope to establish legal standards for all electric vehicles manufactured in the country.”

Jesús González, Director General of the Industrial Engineering and Development Center (CIDESI), says the

CIMA already had experience testing internal combustion

federal Innovation Stimuli Program (PEI) was cut by 30

engines but electric systems were new territory. To

percent in 2017, which Rojo says has dented the project’s

understand how big companies performed their own motor

funding. But he expects to receive new funds from

characterization, the center established a relationship with

the Treasury to support MACIMEX’s new initiative. The

Tesla that also evolved into a more advantageous exchange.

center’s reach is growing within the Automotive Cluster

Starting in 2017, many students of ITESM’s undergraduate

of the State of Mexico and it is now developing Sypris’

and graduate programs are now participating in academic

technology center, while training teachers and graduate

exchanges directly in Tesla’s laboratories. “Students

students on the Toyota Production System (TPS) concept

are becoming more interested in Automotive Design

for lean manufacturing applications. “We want to become

Engineering, partly because we involve them in real industry

experts and help companies improve their processes by

projects,” says Rojo.

implementing TPS,” explains Rojo. Although Mexico seemed a long way from being able to A flagship initiative began in 2015, when CIMA collaborated

participate in the electric vehicle race, CIMA’s developments

with the National Center of Research and Technological

and recent industry news changed the playing field.

177

CIMA's laboratory in ITESM Toluca

Bread-making company Bimbo’s subsidiary Moldex had

which showed us the size of the engine we need and the

already worked on adapting some of its own vehicles

energy capacity it requires.”

to use electric technology, in collaboration with Giant Motors Latinoamérica. “The company had the technology

CIMA’s efforts are constantly expanding and branching

to turn their trucks into electric vehicles but it was still

out to the automotive industry’s most advanced trends. In

using lead-acid batteries,” Rojo says. “Having started

2015, CIMA participated in an autonomous personal rapid

with our characterization project, we suggested Moldex

transit project with ModuTram in Jalisco, on ModuTram’s

use lithium-ion batteries and design trucks based on the

development of the chassis, powertrain and coupling

company’s needs, with powertrains suited to routes and

system for the monorail system. The center’s participation

power requirements, rather than just replacing the engine

ended in 2016 once the project moved into the control and

and transmission.”

data communication phase. Today, the center is researching the development of high-energy density ultra-capacitors

Arturo García, Director of Technical Development at Moldex,

with the National Institute of Nuclear Research (ININ). ININ

had already expressed the company’s goal to become one

is using carbon nanotubes that will boost the components’

of the transport industry’s biggest electric vehicle suppliers

energy-storage capacity. The goal is to have a product that

in the long term. But the opportunity presented itself

can be commercialized by 2019.

sooner than he thought. After the double No-Drive Day restrictions in Mexico City in 2016, the government launched

The center is knee-deep in electric technology research

an invitation for Mexican companies to become the first

and Rojo believes it could promote Mexico to the next level

national electric vehicle manufacturers for taxi applications.

in the industry. “Our analyses are crucial to developing

Moldex announced its ambitions to participate in the tender.

electric-motor technology and designing complete

Together with CIMA, the company presented one of the three

powertrain systems in Mexico without depending on foreign

proposals that were analyzed by the federal government.

companies or importers,” he says. Once electric vehicle production becomes a reality in Giant Motors’ production

“We won the tender and now have to present three

facility in Ciudad Sahagun, Hidalgo, demand for motors will

prototypes by October 2017,” says Rojo. “CIMA is designing

surge for the 10,000 taxis that must be delivered by 2020.

the powertrain for these prototypes, choosing the best

“This will also attract more suppliers that are focused on

motor-battery configuration for a utility vehicle (taxi). We

electric-vehicle technology and it will strengthen Mexico’s

analyzed driving patterns and conditions of existing taxis,

position as an automotive manufacturer,” Rojo says.

INSIGHT

INNOVATION MATCHED TO INDUSTRY NEEDS LUIS TRÁPAGA Director General of the Queretaro State Research and Technical Assistance Center (CIATEQ)

178

The use of advanced materials in the automotive industry

industry advance toward technological integration and an

in the coming years will be oriented to weight reduction,

energy-efficient future. According to Oscar Lambert, Vice

by employing either light composite materials or metallic

President Mexico and Central America, Energy Business

components fabricated by additive manufacturing

of Schneider Electric, only the combination of automation

technologies, says Luis Trápaga, Director General of CIATEQ.

and energy efficiency practices will lead the industry to a green and cost-efficient future. “Communication between

“CIATEQ has a great interest in the development of lightweight

every piece of equipment and constant analytics are

metallic components by direct metal laser sintering (DMLS),”

essential,” he says.

says Trápaga. The projects help in the design, fabrication and restoration of specific titanium and nickel-based components

Trápaga says CIATEQ’s projects in advanced manufacturing

by DMLS. These materials are particularly interesting in the

operations have focused on three main goals. The first is

development of self-supported metallic cellular structures,

the integration of cyber-physical systems that optimize

which have potential in weight-saving applications for

production processes through cost reduction. The

different industrial sectors, including shock-absorption

second is energy efficiency diagnoses in manufacturing

components. In the field of thermal spraying, CIATEQ is

processes through measurement and analysis of energy

working on the development of thermal and environmental

consumption, generating analytical data to identify

barrier coatings that have direct application in power-

potential savings. The last is research in internet technology

generation systems, which “can also be considered for some

for vehicle applications to innovate in logistics, mobility and

specialized automotive applications,” says Trápaga.

environmental sustainability.

Research and technological development activities are

Since 2010, CIATEQ has invested MX$50 million (US$2.8

currently a priority in Mexico. As part of CENAPROT, the

million) in the acquisition of state-of-the-art manufacturing

national laboratory of thermal spray technologies located in

equipment and about MX$3 million (US$169,000) in the

Queretaro, CIATEQ shares infrastructure and highly skilled

construction of new research facilities. “All this investment

personnel with CINVESTAV and CIDESI. “This consortium

is to keep research growing in Mexico but also to ensure a

is quite interested in the development of projects focused

prosperous future for postgraduate students who want to

on the overhaul of engine monoblocks and transmissions by

incorporate the latest technology trends in the industry,”

employing state-of-the-art technologies such as cold spray

says Trápaga.

and laser cladding,” says Trápaga. Trápaga adds that an important step in technology Although the main focus of CENAPROT’s collaborations

integration is to train the center’s technical staff, as well

is the aerospace sector, Trápaga also sees an opportunity

as graduate students and lecturers, so they can also help

to target the automotive industry. “We are working on

shape academic programs according to the industry’s real

additive manufacturing and thermal spray projects with

needs. “Our main mission is to train personnel from the

General Electric and the US Air Force,” he says. “However,

industrial sector and the postgraduate courses we offer

the knowledge and experience gained in such endeavors can

are regarded as the most important in Mexico,” he says.

be applied either to the design and fabrication of high-value

“We either meet with companies to know their current

specific components or to the overhaul and repair of high

technical requirements or look for technology trends within

yield parts.”

a specific sector to adapt our academic offer. The most innovative topics that we have been working on recently

Beyond advanced material research, CIATEQ’s contribution

include embedded intelligent systems, die manufacturing

to Industry 4.0 developments is also helping the Mexican

and development of specialized software.”

VIEW FROM THE TOP

STRENGTH IN NUMBERS FOR TECHNOLOGY DEVELOPMENT GABRIEL SIADE Director General of CIDETEQ

Q: How is CIDETEQ growing its infrastructure to support

has the goal of generating wealth and value through the

more projects oriented to the automotive industry?

collaboration of its participants. The idea is to have an open

A: CIDETEQ is growing at an accelerated pace, both in

innovation program that combines the experience and

number of projects and infrastructure dedicated to research

complementary knowledge from these centers to develop

in electrochemistry. We have several technological specialties

solutions with a high-technological transfer potential. This is a

that are recognized worldwide and which are internationally

novel work model in Mexico. The end goal of the OTT office is

competitive. These have allowed us to participate in the

to consolidate a wider technological offer in the country and

automotive and aerospace industries, as well as the food

offer advanced solutions to potential clients.

sector and in water-treatment operations. Q: How involved will this new R&D conglomerate be in We inaugurated new facilities in April 2017, which represent

innovation projects for the automotive industry?

an addition of 1,200m to our existing infrastructure. These

A: Our priority now is to consolidate this new effort and build

14 new laboratories will surely be an added advantage for

our capabilities to be prepared for the future. All R&D centers

our operations in the automotive sector because they will

must work with decisiveness and intelligence on joint projects

boost our capacity to accept new projects. We have designed

under a consortium scheme, which in the end will allow us

our new laboratories in a way that will foster interaction

to strengthen the competitiveness of automotive companies

between students from different majors, boosting creativity

participating in all levels of the production chain. In the end,

in the development of new solutions for the industry. Our

this will have a positive impact on the countryâ&#x20AC;&#x2122;s economic

goal is to eliminate all work barriers among research groups

development and the substitution of auto part imports. This

so all our researchers can actively participate in technology

project is the first real effort from CONACYT to develop an

development for the automotive industry.

integrated R&D center network and it is a stepping stone

toward a brighter future for Mexico in research activities. Q: CIDETEQ is working on new compressing technologies

inerTec OTT will also boost intellectual property activities by

for hydrogen applications. What automotive applications

offering consulting in areas related to confidentiality, as well

do you foresee?

as registry and protection.

A: Nanomaterial science is becoming more relevant each day in different science and research areas. Scientists working on

Q: How will inerTec boost technological development and

electricity generation through fuel cells are no strangers to this

integration among local companies?

condition. At CIDETEQ, we are working on the development

A: We visualize many advantages for local companies that

of new nanomaterials with unique properties that will allow

will result in more and better technology-development

us to use industrial waste as fuel to generate clean electricity.

projects. We want to have a closer relationship with the manufacturing sector, offering the knowledge and

This and other technologies must evolve from joint efforts

imagination of our researchers to improve products and

between the public and private sectors. There are already

processes. Companies must understand that innovation is a

automotive companies working to produce hydrogen fuel

constant activity that allows them to maintain a competitive

cells on a mass scale to power their own products in the future.

position in the market.

Q: What development plans does CIDETEQ have for the recently established inerTec OTT office?

The Electrochemistry Research and Technology Development

A: The new Technology Transfer Office inerTec OTT brings

Center (CIDETEQ) was inaugurated in September 1991 with the

together seven R&D centers: CIATEC, CIATEQ, CIDESI,

goal of connecting the industry with academia and national

CIDETEQ, CINVESTAV, CIQA and COMIMSA. This initiative

research activities

179

ROUNDTABLE

HOW WILL THE MILLENNIAL GENERATION IMPACT THE INDUSTRY?

Together with technological innovation, the millennial generation has brought disruption to the industry. While some companies see these potential employees as a risk for business, others see them as an opportunity to grow and adapt to future trends such as digitalization and e-commerce, depending on the position the company has in the industry. It is true that priorities have changed among younger employees and consumers. However, companies are now learning to detect these differences and are changing their approach to remain attractive as an employment option and as product and service providers.

Millennial is just another label. There are many other conditions beyond generational

180

factors that perhaps define what makes people similar or different but, in the end, there is no real generational gap between any of us. Age is a continuum. It maybe just seems useful to make a distinction between different generations because it allows us to put people in convenient boxes, easy to label. But from an applied perspective, there are many more considerations that unite rather then divide us. Our goals are

RENÉ SCHLEGEL President of Robert Bosch México

similar regardless if we are 80 or 20 years old, even if how we want to achieve them differs. The best way we have found to work with millennials, baby-boomers and all other generations is to put people in mixed work groups. This way, remaining differences become useful and everyone can work toward the same target.

There is a clear generational gap that we must take into consideration when talking about millennials. As employers, we must consider new elements that are important for young people and their life plan, such as quality of life and work flexibility. New graduates are leaving university with adequate skills to participate in the industry but we still should train them on how to work in a corporate environment. Teamwork, responsibility and loyalty to the company are among the most important

ISABEL DÍAZ Managing Director of HELLAMEX

values we must work with. On the other hand, from a commercial standpoint, millennials are our future clients and if we do not understand how this generation thinks, we will not meet their needs. Younger people are focused on new digital trends and we need to shift our own business strategies to fit these.

Millennials are the ones driving change in terms of sharing-economy integration. Young people usually do not have the economic means to buy a car but they still have mobility needs, which has made solutions like Uber and Cabify extremely attractive. Although we have found that these people are the most willing to ditch the idea of vehicle ownership, they are also the most willing to invest more to incorporate advanced technology in their vehicles. There is a misconception that millennials will

ALBERTO TORRIJOS Partner and Consultant at Deloitte Consulting Group

crash vehicle sales projections due to their indifference toward ownership. In reality, what is changing is the clients’ profile and how companies must target potential buyers. Between 40 and 45 percent of the active clients in the next 10 years will be part of the millennial generation, which means companies will have to shift their priority from the product to the consumer.

Millennials have great skills in software and hardware management, making them an asset for companies. We have gradually changed majors like Mechatronics and Mechanics to include more analysis and simulation activities, helping our students take advantage of their digital skills. Careers such as Automotive Design Engineering have also been conceived to boost students’ software capabilities from the beginning. This gives them an advantage over graduates trained more traditionally.

ALEJANDRO ROJO Director of the Research Center for Automotive Mechatronics (CIMA) at ITESM Toluca

Millennials have different priorities and companies must learn to adapt to new

181

requirements. These candidates might have similar goals to previous generations in terms of knowledge and human development but they are more relentless and ambitious. Millennials will turn down a job they do not feel satisfied with or connected to it. Management and motivation structures have to take this into consideration so new candidates feel like they are part of something bigger than just a day job. Companies are now changing their vision to this new mindset and must continue improving the interaction between older and younger generations. There is a common

GERARDO KANAHUATI Managing Director of Hays

misconception that younger candidates look for a new job every two years. In fact, they just want to learn new skills continuously.

By 2020, millennials will make up over a third of the global workforce and they are surprisingly upbeat about their careers. Job security is critical for them, but they are not the job hoppers some would have us believe. Rather than one long job for life, millennials understand the need for continuous skills development to remain employable. Ninety-three percent want lifelong learning and are willing to spend their own time and money on further training. Four out of five say the opportunity to learn new skills is a top factor when considering a new job, and 22% intend to take an extended break from work to gain new skills and qualifications. The millennial mindset sees individual jobs as stepping stones to self-improvement, rather than a

MÓNICA FLORES President LATAM of ManpowerGroup

final destination.

The biggest challenge regarding the millennial generation is understanding each individual’s goals and motivations. Managing this will help companies find their perfect match according to their own needs. The situation must be addressed from both the company and the applicant standpoint. Companies must learn how to handle members of this new generation and understand that these people are moved by challenges and opportunities. If companies cannot offer millennials an interesting working environment with a clear growth plan, they risk losing their talent. From an applicant’s perspective, Randstad is investing many resources in understanding the millennial mindset, to help our clients as much as possible. The company is also investing in technology from startups that have a focus on human capital management and outsourcing, boosting its relationship with younger generations.

ANDRÉS SÁNCHEZ Managing Director of Randstad

Wind farm Parque La Venta, Mexico

SUSTAINABLE DEVELOPMENT

Efficiency might be a priority for OEMs and suppliers but that does not have to imply a dirtier process. Green and sustainable practices are becoming a standard throughout the industry, impacting manufacturing, development and even administration processes. Whether it is by implementing lean solutions, developing materials with lower environmental impact or changing their energy supply strategies, OEMs, suppliers and equipment manufacturers now have the planet among their main priorities.

This chapter focuses on environmental standards and the way companies are pushing their operations toward a more sustainable goal. Cost-reduction strategies are matched against environmental projections, both in terms of manufacturing and the end product. Success stories in the industry are featured, as well as service and material providers that help companies have a cleaner footprint. Technology integrators also share their perspective on how effective energy management coupled with automation can lead to greener operations.

183

CHAPTER 8: SUSTAINABLE DEVELOPMENT 186

ANALYSIS: Clean Energies Driving Efficiency

187

VIEW FROM THE TOP: Oscar Lambert, Schneider Electric

188

ROUNDTABLE: How Will Environmentally Sustainable Practices Permeate the Industry?

190

VIEW FROM THE TOP: Jaime Martínez, ERM

191

VIEW FROM THE TOP: Víctor Fuentes, Mitsubishi Electric

192

VIEW FROM THE TOP: Frank Hezel, BASF's Coatings Division in Mexico and Central America

194

INSIGHT: Ricardo Homma, Dow

195

INSIGHT: Juan José Zaragoza, DuPont Performance Materials - NEP/HPS

197

INSIGHT: Pascal Kornfuehrer, Covestro

198

VIEW FROM THE TOP: Sylvain Gleyal, Henkel Corporation - Adhesive Technologies, Engineered

Adhesives and Surface Solutions

200

INSIGHT: Michael Giesenkirchen, FMT Christof Industries México

201

INSIGHT: Ángel de Lope, Kaeser Compresores de México

203

INSIGHT: Eugenio Floresgómez, Pochteca

204

INSIGHT: Mario Galindo, Contour Hardening

205

INSIGHT: Arturo Dávalos, StrikoWestofen de México

206

VEHICLE SPOTLIGHT: NIssan GT-R 2017

185

ANALYSIS

CLEAN ENERGIES DRIVING EFFICIENCY Amid all the talk of robotics and automation, the drive toward clean energy in the automotive industry can seem an afterthought. But as many industry insiders point out, without efficiency the savings from automation is moot, and the road to efficiency goes through clean energy For automotive companies, the goal of reducing costs and

(CENACE), reached an average of US$33.47/MWh (US$.03/

improving performance of products and processes is a

kWh) at the second tender for electric energy, representing

constant. After the development of just-in-time and just-in-

60 percent in savings when compared to electricity obtained

sequence operations, the next target for OEMs and suppliers

from fossil fuels.

is to boost energy efficiency and reduce the environmental impact of all manufacturing operations.

Luis Miguel Ruíz, Operations Director of COFEMSA, says that clean-energy projects such as photovoltaic cells are still

186

Energy efficiency has become a priority for companies,

mostly a marketing strategy for companies. “It allows them to

especially considering the growing importance of automation

present themselves as socially responsible but they are not as

and technology integration. Implementing robotics and

efficient at saving money,” he says. Meanwhile, Fuentes points

automation equipment has an effect on productivity but if it

out that “alternative energies such as photovoltaic cells or

is not coupled with effective energy-management systems,

wind farms are still expensive to implement in Mexico, at least

the investment is not justified. Víctor Fuentes, Director General

within the automotive industry.” However, some companies,

of Mitsubishi Electric, says some companies have neglected

including many OEMs, are already exploring the opportunities

technological updates for years, which limits their potential for

clean energies can provide.

improving energy efficiency. For that reason, the first step is to analyze where the company stands. “As a basic engineering

Marco Ribera, Senior Corporate Manager Environment

principle, you need to measure something before you can

and Safety of Nissan Mexicana, says that Nissan already

control it,” he says.

sources 68 percent of its energy from renewable sources in its Aguascalientes A1 plant. “Considering our total energy

Analyzing information from the production floor is a basic

consumption, renewables represent between 30 and 32

principle of Industry 4.0 and Smart Factory, which can also

percent,” he says. “We have a wind farm and a biogas plant

lead to further energy-cost reductions. Oscar Lambert, Vice

producing energy from urban waste.” Volkswagen also has

President Mexico and Central America, Energy Business

an environmental project developed according to its Think

of Schneider Electric, says “a typical top-five automotive

Blue. Factory. strategy. The company has a power purchase

company has an annual excess in its energy bill of US$1 billion.”

agreement (PPA) with a wind farm in Mexico. “(The project)

This can be reduced with the implementation of efficient

is in its construction phase and we expect to start receiving

energy-management solutions coupled with Industry 4.0

energy by 2017,” says Jorge Salas, Energy Management

practices. “internet of Things’ solutions can reach up to 80

Manager at Volkswagen de México.

percent power savings,” says Odón de Buen, Director General of the National Commission for the Efficient Use of Energy

Regarding solar energy, solar panel company Grupo Desmex

(CONUEE). “Savings come not only from energy but from

told Mexico Automotive Review 2016 it was developing a

operating efficiently.”

project in the industrial park Puerto Interior in Guanajuato, which was unveiled in October 2016 with an energy capacity

The increase in energy prices poses another threat for

of 3MW. “We are already working on the second stage and

manufacturers. Between May 2016 – when electricity reached

have landed a five-year contract with one of the park’s

its lowest cost at MX$0.93/kWh (US$0.05/kWh) – and June

tenants,” says André von Frantzius, Commercial Director of

2017, energy prices have increased by 66.9 percent, according

Grupo Desmex. “The second stage will add 10MW and we

to the Ministry of Energy. However, there is an opportunity

are planning a third phase for an additional 10MW.” Other

that some companies are already brave enough to explore.

industrial developers such as Interpuerto Monterrey and

The Energy Transition Strategy established by the federal

FINSA are also analyzing the possibility of investing in energy

government sets a goal to source 35 percent of the national

projects to support manufacturing operations. “Our huge

energy consumption from clean sources by 2024. The

client base demands high electricity volumes,” says Sergio

Federal Energy Commission (CFE) is buying energy from

Argüelles, President and CEO of FINSA. “The company is still

clean generators at competitive prices, which according

evaluating how it can best offer these solutions while ensuring

to information from the National Center of Energy Control

added benefits to its clients.”

VIEW FROM THE TOP

NEW TRENDS PUSH ENERGY EFFICIENCY FORWARD OSCAR LAMBERT Vice President Mexico and Central America, Energy Business of Schneider Electric

Q: How can Schneider Electric help companies reach their

A: When the Energy Reform was conceived, there were two

sustainability goals?

possible paths Mexico could take. One was the improvement

A: A typical top-five automotive company will have an

of the countryâ&#x20AC;&#x2122;s energy infrastructure, which would generate

annual energy bill in excess of US$1 billion. These large global

jobs and new business opportunities. The second was the path

enterprises have a substantial impact on all sustainability

chosen by Mexico: the implementation of strategies that would

topics. We offer these companies the opportunity to save

reduce energy costs in the country. This will lead companies to

up to 30 percent on their electricity bill. These savings

be more competitive over the long term. Allowing competition

go beyond monetary costs since they also reduce the

will generate more options for companies, lower prices and

environmental impact. Schneider Electric has the most

lead to smaller operational costs. Mexico is in the midst of a

complete portfolio for the automotive sector. It can help

transition toward the goal of generating 35 percent of energy

customers to achieve most of their sustainability goals and

through renewable sources by 2024.

can make production eco-friendly through specific solutions like WAGES metering and Data Collection Solutions, Facility

Q: What main energy and automation trends do you perceive

Energy and Building Management Solutions and Renewable

in the automotive sector?

Energy Solutions, just to name a few.

A: The automotive sector is developing autonomous cars and increasing connectivity. Cars will become computers

Q: What would you suggest to automotive companies to

on wheels that will autonomously transport individuals.

increase energy efficiency in their manufacturing processes?

Ownership models are also changing as carpooling becomes

A: Connectivity has significant potential to increase efficiency

prevalent. An increase in connectivity will reduce the need for

in manufacturing plants through the internet of Things. The

technicians to perform diagnostics and many problems will

collected information is analyzed and the results are used

be solved remotely. Schneider Electric expects an integration

for process optimization to make plants more efficient. All

of solutions that allows manufacturers to execute their

our electrical distribution products include this feature and

sustainability strategies in Mexico. Based on these trends,

can be used by companies in every manufacturing sector.

the company is developing end-to-end solutions to help our

Automotive manufacturers are investing in sustainability as

customers face their challenges successfully.

it is closely linked to energy efficiency. Several of the global top 10 automotive companies aim to reduce CO2 emissions

Q: How important is Mexico in Schneider Electricâ&#x20AC;&#x2122;s global

by up to 25 percent.

strategy? A: Mexico is among the top priority countries worldwide

Q: How will automation impact manufacturing in terms of

for Schneider Electric. The country has a very important

energy savings?

manufacturing footprint for us in North America. We now

A: Automation is the best way to improve energy efficiency

have 12 manufacturing plants that export mostly to the US

but to be implemented it requires reliable power sources

and Canada and employ over 9,000 individuals. Mexico is

that can ensure a continuous flow of energy. Mexicoâ&#x20AC;&#x2122;s low

becoming increasingly attractive thanks to the Energy Reform

percentage of renewable energy consumption is gradually

and our experience will help us to advise clients as they

changing. Most energy in Mexico is generated from fossil fuels,

navigate changes brought about by this reform.

which makes it costly. The Energy Transition Law provides a framework for clean energy, energy efficiency and greenhouse gas emissions reductions.

Schneider Electric , founded in 1836, creates connected technology and solutions to manage energy safely and

Q: What new opportunities will the Energy Reform bring

efficiently, with an evident commitment to sustainable

to Schneider Electric?

development

187

ROUNDTABLE

HOW WILL ENVIRONMENTALLY SUSTAINABLE PRACTICES PERMEATE THE INDUSTRY?

Sustainability has transformed the industry. Beyond the arrival of electric vehicles, companies are now looking for the best way to reduce their environmental footprint regardless of their line of business. New materials are being used, efficiency measures are being adopted and even alternative power-generation solutions are making their way into the industry. The automotive industry is a high energy and water-consuming sector. Yet, for some companies Mexico has become a standard for clean energy for manufacturing operations.

Currently, there is a dependency in the industry on crude oil and raw materials are 188

immediately affected once oil prices go up. It is our intention to push boundaries and that means getting rid of any preconceptions we may have regarding what we can or cannot do with cars. If you ask anyone on the street if it is possible to fly a plane without any fuel, they will say no. Similarly, if you ask them if it is possible to power a car only with photovoltaic cells, they will say no. We cannot know for sure when

PASCAL KORNFUEHRER Managing Director of Covestro

change will come but we are certain it is possible. We want to support development and prove that any of these ideas are possible, as long as we do not limit ourselves and we commit to a sustainable operation.

Our sustainability efforts will impact our plants in Orizaba and Tlaxcala. We plan to build a water-treatment facility in Orizaba. Dyeing thread requires high water consumption and even though we comply with specifications from the Mexican government, Coats has its own water consumption standards. These may be stricter but we want to comply with them. The project will demand a multimillion-dollar investment but in the end we will be able to provide clean water to the Veracruz

ROBERTO CĂ NOVAS Director General Mexico & CA of Coats MĂŠxico

community. Our project in Tlaxcala will be electricity oriented. Threading is a powerheavy process, which is why we are negotiating with a wind-power generator. The plan is to create a joint-venture that will allow us to source green energy. Modernization is a slow process that can take many months and even years but we hope to reduce our energy consumption and be connected to green energy generation by 2018.

All companies within the Techint Group were involved in the design and development of the Pesqueria Power Central in Nuevo Leon. The plant is operated by Techgen and provides energy to TenarisTamsa and Ternium facilities in Mexico. It was an extremely challenging project due to the advanced technology it involved. This combined cycle energy plant makes optimal use of the natural gas by introducing a second stage that uses a state-of-the-art GE steam turbine, making it far more environmentally friendly.

ALEJANDRO MALUF General Manager North America at Techint Engineering & Construction

This plant consumes 35 percent less fuel and one-third of the water of a traditional plant. The whole facility produces zero wastewater because it uses water that comes from the Nuevo Leon water treatment plant. The buildings were conceived following a green concept, allowing us to obtain a LEED Certification (Leadership in Energy and Environmental Design).

We already have a substation and we are analyzing the possibility of implementing energy generation solutions with a cogeneration project. An energy company has already approached us to collaborate in this initiative but we must analyze the potential demand for this service to determine if now is the right time to get involved in an energy-generation project and evaluate to seek the most benefits to our clients. We are firm believers that companies should focus on their core business. We see this as a potential business opportunity and we would eventually like to find a partner to help us run this project.

MAURICIO GARZA Director General of Interpuerto Monterrey

Our 'Think Blue. Factory.' strategy promotes positive actions for environmental 189

protection, establishing an objective to reduce energy consumption 25 percent by 2018 compared to energy indicators in 2010. By September 2016, we reached a 37 percent reduction, reflecting the significance Volkswagen attaches to this goal. We achieved reductions in consumption of electricity, natural gas, water and both CO2 and Volatile Organic Compound emissions. This is visible in our processes and awareness of the issue among our partners. In 2017, we will consolidate our efforts to ensure we achieve the desired results with some planned measures that will optimize energy consumption.

JORGE SALAS Energy Management Manager at Volkswagen de México

Sustainability is included in different aspects of Nissan’s global business plan called 'Nissan Power 88.' Nissan Mexicana owns three manufacturing plants in Mexico: two in Aguascalientes, one in Morelos and we will soon open our new COMPAS plant in Aguascalientes as well. Our Aguascalientes A1 plant sources 68 percent of its energy from renewable sources but considering our total consumption, renewables represent between 30 and 32 percent. Since we started using renewable energies in 2013, we have manufactured more than 700,000 vehicles using wind energy. That means that of all Nissan’s subsidiaries, we are the one that has manufactured the most vehicles with lower CO2 emissions. Biogas represents 4.1 percent of the energy consumption at our Aguascalientes A1 plant, the largest biogas usage in any

MARCO RIBERA Senior Corporate Manager Environment & Safety of Nissan Mexicana

of Nissan’s plants globally.

In 2012, we launched an ambitious project to develop electric vehicles to suit the needs of a company like ours. We are implementing this through Moldex, a subsidiary of Grupo Bimbo. In the first phase of this project, we hired young Mexican talent to transform existent vehicles into electric models. They later analyzed the possibility of opening a small electric-vehicle manufacturing line, which we opened in 2013. With this initiative in place, we inaugurated our first Ecological Distribution Center in 2013, located in the historic center of Mexico City with 73 electric vehicles. Nowadays, we have four Ecological Distribution Center and over 320 electric vehicles on the streets. In 2015, we launched a new vehicle with a load capacity of 1 ton and 100km autonomy and in 2016 we made it available for purchasing to other companies that transport goods.

ALEJANDRA VÁZQUEZ Environmental Sustainability Manager at Grupo Bimbo

VIEW FROM THE TOP

SUSTAINABLE PRACTICES THAT MAKE SENSE FOR BUSINESS JAIME MARTĂ?NEZ Business Development Director of ERM

190

Q: In which areas do the automotive industries still have room

quality matters. This sector has advanced significantly in

for improvement and how do you help them?

quality and safety. The automotive industry has managed

A: Much of what is discussed in terms of sustainability is only

to develop safe cars for its users. Its success in safety, built

words. Many practices regarding sustainability end up being

into cars, sets an example for other companies keen to begin

philanthropic acts with limited effect and little action. There is

employing sustainable practices within their industries.

a gap between what companies can do and what they actually do. The only way to close the gap is to follow in the footsteps

The relationship companies have with the community

of those who have already implemented efficient practices.

is equally important and another area in which the

There are several certifications that companies can obtain

automotive sector excels. Companies across all industries

and ERM has a special division focused on certifications

must generate strong communications departments. The

and verification services to support clients. But getting a

Mexican automotive industry has become a hot topic as

certification should not be an objective. Certifications should

critics abroad claim Mexico has taken jobs from the US

always be a consequence of good practices.

but this is not true. A significant percentage of automotive manufacturing has seen impressive technological

Q: What is the impact on costs and efficiency of developing

advances and an increased use of automation. Technology

sustainable practices for the automotive industries?

irretrievably decreases the necessity for an extensive

A: At ERM, we believe that sustainability should be

workforce, causing many jobs to be lost to robotics and

approached as a business decision. It is our belief that if every

efficiencies. We have a responsibility to study the social

company approached sustainability the way other business

impact of technology and to find and adopt alternatives so

areas are tackled, industries would have different results.

industries do not leave a sector unprotected.

When implementing these practices, companies should start with small steps, with clearly defined objectives to achieve

Q: What are the main areas in which automotive companies

results in the short-term. Positive results from initial objectives

can implement good practices to use resources efficiently?

justify presenting further ideas to decision-makers. These

A: When considering energy efficiency, specifically the use

results reflected at the bottom of the pyramid will inspire the

of water and resources, concrete short-term objectives

allocation of funds for more aggressive objectives. Sustainable

arise from business analysis. Automotive and aerospace

practices entail several advantages that can easily be put onto

companies must detect where most waste is generated

paper. Translating wishful objectives into concrete actions is

or which process consumes more water. Once these areas

harder. The method should be assembling a strong business

are identified, companies need to redirect attention and

case for modest objectives and achieving the targets before

resources to them. The next step is to set medium-term

applying them on a larger scale.

objectives with modest, realistic and attainable goals. Then, companies can use these successes as a springboard to

Q: How willing are automotive companies to adopt these

continue with more ambitious objectives.

practices? A: In general, automotive industries have been successful

Often, companies overshoot the mark and run into problems

in adopting sustainable practices, applied for instance to

with ambitious projects to obtain more efficiency. Projects can sound and look good on paper but they are not always achievable. Every company has areas of opportunity in

Environmental Resources Management (ERM) is a consulting

operational efficiency and the aerospace and automotive

firm focused on environmental, health, safety, risk and

industries are no exception to the rule. I would even venture

sustainability. The company has 160 offices across more than

to say that almost every industrial process could be made

40 countries, employing over 4,500 people

at least 10 percent more efficient.

VIEW FROM THE TOP

EFFICIENCY THE THREAD THAT CONNECTS OPERATIONS VÍCTOR FUENTES Director General of Mitsubishi Electric

Q: How conscious are companies of the role energy

can save. Our e-F@ctory concept caters to all these

efficiency plays in productivity and process automation?

elements, allowing companies not only to produce more

A: Certain companies struggle because outdated strategies

but to know how much the current process costs them and

hold them back from replacing old equipment. The machines

how it could be improved. The platform also acts as a direct

continue working but not necessarily as efficiently as they

link with information technology and data administration.

did when new. After years of neglecting technological updates, they have missed steps that could have helped

Our “Eco Changes for a Greener Tomorrow” vision

them improve their processes. Our philosophy is based

contributes to sustainability from our manufacturing

on measuring, visualizing and administrating. As a basic

process up to the moment we deliver our products to

engineering principle, you need to measure something

the client. We have implemented photovoltaic cells in our

before you can control it. Sometimes, clients know they

production and our motors are among the most efficient in

have to reduce their energy intake but have no idea where

the market. Those benefits are tangible to clients.

to start, so we need to analyze the process and identify where they can improve.

Q: How will these changes impact the role human capital plays in manufacturing operations?

What companies like Mitsubishi Electric experience is

A: Companies need to orient new investments toward their

not resistance to change but ignorance about positive

teams’ best interests. A talent development strategy must

investments. Implementing cost-reduction strategies is not

go hand in hand with the company’s growth expectations.

the answer if clients do not know how much they spend

Automation has undeniably impacted the need for

at each step of their process. But the Mexican industry is

employees but there is always an opportunity for people

transforming as companies gradually become more aware

to develop alongside technology. Complications that are

of these opportunities.

not in the handbook will always exist and that is where people have the best opportunity to contribute to process

Q: How does Mitsubishi keep pushing the boundaries of

improvements.

energy efficiency? A: Efficiency is the thread that connects all our operations,

There is untapped potential in Mexico to effectively use

including our e-F@ctory approach. The industry has to

our talent pool. Mitsubishi Electric sees an opportunity

produce more with less and the energy market in Mexico

to advance its presence in Mexico but we must first

has made this a challenge for every company as prices keep

develop the appropriate technical expertise among our

increasing. Our responsibility at Mitsubishi is to figure out

employees. We have worked with our people for three

how to provide adequate automation solutions that also

years and formed strategic alliances with the Autonomous

reduce energy consumption.

University of Aguascalientes. This enterprise aims to ensure the latest technology is available to students,

Part of our job is to make all deficiencies clear to the

so they can grow in line with the industry. Research

client and to put a strategy in place that includes

makes new products obsolete after two years, thus our

measuring, control and automation equipment. Each

collaboration must be continuous.

part of the manufacturing process has different priorities. The operators’ main concern is that the machine works correctly. For those at middle-management levels, their

Mitsubishi Electric applies advanced technologies and expertise

most important objective is to keep the entire production

to companies in a range of business segments, pursuing initiatives

line running with adequate productivity. The administration

that create a vibrant and affluent society. The company also

is focused on operational costs and how much the company

makes social contributions as a global, leading green company

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VIEW FROM THE TOP

SEVERAL BILLIONS OF EUROS TO ADVANCE SUSTAINABILITY FRANK HEZEL Business Vice President of BASF's Coatings Division in Mexico and Central America

192

Q: BASF will invest US$40 million in its North American

Q: How does BASF see its products adapting to meet the

automotive coatings division. How will Mexico’s

environmental challenges of an evolving world?

operations improve?

A: According to the UN, there will be approximately 9

A: A large portion of the money will be invested in

billion people living on Earth by 2050, which means there

Tultitlan, State of Mexico. Our focus is on developing

will be an even more pressing need to find sustainable

waterborne coatings dedicated only to the automotive

solutions for everyday operations. Besides nourishment,

industry. Our priority is to increase our production

which is also a priority for BASF, we have identified

capacity and we see high demand for these solutions in

mobility as one of the biggest challenges people will face

the automotive market as more companies move from

in the future. Megacities will become a common concept

solvent-borne coatings to waterborne solutions. All new

and people will need to find a way to transport and deal

investments of European and Asian OEMs in Mexico are

with waste, energy and housing.

focused on waterborne solutions. Coatings will be essential in transportation applications, We are also investing in our paint and spraying capabilities

not only for aesthetics and protection but to ensure the

in Tultitlan. BASF is focused on the new generation of

efficiency of lightweight components. Electric and hybrid

paint. We have more than 650 people working to support

vehicles will become mainstream, which means that

our customers in Mexico. To meet their needs, we must

polymeric solutions will become a standard to reduce

have the best paint application equipment. BASF is

weight and to ensure better heat-management results

also working on improving the efficiency of its paint

in powertrain and battery systems, leading to reduced

production equipment through modern and sophisticated

energy consumption.

processes. Q: How can companies incorporate green alternatives Q: Being part of the Dow Jones Sustainability World

while maintaining accessible production costs?

Index, how important are sustainable practices in the

A: One is not independent of the other. Companies need

automotive sector?

to come up with solutions that provide a benefit both

A: Sustainability is one of BASF’s core strategic principles.

for the company and its clients. If our R&D efforts are

The company has implemented a 10-year plan to 2025

oriented solely on sustainability, we might end up forging

and sustainability is a crucial element. In the past, the

a great but extremely costly solution. In the end, this

general population considered the

would narrow our market potential to

chemical industry the bad guy in terms

only the most exclusive companies that

of environmental practices. We took this criticism seriously in an effort to understand what we could do better or how we could communicate our strategy

27.2%

Accelerators in BASF’s product portfolio

do not mind paying an extra cost to remain sustainable. We want to target these players as well as companies with mass production.

better to other companies and potential clients. We concluded that if chemical companies did

Our environmental vision has led us to analyze our

not address these issues, no one would. As one of the

own products and determine if they comply with the

biggest companies with a broad portfolio of products

standards we want to set in terms of sustainability and

and solutions, we have a responsibility to reduce our

if they are changing the industry for the better. We have

environmental impact. BASF is investing billions of euros

denominated all products that meet our sustainable

every year in R&D and almost 100 percent of our projects

standards “accelerators” and we have worked to

have a sustainable approach.

make sure our R&D efforts are always oriented toward

accelerator development. This is part of our Steering Sustainable Solutions program launched in 2015. Considering our current portfolio, 27.2 percent of our products are accelerators, 68.3 percent meet basic sustainability standards, 4.2 percent have issues that are already being addressed and only 0.3 percent represent

BASF will invest US$40 million in its North American automotive coatings division in the next two years

a concern for the company. Our goal for 2020 is to grow our accelerator percentage to 28 percent. We are working

Q: How can BASF help its clients find the most cost-

closely with all our clients to innovate in these solutions

effective and environmentally friendly solution available?

or scrap them when necessary. Automotive is a strong

A: In 1997, BASF implemented eco-efficiency analyses

participant in this trend and we are pleased that each

to determine the true monetary and environmental cost

year more of our products become accelerators for the

of a product from its origin as separate raw materials all

automotive industry.

the way to its distribution and application as a finalized solution. We considered energy streams, raw material

Q: What can solutions such as the CathoGuard line offer

costs and the environmental impact of both raw materials

to be considered an accelerator for the industry?

and production processes, delivering a numeric value. We

A: CathoGuard is an electrocoating solution used

also partnered with Dürr to analyze not only our products

to protect components against corrosion and harsh

but the cost of their application to our customers. Our

environmental conditions. Due to their geometric

goal was to determine what paint process was the most

complexity, parts must be submerged in a bath to ensure

cost-efficient and environmentally friendly to help our

the coating covers all surfaces in direct contact with the

clients decide how to build their paint shop according

environment. That guarantees that even though water

to their needs and conditions.

might make its way to the interior of the car, parts will not be corroded. Before electrophoretic coatings, wax

We found the answer was not that simple because the

had to be inserted in all cavities in the vehicle to prevent

most efficient paint shop application depends on the

corrosion but that was neither efficient nor aesthetically

company’s environmental conditions. Climate, air and

pleasing.

humidity all impact how paint is applied and how much time the process is going to take. The advantage of

The added advantage CathoGuard offers to clients is

waterborne solutions is that water is an environmentally

that it is effective in reaching all a vehicle’s cavities with

friendly compound. Unfortunately, it does not evaporate

less material. Coatings are deposited in the component’s

easily, which means it requires heat to finalize the process

surface via an electric current. The effectiveness of the

and the climate window in which waterborne paint works is

process depends on how easy it is for the coating material

narrower than that of solvent-borne products. Solvents, on

to be carried by the electric current.

the contrary, do not require that much heat, which reduces energy consumption. We arrived at the conclusion that if

Our results have shown that CathoGuard leads to an

companies did not need to climatize their operations much,

average 20 percent waste reduction in the coating

waterborne was the ideal solution. Otherwise, solvent-

process compared to traditional technology, which also

based paint would be the way to go. This is a complicated

leads to reduced energy consumption during the coating

idea to explain, so we needed the right tools to show our

and once the component is dried in the furnace.

customers the pros and cons of each alternative.

Q: How is BASF working to counter the negative effects

Back in 2000, I was told solvent-borne paint would be

of raw material price increments?

obsolete in 10 years. Seventeen years later, the technology

A: We have not announced a general price increase

is still used. Solvent-based products can be more harmful

in 2017, at least for our OEM portfolio. The rise in raw

than waterborne paint. However, when coupled with a

material prices has been a challenging situation and

complete manufacturing process, solvent might just be

our margins have been narrowed because of it. Both

the most environmentally friendly option.

solvents and resins are byproducts of oil, which means the slightest increase in its price affects our operations. Nevertheless, we are always focusing on how we can

BASF is a chemistry company founded in Germany in 1865.

optimize our operations and innovations, both in product

The company has 17,500 employees in North America and

and processes, and on reducing the impact on our clients

2,000 in Mexico, Central America and the Caribbean. In 2016, it

of higher prices for raw materials.

generated sales of US$16.2 billion in that region

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INSIGHT

PARTNERSHIPS HELP BUILD ENERGY-EFFICIENT TECH RICARDO HOMMA Commercial Director Mexico-Caribe-CAM, Automotive Systems Business at Dow

194

Developing technology is a resource-intensive process and

the thickness of the overall assembly and lead to weight

companies are building relationships to deliver innovative

reduction of 0.6kg to 1.1kg for every meter of structural

technology to their clients. Ricardo Homma, Commercial

adhesive applied. The company has also worked on the

Director Mexico-Caribe-CAM, Automotive Systems Business

development of polyurethane foam technology, mostly used

at Dow, says a key point is to complement products with the

in the production of seats, head and arm rests and other

idea of helping both the company and its customers. “We

interior components. Homma says Dow’s Automotive System

are betting on science and research,” says Homma. “We are

business has focused on developing low-emission foams with

in a demanding industry where customers ask for the best

a reduced environmental impact during their production.

in mobility and energy savings.” Dow's Automotive Systems business seeks to improve the Dow has oriented its material-development strategy toward

company’s solutions. Its partnership with CONACYT is one

making cars quieter, lighter and more sustainable. “Customers’

pillar of its strategy in Mexico. Both players have been working

needs have changed and so has the environment in which they

together since 2012, mostly in the development of advanced

live,” says Homma. “Previously, drivers looked for safety. Now,

foams with diverse applications. The partnership has already

they want safety and energy efficiency.” With the introduction

filed two patents but Homma says the company is keen to

of materials such as aluminum and reinforced fiber composites

continue developing solutions to meet the requirements of

for structural components, Dow's Automotive Systems’ goal

OEMs. “CONACYT has been a very good match for us,” says

has been to offer advanced structural adhesives to help

Homma. “We have specialized engineers in our automotive

automakers reduce the vehicles' weight.

area and this relationship has helped them build their knowledge.” The company’s focus on technology has led it

Traditional welding techniques can only join components

to open a specialized plant in Tlaxcala, which according to

made from the same material. However, automakers are now

Homma is what has helped the Automotive Systems business

looking for ways to replace steel parts with aluminum and

maintain its position in the sector. “Our corporate vision is 100

other materials, forcing them to find alternative bonding

percent aligned with our mission of developing advanced raw

solutions. According to Homma, adhesives help to reduce

materials and innovative technology for the industry,” he says.

INSIGHT

AN UNWAVERING SUSTAINABLE VISION JUAN JOSÉ ZARAGOZA Marketing and Sales Manager and Mexico Country Leader of DuPont Performance Materials - NEP/HPS

The trend toward lighter materials in the automotive industry

like nylon that are now commonly used in a variety of

is more than just a cost-saving tactic; it provides tangible

applications, including automotive. Zaragoza says nylon

benefits for end users and contributes to environmental

is a crucial component in under-the-hood components

sustainability efforts, says Juan José Zaragoza, Marketing

including intake manifolds, fans and water-recovery pans.

and Sales Manager and Mexico Country Leader of DuPont

“Polymer components have made vehicles not only lighter

Performance Materials - NEP/HPS.

but safer,” he says. “Auto parts now have a higher impact resistance, have a longer lifespan and are better adapted

“People tend to think that lightweight trends only address

to manage harsh environmental conditions.”

cost-efficiency needs but that is not the case,” says Zaragoza. “Lighter materials result in a more efficient

The automotive industry is constantly innovating and plastic

vehicle that demands less power from the engine.”

is becoming more relevant in automotive manufacturing with each new design cycle. “Components are now made

DuPont Performance Materials has now made its core

of plastic even when they have a structural or mechanical

business to deliver lighter components that meet the cost

role,” says Zaragoza. The implementation of fuel-efficient

requirements of both automakers and suppliers, while

technologies has also presented an opportunity to create

maintaining the same structural soundness companies

materials with higher heat resistance and heat dissipation

can gain from metal applications. “DuPont Performance

rates. “Turbochargers have helped downsize engines

Materials has even innovated to integrate recycled material

from eight to four cylinders while maintaining the same

into its polymer resins for further environmental gain,” he

performance. Nevertheless, they have also incremented the

says. As a raw material supplier, DuPont is in a crucial

temperature in the exhaust by more than 50 percent,” says

position to support companies as they innovate to create

Zaragoza. “Automakers need materials that can dissipate

greener solutions. “Our engineering polymers are the

that heat and prevent it from reaching the cabin.”

primary material to produce an auto part that will go into a system and that will finally end up in a vehicle.” DuPont also

Even electrification trends are impacting plastic applications.

participates in the design of new components and ensures

Connectivity and automation require the use of sensors and

the final proposal meets quality and functionality standards.

connectors and these parts need a plastic cover that can withstand heat and wear. “Clients now look for increased

The company also works in process optimization to help

connectivity and advanced electronics technology in their

reduce costs. “All manufacturing processes need energy

vehicles and that is where DuPont can participate,” Zaragoza

and work, which means consumption. If raw materials are

says. Like many companies that do business globally, DuPont

processed in the most efficient way, energy costs are lower

is also keeping an eye on the political environment in the US,

and production cycles are optimized,” he says. DuPont’s

which has placed a focus on the automotive industry, among

operations in Mexico have expanded to now represent 70

others. One area of concern is US support for sustainable

percent of the annual revenue in the Performance Materials

practices but Zaragoza says the industry will continue

division. Zaragoza says recent investments in the country are

its quest toward efficiency and improved performance.

paying off. “We reached double-digit growth in 2016,” he says.

DuPont continues to believe that US participation in the

“Our expectations for 2017 are to maintain growth thanks to

Paris Agreement would benefit both the US economy and

our business with Japanese and European suppliers.”

the global environmental future. “We remain committed to working with governments, companies, NGOs and other

Technology will play a key role in sustaining DuPont’s growth

international players to bring solutions to the market that

and as it supports its clients’ sustainable development.

reduce greenhouse gas emissions, create jobs and enhance

DuPont has been responsible for the invention of fibers

competitiveness,” says Zaragoza.

195

Covestro's material offering for automotive applications

INSIGHT

INNOVATION DEMANDS COURAGE, COMMITMENT PASCAL KORNFUEHRER Managing Director of Covestro

The world is working to lower its dependence on oil but

is a byproduct of crude oil and according to Kornfuehrer,

to succeed companies must have the courage to push

over 5 million tons of aniline are produced globally every

boundaries and embrace change en masse, says Pascal

year, with Covestro being responsible for approximately

Kornfuehrer, Managing Director of Covestro. “A sustainable

20 percent of that. “Our 100 percent biomass aniline takes

vision demands a change in mindset from all industry

us one step further toward an oil-free industry,” he says.

participants,” he says. “Companies must embrace change

Covestro’s quest for sustainability and innovation has also

and have the courage to implement it.”

led the company to support OEMs and suppliers with lighter structural components. The company recently delivered a

Practicing what it preaches, Covestro has made sustainability

concept design for an electric car at the K 2016 plastics

a cornerstone in its global development plan. When the

trade fair in Düsseldorf. The car was wrapped in transparent

company established its business proposition before its IPO

polycarbonate glazing, replacing all glass components. This

in September 2015, it outlined both R&D and sustainability

resulted in less weight and increased aerodynamics, directly

as two drivers for its global strategy. This has paid off and

impacting the vehicle’s fuel consumption.

Covestro’s share price has enjoyed an upward trajectory that now oscillates between €60 (US$68) and €70 (US$79.4)

Automotive suppliers like HELLA collaborated on the

from its debut price of €24 (US$27). Covestro has focused

vehicle’s development stages, along with students from

on delivering sustainable technologies that contribute to

universities such as the Umeå Institute of Design in Sweden

profitable growth, while having positive implications for

and the Northern Works design agency in Finland. “There

society and the environment. The company invests around

is a constant exchange of technology between Covestro

2 percent of its revenue in R&D operations, which accounted

and other players in the automotive supply chain,” says

for €260 million (US$294.4 million) in 2016. “Our goal is to

Kornfuehrer. “We must not only focus on what we think is

identify how we can improve our products to satisfy our

right for the industry. We need to talk with other players in

clients’ demands, reduce our impact on the environment

the supply chain to identify current needs.”

and identify opportunities to target new industry needs,” says Kornfuehrer.

The company also took its innovations to the skies in 2016, participating in the Solar Impulse 2 project. The goal was

Purging the world’s dependence on oil is a company priority

to create an aircraft that could circumnavigate the world

and a driver for innovation. In 2016, Covestro was able to

solely powered by solar energy. Covestro supplied materials

transform CO2 into a raw material, which not only had positive

and technology that supported functionality. “We developed

implications for its greenhouse gas emissions but allowed

insulation polyurethane for the Solar Impulse 2 project to

the company to replace up to 20 percent of the crude oil it

maintain a rigid structure while protecting the aircraft and

normally used to manufacture polyurethane. “With this new

also the pilots from extreme temperatures,” says Kornfuehrer.

technology, we have found a sustainable solution that also

The company also provided transparent polycarbonate for

increases profitability along the value chain,” says Kornfuehrer.

the cockpit and coated the aircraft with polyurethane to

Covestro is using its CO2 technology in the production of a

protect it from wind and to reflect the sun. Solar Impulse 2

soft polyurethane foam used in mattresses. However, the

exemplifies what the future may look like for Covestro. “It is

material is also used in other industries, so for Kornfuehrer

our intention to push boundaries and that means getting rid

an application in the automotive industry is conceivable.

of any preconceptions we may have,” says Kornfuehrer. The company is already participating in its next challenge as a

The company has also found a way to produce aniline, one

sponsor for Team Sonnenwagen Aachen in the World Solar

of the main raw materials used in rigid insulation foams, from

Challenge 2017. The goal? To build a solar-powered vehicle

biomass. Aniline is normally obtained from benzene, which

that can travel 3,000km under the Australian sun.

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VIEW FROM THE TOP

UNIFIED FRONT FOR SUSTAINABILITY SYLVAIN GLEYAL Marketing Director North America / Latin America North of Henkel Corporation Adhesive Technologies, Engineered Adhesives and Surface Solutions

Q: What benefits do you expect to reap by merging

need to develop new marketing and sales strategies as well

Henkel’s North American and Latin American businesses

because this will give us more opportunities to connect with

and what will that mean for your automotive operations?

potential customers.

A: It did not make sense for the company to manage North 198

America and Latin America as separate entities because our

We are expecting double-digit growth in Mexico in 2017.

customers work across the entire region. We decided to align

There are still many business opportunities in the country

our company to the way our customers do business, which

and by uniting Canada, Mexico and the US we will have a

will also represent a positive change for our automotive

more diverse array of competences and skills. One of our

operations. We have invested heavily in R&D, sales and

goals has been to divide the country by regions depending

development in the US and Canada and now Mexico will

on what products are made there, the type of technology

benefit from our expertise across all business divisions.

used and how our portfolio can best target each region. With this information, we have created specific strategies

It has been difficult to merge resources and technologies

to grow in the Bajio and the north of the country.

across different countries but it is a crucial process to maintain the value of the company. We want to remove all

Q: What is the company’s inorganic growth strategy for

redundancies and barriers while sharing our knowledge.

Mexico and for your operations within the automotive

The human factor is also a priority for Henkel. We believe in

sector?

diversity and having people who speak different languages

A: Any potential alliances will depend on the available

and are from different backgrounds leads to innovation and

opportunities in each market but inorganic growth is a key

agility in our processes and to new business. This transition

element in our new strategy. We have participated in many

will help us target new markets.

mergers and acquisitions in the past and in July 2017, the company completed its latest acquisition in North America,

Q: What role will Mexico and the newly established

buying Darex Packaging Technologies, which was originally

Americas region play in Henkel’s 2020+ strategy?

owned by GCP Applied Technologies. We are constantly

A: Mexico is a key piece of the 2020+ strategy and one

screening the market for further possibilities to generate

of Henkel’s main regions in the company’s automotive

value and Henkel is open to new opportunities.

business. The forecast calls for vehicle production to grow 33 percent from 2016 to 2020 in Mexico. We have already

Q: How is Henkel translating its sustainability goals to its

invested in the past with multiple plants but our goal is to

automotive operations, both in its own manufacturing

keep growing our presence. Only in 2016, we opened a new

process and in its customers’ results?

plant focused on production of sealants for the automotive

A: Sustainability has been in the company’s DNA and that of

industry in Salamanca, Guanajuato. We are also investing

its owners for over 140 years. We try to balance economic

locally in our equipment, expertise and our people. Our

growth with social responsibility and development. One

goal is to provide a strong technical customer service to all

of the programs we have developed to this end is called

companies. We are constantly looking for a way to optimize

‘Sustainability Ambassadors,’ where we train our employees

our resources and to narrow the gaps in our processes. We

to understand the true meaning of sustainability and how Henkel’s products can support its customers’ environmental goals. To this day, we have trained over 25,000 ambassadors

Henkel is a 140-year-old German company with worldwide

in 79 countries.

operations. Henkel has been in Mexico for over 55 years and has a manufacturing presence in the State of Mexico, Nuevo

Within the automotive industry, our most direct

Leon and Guanajuato

participation in sustainable practices is by supporting

lightweight trends and by helping our customers optimize their resources. Carmakers and suppliers are constantly looking for technology that enables vehicles to be ecofriendly and to support stricter automotive regulations. A lighter car can have a lower impact on the environment, so we have developed adhesive technologies that can

Henkel currently has 25,000 ‘Sustainability Ambassadors’ in 79 countries

bond lighter components with the same effectiveness as alternative welding processes, as well as more

In the past, assembling a body with pure welds was state-

efficient coatings for steel and other materials. An

of-the-art in the automotive industry. Now, aluminum

example is BONDERITE M-NT 1800, a coating process

has become a key element in car manufacturing but its

used as an efficient alternative to zinc phosphate in

properties are different to steel. Aluminum expands more

vehicle manufacturing. BONDERITE uses 20 percent

than steel when heat is applied, which means that trying

less water than alternative technologies and the coating

to bond these materials through traditional welding

process requires 30 percent less energy due to its lower

techniques will lead to adhesive stress and potential

temperature. Using this technology can help companies

component failure. Part of the goal for our project with

reduce sludge generation by 90 percent.

Clemson University is to understand how to predict the stress in the component. Our findings will help us

Our varied portfolio grants us considerable advantages

develop proper adhesives with the correct elongation to

over our competitors in terms of sustainability. Henkel

compensate differences between the materials and will

participates in every step of a car’s manufacturing process,

allow OEMs to design components with the right tolerances

from the pretreatment of steel coils to coatings and surface

to avoid internal stress.

treatment of stamped parts, as well as bonding together the body structure and interior trim systems. At each step,

Q: How do Henkel’s solutions compare with other available

our technologies help customers save weight in different

alternatives in terms of cost-effectiveness?

components, leading to total savings of up to 30kg when

A: Cost-effectiveness is based on innovation, value creation,

the vehicle is finished.

risk evaluation and close cooperation with technology users. Companies are looking for better performance and high-

Q: Considering that 62 percent of Henkel’s R&D expenditure

quality solutions at lower costs and so far our investment

is allocated to Adhesive Technologies, what innovations is

in innovation has allowed us to maintain our leadership in

the company planning to bring?

the market. We need to identify technologies that will allow

A: One of our most recent projects in terms of lightweight

us to differentiate our company against our competitors.

materials has been in collaboration with Clemson University

Although we develop technology ourselves based on what

in the US. Together, Henkel and the university are

we know from our customers, we must also look beyond our

researching the effects of thermal expansion in different-

borders and analyze what other players are doing. Startups

material automotive structures. We are analyzing how steel-

often have disruptive technologies that prove to be just

aluminum and steel-composite architectures behave and

what the industry needs. We can support these innovations

the best way to bond these materials without distortion.

and grow together to support the automotive industry.

199

INSIGHT

FROM ELECTRONICS TO ENERGY GENERATION

“

The energy generation sector is one of our priorities for all industry verticals and we hope to participate in these kinds of projects in the near future”

200

Michael Giesenkirchen, Head of Sales Electrical and Instrumentation Systems at FMT Christof Industries México

“One of our clients in the automotive industry is the German company Dürr,” says Giesenkirchen about the equipment and engineering company. “This client knows FMT from its previous projects in Europe and it has already contracted FMT’s specialized services for electrical installations in its paint shop projects in Mexico. Our global reputation precedes us so clients like Dürr are certain we can offer the same added value and quality we have in Europe.” FMT’s approach might be global but it also sees the value in a local presence, which is the main reason behind the establishment of a new subsidiary in Mexico. FMT is relying on the Austrian Embassy to build a local network with potential clients. The company’s global Managing Director, Günter Dörflinger, is in close contact with the Embassy in Mexico to increase awareness of FMT among Austrian and

Electrical components are integral to automotive

German players.

manufacturing but the industry suffers a lack of basic parts at competitive prices. For companies like Austrian’s

The company’s ambitions are not limited to the initial

FMT, an expert in mechanical and electrical infrastructure

opportunity of electrical installations, however. After 35 years

installations, this represents an opening.

in plant construction and modernization processes, FMT has developed the technology and experience to also explore a

“The automotive industry needs certified, high-quality

previously untapped area in the Mexican industry: energy

electrical components and we have many projects in the

generation through waste.

pipeline for these applications,” says Michael Giesenkirchen, Head of Sales, Electrical and Instrumentation Systems at

The segment is an underdeveloped area that companies

FMT Christof Industries México. The company, whose core

have begun exploring in Mexico since the country’s

business includes piping, welding and control cabinets for

market-opening 2013 Energy Reform. Only this year, the

plants’ equipment, participates in Mexican manufacturing by

Mexico City government awarded a permit to construct

offering cost-competitive solutions, including the production

a plant for energy generation to Veolia and its subsidiary

of specialized electrical and electronic components.

Proactiva Medio Ambiente México, the first permit to supply energy to the city’s subway system. “The Energy

The need for basic electrical and electronic parts is a

Reform has allowed companies to produce their own

widespread deficiency in Mexico that executives like

energy and even sell it to others. The energy generation

Alejandro García, Vice President North America Operations

sector is one of our priorities for all industry verticals

of Harman, and Hideki Ono, President and Director General

and we hope to participate in these kinds of projects in

of Pioneer Electronics de México, have identified as a factor

the near future,” says Giesenkirchen. Energy, however, is

that decreases the country’s competitiveness. According to

forward-thinking for FMT. In the meantime, the company

FMT’s Giesenkirchen, the main problem is that producing

is focusing on installation projects mainly for German

these components is too expensive in Mexico. FMT’s

companies. The company has already participated in the

global approach allows it to supply the base parts from

installation of Audi’s paint shop at its new plant in San

Austria and to make the final installation at the client’s

Jose Chiapa and since BMW is bringing a manufacturing

plant in Mexico. For FMT, the supply deficit also denotes

site to San Luis Potosi, FMT got in line to offer its services

a gap in the available workforce specialized in electrical

to the premium automaker.

installations. The company has jumped to fill that opening in the production chain, making its specialized talent one

FMT’s ties with German players will be stepping stones to

of its main advantages when attracting new customers.

other automotive contracts and Giesenkirchen says that

Regardless of the size and complexity of the project,

his next targets are local clients. “As companies grow, they

Giesenkirchen thinks every client can benefit from the

need a partner that can support their infrastructure and

company’s global connections and its team’s expertise.

equipment development.”

INSIGHT

THE POWER BEHIND AUTOMATION ÁNGEL DE LOPE General Manager of Kaeser Compresores de México

Automation and Industry 4.0 practices are intricately

“Our goal is to develop technology with a larger air

related to efficiency and productivity in manufacturing

output and lower energy demands,” says de Lope. All

processes. To achieve this efficiency, choosing which

the company’s innovations are focused on improving

operations to automate is important. But determining

energy efficiency, ensuring minimal pressure drops and

how to power and manage automation equipment is

conversion losses, while implementing the best cooling

equally relevant to achieve the highest levels of energy

systems for each project. De Lope explains that all Kaeser

efficiency and cost optimization. Companies can decide

compressors are powered by Siemens motors, which until

between managing their equipment with a purely electrical

recently followed IE3 efficiency standards. This is the

installation or implementing pneumatic solutions and

European standard for Premium efficiency that, depending

powering machines through compressors. For Ángel de

on the number of poles in the motor and its kW output,

Lope, General Manager of Kaeser Compresores de México,

ranges from 80.7 to 95.8 percent. De Lope says that the

the choice is a no-brainer.

most recent Kaeser equipment now features IE4 motors, a Super Premium efficiency standard that results in 10-15

“Although it is true that transforming electric to pneumatic

percent more efficiency compared to the previous standard,

energy instead of powering everything directly from the grid

according to the Washington State University Extension

can lead to conversion losses, it is more cost-efficient because

Energy Program. Thanks to these and other mechanical

it removes all the added expenses related to the equipment’s

advantages in Kaeser’s rotary-screw compressors, de Lope

installation,” he says. Kaeser Compresores’ goal is to help its

says the company can offer between 10 and 30 percent

clients save as much energy as possible by offering the best

more efficient solutions than its competitors.

compressing solutions in the market, minimizing any negative effects that pneumatics might entail.

However, what makes Kaeser a valuable partner for its clients is its analysis and understanding of how each client’s

Each electric motor needs its own electrical installation,

operations work. “We consider ourselves air doctors. Before

while robots and other automation equipment require

quoting a compressor, we perform a pneumatic audit in the

several electric motors to function. The installation would

client’s facility, an Air Demand Analysis (ADA) to understand

also require a number of different electric motors on

how the process works and we test the existing infrastructure

standby for emergency use. De Lope says managing this

for leaks and energy losses. We present a full diagnosis to the

through purely electrical installations is inefficient due to

company and based on that we offer the best solution for

the number of wires and the complexity of the control

the plant.” A complete diagnosis is particularly important in

rack. Pneumatic installation, on the other hand, only

the automotive industry since, according to de Lope, many

needs one compressor that can power all motors at the

clients have a unified pneumatic installation for their entire

same time through one feeding pipe. If the plant needs a

plant without understanding that different stages in the

back-up system, the client only needs to install one more

production process require different air quality standards.

compressor. “There are many bad practices that we can detect with ADA The main disadvantage of using pneumatic equipment is

and in the end companies might end up not needing to buy

the risk of air leaks, since each leak can represent losses of

new compressors. Just fixing their existing infrastructure

millions of dollars. De Lope says each unit of horsepower

can result in energy savings and cost optimization,” de Lope

lost in the system represents US$600 in energy costs per

says. “Electric engines and air compressors can represent

year. “Fortunately, new aluminum pipelines coupled with

up to 40 percent of a plant’s total energy consumption.

effective leak-detection systems ensure an almost 100

Whatever we can offer in terms of energy efficiency goes

percent leak-free operation,” he says.

a long way for our clients.”

201

INSIGHT

SOLVENTS AN ATTRACTIVE OPTION WHEN DONE RIGHT EUGENIO FLORESGÓMEZ Director of Sales and Branches at Pochteca

Paint processes consume more energy and water than many

“Every time you reuse something, you have implicit

others along a manufacturing line. Although waterborne

savings just by eliminating waste,” he says. Floresgómez

solutions have been widely implemented as a way to reduce

adds that there are already companies in the market that

a company’s environmental footprint, effective and easy-

offer waste-recovery services but they are third parties,

drying solvents can still be an attractive option under the

completely independent from product and raw material

right conditions.

suppliers. That gives Pochteca an added advantage by offering an integrated solution. Solvent recovery was

“The paint industry is looking to eliminate volatile organic

the first step for Pochteca because now, according to

component emissions,” says Eugenio Floresgómez, Director

Floresgómez, the company wants to grow its business in

of Sales and Branches at Pochteca, a raw material supplier

the waste-management segment. “We are actively looking

with more than 28 years in the market. “However, if the

for new clients in this segment,” he says. “We are focusing

painting process is done in a closed area, it is more efficient

on solvents but our goal is to also recover battery, metal,

to use solvent-based products than water-based.”

plastic and paper waste.” Floresgómez explains that most

“

Every time you reuse something, you have implicit savings just by eliminating waste”

hazardous materials are recovered and then confined but Pochteca’s goal is to reuse as much of this waste as possible to optimize production costs. Pochteca has made solvent recovery one of its main priorities. The company has already invested in five recovery plants in Leon and it has created business relationships with companies like Mazda and GM to support their paint processes. Floresgómez says the company remains open to

Solvent-borne applications do not require as much

new potential clients. “We would like to work with Nissan

temperature control as waterborne paint and their volatile

and other automakers but it is difficult to integrate our

nature allows for easier drying. Executives such as Frank

technology when companies have not built their plants with

Hezel, Business Vice President Coatings of BASF Mexicana,

a recovery system in mind,” he says. “Nissan CIVAC, for

agree that depending on conditions, solvents might be

example, would require complicated renovations due to

more environmentally friendly when considering the entire

the age of the plant.”

paint process. To maximize its business potential, the company is focusing According to Floresgómez, many companies started

on growing within its existing client base and taking

migrating to water-based paint as a way to solve the

advantage of new plants being built in Mexico. “Our clients

problem of volatile organic compounds. Instead, Pochteca

are realizing that the benefits are not in the solvent per se

found a way to maintain the advantages of solvent-borne

but in how efficient and environmentally friendly they can

processes while still offering an environmentally friendly

make their processes,” says Floresgómez. He is confident

solution. “We developed our ‘Closed Loop’ solvent recovery

about the technology Pochteca can offer to the industry

systems as a way to reuse waste in the production of new

and the company has detected strong growth potential

solvent,” says Floresgómez. Pochteca’s solution allows

in Puebla, Aguascalientes, San Luis Potosi, Guanajuato,

companies to minimize waste in their paint shops, while

Sonora, Queretaro and Guadalajara. His only concern is

it helps the company rationalize the use of raw materials

the industry’s capacity to embrace these solutions. “Our

while reducing costs and increasing efficiency in paint and

offering, though competitive, is still new to the Mexican

solvent manufacturing.

market,” he says. “Change takes time.”

203

INSIGHT

INDUCTION: THE ANSWER TO HEAT TREATMENTS MARIO GALINDO Operations Director Mexico of Contour Hardening

No company is an island. There will always be areas

204

induction processes, however, like those used by Contour

where partners are needed to fill gaps in expertise. The

Hardening, offers tolerances of up to 12µm of distortion. As a

more complicated the process, the greater the need for

result, the client sees considerable savings in post-machining

help to maintain quality, says Mario Galindo, Operations

and rectifying processes. A heat-treatment process varies

Director Mexico of Contour Hardening, a specialist in

in duration for each component but in general, when using

heat-treatment processes for metals. Companies cannot

a conventional furnace it lasts one hour for every inch of

be experts in everything and metallurgy is a complicated

thickness. An induction process uses electricity to heat the

science. "We are on hand to help them maintain a certain

material through electromagnetic induction and requires less

level of quality,” he says.

than a second to get the part to the desired temperature.

Contour Hardening is an equipment provider and

The only inconvenience Galindo sees in induction technology

outsourcing company for heat treatments. In Mexico, its

is energy costs. “Induction heat treatment is the most

plant is located in Silao, in the state of Guanajuato. Although

innovative and sustainable alternative in the market,” he says.

some clients prefer to own their own machines, Galindo

“But energy is expensive in Mexico compared to in the US,

has big expectations for the company’s outsourcing

for example.” According to the Ministry of Energy and the

operations. “We see the biggest room for development

Energy Information Administration (EIA), energy prices in

in our outsourcing services. Due to volume variability in

Mexico were approximately 65 percent higher compared to

parts production, not all companies want to invest in a

tariffs in the US before 2013. This could change as the Energy

machine.” As experts in heat-treatment solutions, it was

Reform revamps the market and prices.

natural for the company to start offering this service rather than just selling the machines, Galindo adds. The global metal heat-treatment market has the potential to reach 6.2 percent

Potential growth Contour Hardening expects for 2017

The company has projected growth of approximately 5 percent by the end of 2016 and for 2017. Contour Hardening works with OEMs and suppliers within the automotive sector but sees opportunities

compound annual growth between 2016

in the aerospace industry too. Galindo

and 2020, according to Research and

hopes the company will eventually grow

Markets, putting Contour Hardening in an advantageous

10 percent across all its divisions, which would be well over

position. Galindo says that the induction technology

the sector’s 6.2 percent, although the 5 percent figure is

employed by the company is one of the most innovative

more realistic in the short term.

solutions in the industry. “Induction heat treatments have proven effective in eliminating distortion problems,” he says.

Contour Hardening has been in Mexico for nine years and 95

“It also ensures our quality and process replicability.”

percent of its exports go to the US. Galindo acknowledges the current economic situation between the two countries

A traditional heat-treatment procedure requires components

is difficult. “After experiencing the crisis of 2009, which

to go through a carburizing process. After hours of heating,

Contour Hardening survived, we expect a similar or even

the metal’s microstructure is hardened. The part usually has

more complicated situation for the industry in 2017.”

to go through an additional tempering process to reduce

Nevertheless, he does not perceive a true risk for Mexico’s

its fragility. One alternative is to treat the component using

commercial partnership with the US. Galindo expects

nitriding or carbonitriding. The time spent on this heat

Mexico’s plans to diversify into other countries will prove

treatment is lowered but distortion is unavoidable while

to be a sound strategy and encourages the decision to start

furnace variables remain the same. The equipment used in

looking toward new markets.

INSIGHT

FURNACE TECH KEEPS ENERGY INSIDE, REDUCES CONSUMPTION ARTURO DÁVALOS Director General of StrikoWestofen de México

Aluminum component manufacturers begin with first step,

Dávalos, “the Green Foundry concept has been attractive

casting parts that will be later machined to the perfect

for companies looking for a quick return on investment.”

geometry and tolerances. But companies need industrial furnaces to melt aluminum and other metals, which is one

StrikoWestofen holds over 50 percent of the industrial

of the main sources of natural gas consumption in the

furnace market in Mexico and the automotive industry

industrial sector. The Ministry of Energy reported the Mexican

represents more than 80 percent of its operations. The

automotive manufacturing sector alone was responsible for

company already has a strong global presence and Dávalos

using 1.6TWh of energy from natural gas in 2015.

says the next step is establishing offices in Mexico. “The country is now the sixth-largest aluminum market, so there

“The furnace is the core of any melting process for which

is potential to expand our business,” he says. “We have

StrikoWestofen can guarantee a considerable reduction in

European, Asian and American clients that are already in

energy consumption,” says Arturo Dávalos, Director General

the country or have plans to open a manufacturing facility,

of StrikoWestofen de México. Working with his company’s

which means that our regional support is mandatory.”

equipment can reduce natural gas consumption by 30 percent, which is 10 percent more than competitors can

The company found its home in Queretaro and has big

offer. “Our furnaces are designed to keep as much energy

expectations for its development in Mexico. Although

as possible inside, minimizing heat breaches,” says Dávalos.

it already had a commercial presence, everything was managed from the US and Germany. Dávalos says that

Not all manufacturing operations are the same so

clients had to resolve their problems by telephone or wait

StrikoWestofen customizes its services to each client’s

for a technician to come from the US, Germany or another

operations. Dávalos explains that the company has an

international branch. “Many companies did not know how

innovation department that is constantly working on

to reach us but now, doors are opening for StrikoWestofen.”

improving the equipment’s geometry and its internal

With its new offices, the company is now projecting 30

capabilities. For every new project, StrikoWestofen

percent growth in sales in 2017, compared to the numbers

performs an analysis to determine needs and specifications

obtained in 2016. The priority for the company at the

within the client’s plant. “We approach the engineering,

moment is to strengthen the relationship with its existing

production and maintenance departments to have a clear

client base, while looking for new clients. The company

perspective on how the client’s operations work,” he adds.

already works with OEMs like GM, Volkswagen and Nissan, as well as large Tier 1 suppliers such as Martinrea, Grupo

The sophistication of StrikoWestofen’s equipment not only

Bocar, Nemak and American Axle.

results in savings related to energy consumption but also in reducing metal losses during melting. The company sets

As part of a larger holding named Light Metal Casting

standards of achieving 98 percent or better metal yield but

Solution, the company can offer a wide portfolio of melting,

Dávalos says the goal is to reach 99.9 percent efficiency.

casting and metal injection processes. One service missing

For the last 12 months, aluminum prices have increased by

from its portfolio was heat treatment solutions but after the

approximately US$400/t, reaching US$1,865.75. “The price

acquisition of BPR-Engineering, StrikoWestofen completed

of aluminum varies every day, which means that the less

its offering. With a complete portfolio, the company feels

material you lose, the more cost-efficient your operation

confident about attacking the Mexican market and Dávalos’

will be.” Energy and material savings are part of the Green

next goal is to bring equipment construction activities to

Foundry concept driving StrikoWestofen’s global operations.

Mexico. “The country has the necessary infrastructure to

The automotive industry is underpinned by strict goals in

manufacture its own furnaces. This is the next logical step

terms of efficiency and productivity and according to

for the company.”

205

VEHICLE SPOTLIGHT

565 hp Power output in the new GT-R 2017

206

NISSAN GT-R 2017 “Godzilla” has arrived in Mexico and is ready to win the hearts of adrenaline, speed and high-performance enthusiasts. Built at Nissan’s plant in Yokohama, Japan, the new GT-R will compete in the supercar segment. Clients across the country can now order the GT-R 2017 at any of Nissan’s 230 dealerships, selecting from three available body colors: orange or “Blaze Metallic,” pearl white and metallic grey, which can be matched with black or orange interiors. Nissan will also market a unique Premium version that comes with MX$2.6 million (US$147,350) price tag. “Nissan GT-R is the model that materializes our brand’s promise to offer innovation and excitement to all our clients in Mexico and around the world,” says Mayra González, President and Managing Director of Nissan in Mexico. “GT-R represents the explosive and adrenaline-filled face of Nissan that we want clients to fall in love with, get excited about and identify with.” The new GT-R is powered by a V6, 24-valve, 3.8-liter twinturbo engine capable of delivering 565hp at 6,800 rpm and 633Nm of torque. All GT-R engines have an artisanal touch, carefully crafted and assembled by a “Takumi,” or master engineer. The engine's cylinders feature a unique plasma coating on the inside walls, with an independent intake system for each bank, helping reduce friction and weight, improving their cooling capabilities, power output and the system’s overall fuel efficiency. The engine is coupled to a double-clutch, six-speed transmission, allowing the vehicle to reach the same gear-shifting speed as a Formula 1 car – approximately 0.15s – without compromising torque or acceleration in low and highspeed conditions. Both the transmission and the vehicle’s suspension can be adjusted to maximize the driving experience according to three levels: R-Mode for sport performance, Normal-Mode for everyday use and Comfort-Mode for long journeys and slippery conditions. The car’s performance extends to the body, which was designed to boost aerodynamics. The rigid hood reduces deformation and both the front spoiler and the door moldings improve air flow to increase stability. Although the GT-R was built with a rear-wheel drive configuration, its Integral Drive System ATTESA E-TS can transfer power to the front wheels up to a 50:50 ratio depending on speed, lateral acceleration, turning angle and tire slip.

207

Shared electric scooters, Mexico City

MOBILITY & URBAN TRANSPORTATION

The 2 million sales target for light vehicles that Mexico has set for itself is excellent news for OEMs and manufacturers. However, Mexico City and the country in general cannot support an exponentially growing vehicle park. Infrastructure is not growing fast enough to cover the domestic market’s needs. Public transportation and mobility integration are key to transforming the country’s mobility but these concepts also need to evolve toward an international standard, bringing together public transportation, nonmotorized mobility alternatives and new sharingeconomy technology platforms.

The Mobility & Urban Transportation chapter addresses Mexico’s challenges in terms of infrastructure and public transportation, coupled with the new solutions the market is embracing to achieve true mobility integration. Both motorized and nonmotorized examples are addressed, focusing on their benefits and their collaboration with traditional urban transportation. New emissions regulations are also analyzed together with the rising demand for electric and hybrid vehicle options.

209

CHAPTER 9: MOBILITY & URBAN TRANSPORTATION 212

ANALYSIS: Integrated Mobility, the New Frontier

214

VIEW FROM THE TOP: Laura Ballesteros, SEMOVI

216

VIEW FROM THE TOP: Fernando Páez, WRI México

218

INSIGHT: Jaime Jaime, CANAPAT

219

INSIGHT: Abel López, World Bank Group

220

INSIGHT: Elías Dana, Transportes LIPU

221

INSIGHT: José Luis Moreno, Greyhound Lines Mexico

222

TECHNOLOGY SPOTLIGHT: Bosch, We Connect the Mobility Industry With the Digital World

224

ANALYSIS: Apps and Carmakers: Stronger Together

225

INSIGHT: Ricardo Weder, Cabify

226

INSIGHT: Jaime Aparicio, Easy

227

INSIGHT: Alejandro Morales, Econduce

228

INSIGHT: Rodrigo Bejarano, SmartBike México

229

INSIGHT: Fernanda Rivera, SEDEMA

230

INSIGHT: José Monterroza, Wheels

231

INSIGHT: Alberto Padilla, BlaBlaCar Mexico

232

ROUNDTABLE: How Much Potential Do Motorcycles Have to Become a True Mobility Alternative?

234

INSIGHT: Arturo Zapata, Corporación Zapata

235

VIEW FROM THE TOP: Raymundo Cavazos, Harley-Davidson Latin America

236

INSIGHT: Sergio Mirensky, Bajaj Motocicletas

237

INSIGHT: Alberto Tanus, Italika

238

VEHICLE SPOTLIGHT: Harley-Davidson Street Rod®

211

ANALYSIS

INTEGRATED MOBILITY, THE NEW FRONTIER Mobility in Mexico City has transformed from a scheme where the car is king to a new model that favors pedestrians above all else. There are still areas of opportunity to improve the city's mobility but investment from the government is helping to speed the process With almost 9 million inhabitants, Mexico City is one of

however, new initiatives were implemented to boost the

the most densely populated cities in the world. According

city’s mobility.

to INEGI, more than 5.2 million vehicles including cars, trucks, buses and motorcycles were circulating on Mexico

The RTP bus system was inaugurated in 2000 with the

City’s roads as of 2015. Of those, 4.9 million were cars.

goal of offering an accessible and affordable mobility

This means that roughly, there is one car for every two

solution. Later, in 2016, the RTP network was consolidated

people in the city. No wonder, as the saying goes, every

as Mexico City’s Mobility System 1. BRT lines also made

hour is rush hour.

an appearance in 2005 with the inauguration of Line 1 of

212

Metrobús. The city’s subway had seen its last expansion Saturated traffic has become the regular state of the city

in 2000 before the inauguration of Line 12 in 2012. All

and it is almost no surprise that the maximum average

these projects marked the beginning of a shift in the city’s

speed in the city is 17 km/h or that the average commute

priorities toward an integrated mobility plan.

time can be between two and three hours depending on the destination. However, as light-vehicle sales continue

According to the new Mobility Law published in 2014,

rising, mobility has become a concern for both the

the government’s priorities toward mobility must

government and the population.

follow 10 principles: security, accessibility, efficiency, equality, quality, resilience, multimodality, sustainability,

In an interview with Mexico Automotive Review 2016,

social responsibility and technological innovation.

Laura Ballesteros, Deputy Minister of Planning at SEMOVI,

All these refer to a wider mobility plan that strives to

outlined the history of the problem: the car was for

solve the population’s mobility needs, offering diverse

years the king of the mobility scheme in Mexico and

transportation options that can make commutes more

most infrastructure investments were oriented to make

efficient while connecting as much of the city as possible.

trips easier for commuters with a private vehicle. Public transport infrastructure had been neglected and people

Following the opening of the Metrobús Line 1, five more

without a car relied mainly on the microbus network

routes were inaugurated, making a total of six BRT lines by

to move around the city. With the turn of the century,

2016 that now complement the Metro’s 12 routes. In 2015, Mexico City’s government approved the construction of Line 7 across Reforma Avenue and the project is almost

MOBILITY PYRAMID

completed. Following the goals established in the new

Pedestrians (Particularly handicapped people and individuals with limited mobility functions) Cyclists Public Transport Users Cargo and Distribution Transport Users Cargo and Distribution Transport Operators

Mobility Law, the government is also working to make transport options as sustainable as possible. The RTP fleet already includes hybrid and natural-gas powered units and Ballesteros told Mexico Automotive Review 2017 that one of the government’s priorities is to build the necessary infrastructure for electric buses to operate. According to Ballesteros, the projected 22km Green Corridor in Eje 8 Sur will be the first step in the country’s new electric public transportation system. When completed it will also be the first of its kind in Latin America, according to the Mexico City government.

Private Vehicle Users

Miguel Mancera, Governor of Mexico City, also issued a statement in 2016 saying that a norm would be

Sources: SEMOVI

published that bans microbuses from the city. “No more

Only 21 states have planning instruments focused on mobility

• Only 40 percent of Mexico City’s population own a car • Low-income families destine 18 percent of their resources to transport

17km/h Average speed in Mexico City

MEXICO'S MOBILITY EVOLUTION Year 1999

Event The first 13 stations of Line B of the Mexico City metro are inaugurated

2000

The RTP bus system is inaugurated

2000

Eight more stations are added to Line B of the Mexico City metro

2005

BRTs arrive to Mexico City with Metrobús

2008

Line 2 of Metrobús is inaugurated

2010

ECOBICI starts operating in Mexico City

2011

Line 3 of Metrobús is inaugurated

2012

Line 4 of Metrobús is inaugurated

2012

The Mexico City metro inaugurates Line 12

2013

Line 5 of Metrobús is inaugurated

2014

Mexico City publishes its new Mobility Law

2015

The Mexico City government approves the construction of Line 7 of Metrobús

2016

Line 6 of Metrobús is inaugurated

2016

The RTP network becomes Mexico City’s Mobility System 1

Source: WRI

concessions will be granted for this type of vehicle,” he said, forecasting a gradual exit for all microbuses in the city if the norm is officially published.

Sources: Metro, Metrobús, SEMOVI

Along with the investments in public transport, the city started recognizing alternative, non-motorized mobility options. Fernanda Rivera, Director of Cycling

“The global trend is to offer mobility as a service,” says

Culture, Design and Infrastructure for the Ministry of the

Ballesteros. “The average person does not own a car in

Environment at Mexico City (SEDEMA), says the ECOBICI

Mexico City. These people represent 60 percent of the

system started operating in 2010 with 84 bike stations

population and yet they travel four times a day using a

and 1,114 bikes. The system was operated by SmartBike

different mobility system.” According to the new goals of

based on what its parent company Clear Channel

Mexico City’s integrated mobility plan, the car is no longer

had implemented in Barcelona, according to Rodrigo

king of the road. The hierarchy has changed, putting

Bejarano, Director of SmartBike Mexico.

pedestrians at the top (particularly people with disabilities and individuals with limited mobility functions) followed by

“Public transportation is efficient in this city, including

cyclists, public transport users, public transport operators

the metro and the metrobus, but it is static, linear. Routes

and cargo and distribution transport operators. Private

go from point A to point B without deviating from their

vehicle users are at the bottom.

specified path,” says Bejarano. ECOBICI and other lastmile alternatives offered the flexibility and connectivity

The city is moving in the right direction to reach an

people needed to move from public transportation

integrated mobility system but there is still work to be

stations to their final destination.

done, particularly in terms of planning and education. Mobility ministries are still fragmented across the country,

The government is also no longer the only participant in

preventing the creation of a national mobility plan.

developing the city’s mobility structure. The evolution of

Meanwhile, years of favoring the use of private vehicles

digital platforms and the rise of alternative technologies

has marginalized pedestrians, cyclists and bikers, and for

has led to the entrance of global players that are providing

an integrated mobility system to work, all participants

new alternatives. Platforms like Uber and Cabify have

must follow the rules established by the Mobility Law.

been so successful that Roberto Fernández, Director General of Uber in Mexico City, told Forbes México that

“The street belongs to all of us, no matter what we

Mexico City is already the second-most important city

drive or how we move on it,” says Raymundo Cavazos,

for the company globally.

Managing Director of Harley-Davidson Latin America.

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VIEW FROM THE TOP

MOBILITY BASED ON SAFETY AND STRONG REGULATION LAURA BALLESTEROS Deputy Minister of Planning at SEMOVI

214

Q: Considering Mexico City’s environmental issues, what

We are also lobbying to offer benefits to hybrid and

are the government’s plans to implement permanent

electric-vehicle owners, which should go hand in hand with

driving restrictions?

the development of car sales and charging infrastructure.

A: In 2014, Mexico City underwent many changes regarding

The government of Mexico City has an agreement with toll-

mobility after the implementation of the new Mobility

road operators to offer discounts to green vehicles and one

Law and the many programs related to road safety. The

of its commitments is the construction of infrastructure for

government’s goal was to make private vehicles only

electric buses. The 22km Green Corridor on Eje 8 Sur will

one of many options for transportation, fostering the

be the first of its kind in Latin America.

implementation of carpooling when possible. To do that, we needed to invest in sustainable mobility with safe,

Q: How close is the government to achieving its goal of

connected and quality public transportation. This included

reducing road fatalities by 35 percent in 2018?

more space for mobility options like Metrobús and Ecobici,

A: Road safety is the main goal. Almost 60 percent of the

enough space to promote the use of private bicycles and

people who die in a traffic accident are pedestrians and

sustainable buses to replace the current microbus fleet.

cyclists, while the other 40 percent are people driving a vehicle. All mobility options must offer the same safety

To date, almost 45 percent of the transit in Mexico City is

conditions, even when some are more vulnerable than

generated downtown, making driving almost impossible,

others, which is the main reason why the city streets

particularly at rush hour. We tried to balance the use

have evolved.

of private and public transportation in Mexico City by publishing new parking standards in July 2017. One of these

We have adopted Vision Zero as our road safety policy.

eliminated the obligation for parking space delimitation

Implemented in 2015, this is part of a global strategy that

in new developments in an effort to better organize the

works to eliminate road fatalities in urban areas. Most road

city’s parking layout. Many international studies show

accidents can be avoided and because of that, the city

that bad planning of parking lots and an excess of them

has implemented stricter speed reduction regulations.

can lead to additional traffic. A reduction in parking lot

According to the World Health Organization, this strategy

infrastructure could help us invest in sustainable public

helped us reduce road fatalities by 20 percent from 2015 to

transportation like Metro and Metrobús. These standards

2017. This perfectly matches Mexico City’s plan to reduce

are the most important the city has published in recent

road fatalities by 35 percent by 2018. SEMOVI is also

years and together with Guadalajara we are leading this

working to implement driving tests, the construction of

transformation in Latin America.

safe pedestrian routes and training for transport operators so they can help when an accident occurs.

Q: How important are electric and hybrid vehicles in the city’s mobility plan and what are the government’s growth

Q: How effective have speed limits, photo fines and

strategies for charging infrastructure?

other new regulations been in reducing road accidents

A: Even with modern vehicles, we cannot curtail pollution

in Mexico City?

without proper emissions management. Hybrid and

A: There is a new mobility hierarchy, where the pedestrian

electric cars are necessary to improve air quality. The city

is king, followed by cyclists, public transportation users

is preparing an electromobility plan to promote the use

and private drivers. This is not about some people

of these vehicles in the short and long term and taxis are

having more rights than others. It simply relates to the

the first focus. Old taxis are gradually being renovated

vulnerability of each user. A vehicle moving at 50km/h

and regulations are making it easier for drivers to choose

is a lethal weapon and speed is a decisive factor in a

hybrid models.

traffic accident.

The new regulations established by the Mexico City government say that the maximum speed on a main road is 50km/h and 40km/h on a secondary road. In calm zones, the limit is 30km/h and in school and hospital areas the maximum speed is 20km/h. Previously, the streets prioritized cars and that is why we had so many road fatalities: almost 1,000 people a year or three per day. The

Almost 45 percent of the transit in Mexico City originates downtown

new safe crossings and pedestrian signs are a fundamental part of the new speed reduction strategy, reducing fatalities by 50 percent. The implementation of driving-license exams for private drivers and public transport operators alike will be part of that same strategy. Q: How has the federal budget transformed in favor of

35%

1.2

Reduction of road fatalities expected by 2018 in Mexico City

Average vehicle occupation in Mexico City

projects that target pedestrians and cyclists? A: It is changing and evolving. This 73 percent represents a decade of pro-vehicle initiatives that are slowly

The Green Corridor in Eje 8 Sur will be the first of its kind in Latin America

disappearing. We currently have 5.5 million vehicles in Mexico City alone and 80 percent of its roads are dedicated to vehicle use. The problem we need to solve is how to successfully partition all the available mobility systems. The city’s government has worked on a strategy for two years and our goal is to designate 70 percent of our budget to public transportation projects but to be successful we need the support of the federal government. Q: Now that OEMs are transforming their business models from car sellers to mobility providers, what do you see as

July 2017 Publication of Mexico City’s new parking standards

the main opportunity to transform Mexico City’s mobility? A: The global trend is to offer mobility as a service. This is an offshoot of the fourth industrial revolution. The industry is in constant change and now alliances are being formed between technology companies and OEMs. Mobility has two elements, one related to hyper-specialized services and the other to interconnected services, both of which are controlled through a digital platform that

Mexico City has the goal of introducing hybrid and electric vehicles to the taxi fleet

allows companies to manage data. Following that concept, companies can participate in innovation of mobility services in five different ways: road management, parking

Carpooling represents a big area of opportunity. Right

space management, data management, mobility platforms

now, cars are only shared among family, friends or through

and management of public spaces. An innovation in any of

the use of an application and that results in an average

these five sectors is valuable for the city when considering

occupation of 1.2 people per vehicle in Mexico City. If we

sustainability, emissions reduction and the efficient use

complement that with a strong connectivity between

of vehicles.

private vehicles and the public transportation network, there is a big opportunity not only for the industry but

Q: How can the city cope with the growing vehicle park,

also for the city in the battle for a better quality of life and

especially considering the continuous growth in domestic

a better environment.

car sales? A: The industry needs to understand the city’s behavior and how citizens move around the city. The average person

The Ministry of Mobility of Mexico City (SEMOVI) is in charge of

does not own a car in Mexico City. These people represent

all regulations related to public and private transportation within

60 percent of the population and yet they travel four times

Mexico City. Its goal is to consolidate the city’s regulations with

a day using a different mobility system.

the safety of all users and the preservation of the environment

215

VIEW FROM THE TOP

SMART MOBILITY FOR BETTER CITIES FERNANDO PÁEZ Operations Director of WRI México

216

Q: How have BRT systems evolved in Mexico compared with

To solve this, the number of buses needs to be increased, as

other countries in Latin America?

well as the frequency of the service, while taking the station

A: The BRT concept started in Curitiba, Brazil more than 40

and road infrastructure capacity into account. The Metrobús

years ago. The project that followed was the Quito trolleybus

system has distinguished itself as an excellent solution to

in 1994 and the Transmilenio system in Bogota in 2000,

shorten travel times and reduce traffic accidents on roads

which prompted the implementation of this technology in

where it has been implemented. Yet, there is still room for

many other countries. The idea behind the BRT was to offer

improvement. The challenge is finding sources of financing

a service similar to a subway but with buses. BRT networks

to support Metrobús’ growth, considering that its financial

only require an exclusive lane on already laid roads, which

security cannot be dependent on the fares it charges users.

means considerably less infrastructure than a subway project, as well as lower investments and shorter construction times.

In general, public transportation in Mexico City can be

Stations are placed at specific points along the bus routes

improved by focusing on the different services offered and

and the system is optimized with the use of electronic pay

making multimodality and connectivity a priority. The city

systems and high capacity vehicles.

must offer multiple transportation options for people to arrive at their destination. At the same time, the government must

The BRT concept has become an easily implemented urban

make sure the infrastructure, payment methods and service

public transportation solution. A new 20km system can be

schedule is in place to facilitate this integration.

constructed and put into operation in approximately two years. Mexico currently has BRT lines in Mexico City, Leon,

Q: How can transport be improved without reliance on

Guadalajara, Acapulco, Chihuahua, Ciudad Juarez, Puebla,

political planning?

Pachuca and the State of Mexico. In Latin America, BRT

A: There are three essential elements that can improve

systems operate in Brazil, Ecuador, Chile, Argentina, Peru and

transportation other than public policy approaches. The

Guatemala, among other countries.

first is to consider the user as an essential factor in mobility solutions. The second is to create budgets that can ensure

Q: What new challenges must Metrobús face to fulfill the

regulations are enforced and to make planning instruments

need for better transportation?

become realities. The third is to engage institutions that have

A: Although they have spurred change and have had a positive

the technical capacity to manage imminent change.

impact at an urban level, many BRT systems face challenges that are mostly related to financial and operational elements.

Q: How can users become true participants in the

In the case of Metrobús, Mexico City’s BRT system, the

development of mobility solutions?

biggest challenge is to better manage the high demand the

A: User participation in improving transportation should

system currently faces. One of the biggest complaints that

be rooted in public appropriation of transportation culture.

passengers have, especially during rush hour, is the severe

People must know their rights and meet their obligations as

crowding of buses and stations. In addition to the difficulty of

mobility users through training and communication. Another

getting on and off the buses coupled with an uncomfortable

aspect that can encourage user participation is the availability

trip, there have been cases of pickpocketing and other crimes.

of information on transportation indicators that allow more public involvement when proposing new solutions.

The World Resources Institute (WRI) is a global research

Q: How does public transport in Mexico City compare with

organization that spans more than 50 countries. WRI has six

other cities in the world?

work programs focused on cities, climate, energy, forests,

A: Each city has its own way of operating public transportation,

food and water

depending on how this essential public service has been

structured historically. Today, Mexico City has a varied public transportation offering including 12 metro lines, one tram line, one suburban train line, eight trolleybus lines, six MetrobĂşs lines, seven routes on the M1 passenger transportation network, 105 other transportation routes controlled by microbus operators and the public bicycle system, ECOBICI. Comparing this offering with other cities, it is clear that such services are offered by cities like London and New York. The big difference is the way they are planned, managed and controlled, considering that in more developed regions management of the urban transport system is integrated. Madrid and Seoul are also excellent examples of how transport systems can function in an integrated mobility scheme. These cities have the infrastructure, technology and institutions necessary for integration. They have also oriented investments to ensure passengers have a pleasant travel experience, fostering the use of public transportation while discouraging private vehicle use. Q: How do you see public transportation changing in Mexico and what new projects are in development in the country? A: The most important change happening in Mexico is the paradigm shift toward an integrated mobility system. The government is working to ensure the populationâ&#x20AC;&#x2122;s right to transportation and, in the mobility hierarchy, to give priority to pedestrians, followed by cyclists and users of public transport, while leaving cargo transport and private vehicles at the bottom of the pyramid. This change is reflected in the publication of new mobility laws in different states of the country and in the development of integrated mobility plans that reaffirm this new paradigm shift. In terms of projects, Mexico has worked to transform its public transportation system for the past 15 years. The Mass Transit Federal Assistance Program (PROTRAM) has launched several urban transport projects in the seven years since it began operations and currently, nine of these initiatives have come to fruition and are already in operation in Mexico City. Other states are also planning and implementing new projects. WRI Mexico (formerly CTS EMBARQ Mexico) has been a dynamic force in the process of transforming public transportation in the country. Regarding the inclusion of nonmotorized transport, it is worth mentioning that new public bicycle systems have been put in operation in Mexico City, Guadalajara, Puebla and Pachuca, and at the moment there are seven more systems in development or under construction. There are also projects for pedestrianization and recovery of public spaces in 12 states of Mexico. An important step has also been taken to integrate new kinds of mobility services, as is the case of shared platforms such as Uber and Cabify, which give users another option so they can make the best decision on how to get to where they need to be.

217

INSIGHT

CHALLENGING TIMES FOR PASSENGER TRANSPORT INDUSTRY JAIME JAIME President of the National Chamber of Passenger and Tourist Transportation (CANAPAT)

218

All companies must face a cost-efficiency battle on a daily

increase in vehicle costs inherent to these technologies,” he

basis. But when external factors come into play, this quest

says. Jaime explains that an analysis of cost-effectiveness

becomes a question of survival. At the end of 2016, Mexico

is necessary since CANAPAT members cannot raise tariffs

said goodbye to the gasoline subsidies that had reigned since

easily. “Our demand is highly sensitive to price,” he says. “If

the creation of PEMEX. After being the last member of the

we increase tariffs too much, our 500-600km routes might

OECD without liberalized gasoline prices, Mexico took a step

start competing with low-cost airlines.”

forward. But progress came at a cost: a 20 percent increase to be exact. According to Jaime Jaime, President of the

Competition is a foe that passenger and tourist transportation

National Chamber of Passenger and Tourist Transportation

companies must face. Low-cost airlines are bus lines’ biggest

(CANAPAT), fuel is the main input for interurban transport

competition but Jaime says planes still face limitations,

companies, representing up to 30 percent of their operating

specifically distance and accessibility. “The government is

costs, depending on available routes and bus models.

promoting national tourism to beaches and historic towns, most of which can only be reached by bus.” Other initiatives

After the price increase on fuel, labeled the gasolinazo,

like the interurban train between Mexico City and Toluca will

companies suffered a 6 percent increase to their operating

bring new competition to the market but Jaime is not fazed by

costs, which was further aggravated by volatility in the peso-

these. “Train services are very good worldwide but we know

dollar exchange rate. Spare parts are commonly priced in

most systems are subsidized by city or state governments,”

dollars, resulting in added costs for all repair and maintenance

he says. “The most cost-effective alternative to improve

operations. “Renovation strategies are also affected by dollar

interurban mobility is to develop the bus network.”

prices, even though the final payment might be in pesos,” says Jaime. “The negotiation is based on a certain number

The informal side of the business is another kettle of fish. SCT

of dollars, which impacts a company's future investments.”

has granted 100,000 number plates for passenger and tourist transportation and of this number, approximately 50 percent

Companies have their own renovation strategies but they can

operate irregularly. Jaime explains there is a new threat he

also take advantage of the scrappage scheme implemented

calls simulated tourism, where companies with formal tourism

by the government to reduce costs, according to Jaime. But

number plates sell individual tickets and pretend people are

CANAPAT found a weak point in the program: the limited

traveling in a group. “These companies are not regulated and

number of units that can be scrapped. According to the

their drivers are not certified to offer these services, creating

Ministry of Transportation and Communications (SCT), a

unfair competition,” he says.

maximum of 6,000 vehicles over 10 years of age can be renovated every year. This number includes both bus and

CANAPAT has gone to great lengths to train and certify

truck units and 50 percent of the renovations are destined

companies and operators, legalizing their businesses. The

for owner operators. “As a result, applications ran out in

chamber signed an agreement with the National Council for

September for large fleets,” explains Jaime.

Normalization and Certification of Labor Skills (CONOCER) to certify drivers. It offers middle-management training to

With renovation comes new technology adoption. Jaime

members and a Master’s degree in collaboration with UNAM,

says that both the Chamber and its members are in favor

which has already seen its second generation of graduates.

of stricter fuel and emissions regulations. But they ask the

This program is directed at well-positioned executives to

government for certainty regarding quality diesel availability

help them professionalize their business. Jaime explains he

throughout the country. “We want to implement new engine

is looking to expand CANAPAT’s degree offering but the

and emission control technologies but we need the support of

specialized profile of educators limits the number of people

the government, including incentives to cover the 30 percent

that can be accepted into the program.

INSIGHT

THE END OF THE MICROBUS? ABEL LÓPEZ Urban Transport Specialist at World Bank Group

The days when microbuses reigned over Mexico City will be

disputes between municipalities and the city’s government

long gone. Miguel Ángel Mancera, the city’s former mayor,

regarding the reach of their responsibilities.

announced measures to advance the renewal of microbuses with cleaner buses as a means to reduce pollution. Abel López,

According to López, for people to move to public transport

Urban Transport Specialist at World Bank Group, thinks this is

there needs to be a change in the total travel cost. “Travel cost

a necessary policy but not sufficient to reduce pollution. “We

includes several variables. The access cost is the time it takes

tend to think that microbuses pollute more than new cars but

to get to a bus stop and the conditions of streets people must

there is little difference. Every additional car in use occupies

use to get to that point. The cost of the bus fare and the cost

road space, influencing traffic congestion and speed.”

associated to the conditions of safety and comfort must be added to the time spent getting to one’s destination,” he says.

Microbuses do not receive positive reviews from Mexico City’s population. A poll taken in 2013 by market analysis and

Asking for a change in the way people move around the

research company Parametría on mobility and transport in

city is easier said than done. When the Metrobús project

Mexico City revealed that microbuses are the least esteemed

was inaugurated back in 2005, it expected a modal shift

transport method among users, with 75 percent stating

of 10 percent, says López. More than 10 years after Line 1

they have a negative opinion of the service. Data from the

opened, he says the system has only witnessed a 4-6 percent

Institute of Transportation and Development Policy (ITDP)

modal shift. While results might not have been what was

show the costs of public transport systems and the associated

expected, Metrobús provoked a positive response from users.

externalities in areas of safety and comfort make the use of

Parametría’s poll found that 83 percent of those surveyed

public transportation a less preferred option. ITDP revealed

reviewed the service positively and Mancera says that the

that 81 percent of those surveyed would be willing to leave

latest Metrobús route, Line 6, helps 1.1 million users commute

their cars at home if public transportation were safer and 79

on a daily basis across the 20km covered.

percent said they would also do so if it were more comfortable. Regardless of all the discomfort microbuses cause, they are Though newer and greener units will help the environment,

well integrated and connected to other public transport

that alone will not do the trick. “The real impact we can have on

routes. “In Mexico City, almost every microbus route makes

CO2 reduction comes from people leaving their cars at home

a connection with at least one metro station,” says López.

and using public transportation,” says López. "To encourage

Though the entrance of new buses is expected to alter some

this modal shift, we need to promote methods that could

existing routes, new routes will be designed to reflect demand

improve the travel experience in a clean, safe, affordable and

and to be integrated with other modes of transport. For

reliable way.” Realizing effective infrastructure improvements

López, the change of microbuses obeys a legal rather than

might prove more difficult than expected, particularly in a city

environmental logic. “The law says that microbuses must be

where the allocation of responsibilities within government

10 years old on average but many of Mexico City’s units are

entities can be blurry. According to article 39, section XXVIII

older than 20 years, which means that they operate outside

of the Organic Law of the Public Administration of the

the established legal framework.” Mancera’s determination to

Federal District, municipalities are obligated to propose to

remove the estimated 14,000 microbuses in Mexico City from

the competent government entity the necessary measures

the transport system will take some time. The disappearance

to improve streets’ conditions. Section LII of the same article

of the microbus goes beyond merely renewing old units.

establishes that municipalities are responsible for building

“There will be a change in the concession scheme. Group

and rehabilitating secondary roads within their territorial

concessions will be favored instead of individual owner-

demarcation. While the law might be clear, the practice is

operators,” says López. “We will no longer be able to call them

rarely as easy as the theory sounds. There are ongoing

microbuseros. Instead they will be entrepreneurs.”

219

INSIGHT

DIFFERENTIATING TRANSPORTATION FROM SERVICE BASED ON PEOPLE ELÍAS DANA Director General of Transportes LIPU

220

Buses are not all the same, nor are all transportation services.

with the use of technology. “A common misconception is that

Making users aware of this is part of the mission set out by

operators do not use technology tools because they do not

Elías Dana, Director General of Transportes LIPU. The transport

know how to use them,” says Dana. He believes apps can help

company aims to create differentiated transportation services.

operators adopt more efficient driving routes. “We use apps

“We want to change the traditional transportation model to

on a daily basis, applied to the management of the operation.”

that of service based on people,” says Dana. Though several heavy vehicle OEMs like Scania and Daimler “We intend to compete with a differentiated service with

have invested in the development of telematics features,

the person driving the bus at its center, through constant

Dana says this is not enough. “OEMs have fallen behind

training, recruitment filters and incentives for our drivers.” The

when it comes to the added value they offer with their

incentives LIPU offers its drivers are part of the company’s

buses. We have had to find solutions on our own to meet

social responsibility strategy, focusing on staff wellbeing.

our requirements.” The automotive sector offers promising opportunities for Transportes LIPU. “This year the automotive

To differentiate the company’s services, Dana is also

sector grew impressively and we believe in the next two years

pushing to increase Transportes LIPU’s fleet. For 2017, the

it will enjoy a similar level of performance.” According to data

company expects to maintain the 20 percent growth it has

from ProMéxico, the automotive sector contributes 3 percent

been experiencing for the past three years. Growth itself is

of the country’s GDP and the country hosts 12 light vehicle

important because it feeds into the company’s fleet renewal

OEMs, nine heavy vehicle OEMs, and 90 of the top 100 Tier 1

policy. “Every year we renew around 10 percent of our fleet.

companies in the world. This means that there is an immense

However, in 2017 we will renew around 30 percent as we enter

pool of possible clients for LIPU.

new markets.” Transportes LIPU’s growth is partly rooted in the company being the preferred transportation service in several

The accelerated growth LIPU has experienced in past years

public and private sectors. “We are focused on personnel

due to its entrance into new markets and the corresponding

transport. We have a significant presence transporting

increase in its fleet have prepared Transportes LIPU to brave

personnel from the public sector thanks to annual bidding

the Mexican peso’s volatility caused by the global economic

processes. However, we believe that the private industrial

climate. “A volatile exchange rate is a circumstance that we

sector has much more growth potential,” says Dana.

have contemplated in our business negotiations. We have debt coverage and are open to establish negotiations to review

Technology advances change the way companies such as LIPU

our clients’ price terms when facing volatile exchange rates.”

conduct their business and operations. “We are experiencing

Transportes LIPU’s approach contrasts with the decision

rapid technology changes. Year after year the company’s

taken by members of the Mexican Council on Transport and

needs change,” says Dana. LIPU’s concern regarding

Logistics (CMET), who have already announced that it will

technology advances translates into more than just telematics

postpone possible increases in its fleet. Dana is not fazed.

systems. “Besides tracking and fleet monitoring, we want to

“OEMs are looking for ways to counter exchange rate volatility,

update mileage precision using GPS solutions. We also intend

they cannot just increase their prices. They have to find ways

to increase safety mechanisms with the introduction of virtual

to lessen the impact.”

co-drivers that provide real-time warnings of road hazards to operators.” Waze and Google Maps are recognized leaders in

At the end of the day, LIPU’s biggest bet is service.

virtual co-drivers but many companies are entering the field,

“Punctuality, quality service performance and users’ safety

as their popularity becomes a necessity rather than a luxury.

are our main concerns,” says Dana. “We do not intend to be

Telematics tools are useful for monitoring the operator’s

the transport service with the lowest price but the service with

behavior but are not the only way LIPU is involving its drivers

the best quality and the best drivers.”

INSIGHT

US INTERCITY BUS LINE TESTS THE ROAD IN MEXICO JOSÉ LUIS MORENO Regional Vice President of International Operations for Greyhound Lines Mexico

After the deregulation of the coach market in 1993, new

reach a penetration rate in digital ticket sales of 62-63 percent.

opportunities opened for US companies and José Luis

In comparison, the online share of its Mexican competitors

Moreno, Regional Vice President of International Operations

is limited to between 4 and 5 percent, according to Moreno.

for Greyhound Lines Mexico, says cross-border transportation

“Depending on their flexibility in terms of dates and departure

continues to offer a unique opportunity for new investors.

times, clients could find cheaper tickets if they used our digital services,” he says.

Hoping to take advantage of the more than 183 million border crossings reported by the US Bureau of Transportation

Greyhound’s digital approach also brought an unexpected

Statistics between Mexico and the US in 2014 and the more

surprise for Moreno. Along with its two main client pools,

than 14 million reported only in the Laredo-Nuevo Laredo

the company found a third niche to exploit. Concerts, sports

crossing, Greyhound expanded its existing bus route network

events and other social gatherings attract a large number of

to the city of Monterrey. The company had already been

people to the south of the US every year and, according to the

present in Mexico since 1958 but only with ticket sales. In 2015,

Texas Tourism Marketing Plan for 2017, visits from Mexico only

the company’s 100 anniversary, Greyhound finally decided to

in 2015 generated spending of over US$4.7 billion. College

take passengers directly from Monterrey to the Texan cities of

students, for example, found in Greyhound a cost-effective

Laredo, Dallas, Houston, San Antonio and Austin.

alternative for short tourism and cultural trips.

“We analyzed demand at our seven ticket-sales locations in

At the moment, private cars are Greyhound’s main

Mexico and we combined that information with the potential

competitors. But Moreno highlights security as one of the

market that exists in the country,” says Moreno, who says

main advantages the company can offer potential clients as

Mexico is one of the largest passenger transport markets in

a mobility alternative. The company is in contact with the

the world. This is backed up by Miguel Elizalde, Executive

state and federal governments on both sides of the border

President of ANPACT, who told Mexico Automotive Review in

to prevent any possible incidents and clients can be sure they

2016 that almost 98 percent of all passengers in Mexico travel

will travel to safe terminals in the US with enough last-mile

by bus. Across all its different market segments, Greyhound

connectivity to move to other destinations. Safety is assured

transports between 12,000 and 13,000 people per month.

using Prevost X3-45 buses built with a modular structure that

ensures the unit’s integrity in case of an accident. “We were positive about the potential that large and highly populated cities such as Monterrey offered and we

As an added bonus to promote Greyhound as a true mobility

expected high demand from routes to Texas,” says Moreno.

and tourism alternative, the company is also working with the

The company had two main target demographics: recurrent

US government and the US Department of Homeland Security

travelers who had to cross the border several times a week

to speed up bus crossings at the border through the Advance

because of their work and people with relatives in the US.

Passenger Information System (APIS). The idea is to collect information from passengers wanting to cross the border and

Moreno might have expected a smooth entry to the country

upload it to a database connected with the US Immigration

but what he did not foresee was the level of success

Office to pre-validate access. Monterrey is the first step for

Greyhound would have thanks to its unusual value proposition.

Greyhound in Mexico. According to Moreno, the company is

The company bet on a digital marketing strategy to target

still in its first stage in the country and its goal is to prove that

its clients, selling tickets at preferential rates depending

its value proposition is attractive both for potential clients and

on how early the client was willing to buy them. This was

investors. “We believe there is still an opportunity to grow in

revolutionary for the Mexican industry, in which only airlines

this market and once we deem it possible, we will analyze the

used this business model. The strategy helped Greyhound

possibility to branch out into new routes,” he says.

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TECHNOLOGY SPOTLIGHT

222

BOSCH, WE CONNECT THE MOBILITY INDUSTRY WITH THE DIGITAL WORLD Urbanization is creating challenges for the industry, raising the question of whether todayâ&#x20AC;&#x2122;s mobility is fit for the future. Transformation calls for new and diverse solutions including technologies that reduce emissions, increase safety and solve traffic congestions. With its innovative concepts, Bosch pursues these three visions and pioneers the developments that will turn them into reality.

FLEXIBILITY FROM A TO B THANKS TO CONNECTED MOBILITY Taking the stress out of mobility means reducing traffic levels. Ways to address this would be to turn exclusively to clean and safe transportation solutions, merge housing developments with industrial areas and foster the use of intermodal transportation. This can be possible with an intelligent, connected infrastructure. Intermodal mobility solutions would allow commuters to use whichever mode of transportation is available. Bosch connected services already provide road users with unprecedented levels of flexibility today.

ONE STEP AHEAD WITH AUTOMATED MOBILITY Automated driving significantly improves comfort, reduces stress levels and increases road safety. Bosch has a clear vision: make urban mobility accident-free to the greatest extent possible. In cities such as Tokyo, there are three to five road fatalities for every 100,000 inhabitants. In others like Guadalajara, this figure rises to 15-35. Advanced infrastructure and better-equipped vehicles lead to safer roads. Nine out of 10 accidents are caused by human error, which means automation can play a major role in improving road safety. Current Bosch Accident Research studies indicate automated solutions could cut accidents in Germany by approximately one-third. With its many solutions, including driver assistance systems or innovative parking, Bosch is taking the next step toward a future of virtually accident-free mobility.

TOWARD AN EMISSIONS-FREE FUTURE WITH ELECTRIFIED MOBILITY A significant proportion of urban transport will be electrically powered in the future. Bosch is pulling all the stops to drive forward this development. However, conventional powertrains remain viable options and research indicates fuel-powered engines have optimization potential. Engines may be converted to run on synthetic fuel produced using renewable energy, making it resource-conserving and CO2 neutral. Emissions-free mobility calls for multidimensional thinking and Bosch is working on how to get there as quickly as possible.

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ANALYSIS

APPS AND CARMAKERS: STRONGER TOGETHER Automakers are coming to the realization that people are less and less keen on buying a car, especially in economically developed countries. With so many new mobility alternatives, a car’s total cost of ownership is no match for a couple of Uber rides a day or the occasional rental of a shared unit

224

INEGI says the millennial generation now consists of

There will likely be a revolution in terms of mobility that

approximately 30 million people. These individuals are

will challenge all automakers to adapt. OEMs are realizing

changing the purchasing paradigm, leaving ownership on a

that a business model focused on producing cars is not

second plane. In a study carried out by Deloitte regarding

enough. Ford is leading the much-needed transformation

millennials and their mobility preferences, 85 percent of

announcing it will become a mobility company instead of

the interviewees planned to buy a car within the next five

a car manufacturer. Other companies have followed suit

years. But Alberto Torrijos, Partner and Consultant at Deloitte

including the best-selling brand in Mexico, Nissan. Through its

Consulting Group, says “young people usually do not have

new Intelligent Mobility concept, Mayra González, President

the economic means to buy a car. But they still have mobility

and Director General of Nissan Mexicana, says “[Nissan’s]

needs, which has made solutions like Uber and Cabify

new mission is to revolutionize mobility globally.” But after

extremely attractive.”

years of solely building cars, no company can go through this process alone. Mark Fields, CEO of Ford, has stated that

Sustainability is a contributing factor to the rise in popularity

the company would invest in 25 mobility initiatives as part

of shared mobility platforms. Paris, Madrid, Athens and

of its new strategy. Other leading automakers are following

Mexico City have now announced their commitment to

the same trend and investing, partnering or even acquiring

eliminate diesel vehicles by 2025. Furthermore, the Mexican

mobility companies around the world.

government was the first emerging economy to present its environmental objectives to the UN, including a goal of

Although Uber has been the face of global mobility efforts,

reducing carbon emissions by 51 percent and greenhouse

especially in Mexico, many other companies have started

gases by 22 percent by 2030. This could potentially boost

to emerge and even to lead mobility transformation in

early adoption of alternative mobility solutions and limit the

certain countries. The biggest example is Didi in China.

use of private vehicles in the city’s central areas.

The company was Uber’s biggest competitor in the region

“

(Young people) have mobility needs, which has made solutions like Uber and Cabify extremely attractive” Alberto Torrijos, Partner and Consultant at Deloitte Consulting Group

and acquired Uber’s Chinese division after a two-year battle. Other examples include Cabify in Spain, BlaBlaCar in France, MyTaxi in Germany, Lyft in the US and Gett in Israel. Many of these players are attracting the attention of large automakers looking for the perfect partner to help them gain ground in the mobility race. General Motors invested in Uber’s competitor Lyft, Volkswagen boosted Gett, while Ford, Toyota, FCA and Volvo decided to target Uber. BMW and Daimler are also riding the trend. The former is investing in ride-sharing and carpooling services like Skift and Scoop, while the latter moved resources to Hailo and MyTaxi, which will

The truth is, however, that cars will not disappear. Strong and

now merge to become one of Europe’s main car-hailing

continuous investments in Mexican roads and car-oriented

companies. Car-sharing and micro-transit services are

infrastructure will make sure of that, at least in the medium

also attracting resources with flagship cases like ZipCar

term. During the current administration’s term since 2012,

and Chariot with Ford and Car2Go with Daimler. The

the government has invested approximately US$4.7 billion

momentum remains strong and companies keep looking

in road infrastructure, aiming to complete 52 new highways

for new mobility solutions to invest in. According to

by the end of 2018. According to the OECD, while Mexico’s

Visiongain, by the end of 2016 the automotive on-demand

metropolitan area (ZMVM) is now considered the largest

mobility market will generate more than US$5 billion in

urban agglomeration in the world with over 25 million

revenue. Uber alone has more than 8 million users who

people, it still suffers from a significant infrastructure deficit.

request approximately 1 million rides per day.

INSIGHT

PRE-EMPTING THE NEXT TRANSPORTATION REVOLUTION RICARDO WEDER General Manager of Latin America for Cabify

Necessity is the mother of invention and the modern world’s

says Weber. Mexico holds untapped potential that makes it

mobility needs are paving the way for new solutions. In fact, by

attractive for shared-mobility companies. INEGI reported

2020, the shared-mobility industry is expected to be valued

around 50 million people using smartphones in 2016 with the

at US$300 billion. Ricardo Weder, General Manager of Latin

capacity to host the platforms of shared-mobility companies.

America for Cabify, is certain that a third transport revolution is coming and Cabify is determined to be one of its leaders

Market openness allows for the creation of diversified products.

and most relevant players.

Cabify has over 65 different offerings. The company’s digital platform has five options in Mexico including Executive, Lite,

“The combination of shared mobility, autonomous and electric

Access, CabiFLY and CabiFLY Shuttle. The Lite and Executive

cars will be the long-term solution for mobility problems,”

options are similar to those offered by competing on-demand-

says Weder. The expectation that the shared-mobility industry

driver companies. Both options offer the possibility of making

will be worth US$300 billion is small compared to 2020

reservations for future trips, a feature that stopped being

expectations for global light vehicle production alone, which

exclusive to Cabify in late 2016 when Uber started a similar

was seen at US$1.6 trillion in a ProMéxico report, but the

service after users asked for it.

estimate is enough to interest companies like Cabify. Innovation and originality of service become evident in Weder’s premise is simple: newer technologies have improved

Cabify’s third and fourth service offerings. The Access service

the power and safety of cars. However, the underlying value

is intended for people with physical disabilities. Vans used for

proposition for the use of private vehicles remains unaltered.

this service are conditioned to fit five passengers, including

Several factors point to the upcoming transformation

the driver and a wheelchair in the back of the van. Data from

of transport services. “For young people in developed

INEGI show that as of 2010 Mexico had more than 5 million

countries, it no longer makes sense to buy a car and in the

people with physical disabilities, accounting for 5.1 percent of

future people will stop owning them.” Though the future for

the total population.

shared-transportation companies seems bright and growing in popularity, there are still several challenges. The biggest

Meanwhile, CabiFLY Shuttle is today a helicopter service

hurdle in Mexico, Weder says, can be found in government

offered between Mexico City’s Polanco neighborhood

regulations. “Companies must lobby to change regulations

and the Mexico City airport. The company expects to

that will open markets to mobility startups,” he says.

extend the service to the Santa Fe area in Mexico City in the future. Cabify is also working with IT suppliers such

Encouraging healthy competition between all industry

as Google to create real-time information on traffic and a

participants is important. “More competition equals more

street’s physical condition such as potholes and road work.

alternatives for users. The more competition, the bigger the

Should the plan be successful, information gathered will

industry becomes and we all win.” Weder argues that the

contribute to the creation of an integrated mobility system

only way to keep users’ interest at heart and promote the

meshing private companies such as Cabify with public

creation of mobility startups is to define laws that promote

transportation. According to Weder, technology companies

open industry, locking the possibility of price dumping out of

such as Google and Apple could benefit immensely from

the sector. For Cabify, this is not a matter of protectionism

information retrieved from mobility solutions, since it opens

but of regulations that make sense socially and economically.

doors to new business opportunities. But IT suppliers are

“Mexico City is the first place in Latin America with regulations

not the only partners Cabify foresees. Weder believes that

for transport networks. Now it needs to perfect them,” says

in the future, e-commerce companies such as Amazon and

Weder. Cabify’s competitor, Uber, holds 60 percent of the

Alibaba will depend on alternative mobility companies to

Mexican market, while Cabify dominates the other 40 percent,

provide express delivery solutions.

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INSIGHT

EXPLOSION IN ADOPTION OF MOBILITY TECH FOR TAXIS JAIME APARICIO Global COO at Easy

226

Technology often generates more social disruption than not

by almost 60,000 units, on top of many privately-owned cars

and technological advances are often received with a mixture

that Easy can also take advantage of for its newest service.

of fear and rejection. Trying to avoid this combination, fatal

The explosion in the use of cellphones in Latin America

for innovative enterprises, taxi app business Easy proposed a

helped Easy become a truly relevant player. According to

solution using the existing social and economic infrastructure

data from the Society’s Innovation Index (QuISI) 2015, in

to generate a new mobility solution, says the company’s

Mexico 57 percent of the population uses a smartphone. This

Global Chief Operating Officer Jaime Aparicio.

percentage exceeds Latin America’s 51 percent average. It is no wonder Mexico has been targeted by several app-based

“Easy is the traditional startup story: a company that

mobility companies.

without many resources started developing technology to validate it with users,” Aparicio says. Its first million-

“There are certain characteristics that make a market

dollar investment came in October 2012, when the startup

attractive enough and that every mobility company looks

received US$4.9 million from Rocket internet, known for

for. The number of transactions, or number of trips that take

investing in internet companies. This boost allowed Easy

place in one day, is among the most important,” says Aparicio.

to expand operations into Mexico, Malaysia, the Philippines

The explosion in the adoption of mobility technologies led by

and Thailand. “The fact that presenting the platform in new

Uber, combined with the high number of “transactions” made

markets does not imply great costs helped Easy expand

in taxis facilitated Easy’s entrance to the Mexican market.

its footprint,” says Aparicio. When the company started operating it only focused on taxi services. But evolution

“Drivers that have been with us since the platform started

of the market and competitors has made Easy’s services

understand the market’s evolution and have seen their

evolve as well. Transitioning to a new corporate identity,

businesses grow,” says Aparicio. Maintaining clear and

Easy Taxi became only Easy to position its new service,

open communication channels with drivers and users also

Easy Go, which offers private cars for transportation just like

influenced sustainable growth. “We offer our drivers a cost

Uber and Cabify. “In Mexico, we have two services, Easy Taxi

structure that allows them to operate and grow their own

and Easy Go, both operating on the Easy platform. As Easy

business,” adds Aparicio. “We want to translate benefits

Go is a novelty, it has been Easy’s most popular product

to drivers so they continue growing and constructing

this year,” says Aparicio.

their patrimony.” Easy does not face Uber and Cabify’s traditional struggle with taxi unions, and unlike its

Though taxis in Mexico tend not to have such a positive

competitors, Aparicio does not appear to be as concerned

reputation, Easy is determined to convince its users that their

with demanding stricter regulations. “Rather than more

taxis offer quality services. “Our platform brings together

governmental regulation, what companies need is legal

multiple mobility solutions and presents them to users so

certainty and the ability to improve the conditions under

they can move through cities in the safest, most transparent

which they operate.”

and agile manner, using existing infrastructure,” says Aparicio. This makes up Easy’s product offering, Easy Taxi and Easy

Companies like Easy not only have an impact on the mobility

Go, two services that aim to provide a mobility alternative,

business but also on other industries’ marketing strategies.

offering consumers the opportunity to choose between a

Easy has teamed up with companies Windows, Xbox,

traditional taxi service or a private-car-driver model.

Librerías Porrúa and Fresca to find innovative and efficient communication channels with passengers. “Rides usually last

Data from SEMOVI tags Mexico City as home to approximately

between 15 and 25 minutes. With the appropriate marketing

140,000 taxis, being driven every day. Therefore, Easy’s

message, we can generate a high impact experience and

possible pool of 140,000 vehicles surpasses Uber vehicles

interesting brand association,” says Aparicio.

INSIGHT

SMART, INCLUSIVE CITY TRANSPORT ALEJANDRO MORALES Co-founder of Econduce

Sustainable, smart and inclusive cities connected through

While the service’s popularity reflects positively on the quality

technology is Alejandro Morales’ vision for Mexico City.

and functionality of Econduce’s vehicles, it also reflects the

The Co-founder of Econduce says the company’s business

success of a business model that does not rely on standard

model has sharing economy at its center. “We knew we

marketing strategies. “We operate a business based on a

wanted to improve the city, the environment and people’s

networking model,” says Morales. “If we have more scooter

lives, while also offering a profitable business opportunity,”

stations and more scooters available, users will feel that it

says Morales.

is a convenient transportation method for them and we will grow more.” Expanding this is the company’s short-term plan.

While Econduce’s scooter model might be innovative enough

Of Econduce’s almost 3,000 active users, 60 percent have

to catch investors’ eyes, it was the environmental contingency

become regular clients. With only 5 percent of the company’s

period that began on March 14, 2016, and the subsequent

users being referrals from existing clients, the remaining 35

extended No-Drive Day policy enforced by Mexico City’s

percent are the result of the company’s limited marketing

government that boosted Econduce’s popularity. When this

campaigns, media appearances and promotional events.

happened in mid-2016, cars were prohibited from being used one day a week depending on each vehicle’s number plate.

Closing 2016 with almost 250 scooters, Econduce has

This measure forced commuters to investigate new modes

already reached the maximum number of clients it can

of transport. “Demand rose from one day to the next. We

accommodate per scooter. “The biggest challenge now is

had a planned and controlled growth rate but the No-Drive

to invest in expanding the scooter fleet, so units are available

Day policy gave us momentum,” says Morales.

to users at all times,” says Morales. The company plans to double its scooter fleet in 2017 to attract more customers

Despite being a startup, Econduce handled the extra

and to open more scooter stations. But this is easier said

demand without altering its services or prices. “The

than done. Even though Econduce’s vehicles do not require

availability of our scooters was reduced but all our users

special infrastructure such as complicated charging stations,

understood it was due to the period of restricted private

they do require funding to bring more scooters into the

vehicle use,” recalls Morales. He says the rise in the service’s

country and improve the technology that forms the business’

popularity during the No-Drive Day period was no surprise.

base. The company’s participation in the Google Launchpad

During the days that the city’s government enforced its

Accelerator will have an important role in this process. In fact,

car-use policies aimed at reducing pollution in the capital

Econduce fits perfectly with the Launchpad Accelerator’s

city, the public transport system passenger count on the

objective: a Latin American tech startup that can grow

metro increased between 15 and 18 percent. This accounts

with the help of Google engineers, resources and mentors.

for almost 800,000 additional passengers to the usual 5.5

“Econduce has a central technology component but it needs

million daily commuters.

to improve. Our app already has functions that can turn any scooter on and off but we need an extra push,” says Morales.

According to Morales, the real surprise for Econduce came months after the contingency ended when the company

Though increasing the fleet and making scooters more

registered even more trips than during the months of the

available is a business strategy, it is also intended to help

extended No-Drive Day policy. The company’s growth and

create an integrated transportation system in the city. “We

acceptance has been of such magnitude that Econduce

do not compete with Ecobici or other similar services,” says

is now facing a problem that every company would love

Morales. “We complement each other and in the end, we

to face. “We have reached a point where we would like to

all want the same thing: for people to be more responsible

maintain the number of users for a period of time because

in the way they use their private vehicle. That will reduce

an increase in users may limit their access to the service.”

traffic and pollution.”

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INSIGHT

INTERNATIONAL MOBILITY STANDARDS REACH MEXICO RODRIGO BEJARANO Director of SmartBike México

Public bike-sharing solutions in many large cities around

metro, private cars and cycling, bikes mostly come first or

the world have provided commuters with an alternative

second only occasionally to the metro.

to ownership, saving cyclists maintenance and providing

228

the flexibility of switching transport within the same day.

In addition to being more efficient and environmentally

SmartBike México manages the public bike-sharing service

friendly, the renting system for the cycles is computerized

in Mexico City. These bikes are parked at specific spots

and so generates Big Data that the company shares with

around the city, creating an alternative network of public

the city. Bejarano says the company shares more data than

transportation, and are available for use when needed.

even the metro, which in 2015 transported over 1.6 billion passengers, according to the metro’s website. “We generate

“The system we created for Mexico City was based on what

information on users, trends, routes taken, most-used

Clear Channel had implemented in Barcelona. Both cities

stations and how all these points are connected,” he says.

share several things in common: both have mountains, a

He adds Buenavista as an example, a metro station to which

valley, public transportation is similar and in certain manners,

a million people arrive by the suburban train in the morning

the movement of the population was similar,” says Rodrigo

and leave from in the evening. “We have 15 stations in that

Bejarano, SmartBike México’s Director.

zone alone. Users take bikes from that area and leave them generally between the Diana Fountain on Reforma and the

The company’s bike-sharing service started 20 years ago in

Angel roundabout. This information is extremely valuable.”

Rennes, France, and is now present in 15 cities worldwide.

It can be used by the city to improve urban planning,

Mexico represents 30 percent of their global operations with

determining which zones need more frequent upkeep or

6,400 bicycles, although Bejarano believes this number could

may need special cycle infrastructure.

rise to as much as 20,000. He explains that when SmartBike first implemented the service in the capital city’s historical

Bejarano is already prepared for the future and is ready

center, his team was worried about security but in reality,

to adapt the cycle system to it. “The application of new

the bicycles were well-received. “Public transport is efficient

technology to bicycles is much easier than in larger complex

in this city, including the metro and the Metrobús, but they

systems. The current system of scanning a membership card

are static, linear. They go from point A to point B without

will become a thing of the past.” The possibility of using

deviating from their specified route. Private vehicles congest

phones to scan a QR code, or a proximity system that detects

roads ridiculously, and other alternative motor transports

when a user approaches a station, could speed up the process.

such as microbuses are also limited,” he says. SmartBike México has not yet finished expanding in the city. If more people use bikes, fewer people will travel in private

“We usually grow 12 percent annually. In the four months

cars, thus liberating road space for freer-flowing traffic. It

following the gasolinazo, from January to April 2017,

also means better air quality and the levels of pollution are

registrations grew by 7 percent and usage has grown,” says

less likely to hit 150 IMECA points, the limit at which the “No-

Bejarano, detailing the company’s expansion plans. “We

Drive Day” contingency is implemented in the city.

think we will be able to reach zones we do not yet operate in although this decision is entirely up to Mexico City’s

Besides avoiding traffic, taking bikes to work and back can

government. We could expand to the southeast of the city,

help improve overall fitness, sorely needed in one of the

Coyoacan, Nuevo Polanco, within the central zone, Florida,

world’s most overweight and obese nations. As one of the

Del Valle, all of which present great growth opportunities,”

main reasons cited for not exercising is lack of time, cycling

he says, adding that even without expanding the areas in

to work could be an excellent option. Bejarano explains that

which SmartBike is present, it could potentially install an

when comparing travel time between two points in microbus,

extra 5,000 bikes.

INSIGHT

PEDAL POWER CYCLES INTO MEXICO MAINSTREAM FERNANDA RIVERA Director of Cycling Culture, Design and Infrastructure at the Ministry of the Environment at Mexico City (SEDEMA)

The public automated-bicycle system is an alternative

ECOBICI stations are located in three areas of Mexico City,

mobility solution that is altering transportation habits

namely Cuauhtémoc, Benito Juarez and Miguel Hidalgo.

worldwide. Having the option of using bikes for public use

These were chosen because they are the busiest sectors

in big cities is helping users reduce inconvenient commutes.

of the city. Surprisingly, studies from SEDEMA show that

It is a healthy, eco-friendly and cheap way to move around

only 50 percent of the users live near these stations and

cities, which is why 16 percent of over 200,000 registered

the other 15 percent live in the State of Mexico. “Every

users in Mexico City changed their cars for pedal power,

station is approximately one and a half blocks away from

according to Fernanda Rivera, Director of Cycling Culture,

another and there are stations in 36 metro stations in

Design and Infrastructure at the Ministry of the Environment

the city, as well as along four of the six Metrobús lines,”

at Mexico City (SEDEMA).

says Rivera.

ECOBICI, Mexico City’s shared bike network, is a

SEDEMA teamed up with CTS Embarq and researched

transportation service created for residents and which aims

emissions mitigation in the city due to the implementation

to improve mobility in the city. “The capital city registers 21

of ECOBICI. They found that ECOBICI users reduced CO2

million daily trips for all purposes, while ECOBICI records

by approximately 3,000 tons, almost equivalent to having

35,000 average daily trips,” says Rivera. “The government

planted 9,000 trees since the public service started. Rivera

established three main objectives for this transportation

says that this mobility initiative is a key to reducing climate

method. The construction of safe infrastructure with

change, such that public policies should benefit users in

bicycle lanes was prioritized, alongside the creation of a

many ways. “It is in the government’s interest to encourage

cycling culture not just for recreation but also as a means

cyclists because ECOBICI helps Mexico City’s Climate

of transport, and the implementation of mobility integration

Action Plan 2014-2020, a tool that integrates, coordinates

that could complement the public transportation network.”

and promotes actions to reduce the environmental, social and economic risks of climate change,” Rivera says.

The system allows registered users to take a bike at any station and return it to the one closest to their destination

To offer customers a better user experience, during 2013

within 45 minutes. Anyone who wants to access the ECOBICI

the government integrated the ECOBICI payment method

system can pay a subscription for MX$416 (US$23) per year,

with other systems, so they can pay the metro, Metrobus

equivalent to MX$1.16 per day (less than US$0.07 per day).

and light rail system with the same card. The ECOBICI app

Rivera explained that ECOBICI started operating in February

is also useful for cyclists. Users can report a bike in need

2010 with 84 bike stations and 1,114 bikes. In only six years,

of repair, if the system is not working properly and other

the system has grown 400 percent due to user demand.

incidents. Stations are also labeled in colors. A red label on

There are now 452 bike stations and more than 6,000 bikes.

the station means that the rack is empty. An orange label means there are five bicycles or less. Green means the rack

On average, 13 percent of city SmartBike users are women. But

has more than five bicycles ready to be used. This measure

in Mexico City, 40 percent of ECOBICI users are women. Rivera

was added in 2015, to improve the user experience.

says one of the main reasons behind this is the feeling of freedom this transportation method gives them. Cyclists may

“We want to improve our operation and have better

feel safer on a bike than walking on the street. Also, SEDEMA

operating strategies. A better system, better maintenance

offers free training for people who need to feel more secure

and in-depth analysis of travel options in case of an

as urban cyclists and to public transport drivers. They use the

expansion. We made this on the basis of cyclists’

bike service once so that they will have more empathy toward

demands that guide us to areas in which we need to

bikers and understand how to share the lane.

grow,” Rivera says.

229

INSIGHT

FIXING MEXICO’S MOBILITY, ONE COMPANY AT A TIME JOSÉ MONTERROZA Country Manager Mexico of Wheels

With over 5 million vehicles on the streets, Mexico City is

this journey. “Security and reliability are two of our main

among the worst cities in the world for traffic. According

priorities,” says Monterroza. “Employees can join the platform

to TomTom’s Traffic Index, commuting time increases

with their corporate mail account or we can build a closed

approximately 66 percent during peak traffic periods

server, depending on the company.”

compared with commute times off-peak. In zones like Santa 230

Fe and Polanco, access is limited and traffic jams can last for

Wheels already has 10 companies affiliated in Mexico and

hours. All these factors contribute to the need for contingency

30 globally. Its goal for 2017 is to close the year with 25

measures and made Wheels realize the city might benefit

corporate deals, building a network of 25,000 corporate

from sustainable mobility planning between companies and

users. But the company has a much more ambitious target

neighborhoods.

to solve Mexico City’s mobility problems altogether. “Mexican clients are aware of the mobility problems in the city and the

The company entered the Mexican market in 2015 presenting

environmental risks of an expanding automotive market. The

a carpooling platform that would take advantage of the more

government is also looking for solutions in terms of mobility

than 31 million empty seats moving daily through the city.

and infrastructure,” says Monterroza. “That led us to the

Wheels targeted large communities like companies and

conclusion that Wheels could work with the public sector

universities, offering its solution at practically no cost. The

to implement its mobility plans on a larger scale, connecting

company has moved forward to become a consulting partner

whole neighborhoods at a time.”

for companies that want to implement a healthy mobility plan for their employees. “In 2016, we focused on attracting users

Monterroza expects to attract more companies to join Wheels’

to our platform, primarily to identify the needs of the national

network and tackle mobility issues in the most congested

market,” says José Monterroza, Wheels’ Country Manager

zones in the city. “With a sustainable mobility plan, we could

for Mexico. “Now that we have understood how Mexico City

gather all companies located nearby and find a solution that

moves, we can charge companies for the implementation of

involves all residents and commuters,” he says. “As more

our services through an annual subscription.”

companies participate in the platform, road conditions will improve and commutes will be more effective.”

Wheels sustainable mobility plan is based on three services. First, the company performs a mobility diagnosis that allows

According to Monterroza, these practices are now common

it to understand how employees or members of a community

in Colombia and the government has actively promoted

usually move around the city, detecting preferred routes and

adequate mobility conditions. Companies with more than

approximate commuting costs. After that, the company

200 employees are now legally obliged to implement a

implements its mobile platform called Wheels Social,

sustainable mobility plan and report how their employees

optimizing time, environmental damage and monetary

are moving throughout cities. “Mexico is currently focused on

costs. “We create a closed group for each company within

regional or national plans, rather than targeting companies

the platform, so all members can interact to work out the

individually and metropolitan areas are experiencing mobility

best ways to share their commutes,” says Monterroza. “People

issues,” he says.

log into the platform, they register their commutes and their preferred method of transport.” Members can participate as

In Queretaro, Wheels is focusing on promoting the use of

drivers, passengers or register as willing to share a taxi or

bicycles after the implementation of the Quebici program.

cycle together. All commutes are defined with a date and

“We are also exploring how to integrate routes for pedestrians

time, point of origin and destination. That way, the platform

and how to include public transport routes to the platform. We

can calculate the optimal route and the estimated time of

see an opportunity to grow our services to help the corporate

arrival, and it can look for other users that could also share

buildings in these areas,” he says.

INSIGHT

BUILDING A ‘TRANSPORT COMMUNITY’ ALBERTO PADILLA Founder of BlaBlaCar Mexico

In a country where interstate transportation services are

offering are those with populations that exceed 800,000

limited to planes and buses, the first option to expand

inhabitants. The Bajio, central and western regions of the

the offering falls on a better use of the existing grey

country offer the best opportunities in terms of potential

infrastructure and vehicle park. With this is mind, BlaBlaCar

customers. “Collaborative economies work because of

Mexico is working toward creating a transport community

available information and information sharing would not be

based on trust.

possible without the development of technologies,” says Padilla. “BlaBlaCar works thanks to the widespread use of

“Rather than selling a car-pooling service in Mexico, we

internet and smartphones, which allow people to find new

facilitate a sharing economy, while contributing added-

transportation means.”

value services to the ride,” says Alberto Padilla, founder of BlaBlaCar’s Mexican subsidiary. Those services include

The widespread use of smartphones combined with the

a range of features such as supply-and-demand matching,

country’s characteristics and the prior existence of car-

ride safety and insurance, the latter two of which are key

sharing services made Mexico the perfect country in Latin

elements in the business model.

America to introduce BlaBlaCar. Padilla tags the company’s acceptance on the prior existence of services such as mobility

“Many people believe that safety is a restraining factor for

startups and Airbnb, a community of people who rent their

the success of a company like BlaBlaCar in Mexico. But we

homes or rooms within them to users with a verified ID and

have found that at first almost every country believed that,”

payment method.

says Padilla. Padilla says BlaBlaCar’s business model is more focused In a country where, according to the 2016 National Survey

on being a transport community than transportation

on Urban Public Security (ENSU), 53.9 percent of its citizens

professionals. The guidelines prevent drivers from generating

feel unsafe on the country’s roads and 39.8 percent feel

revenue from the rides, riders simply contribute to the fuel

unsafe in their own cars, safety warranties are essential to

costs of a journey that a driver would make regardless of

the success of a car-sharing company. “We try to generate

other users, to take advantage of existing resources while

a platform of information, so people feel comfortable and

sharing expenses.

safe traveling with their ride companions,” says Padilla. The platform validates the pictures and IDs of people who want

While it is true that services such as BlaBlaCar provide

to use the service. It also includes user profiles and reviews

innovative vehicle-use solutions, Padilla believes they

from other users.

can also help OEMs with their business. BlaBlaCar can be an ally to manufacturers, he says, as carmakers begin to

BlaBlaCar is overcoming reservations surrounding traveling

understand the emerging mobility concepts and the way

with strangers, offering 1 million car seats at the end of its

users are viewing cars. “Services like BlaBlaCar can offer

first year in Mexico. “Mexico has the potential to offer up

OEMs information such as possible product designs and new

to 100 million car seats,” says Padilla. But the company’s

patterns of use.”

founder knows that meeting that potential will take some time and patience, since BlaBlaCar’s presence in France for

The future of BlaBlaCar revolves around services rather cars.

10 years did not take off until five years ago.

“We do not place as much emphasis on the vehicle as we do on the services that accompany each ride,” says Padilla.

To date, BlaBlaCar offers mobility options between 1,000

This opens a business opportunity for insurance companies

cities in Mexico but there is room for growth. Padilla

to cover a newly created market niche, such as AXA that has

believes the cities that could most benefit from BlaBlaCar’s

already teamed up with the ride-sharing company.

231

ROUNDTABLE

HOW MUCH POTENTIAL DO MOTORCYCLES HAVE TO BECOME A TRUE MOBILITY ALTERNATIVE?

The more than 2 million motorcycles circulating on the country’s streets barely represent 5 percent of the country’s entire vehicle park. Even so, manufacturers, distributors and even financing companies have faith in the imminent growth of the motorcycle market. As mobility becomes a growing concern, clients can choose between an average motorbike with a cost that might range from MX$20,000 to MX$30,000 (US$1,100 to US$1,700) and a car with a base price between MX$150,000 and MX$200,000 (US$8,400 and US$11,200). The unknown is how well the city might embrace this mobility alternative in a system that until recently has been mostly car-oriented.

Public transport is rarely the perfect mobility option due to inefficiencies, so many people opt for motorbikes as a mode of transportation. Motorcycles use less space 232

on the streets and less than half the gasoline that a car consumes. The motorcycle sector’s growth in the country was so fast that although users are learning how to move respectfully, a culture of respect between motorcyclists and drivers on the streets is still needed. Italika offers a mobility solution but places safety with active

ALBERTO TANUS Director General of Italika

participation above all. To educate people on sharing the streets with other vehicles requires government assistance and proper regulations to stipulate the responsibilities of drivers according to their vehicle. Confined lanes for two-wheeled vehicles should be defined and traffic regulations must consider motorcycles as a private vehicle.

Bajaj sees the motorcycle market growing in the country but it is not yet at the level of countries like Colombia, Brazil, Argentina or similar Latin American countries where there are at least three times more people on a motorcycle than in Mexico. Motorbikes became a valid means of transportation for people about 14 years ago but their market penetration still has a way to go. This is related to the car-centric culture that dominates the market. Another aspect relates to the image of motorcycles as dangerous. This issue

SERGIO MIRENSKY Director General of Bajaj Motocicletas

has been addressed and it is expected that the number of motorcyclists will increase. We did a test of a typical route on the streets of Mexico City where we compared the times and costs against public transportation and a car, and motorcycles were advantageous.

Honda has a plant in Guadalajara with a production unit for motorcycles but our growth in this market is not as high as we would like. Motorcycles are growing well but a per-capita calculation is much lower than in Asian countries where there is one motorcycle for every two people. Our best reference in Latin America is Colombia where there are 18 bikes per 100 people. In Mexico, we do not even own two bikes for every 100 people, so we have high growth potential. Government initiatives rather

EDGAR PACHECO Sales Subdirector of the Commercial Division at Honda de México

than segment development has been opening the market. The price of gasoline and No-Drive Days in some cities may boost motorbike sales, particularly among people who can afford a car but have nowhere to park.

Mexico has a small motorcycle volume compared to other Latin American countries such as Venezuela and Colombia. However, sales of this type of vehicles will grow mainly because of the traffic conditions in Mexico City. People are tired of spending hours driving. Right now, bikes can be a riskier option but once we learn how to coexist with them, they will offer a quicker transport option resulting in an enhanced mobility environment. There are thousands of cars occupied only by one person and taking space that can be shared by at least four motorcycles. Replacing these vehicles could help reduce local traffic.

IGNACIO CARIDE Director General of MercadoLibre México

The motorcycle industry will keep growing as its perception as a mobility option increases, especially in cities. Mexico is a great market and we have opportunities 233

in many areas but we must start changing our mindset and focusing on education. Harley-Davidson has more students in its driving academies, which shows that people want to drive responsibly and are being proactive about learning. This means we need the best conditions in the country and in the market to guarantee safe transportation for motorcyclists. The street belongs to all of us, which means legislation and infrastructure should reflect it. With respect for other modes of transport and people, be they pedestrians, bikers or bus drivers, we can avoid

RAYMUNDO CAVAZOS Managing Director of HarleyDavidson Latin America

most accidents.

The potential for growth in the motorcycle market is immense; it already represents between 4.5 and 5 percent of BNP Paribas’ credit portfolio. These vehicles can become a true mobility solution both in urban and suburban environments, particularly in locations with underdeveloped urban transportation. Motorcycles offer an affordable and comfortable mobility alternative and at BNP Paribas we remain positive about our potential business opportunities in this segment. We already have partnerships with Harley-Davidson and several other motorcycle brands to be their official financing arm. Our challenge now is to develop products that can target the country’s unbanked population.

JORGE ÁLVAREZ CEO Mexico of BNP Paribas Personal Finance (July 2013-July 2017)

Right now, motorcycles are not recommended because they are not safe to use in urban settings such as Mexico City. The majority of road accidents registered, and often the most complex, involve a motorcycle. These vehicles do represent a mobility option in certain cities around the world but they are not an option we are looking to promote at the moment. Speed limits are essential for a city to function properly and that includes limits for motorcycles as well. Not all alternatives can fit into a sustainable mobility system. However, if the proper use of motorcycles becomes a standard and people learn to respect speed limits, then these vehicles could be accepted in the city’s mobility plan.

LAURA BALLESTEROS Deputy Minister of Planning at SEMOVI

INSIGHT

COMPLEMENTING MOBILITY SOLUTIONS UNDER ONE ROOF ARTURO ZAPATA President of Corporación Zapata

234

Necessity is the mother of invention and Corporación Zapata

convinced that moving forward, all those who drive a car

knows it well. Since the crisis of 1994, the company has looked

will have to adopt a complementary solution. Cars will be

for new ways to address its customers’ needs, creating new

used only for highway driving, long rides across the city or

branches and spin-off companies such as Ariza, Autocosmos,

when driving with other people.” Motorcycles, on the other

Kromtek and V4B. Zapata’s vision was to develop integrated

hand will be better suited for inner-city driving thanks to their

solutions for mobility challenges but the holding had focused

advantage in terms of space, allowing drivers to maneuver

only on vehicles as its main product in one way or another.

more freely, negotiate traffic and reduce commute times.

Finally, in 2016 the company took a leap of faith and partnered with Piaggio in a new mobility alternative that until now had

Now that Corporación Zapata has found its ideal partner in

not been made available in the Mexican market.

Piaggio, the company is working on its brand development strategy and the establishment of a strong dealer network.

“Motorcycles could be an efficient solution to the lack of

The holding opened a model dealership in Mexico City in late

mobility options but not in the way they are used right now,”

2016 and has since received letters of intent from various

says Arturo Zapata, President of Corporación Zapata. “They

investors wanting to open more dealerships in Mexico City and

are currently seen as a basic transportation method used by

in several cities throughout the country. Three new stores are

someone who cannot afford anything else.” Zapata says that

already open to the public in Mexico City and Metepec, State

the market for motorcycles in the country mostly targets

of Mexico. Zapata now faces the challenge of transforming

delivery services, motocross aficionados and an ultrapremium

the traditional business model of motorcycle purchases. “Until

segment that uses them purely for leisure activities. INEGI

now, buying a motorcycle in Mexico was like buying a blender,”

estimates motorcycles and scooters in Mexico City barely

explains Zapata. “There is little emotional connection attached

surpass 200,000 units, while almost 5 million vehicles make

to the purchase.”

their way through the overly congested streets. Along with its new dealership approach, Corporación Zapata Mobility advantages were one of the reasons Corporación

has set up competitive automotive financing for motorcycles

Zapata pushed to enter this market. The company’s president

and adequate aftersales service. Zapata believes that service

says that even though trends show people living closer to

and financing, or their lack thereof, are truly a nightmare

their work place, their commute may not be improving. The

for motorcycle buyers. Financing rates for motorcycles are

UN’s Urban Mobility Report sheds a light on one of the main

between 25 and 40 percent with only one- to two-year

reasons for this problem, showing an average of 1.2 passengers

terms. In partnership with Scotiabank, Corporación Zapata

per vehicle in Mexico. “In Mexico City alone there are more

has branded its solution as Piaggio Financial, powered

than 20 million people, which means that our mobility issues

by Scotiabank. “The bank had never formally financed

will not be solved by adding more roads,” says Zapata. Finding

motorcycles but is convinced that there is a solid and

a parking spot is yet another crusade. “Especially around

attractive business opportunity in Vespa scooters among

schools and universities, streets are packed with people who

Mexico’s middle class and particularly the highly educated and

cannot find a place to park,” Zapata says. Diego Solórzano,

ecologically minded young executive market,” Zapata says.

Director General of Carrot, explains in Mexico Automotive Review 2015 that cars are underutilized assets that spend 90

Corporación Zapata made the decision to focus on mobility,

percent of their useful life parked.

evolving from being a traditional car dealership and joining the list of companies that are transforming their business model.

The environmental factor was another trigger for Corporación

If its strategy succeeds, it will uncover a previously untapped

Zapata. “Moving around in a car one hundred percent of

market. “We do not want a slice of the pie that already exists.

the time is simply not sustainable,” says Zapata. “We are

We are creating a new market,” says Zapata.

VIEW FROM THE TOP

RIDING TO FREEDOM RAYMUNDO CAVAZOS Managing Director of Harley-Davidson Latin America

Q: What qualities have made Harley-Davidson’s units so

A: The reason we created this mobility and safety-oriented

coveted in the motorcycle market?

program is simple: the street belongs to all of us, no matter

A: Harley-Davidson makes quality vehicles and we make

what we drive or how we move on it. Everyone needs to

sure customers have the best experience. We promote life

respect each other to avoid accidents regardless of whether

experience and dreams of freedom, which means the driving

they are walking, driving a bus or on a bike. We must all follow

experience must be perfect. Although we offer motorcycles,

the same urban rules.

accessories and clothes, Harley-Davidson’s real focus is the person. But people have to feel connected beyond a

We are participating in the creation of a road safety culture

mere romantic notion. When clients buy a motorbike, they

and collaborating with the Mexican government at a federal

need to feel comfortable and the vehicle needs to fit their

and local level to make this happen. It is a difficult change to

body. When clients finds their perfect match, the driving

achieve but not impossible. Our first goal was to promote

experience intensifies.

the new road regulations implemented by the government and for people to behave with the same manners we see

We have a range of products for different market segments

in other countries, where drivers respect confined lanes and

and solutions. In Monterrey and in Mexico City customers

priorities, so that each mobility option can coexist safely.

enquire about vehicles that would offer a mobility solution

Some companies have already noticed our campaign and

to escape the traffic. Many are looking for accessible prices

want to participate, so we see a bright future for this initiative.

and the option to buy with financing. The best-selling models in Mexico are currently the Sportster Iron 883™ and the Harley-

Q: Harley-Davidson entered Mexico in 2007. How has the

Davidson Street® 750. The 750cc motorcycle moves with

market evolved?

agility and smooth braking. Its torque allows riders to travel

A: In cities like Mexico City, Guadalajara, Monterrey and

in a safe and practical way.

Queretaro, transportation needs are changing because of the number of cars. People are looking for other transportation

Q: How has the company innovated to maintain its

alternatives and the motorcycle is being transformed from

technological edge?

something recreational to a mobility option.

A: It is remarkable how much technology a motorcycle has. Our Touring family, for example, has completely transformed since

Brazil and Mexico represent 80 percent of our entire Latin

2013. People need to be aware of our full range of products to

American sales. Brazil is the biggest market for Harley-

choose a suitable model. Many think Harley has only similar

Davidson in Latin America. Mexico is the second, followed

models to the Touring bikes but we have a wide portfolio

by Argentina. We are building a strong network within

offering many technology and safety features. Our bikes have

these countries. After that, we will open new branches in

anti-lock brake system, strong suspensions for rough streets

Chile, Colombia and Peru. In Mexico, we have seen double-

and renovated frames for a smooth drive. High-end models

digit growth in sales since 2009. The year 2017 started

also include tire-pressure monitoring, infotainment systems,

more slowly because of general market conditions. In times

GPS, a touchscreen and even mobile connection to control

like these we need to build results-oriented strategies that

smartphones and to talk with other bikers. Technology in bikes

help us achieve better results.

is close to onboard car technology but is mostly aimed at offering our drivers the safest ride possible. Harley-Davidson is one of the world’s largest motorcycle

What

led

the

company

develop

the

manufacturers. It began selling in Mexico in 2007, after 75 years

#TheStreetsBelongToEveryone (#LaCalleEsDeTodos)

in the US. Celebrating its 10th anniversary in Mexico, Harley-

initiative and to what end?

Davidson has taken an interest in improving road safety

235

INSIGHT

INDIAN LEADER WANTS TO LEAVE MARK ON MOBILITY SCENE SERGIO MIRENSKY Director General of Bajaj Motocicletas

Smaller vehicles can help solve mobility problems and as the

that dominates the market.” Bajaj is focusing on broadening

consumer increasingly is more informed, motorcycles are

its portfolio before expanding its alliances to boost customer

gaining greater acceptance as a viable transportation option,

satisfaction. It also plans to offer a shopping and service

says Sergio Mirensky, Director General of Bajaj Motocicletas.

experience that could be a competitive advantage, along with its focus on providing excellent customer service and

236

After only four years in Mexico, India-based Bajaj has

sound financing plans.

positioned itself in the domestic market as a fast-growing company. For 2017, it expects sales of 50,000 motorcycles,

In Mexico, Grupo Autofin distributes Bajaj’s products

having sold 30,000 bikes in 2016. Mirensky says globally,

according to the Indian maker’s international business model

investors have a positive perception of the transnational

that places a master distributor in each country, which then

company. It produces approximately 4 million vehicles per

selects and operates a local company with the capabilities

year in four plants and investors appreciate that it leans on

to complement the parent’s vision. Grupo Autofin offers

market research to make decisions, carries out R&D and

customers technology, quality and innovation according to

manages competitive plants.

their purchasing power, based on its experience as a leader in car distribution, a model that is replicable for the distribution

Few motorbike companies are manufacturing or even

of motorcycles.

assembling locally, neglecting to take advantage of economies of scale the automotive industry could offer motorbike

According to many international newspapers like the

companies. Bajaj, however, has an assembly plant in Tultitlan,

Economic Times, Ducati has been looking since the beginning

State of Mexico, where it puts the finishing touches on its

of 2017 for a partner in India like Bajaj. This is to make small-

utility, commuter and sports two-wheelers.

engine bikes in order to get into a bigger competition with global markets. Regarding the possibility of the company

“Manufacturing in Mexico has experienced dizzying growth,

joining forces with Ducati, the Director General says: “if

boosted by the commercial area. We already need to

tomorrow we were to enter into a partnership with Ducati,

install more production lines or more shifts to meet sales

we would operate exactly the same way, holding a stake in

demand,” says Mirensky. He explains that its Mexico plant

the company. We would leave business strategies, marketing

faces challenges related to contracting, training and controls,

and designs all to the other party, Ducati in this case, and we

mainly because it aims for perfect assembly operations to

would support some manufacturing issues where we can add

make the vehicle functional. Despite these challenges, the

value to the product.”

local operations are reporting strong results, Mirensky says. Historically, Bajaj has worked with 100cc and 200cc

There is a great opportunity to increase the company’s

models but it wants to introduce motorcycles with larger

position in the Mexican motorcycle market thanks to several

displacements. Mirensky believes that Mexicans are becoming

factors, according to Mirensky. “Mexican consumers are more

more critical in their choices, comparing prices and products,

than aware of the price of gasoline here, and the general

so there is space for different brands. “There are different Bajaj

advantage of motorcycles over cars is that they use much

products, price ranges for different budgets and we want to

less fuel.” The company performed a test in a typical route on

give the best value possible at the best price,” he adds.

the streets of Mexico City to compare the times and costs of a motorcycle against public transportation and private vehicles.

Despite its successes, Mirensky sees much work ahead in

In the end, motorcycles proof more advantageous. “This was

Mexico. “The motorcycle market keeps growing in the country

proof that regardless of whether a buyer has the money to

but it is not yet at the level of countries like Colombia, Brazil,

buy a car, the motorcycle presents a reliable mobility option

Argentina,” he says. “This is related to the car-centric culture

and it is growing in popularity every day,” Mirensky says.

INSIGHT

MOTORCYCLES: AN URBAN MOBILITY OPTION ALBERTO TANUS Director General of Italika

Motorcycling in Mexico has not yet reached the popularity

behind. Italika’s 500,000 motorcycles sold annually reflect

that dealerships hoped but it has been growing over the

demand for alternative transport that is not as costly as a car

years. INEGI reported during the last quarter of 2016 that

but gives the user more control, Tanus says.

2.2 million bikes were circulating on the streets. Although the market is not at its peak, the country’s top-selling brand,

However, motorbikes can be both a problem and a solution

Italika, sees great potential just down the road. By targeting

when talking about mobility, Tanus says, adding that various

people whose habits are evolving toward new mobility

issues must be addressed for motorcycles to become a viable

alternatives and providing more affordable products, the

alternative. “Brands must promote better use of motorcycles

company says it is on course to sell a million bikes, doubling

in terms of safety, by providing active training.” When

its current yearly sales.

motorbike owners are in areas where they do not know the regional rule of law on bike use, they can become a hazard.

“We did not enter the market to take customers away

These problems arise due to the user’s ignorance, which could

from Honda, Yamaha or any other brand. We created our

be corrected with proper training.

own market, developing the category in which we wanted to participate and increasing the overall audience for

Another inhibiting factor is the government. If the legal

motorbikes,” says Alberto Tanus, Director General of Italika.

framework including Mexico City’s mobility law had welldefined incentives, motorbikes could become a mobility

Italika established its manufacturing operations in Toluca for

solution, Tanus says. “Cities should also have adequate

better market development and to speed up penetration,

parking for motorcycles, since units parked on the sidewalk

Tanus says, “but motorbike manufacturing still has room for

obstruct pedestrians, posing another problem. Mexico’s car

development in the country.” Components of national origin

culture can cause further complications because when the

are required for Italika to no longer depend on imports. The

police tow an illegally parked motorcycle, they rarely have

automotive industry already supplies motorbike assembly

the tools to do so properly and may damage the bike by

with a certain level of local content but in the motorcycle

removing it with equipment for towing a car.” Despite these

industry, there are areas of opportunity that have not been

issues, Italika is confident of driving its sales up. “The potential

exploited, according to Tanus. “During the crisis of 2008,

market of 1 million motorbikes per year is not an idea that

we tried using local automotive industry suppliers to take

can be discarded for those of us in the industry. In the long-

advantage of their production capacity but they were

term, motorbikes could be considered an excellent option

not familiar with our business, even though some parts of

for Mexican mobility.” Market growth is expected to remain

a motorcycle are similar to those of a car,” says Tanus. He

constant and Tanus speaks of double-digit increases in sales.

suggests that it would be easy for several suppliers to cross

This will be derived from an expansion of the company’s

over; tire makers for example could simply make different tire

distribution network and a wider range of models to extend

shapes and sizes with the same raw materials.

Italika’s products to more consumers.

Tanus says motorcycles are gaining speed as an alternate

Italika already has 3,500 points of sale in the country, 200 of

mobility solution. “We are looking to give people access

which are specialized distributors. The company also ventured

to their own means of transportation, allowing them to be

into online sales in 2016, which accounts for 1 percent of its

more efficient while conducting their daily activities in a

annual sales. “The fact that there is interest from the consumer

comfortable, reliable and fun way,” says Tanus. The company’s

so quickly tells us this sales outlet has great potential,” Tanus

priority is to make customers feel confident that bikes will

says. One sticking point is that delivery of online purchases

meet their transportation needs. Italika is specifically targeting

requires a complex logistics process, with direct distribution

people who want to leave either the traffic or public transport

from the plant.

237

VEHICLE SPOTLIGHT

238

HARLEY-DAVIDSON STREET ROD® Even luxury manufacturers are no strangers to current mobility needs. Harley-Davidson designed the Street Rod® with a single purpose in mind: to make the most of it in an urban environment. From fender to fender, the bike has been carefully designed to address the growing niche of efficient mobility. The Street Rod®’s single overhead-cam 8V 60° V-Twin High Output Revolution™ X 750 engine has 8 percent more torque than the Harley-Davidson Street® 750 with a total of 64Nm. The engine is tuned to deliver its best power output between 4,000 and 5,000rpm, with a strong midrange performance that allows the driver to enjoy the bike in most common street situations. Its compression ratio has also increased to 12.0:1 from 11.0:1, allowing power to be delivered between 8,000 and 9,000rpm. The High Output Revolution™ engine was designed to match the geometry of the Street Rod® chassis and its aggressive driving constitution. The bike’s suspension and brakes have also been redesigned to offer agile handling. The Street Rod® chassis includes rigid USD forks of 43mm supported by lightweight aluminum rods and an angle of between 32° and 27° to improve handling. The rear shock absorbers feature an external deposit to increase flow capacity and maintain stable absorption. The bike includes double-piston calipers and front disk brakes of 300mm, as well as anti-lock braking system (ABS) to improve braking control. To support all mechanical adjustments, the seat has an unladen height of 765mm to improve visibility and the bike’s tilt angle has increased to 37.3° on the right and 40.2° on the left from the a previous maximum of 28.5° on both sides for better handling.

The High Output Revolution™ X 750 engine has a torque output of 64Nm The Street Rod® follows Harley-Davidson’s Dark Custom™ concept based on lean and aggressive lines. The bike is available in three colors: Vivid Black, Charcoal Denim and Olive Gold, all sporting black 17-in, seven-split, openspoke cast aluminum wheels and new Michelin Scorcher 21 tires sized 120/70 R17V on the front and 160/60 R17V on the rear.

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NAICM Mexico City

FLEETS & LOGISTICS

Reaching the industryâ&#x20AC;&#x2122;s target to produce 5 million light vehicles by 2020 will be a feat on its own. However, once the industry reaches that number, companies will need to get those cars to the final client. Mexico being a natural logistics hub, proper infrastructure and customs policies are essential to ensure a healthy operation, not just in automotive but in every industry. More than half of the national cargo moves by truck and besides a more complete road network, the only way to make the logistics process more efficient is by developing strong rail and port infrastructure.

Fleets & Logistics highlights the challenges and opportunities within the logistics sector both from a user and a service-provider standpoint. Technologies used to improve logistics through telematics are also featured along with their potential impact on efficiency and security. Legislation and new trading systems are also discussed, along with new international agreements impacting Mexicoâ&#x20AC;&#x2122;s automotive sector.

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CHAPTER 10: FLEETS & LOGISTICS 244

ANALYSIS: Mexico Improving Infrastructure but Hurdles Abound

245

VIEW FROM THE TOP: Benito Neme, CAPUFE

246

MAP: Main Ports, Airports and Highways for the Automotive Industry

248

VIEW FROM THE TOP: Piotr Zaleski, Hellmann Mexico

Honorio Rodríguez, Hellmann Mexico

250

INSIGHT: Miguel Trejo, Agility Mexico

251

VIEW FROM THE TOP: Alejandro Marines, GEFCO México

253

VIEW FROM THE TOP: Eduardo Alba, Expeditors

254

INSIGHT: Christian Speit, DACHSER Mexico

255

INSIGHT: Torge Koehnke, DSV Air and Sea

257

VIEW FROM THE TOP: Erik Meade, Panalpina

258

VIEW FROM THE TOP: Antonio Vargas, Mexproud Shipping

259

INSIGHT: Justin Facey, TIBA Logistics Solutions

260

VEHICLE SPOTLIGHT: Symmetrical All Wheel Drive + Motor Subaru Boxer

262

VIEW FROM THE TOP: José Luis García, DHL Supply Chain México

263

INSIGHT: Daniel Miranda, UPS Mexico

264

VIEW FROM THE TOP: José Zozaya, Kansas City Southern de México

265

VIEW FROM THE TOP: Ernesto Donnadieu, Ryder de México

266

VIEW FROM THE TOP: Humberto Cantú, Dicka Logistics

243

José Vega, Dicka Logistics

267

INSIGHT: Rafael Mora, Corrubox México

268

INSIGHT: Miguel Cavazza, Walmart de México y Centroamérica

269

VIEW FROM THE TOP: Ángelo Gordillo, Sitrack México

270

INSIGHT: Andreu Casadellà, TomTom Telematics

271

VIEW FROM THE TOP: Barak Gazit, Traffilog Latin America

272

ROUNDTABLE: How Satisfied are You With the Available Talent Pool in Mexico in Terms of Logistics?

ANALYSIS

MEXICO IMPROVING INFRASTRUCTURE BUT HURDLES ABOUND Investors consider Mexico an ideal entry point to access 46 other markets including the US thanks to a wide array of FTAs. The country’s trade and natural geographic advantages, however, is now being limited by its saturated infrastructure and faulty administrative processes regarding logistics Recognizing that the intertwined logistics problems have an

Transformation Area at EY Mexico's Automotive Center, told

impact on the country’s competitiveness, the government has

Mexico Automotive Review (MAR) 2016: “It is vital to expand

set out to make improvements, investing large amounts in the

the current logistics network with roads and railroads, ports

renovation of roads and the construction of new highways

and dry ports. Existing infrastructure is barely enough and

and railroads. According to the Ministry of Transportation

many highways are already showing signs of overcapacity.”

(SCT), 26 highways have been constructed or expanded

Logistic costs in Mexico can represent from 10 to 40 percent

since 2012 and the current presidential administration’s goal

of a product’s overhead. In developed countries, this cost

is to complete a total of 54 by the end of its term in 2018.

is only 10 percent. As the automotive industry grows, more cars need to move across the country to reach either ports,

244

Even so, transportation remains a hurdle. “Mexico has

airports or the border with the US, 5 million by 2020 to be

improved its road infrastructure but there are still some

precise. Without enough connectivity, rather than being in

obstacles on major highways. One of the challenges for

a privileged position, companies will face added expenses

Mexican exports via road and air is also the efficiency of

related to logistics problems.

customs procedures. This is one of the most difficult areas for the logistics industry because truckloads repeatedly may

Airport infrastructure also poses issues of its own. Mexico has

have to wait weeks at the border before they can cross,”

the third-largest number of airports in the world, after the

says Agustín Picado, Country Manager of UPS Mexico.

US and Brazil, with a total of 1,414 airports reported by the

“

Existing infrastructure is barely enough and many highways are already showing signs of overcapacity” Andrés Lerch, Advisory Partner and Leader of the Operations Transformation Area at EY Mexico's Automotive Center

General Direction of Civil Aviation (DGAC) in 2015. However, not all are operational or available to most aircraft. Only 360 of those airports are certified by DGAC and many of those are unused. According to the Global Competitiveness Index 2016-2017, Mexico ranks 61st out of 138 countries in quality airport infrastructure. The federal network of Mexican airports shows only 76 are officially registered. Of all flights in Mexico, 76 percent are concentrated in only 10 airports, according to DGAC. Internally, operating airports also must confront difficulties. Francisco Pertierra, the Director General of AeroUnion, says smaller airports “do not have the necessary infrastructure to load and unload large cargo airplanes.” This forces cargo companies to either use smaller aircraft or to move loading equipment to the final destination, increasing

Among the solutions are free-trade zones (FTZ) that have

costs. Those flying into Mexico’s capital and largest business

gained importance as an option for companies to make

hub, Mexico City, arrive at Mexico City International Airport,

their border crossing more efficient. Under the Customs

which is saturated.

Technologic Integration Project (PITA), established by the Ministry of Finance and Public Credit and the

The construction of the New Mexico City international

Tax Administration Service, the government expects

Airport will ease things up, according to Erik Meade,

to modernize and digitalize 60 points of revision that

Country Managing Director Mexico of Panalpina, as one

manage almost 99 percent of all customs operations in

of the main dilemmas for the country’s airports is the

the country, allowing companies to receive their goods

priority of passengers over cargo. “The government should

directly at the industrial park instead of waiting for

incentivize the construction of more airports throughout

approval at the border.

the country, mostly because the issue directly relates to Mexico’s competitiveness,” he said. “The Bajio region

Industry watchers says much more is still needed. Andrés

is growing thanks to the automotive industry, yet some

Lerch, Advisory Partner and Leader of the Operations

locations would benefit greatly from better air connectivity.”

VIEW FROM THE TOP

LOGISTICS OPERATORS WANT ONE UNIFORM TOLL SYSTEM BENITO NEME Director General of CAPUFE

Q: How do CAPUFE, the Communications and Transport

A: With the goal of optimizing transport times, the most

Ministry (SCT) and the federal government collaborate on

common demand from fleet managers and road users is to

the allocation of resources for highway projects?

employ only one electronic toll collection system (ETS) for

A: SCT has sole responsibility for new highway projects

all toll roads in the country. To address this issue, SCT in

while CAPUFE is in charge of all renovation, extension and

collaboration with all road operators across the country put

modernization initiatives for the infrastructure it manages.

in motion the Interoperability System in 2014. At the same

We establish all priorities related to the concessions

time, the ministry implemented the new ETS established

granted to CAPUFE and we communicate those to SCT. The

by CAPUFE, which is now used as a reference for all other

ministry then negotiates the allocation of resources with

operators in the country.

the Ministry of Finance and Public Credit (SHCP) during the establishment of the Federal Expense Budget in each

To ensure the efficient implementation of the new ETS,

fiscal term. Regarding projects for highways and bridges

CAPUFE modernized all its electronic toll equipment

managed by the National Infrastructure Fund (FNI), CAPUFE

and introduced multiprotocol antennas to ensure a wider

is in charge of designating the necessary resources needed

capability to detect and read different ETS protocols,

for each project and presenting a proposal to Banobras.

including 18000-6B, 18000-6C and IAG. Currently, of the

This entity then submits all projects for authorization to

1,032 lanes with ETS booths in CAPUFE’s network, we have

FNI’s Technical Committee, which includes SHCP, SCT, the

installed multiprotocol antennas in 692. This modernization

Ministry of Public Affairs and Banobras.

project has strengthened the network’s multimodality, increasing users’ payment options.

Q: How much are tolls expected to rise in the coming years and how are those resources going to be allocated?

Q: What are CAPUFE’s investment plans regarding

A: FNI instructed CAPUFE to increase all tariffs in its road and

technological development and modernization of ETS

bridge network by Nov. 30, 2016. Tariffs had not increased

infrastructure?

since 2012, which represented a significant lag when

A: Between 2012 and 2016, CAPUFE invested nearly

compared to the 18 percent accumulated inflation between

MX$800 million (US$45 million) in the renovation of toll

2012 and 2016. Tariffs have been updated with an average

booths and equipment in the Mexico City-Cuernavaca-

increment of 8.7 percent to balance this disparity. New tariffs

Acapulco corridor, as well as the Chamapa-Lecheria

generate more resources, which in turn can cover operating

highway. This investment has reduced crossing times at

expenses, as well as maintenance for all roads.

all toll booths. CAPUFE still has more projects planned for the administration’s remaining term and in 2017 we started

Q: How much of CAPUFE’s budget is destined for

a technological modernization project in the Mexico City-

maintenance operations?

Queretaro-Irapuato corridor. These roads are crucial to both

A: Annually, CAPUFE allocates approximately 56 percent of

industry and tourism due to the volume of private and cargo

its budget to low and high-maintenance projects. The current

vehicles circulating daily. This is only one stage in a long

administration has made a historically high investment in

project CAPUFE has set in motion to benefit users and

infrastructure preservation, allowing CAPUFE to maintain its

the country.

entire network. Just in 2017, CAPUFE’s budget for preservation and renovation was MX$7.28 billion (US$409.8 million). Federal Roads and Bridges (CAPUFE) is a decentralized entity

Q: What are the most common demands from fleet

with over 50 years of experience in the management of toll roads

managers and operators regarding the conditions of roads

and bridges. Its goal is to exploit and manage all roads and bridges

managed by CAPUFE?

operated by itself or through other entities by concessions

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MAIN PORTS, AIRPORTS AND HIGHWAYS FOR THE AUTOMOTIVE INDUSTRY

Tijuana

Mexicali

CiudadJuarez Ensenada Nogales

Santa Ana

Hermosillo

Chihuahua

Ciudad Obregรณn

246

Torreon

Culiacan La Paz

Todos los Santos

Durango Mazatlan Zacatecas

Aguascalientes

Tepic Leon Guadalajara Irapuato

Modernized Federal Highway Highway

Zamora Manzanillo Colima

Not Modernized Within the New National Logistics Platforms System Integral Port Administration (Private) Construction of Specialized Terminals and Installations New ports Expansions Ports and Terminals tendered to the State Integral Port Administration Integral Port Administration (Federal - STC) Airports

Source: Ministry of Communications and Transportation

Laz

Piedras Negras

Nuevo Laredo

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Reynosa Matamoros Monterrey Saltillo

Ciudad Victoria Altamira

Cd Valles San Luis PotosĂ

Tampico Cancun Progreso

Tuxpan

Queretaro

Merida Tulum

Campeche

Atlacomulco Morelia

Mexico City

Toluca

Jalapa

Cuernavaca

Chetumal

Veracruz Puebla

zaro Cardenas

Villahermosa

Chilpancingo

Oaxaca Tuxtla Gutierrez

Acapulco Salina Cruz

Ciudad Hidalgo

VIEW FROM THE TOP

FOCUS ON SERVICE SPURS ABOVEAVERAGE GROWTH Piotr Zaleski President and CEO of Hellmann Mexico

Honorio Rodríguez Automotive Logistics Manager of Hellmann Mexico

Q: What have been Hellmann’s main drivers of growth

countries. We have enough experience in road, rail, sea

since 2016?

and air transportation and we also offer sequencing and

PZ: Depending on our line of business, we are growing

distribution solutions. Now, we are trying to bring all that

between 10 and 15 percent year-on-year, which is above

knowledge to Mexico.

the logistics industry’s average of approximately 5 percent. 248

Service has been a priority for Hellmann and has been

PZ: Having developed our sea and airfreight services

the cornerstone of our growth. Unlike other companies

it is time to bring our warehousing and distribution

that focus on building their commercial presence first, we

operations to Mexico. Challenges regarding local

seek to be as close to our clients as possible. We open

infrastructure make these services crucial for clients to

operations offices wherever we are needed. We prefer to

remain competitive. We are analyzing how our clients’

not offer our services when we know we cannot comply

distribution centers are spread across the country and

with clients’ requirements and we have found they value

based on that, we are creating the best solutions for

this honesty. There is nothing worse than a failed project

the company. This will also help us minimize waste in

and having a negative reputation preceding you.

the supply chain, which is where we see the biggest opportunity in the Mexican network.

Our staff is also a huge part of our success. Our talent turnover per year is less than 1 percent, which gives

Q: Why had Hellmann not explicitly targeted the Mexican

clients confidence in how things are run at our company.

OEM sector before?

Our clients always deal with the same person, which

HR: Today, Hellmann’s operation in Mexico has grown

ensures continuity. At Hellmann, we always try to develop

enough for us to offer this service effectively and with

our own talent first, before hiring someone new to fill a

good revenue margins. We secured an OEM client in March

high-level position. HR: We saw good results in 1Q17 and among our different Vertical Industry Solutions (VIS), the automotive industry wa s a m o n g t h e m o st s u cce ss f u l , representing 40 percent of Hellmann’s

2017 and we are negotiating an umbrella

20%

Hellmann’s road freight and intermodal operations

total revenue in 2016. The arrival of new OEMs has proven an advantage for the

contract with another company to offer a similar service to what we do in Europe. Q: What do you see as the main obstacles for Mexico to grow as a logistics hub? PZ: The automotive industry keeps growing but the road and rail infrastructure is reaching its peak. Meanwhile, sea and

company, both through direct targeting them directly as

air transport providers are not normally aligned to the

well as their supplier chain.

needs of the market, causing over or under-capacity situations that have to be addressed. Ports and custom

Q: What are Hellmann’s plans to offer added value to

offices are also critical factors that cannot be overlooked.

automotive clients?

Mexican ports are among the most expensive in the world.

HR: In Mexico, 40 percent of our operations are managed

All customs offices have different points of view and

through ocean freight, 40 percent with airfreight and

bureaucracy is increasing costs radically. The only way for

the remaining 20 percent is divided between road

Mexico to compete with other logistics hubs is to integrate

freight and intermodal services. Until now our focus

customs agencies into the supply chain.

was on Tier 1 and Tier 2 companies but we have started working with various OEMs located in Mexico. We already

Investment in logistics infrastructure and human capital

work with several European automakers in their home

development is vital for Mexico’s growth. Talent will be

Mexico’s tool to compete with more advanced economies and companies can contribute by helping young people reach their full potential. Having a cultural exchange within Hellmann has helped our Mexican team learn best international practices and it helps foreign employees understand how the local market works. We want to bring our international best practices to Mexico, which

Almost 40 percent of Hellmann's revenue comes from the automotive industry

means all spending on training is an investment more than a cost.

The company is also focusing on improving the IT department and establishing a better connection with

Q: How have Hellmann’s operations in Mexico impacted

clients’ operations. This is particularly important in the

your client-attraction strategies?

automotive sector where large amounts of data are

HR: We are selective with our clients because we think

generated and shared. We are consolidating the clients’

we can offer a better service if we remain specialized.

ERP software into our own platform, offering companies

Many of our existing contracts have been sealed thanks

a much more condensed analysis of how their cargo is

to referrals from our existing network.

moving, which components are being shipped and what transportation providers they are using. These projects

PZ: As a family company, we are flexible enough to

are still limited but we expect more companies to be

transform our operations locally and globally. We react

interested before the end of 2017.

quickly, which proves a clear advantage especially with automotive companies. But not all companies match

Q: How do you see the relationship between Mexico and

Hellmann’s philosophy and just as we choose our

the US impacting logistics operations?

providers, we choose which companies we can cater to.

HR: Due to our German origins, our biggest market

The only way to have a healthy client portfolio is to have

opportunity is in logistics operations from Europe, Asia

a mixture of big, medium and small clients. Moreover,

and South America. But what we saw was more fear and

clients that move one container per month are just as

uncertainty than an actual negative impact to general

important as those moving 100 containers in that same

operations. We had many secured contracts and both

period. Rather than just numbers, clients are faces that

OEMs and suppliers kept coming to the country despite

we recognize each day.

announcements made in the second half of 2016.

Q: How is Hellmann innovating in technology and what

After the announcement of an OEM divesting in San Luis

new applications are available?

Potosi, many companies that were planning to follow that

HR: Our real-time, end-to-end cargo monitoring system

OEM panicked. Luckily, they did not lose the business

for sea, air and road transportation, Hellmann Smart

and they only had to transfer their operations to other

Visibility, is gaining ground in the market thanks to its

production sites. Companies also have many markets

security advantages. We have also created a variation

to develop other than the US and some Mexican plants

of this platform called Sky Angel, which connects cargo

are the sole manufacturers of certain vehicle models

directly with the police force. The original platform

that are distributed globally. Although the US remains

allowed clients to know where the cargo was and how

Mexico’s biggest client, companies are taking advantage

the operator was performing. This new version sends an

of Mexico’s other trade relationships.

alert to authorities, shortening the response time in case of any eventuality and increasing the recovery rate of

The only clients that remain more cautious are the ones

stolen containers.

supplying predominantly to OEMs in the US. These companies are waiting to find out how the business

The original Smart Visibility add-on is a growing

relationship between Mexico and the US will develop

technology advantage and we keep working on improving

before continuing their own growth initiatives. This does

it. Customs cannot release the system as part of the

not mean they are diminishing their production capacity

cargo, representing added costs for clients. This has

or previous investments in the country.

forced us to limit this solution to the export market. With Sky Angel, however, we have had more success in national freight. We noticed that the biggest security risks are in

Hellmann Worldwide Logistics is a third-party logistics

the last stretch of the cargo’s journey. We presented this

provider founded in 1871 by Carl Heinrich Hellmann. The

product in 2017 and are gradually overcoming the fact

company now has a network of 19,300 employees in 443

that prevention culture is not that common in Mexico.

branches located in 157 countries

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INSIGHT

PERSONAL TOUCH INTEGRAL TO WINNING FORMULA MIGUEL TREJO Sales Director of Agility Mexico

The personal touch can be the determining factor in winning

The company works in a variety of industries but its focus is

and retaining clients by instilling confidence that a job will

on the automotive industry. Cooperation with large vehicle

be done well. In the logistics segment, this means ensuring

manufacturing companies remains largely unexplored

supplies will arrive punctually and intact, regardless of the

because Agility specializes in alleviating the logistics

complexity of the transport means.

challenges of the suppliers to these manufacturers. “The Agility Connects' suite of advanced IT tools gives customers

250

“I like to make collaborative relationships with our

visibility and control over their supply chains,” says Trejo.

customers, especially with companies also focused on

The company even provides the possibility of locating

improving their supply processes not only in terms of cost

a specific piece or article inside a container with just an

but also in efficiency,” says Miguel Trejo, Sales Director

SKU through its Agility Orders Management tool. Another

of integrated logistics provider Agility Mexico. “Many

benefit offered is notification of proactive status. This is how

customers are looking to reduce costs. If we do our job

an executive within an automotive plant can track anything

well, we create a partnership in which logistics savings are

through an Electronic Data Interchange application, which

not just a reduction of our prices.”

also allows access to information in real time.

A third of Agility’s Mexico operations are related to the

Unsatisfied with just technological improvement, Agility

automotive market. The company’s goal is to treat different

continues to define areas requiring attention, such as

types of customer, from SMEs to big multinational companies,

infrastructure. Trejo explains that the advantage of working

in the same way – an approach born from its roots as a small

in automotive is that it affords an understanding that while

company itself in Kuwait. Agility has grown both organically

the government has invested heavily in infrastructure,

and through mergers with global brands. Today, a logistics

“we still see some areas of opportunity that need to be

provider like Agility Mexico with a presence in more than

addressed including road quality and railroad concessions.”

120 countries is an added value for its customers, Trejo says.

Approximately 75 percent of cars are transported either to the US or to a port for importation or exportation at some

Because it was founded in an emerging market, the company

point during the production process. Rail infrastructure needs

has focused on serving businesses in these countries.

to be improved to provide more options for moving parts

Typically, big logistics providers are from Europe or the US,

and vehicles. Access to sound infrastructure is necessary to

which can cause them to lose touch with all the challenges a

guarantee delivery times, reliable execution and safe transfers.

small business may face. Consulting firm AT Kearney estimates

Customers work with Agility so they can focus on their core

that logistical costs in Mexico represent 12.6 percent of the

business, Trejo says. “You have to map the customer’s needs

supply chain’s overhead, so savings are not to be sniffed

for each solution. Simply giving a quote online does not

at. While 40 percent of these logistics costs corresponds

necessarily solve the customer’s genuine needs.”

to transportation, the remaining 60 percent is related to inventories, order processing, warehousing and planning for

Another issue for customers is continuity. “We are the best

transport operations.

option for transfers of complete production lines, including disassembly, transportation, logistics and reinstallation

Agility provides freight-forwarding products for air, sea

when companies want to work in another country. Mexico

and road. It also has logistics, including warehousing,

is in eighth position among emerging markets for our

distribution, systems and technology and specialty services

operations out of the total 120 countries in which we have

for companies worldwide. The company can suggest the

a presence. Because Brazil, one of the most important

best mode of transportation and the most efficient route to

economies in Latin America, is struggling with a complex

cost-sensitive customers.

situation, it is the moment for Mexico to shine,” says Trejo.

VIEW FROM THE TOP

FRENCH GIANT SEEKS GROWTH IN MEXICO ALEJANDRO MARINES Director General of GEFCO México

Q: How is GEFCO positioned in the Mexican market?

go wrong. This keeps us from improving our quality and

A: We are in a transitional process. The company is growing

satisfying the demands of our customers. The public and

and establishing relationships with other businesses. Every

private sectors must work together to solve infrastructure

company starts with someone and our first partnership

issues and put new projects in motion as soon as possible.

was with Peugeot. From there, we grew our presence and approached other companies worldwide. We can

Q: What environmental strategies is GEFCO implementing

offer automotive companies every service they need to

in its operations?

grow their operations, including vehicle transport, internal

A: We have two long-term projects with other companies to

logistics and auto part shipments for the aftermarket. We

build reverse logistics services. However, to make this viable

endeavor to improve our portfolio in a local way, supported

for the market, we need the participation of companies willing

by our global experience. Most of our competitors are

to share their packaging. We must also establish a solid

specialized either in inbound or outbound operations. Our

network with recognized routes to make our transportation

advantage is that we can do both. Our participation in

operations efficient. Furthermore, we need to understand if

Mexico is expanding and on average, we are growing our

our clients use cardboard, plastic or pallets and how they

revenue by 30-35 percent each year. We are still a small

usually transport their products. Without that information,

player in the country but we are getting stronger.

we would only waste resources. This service is still incipient in Mexico because there are few clients willing to participate.

Q: Your solutions are handled by a control tower that coordinates GEFCO’s entire supply chain. How does that

Another element of our environmental strategy is to keep

work in Mexico?

trucks in the best possible condition. As soon as we grow our

A: The control tower is located in Paris and works with

customer base, we will be able to do more in the sustainability

Mexico to coordinate the work with Peugeot Argentina

area. I expect to see electric heavy-duty trucks in the future.

and Brazil. This tower coordinates auto part shipments to

Electric cars are already here, which is why I think it is part of

Peugeot’s facilities in these countries. These operations

our responsibility to innovate with these kinds of solutions.

combine many types of transportation to reach their destinations. Sometimes we combine ground transportation

Q: What are your growth expectations for 2017 and how

with storage, sea containers, customs services and whatever

does innovation impact your planning?

our customer needs. Our control tower is in charge of

A: Our expectation is to maintain 35 percent growth, just

measuring all distances, estimated arrival times and costs,

like in previous years. We are always looking to reduce our

so we can align all operations to the client’s budget. The

costs. We know that logistics costs are a key part of supply-

experience we have in the automotive industry has also

chain development, so we must be creative enough to keep

helped us expand to other sectors, working together with

our prices competitive by introducing new technologies.

our customers to continuously improve.

Online operations are growing, for example, which means we need to adapt to new e-commerce strategies and learn

Q: What hurdles have you identified to improving logistics

to compete in new markets. The automotive sector is always

operations in Mexico?

evolving and we need to keep up with our clients’ growth.

A: The logistics market in Mexico is big and has great potential. However, we need more investment from the government in better and safer infrastructure. In theory, this is not the

GEFCO is a French logistics provider for manufacturers

responsibility of the logistics companies but we are the ones

with global operations. The company offers ground, air, sea

that suffer due to bad road conditions. Even when we have the

and rail transportation for a variety of industries including

technology, the infrastructure can make logistics operations

automotive

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VIEW FROM THE TOP

SINGLE PLATFORM ENSURES CLEAR SHIPPING STRATEGY EDUARDO ALBA District Manager of Expeditors

Q: How do you capitalize on your global network to benefit

as the Mexico City airport with its limited customs holding

clients?

areas, also make it more difficult for companies that

A: We have different offerings for all industries but our

manage airfreight.

core solutions include our single platform and business solutions department. We have a single system for all

Q: What are the main competitive advantages you offer

different branches. When customers do business with us,

to clients?

they work with one single system no matter where they

A: Our main advantage is our organic growth involving our

are in the world. The platform is electronically integrated,

systems and staff. The fact that we have not sold, bought

which allows us to have a wide variety of different

or merged with other companies has allowed us to have

measurement tools for customers. Our single platform is

a single platform. This also ensures a clear strategy for

reliable and gives real-time information for tracking from

human resources. We hire mainly from Mexican schools and

all branches that have access.

almost never from the competition. The company offers an internship program, in-house training that motivates

Q: What specific solutions have you created for the

our employees, and a very low turnover rate. Our staffing

automotive manufacturing industry?

stability creates stability within the company, which is as

A: Our business solutions department integrates end-to-

important as client retention for a company to prosper.

end solutions for automotive customers. Although airfreight is our strongest sector, we consider ourselves to be logistics

Our market penetration in Mexico is similar to our market

integrators. The more our business solutions department

share in the rest of the world. We are growing because we

can integrate different areas for our customers, the stronger

can offer integrated solutions to customers and promise

our solutions will be. We manage a lot of airfreight for the

excellent customer service. Expeditors is a company that

automotive industry and we have new technological tools

grows organically, based on opportunities and a strong sales

to help them with reliable tracking. We are working closely

presence that relies on expert knowledge and experience.

with the automotive industry because airfreight services will

We have excellent relationships with all the trucking

always be required. They must react quickly to changes and

companies, airlines and warehouses. We also develop solid

orders to keep production going.

partnerships with other companies not related to airfreight. One of the reasons for opening the office in Queretaro was

The shipping methods that clients prefer depend on

to create a closer relationship with these businesses.

their budgets and the industryâ&#x20AC;&#x2122;s needs. Automotive has production constraints so companies need to move

Q: What are your expectations for 2017?

products quickly. All these industries need a fast airfreight

A: We have very high expectations. Our customersâ&#x20AC;&#x2122; growth has

service. Trucking is another option for industries that do

not slowed and this is encouraging for our business. Our own

not have these constrictions, assuming they ship to the US

growth in the past five to six years has been rapid, and there

and Central America.

are still some industries and markets we want to penetrate. We expect 2017 to be a big year for Expeditors in Queretaro

Q: What are the main challenges you face in Mexican

and we hope to gain more business in the Bajio region.

industry? A: Infrastructure problems are the main challenge, especially for airfreight, which has been developing at pace with the

Expeditors offers end-to-end logistics solutions. Their 16,000

countryâ&#x20AC;&#x2122;s growth. The limitation of direct international

long-term industry experts support a comprehensive suite of

flights from most Mexican cities results in expensive and

global services, managing and tracking logistics activity at the

time-consuming cargo changes. Old infrastructure, such

level of a part or vehicle identification number (VIN)

253

INSIGHT

MEXICO INTEGRAL TO LOGISTICS LEADER’S STRATEGY CHRISTIAN SPEIT Managing Director of DACHSER Mexico

254

Mexico has enjoyed solid growth over the past years but

Clients have visited the company specifically looking for

a lack of infrastructure could hinder its potential, says

this personal service after having been disappointed by

the Managing Director of DACHSER’s Mexican subsidiary,

competitors in logistics, says Speit. DACHSER Mexico

Christian Speit, who nonetheless sees a solid future for the

is also moving into consumables and pharmaceuticals

country’s industries. “In this emerging market, we have seen

but automotive continues to represent 60 percent of

growth for decades and perceive it as the country with the

DACHSER’s local operations.

greatest potential in Latin America.” Environmentalism plays an important role in the company’s DACHSER understands diversity. The German company

strategy. It is driving toward greener operations and calls

was founded in 1930 during the Great Depression, amid

on its suppliers to follow suit if they want to partner up. As

the Wall Street stock exchange’s collapse that took the

a European leader in environmental activities, DACHSER

global economy with it. Today, the logistics provider acts

works with stakeholders throughout Europe to reduce

with a long-term vision for business, client relationships

air pollution. “This is more difficult in Mexico because

and the environment. “Any decision we make is based on

we do not operate our own logistics facilities here,”

achieving sustainable growth. The fact that we achieve

says Speit. The company would ideally implement more

healthy year-on-year growth proves that this strategy is

environmentally friendly engines in its trucks as it does

working,” says Speit. Now that Mexico has captured nine of

among its subcontractors in Europe. “But we take care

the last 11 announced assembly plants in North America, as

to choose suppliers that share our green perspective and

reported by the Center for Automotive Research, Mexico’s

comply with emissions restrictions.”

importance has grown for DACHSER, a global leader in logistics, to become a focal location for the company. “We

Working in Mexico has its challenges and chief among them

obtained the best results in the history of DACHSER Mexico

for many logistics companies is the local infrastructure.

in 2016, reaching double-digit growth and we expect to do

according to Speit. Transport companies have expanded and

the same in 2017,” says Speit.

serve the emerging and established industries effectively but without investment in ports, airports and railroads, the

Bernhard Simon, DACHSER’s CEO, reiterated the company’s

country will fall behind. “Using cargo trains would reduce

strength at a press conference in April 2017, having

pollution because there would be fewer trucks on the

maintained a stable global market position through organic

highways,” he says. “Mexico is already investing in the Lazaro

growth. “DACHSER continued to grow in fiscal year 2016,

Cardenas port and in the new airport in Mexico City but the

generating consolidated gross revenue of around €5.71

economy is growing even faster than the transport links.”

billion, representing a consolidated revenue increase of 1.7 percent on the previous year.” Tier 1 and 2s represent

To ensure smooth operations, whichever mode of logistics

the majority of DACHSER’s automotive clients in Mexico,

is chosen, DACHSER offers another transport management

for whom maritime and air freight are the most popular

system that links all activities on the ground and

solutions. Speit says the company plans to implement other

warehousing, which tracks every delivery. Labeled Othello,

services, such as road freight and consolidated logistics,

it was rolled out in Mexico in April 2017 to ensure uniform

that would complement its solutions.

operations across sea and air freight. “Having standardized processes that are well integrated with our global, self-

Speit says the company stands out because it adapts

developed IT systems has been the key to DACHSER’s

to the client, offering a range of solutions for air and

worldwide success,” says Speit. “Our goal is to be the best

sea and additionally offering integrated connection to

integrated logistics option for our clients, so we want to

the company’s comprehensive European road network.

grow in line with them,” says Speit.

INSIGHT

“

FLAT HIERARCHY ENABLES SWIFT DECISIONS

Different sectors expect us to offer tailor-made services and to provide an expert operation in their industry” Torge Koehnke, Vice President of Latin America at DSV Air & Sea

Like many logistics companies in Mexico, security — and organized crime, in particular — remains an issue. Koehnke says that thieves are more skilled now and companies are understandably concerned with the possibility of losing complete truckloads without a trace. Mexico City and the State of Mexico are highlighted as regions with high crime rates. The National Public Security System (SNSP) counted 1,000 assaults on cargo shipments between January and November 2016, specifically with vehicles on highways.

In an industry characterized by varying products and

The number may be higher as crimes are not always

fluctuating volumes, the automotive industry requires

reported, according to Yolanda Bernal, President of the

flexible, quality transport services, which logistics

Mexican Association of Vehicle Tracking and Protection

companies strive to provide, says Torge Koehnke, Vice

(ANERPV). This also discourages all but the truly

President of Latin America for DSV Air & Sea. To widen its

passionate to become truck drivers, says Koehnke, who

coverage of the supply chain, DSV Logistics has chosen

highlights the need for more qualified drivers.

to broaden its team, joining forces with carefully selected companies that can provide specially-designed services

DSV Mexico combats this gray zone with a whistle-blower

for each client in any country.

program that discourages bribe-taking and which is aimed at making corruption among the company’s staff

Its horizontal organization has permitted several efficient

almost impossible. “Our employees receive strict training

integrations of other companies, including ABX Logistics

when they join our team and our subcontractors are

in 2008. “ABX Logistics was fully integrated within

investigated before we begin operating with them,” says

one year and we acquired some smaller entities such

Koehnke. “Of course, this does not prevent attempted

as SBS,” Koehnke says. “M&As follow instructions from

crime but we employ all the mechanisms we can to

our headquarters but the execution is done locally. We

minimize it within DSV.”

send our plan outlining synergies and the top directors approve it. But the managers handle direct contact with

The company’s efforts extend to its road transport units,

newly-added companies.”

which are installed with GPS, although technologically advanced methods can block tracking devices from

DSV closed 2016 by successfully completing its merger

transmitting a signal. Koehnke’s team offers workshops

with UTi Logistics and the Danish company’s Director

to inform companies on how to protect their cargo. The

General, Jens Bjørn Andersen, reported UTi’s operational

team also provides courses on international commerce

deficit neutralized only five months after its integration.

terms (INCOTERM) for the logistics chain.

“DSV’s hierarchy is very flat and the fact that we are not as heavily organized as other competitors facilitates swift

The

decisions,” says Koehnke.

International Chamber of Commerce dictate the role

I N COT E R M

concepts

defined

the

and responsibilities of buyers and sellers with respect to The company’s DSV Solutions unit works with major

the delivery of tangible assets. Familiarizing clients with

automotive clients in the region, providing advantages

insurance policies and security measures supports the

under the IMMEX program. “The IMMEX program

whole transport chain, so that all companies can react

allows us to import under the supplying company’s

promptly to natural disasters, strikes and road accidents.

name,” says Koehnke. Ford has spoken favorably of DSV, which delivered 800 Twenty-foot Equivalent Unit

DSV has secured clients thanks to its individual service

(TEU) containers from Europe and India for the OEM’s

offering and the fact that it is easy to escalate any

operations in Chihuahua and Irapuato, according to

problem directly to a manager. “Different sectors expect

Martin Hernández, Operations Supervisor of the Ford

us to offer tailor-made services and to provide an expert

Motor Account for DSV.

in their industry to support them,” says Koehnke.

255

VIEW FROM THE TOP

FREIGHT FORWARDER MOONLIGHTS AS CARRIER WITH OWN FLIGHT ERIK MEADE Country Managing Director Mexico of Panalpina

Q: What advantages can Panalpina offer over other

mostly for car imports and exports. We offer purchase

international players in the logistics sector?

consolidation services to companies that have a supplier

A: Panalpina offers a service that no other logistics company

network distributed across Europe and Asia. We manage

can provide in the Mexican market. We control a Boeing 747-

shipments from different countries and consolidate them

8 that travels twice a week to Mexico City after departing

into one big shipment to avoid extra costs for the client. We

from Stansted, UK and passing through Luxembourg and

have specialized services for the automotive industry such

Huntsville, Alabama. Although the automotive industry

as hand carriers and charters for extraordinary situations

more commonly uses ocean freight, this flight offers many

when just one component is needed in a short amount

benefits to our clients. The plane has 140 tons of cargo

of time. In the automotive industry time is money and

capacity, is environmentally friendly and can be configured

through our portfolio, we want to make sure our clients

to accommodate our clients’ space and volume needs. With

have all possible options to deliver products on time at a

a layover in Huntsville, we are the only company that can

competitive cost.

target the entire US Midwest. Panalpina chose to control this route and use secondary airports to offer its clients more

Q: How important are automotive operations in Mexico for

flexibility, instead of larger cities with saturated airports.

Panalpina’s international strategy? A: The company had a strong share in the oil and gas

We have the added advantage of acting as both forwarder

and energy industries. After oil prices dropped in 2014,

and carrier. Managing our own plane allows us to compete

Panalpina had to grow in other markets, one of them

with airlines and carriers, while our other services match those

being the automotive sector. Thanks to our intercontinental

of international logistics players. We manage 70 percent of

logistics approach and our European origins, we are well-

our capacity as forwarders and we negotiate with the same

connected with German companies. We have already built

airlines as all other forwarders in the market. But we can offer

strong relationships with leading OEMs plus a number

clients an additional 30 percent cargo capacity that no other

of Tier 1 and 2 businesses. The automotive sector is our

player can provide. When airports are saturated, we still have

biggest industry in Mexico, representing 36 percent of our

the possibility of moving that 30 percent of our cargo.

total revenue compared with 25 percent in 2015.

Q: How does the Boeing 747-8 benefit automotive

Mexico is one of the main markets for Panalpina in

companies?

the Americas, even ahead of Canada and Brazil. Our

A: Companies may experience incidents during the production

local operation is one of the biggest in the company’s

process and this plane allows us to address our clients’

international network and Mexico is ranked among the

emergencies so they can avoid any production stops. With

top 10 countries in terms of importance. In the local

this aircraft, we do not have to depend on other airlines nor

market, the International Air Transport Association (IATA)

do we have to compete with other forwarders for cargo space.

in Mexico positions us as the second-most important

Our clients have enjoyed the flexibility we offer, particularly

company and when we add our charter operations, we

Volkswagen, which is now managing the launch of the new

come up as the biggest forwarding company in terms of

Tiguan in Europe. Our services have proven a great advantage

air freight volume.

for Volkswagen to meet its production deadlines. Q: Aside from its added value in air freight, what can

The Panalpina Group is a leading provider of logistics and

Panalpina offer to automotive clients?

supply-chain solutions. The company originated in Switzerland

A: On top of our air freight and charter services, we also

and it combines air and sea freight with consolidated logistics

offer purchase consolidation services and maritime logistics,

services

257

VIEW FROM THE TOP

TO GUANAJUATO AND BEYOND ANTONIO VARGAS CEO of Mexproud Shipping

258

Q: What is the company’s approach to the automotive

way is to contact carriers directly. However, we can offer

industry as one of the few Mexican players in the freight-

them the guidance to avoid any problems during the import

forwarder business?

and export process, which is also why we are not focused

A: We do not work with OEMs directly. We work with

only in one industry. That being said, we see considerable

auto parts suppliers, handling their imports and container

business opportunities in the automotive sector, which is

shipments. However, given the growth in light vehicle

why we opened new offices in Leon to target automotive

production of recent years, we are exploring the opportunity

companies directly.

to become a partner for automakers. We are already looking into acquiring car-hauling trucks and we expect to enter

Q: What do you see as the main obstacle that could hinder

this business presently.

your growth and operations in Mexico? A: The federal government has invested heavily in logistics

The automotive industry currently represents 9 percent of

infrastructure. An example of this is the port of Veracruz

the company’s total revenue. Our growth in the sector is

and the specialized automotive terminal in Lazaro Cardenas,

parallel to the growth in Mexican exports to the rest of the

a port with booming operations. Security was once the

world. During the first half of 2017, the industry registered

big concern in Michoacan — where Lazaro Cardenas is

an increase of 14 percent in the number of light vehicles

located and where most of our operations are — but the

exported. Meanwhile, our business grew 16 percent in

government has worked to make sure clients know there

comparison with the figures from 2016.

are much fewer criminal incidences in the area.

Q: What added value can you offer automotive companies

However, there are still areas requiring improvement and to

that would make them choose Mexproud Shipping over

this day it has been a challenge to deal with the low capacity

international competitors?

of the existing infrastructure. Authorities should continue

A: We operate according to the just-in-time philosophy

making infrastructure a priority, especially considering the

implemented by Toyota and other industry leaders. Our

projected growth in automotive exports. This industry is

goal is to always deliver components on time to our

based on timely deliveries that ensure proper just-in-time

customers. This is a common standard among logistics

operations. Delaying shipments even by just a few hours

players but the added value we deliver is our close

can lead to negative effects for the entire supply chain.

relationship with ports and customs agencies. This helps us solve any problem and avoid delays at the docks or during

Q: How important will the automotive industry be in the

customs checks. Many of our volumes come from Asia,

company’s growth strategy and what new projects are you

which means most enter through the Lazaro Cardenas and

planning to start?

Manzanillo ports. We have a direct relationship with local

A: Overall, our plan is to grow 30 percent in 2017 and the

authorities and we do not have any problems in any part

early figures for the first half of the year show we are on

of the process during cargo transportation. Our operations

track to reach our goals. Growth in the automotive sector

are based on service, rather than cost. If companies want to

will certainly boost our numbers but we are also relying on

find the cheapest way to ship their cargo, the most effective

increasing our operations in other industries. Our offices in Leon will also help us attract more business in the Bajio region and our midterm goal is to grow our footprint

Mexproud Shipping is a Mexican logistics company with 26

outside Mexico. We opened a branch in Beijing in July 2017

years of experience in the market. The company is mostly

because we see great opportunities to attack this market

focused on international cargo operations for a variety of

and take advantage of the commercial relationship between

industries

Mexico and China.

INSIGHT

CUSTOMS OPERATIONS A HURDLE FOR LOGISTICS PROVIDERS JUSTIN FACEY CEO of North America, Central America and Caribbean for TIBA Logistics Solutions

Although Mexico is a natural logistics hub, enough experience

The company has Spanish roots but its focus in Mexico

is needed to handle the country’s challenges, especially

and Latin America has helped it understand the local

when dealing with customs operations. Not all companies

problems automotive companies face and translate those

are capable of that, says Justin Facey, CEO of North America,

experiences into access to markets in Central and South

Central America and Caribbean for TIBA Logistics Solutions.

America.

“Logistics are complex but with a carefully structured

Facey says TIBA has strong growth expectations based

process and the right people in your team, everything

on its results in 2015 and 2016. Between January and

gets easier,” says Facey. “We have a very strong team

March 2017, the company grew its invoicing by almost 40

with experts in customs operations. They are in constant

percent compared to its total reported in 2016. According

training and have a good knowledge of the administrative

to Facey, growth in 2017 could have been higher but some

operations required by the Mexican government.” Customs

projects were canceled due to economic uncertainty,

are, according to Facey, one of the biggest problems in the

the political strain between the US and Mexico and the

country, especially for smaller companies that do not have

negative repercussion this had on the peso’s position

the resources to face such complicated processes.

against the dollar. However, the company’s fortunes have recovered since July 2017 and it expects further growth

Prior to arranging any logistics operation, TIBA, a Spanish

by the end of the year and for 2018.

logistics freight forwarder and customs brokerage service provider founded in 1975, works hand in hand with its clients

Mexico’s automotive industry will underpin that growth.

to understand what they will export and showing them the

The sector represents 10-12 percent of its business and the

best way to do it. “Our relationship with our customers

plan is to boost that number. According to the company’s

is really close,” says Facey. “We must understand their

results from 2016, offices in automotive hubs like Puebla,

requirements, problems and how to address whatever

Mexico City and Leon have contributed most to TIBA’s

their logistics demands.” The company also works with

invoicing and the first quarter of 2017 delivered similar

industrial parks in different automotive clusters, especially

results. The company already works with European OEMs

in the country’s northern region, to plot the logistics route

and it is developing a strategy to bring personnel from

that best meets its customer’s needs.

TIBA’s operations in Japan, Taiwan and Korea to target the Asian market. “In the automotive industry, culture and

“We specialize in high-volume and oversized shipments

trust play a key role,” says Facey.

and there is not enough infrastructure to support these operations.” Infrastructure is among the main complications

Approximately 40 percent of the company’s clients are

companies face, according to Facey. Port saturation

OEMs, with the remainder from among suppliers and the

sometimes forces ships to dock at alternate destinations

aftermarket. “That percentage is strategic,” says Facey.

instead of adhering to their scheduled arrivals, increasing

“The more specialized we can be in a sector, the better.”

logistics costs and slowing delivery times for customers.

Facey wants to take advantage of the industry’s overall

Airport capacity also represents a problem, especially at

growth, which according to numbers from AMIA totaled

the Mexico City International Airport. “We work with many

1.5 million light vehicles exported during the first half of

Asian companies and there are normally problems when

2017 and a 14 percent increase compared with the same

cargoes arrive to Mexico,” says Facey.

period in 2016. TIBA has positive expectations for the future of the industry, detecting new opportunities in the

The complexity of the Mexican market, however, can

sector thanks to its privileged location to import or export

help TIBA grow its presence in other regions, Facey says.

from anywhere in the world.

259

VEHICLE SPOTLIGHT

260

Lineartronic

Symmetrical AWD

SYMMETRICAL ALL WHEEL DRIVE + MOTOR SUBARU BOXER When choosing a primary engine configuration, most automakers, including Audi, Ford, GM, Honda and Mazda, opt for the V design. Others such as Volvo, Volkswagen and BMW go for the in-line. Very few would call the boxer, or horizontally opposed engine, their preferred choice. Subaru is among the exceptions. The Japanese carmaker has based its entire product portfolio on its exclusive Symmetrical All Wheel Drive + Motor Subaru Boxer platform, combining innovative and safety-oriented engine and powertrain technology.

Symmetrical All Wheel Drive + Motor Subaru Boxer includes a boxer engine, all-wheel drive and a Lineartronic transmission At its technological core is Subaru’s boxer engine, which has opposed pistons that work together to equilibrate the systems’ vibrations and offer a smooth ride. Being completely horizontal, the boxer configuration is lighter and smaller in height than its V and in-line counterparts. Its center of gravity is lower and it can be placed closer to the floor, lowering the vehicle’s overall center of gravity. Connected to a four-wheel drive platform, the low position of the engine also helps limit the movement of the chassis, offering better handling and stability in curves or during braking. The four-wheel drive also delivers better traction compared to front- or rear-wheel drive systems, ensuring increased safety. The engine is installed linearly with respect to the rear differential to keep the whole platform as balanced as possible. This completes Subaru’s Symmetrical AWD, a configuration the company has worked on since the development of its first four-wheel drive solution for light vehicles released almost 40 years ago. Subaru’s boxer engine is connected to Lineartronic, the first chain continuously-variable transmission (CVT) in the world, developed for all-wheel drive, light vehicle applications. Just like a normal belt CVT, Lineartronic automatically keeps the engine at a constant velocity regardless of the vehicle’ speed. However, its chain configuration allows the driver to also operate the transmission manually, providing an added value to the whole system and maintaining the fun factor within the vehicle. Subaru Boxer

261

VIEW FROM THE TOP

PREVENTIVE MEASURES HELP STRENGTHEN SUPPLY CHAIN JOSÉ LUIS GARCÍA Vice President of Automotive Operations for DHL Supply Chain México

262

Q: What opportunities have you detected in Mexico to

Q: What are your expectations regarding the Resilience360

help you offer better supply-chain analysis and design

cloud-based risk-management solution?

operations?

A: DHL Supply Chain has been an important player in the

A: As a country, we still need to give logistics and supply-

development of the Resilience360 concept and is a leader

chain operations the importance they should have in a

in its implementation at a worldwide level. As inventories

company’s development strategy and to understand how

become leaner and supply chains become narrower, there

these elements can establish a competitive advantage.

is a greater risk that a larger financial impact could disrupt

DHL Supply Chain works to improve its clients’ operations

a client’s operation. This is true for all industries, not just

by delivering the highest quality standards and by adding

automotive, and the costs can be extremely elevated.

value in terms of design and logistics engineering to provide solutions according to the demands of each customer.

Resilience360 allows DHL Supply Chain and its clients to visualize their supply chain interactively on a world map

Logistics is a relatively new area in most universities and

from end to end, understanding how shipments are moving

although in Mexico most logistics professionals come from a

and how long it will take for them to reach their destination.

different background, we expect that the new generation of

This helps companies take preventive measures in the event

professionals will begin making operational and commercial

of an imminent natural phenomenon, an unexpected social

decisions based on strong academic credentials in logistics.

disruption or an infrastructural problem. Clients can even counter negative and sudden factors that can affect their

Q: What are your growth projections for 2017, specifically

influx of resources or services at any given time.

in the automotive industry? A: DHL Supply Chain is the leading logistics provider in the

Q: Once Resilience360 detects a possible disruption, how

global and the Mexican markets. We have over 20 years of

can DHL help its clients find a solution to guarantee timely

local experience in the automotive and auto parts sectors

deliveries?

and we have seen continuous growth over the years. Our

A: At DHL Supply Chain, we think that ideal solutions should

objective is to grow at least at the same rate as the light

have equal components of planning and prevention. That

vehicle industry in Mexico and our early results in 2017 show

way, we can design and implement the most effective

we are on the right track to meet that goal.

supply-chain solution together with our clients in the most effective and flexible way, ensuring enough visibility to

The company’s strategy to optimize services and ensure

manage all shipments under any circumstances.

just-in-time operations includes the implementation of technological and IT solutions. The company is also working

Q: What added value do you expect from Supply Watch,

on its physical equipment by installing high-performance

considering the relevance of social media in the corporate

lithium-ion batteries in lift trucks, as well as the use of

world?

augmented reality and other solutions that can prevent

A: Supply Watch allows us to receive an early warning

alterations in the execution of common activities in our

regarding any situation that could impact our clients and

clients’ supply chain.

their providers. The platform is based on language processing and machine-learning solutions, applied to public data that is constantly monitored in social media. With this technology,

DHL Supply Chain is a branch of Deutsche Post DHL. It provides

DHL is one step ahead in giving clients the opportunity to

logistics solutions supporting the supply chain of customers.

react quickly against any event or phenomenon, adding

DHL Supply Chain designs logistics operations from initial

another layer to the traditional situational risk analysis by

consultancy services to last-mile delivery and reverse logistics

analyzing information practically in real time.

INSIGHT

TECHNOLOGY, AUTOMATION NOT JUST FOR MANUFACTURING DANIEL MIRANDA Marketing Segment Manager Automotive Industry of UPS Mexico

Digitalization and automation are two leading manufacturing

Miranda says the government is working on several pilot

trends that have also made their way into logistics. As

projects to unify customs processes, cutting downtime

technology rapidly evolves and clients demand more from

in half. “The government is taking steps to make customs

their providers, companies must deliver, says Daniel Miranda,

operations much more automated. Now certified importers

Marketing Segment Managers Leader of UPS Mexico.

and exporters with frequent operations are registered by the government to speed up their customs processes,” he

“UPS is a company made up of engineers,” says Miranda.

says. “All these innovations will eventually help minimize

“Our team continuously works to make our processes more

delays and make the process flow seamlessly.”

efficient.” The company has made automation and technology integration two global priorities for its future development.

On top of UPS’ strategy for traditional logistics, Miranda

In 2015, UPS invested US$1.8 billion to acquire Chicago-

hints that the company has further plans regarding

based Coyote Logistics, betting on its technology-oriented

technology integration. “We expect to see an increase in

approach. Coyote Logistics’ advantage was its capability to

e-commerce operations and this division is one of our main

manage a network of 14,000 road transport operators and

priorities, along with the development of the automotive

40,000 logistics providers with its own software.

and aerospace industries,” he says. “Consumers will gradually use the online aftermarket more and we expect

UPS has gradually integrated Coyote Logistics’ technology

significant growth in logistics for e-commerce operations.”

and according to Miranda, it has already become a pillar

This, however, requires an effort from UPS to accommodate

of the company’s full truckload (FTL) services. These road

clients’ requirements in e-commerce deliveries. Another

shipments between Mexico and the US have increased to

study by UPS, called Pulse of the Online Shopper, reported

the point that the company saw the need to open a Coyote

clients are demanding higher flexibility in shipping

Logistics office in Guadalajara. This office will promote UPS’

destinations and payment options.

FTL and road logistics portfolio within the domestic market. Miranda highlights that road logistics operations between

Miranda is not alone in having such optimistic views on

Mexico and the US have been one of the drivers for growth

e-commerce in the automotive sector. “There are automotive

in UPS’ Supply Chain and Freight segment. “The US remains

manufacturers that skip retailers to participate directly

our main partner in ground logistics through our Expedited

on an e-commerce platform, including their distribution

Ground Freight service,” he says. “This service has allowed

network, for example,” he says. The Pulse of the Online

us to grow our participation in the automotive industry and

Shopper report also shows that social media influences

we have developed a specialized portfolio for companies

shopping decisions for 75 percent of all consumers and

that trade between the US and Mexico.”

80 percent of millennials surveyed. The aftermarket might be the gateway into e-commerce for the automotive

Together with technology integration, UPS has worked

market but Miranda thinks there is also an opportunity

to make road logistics as efficient as possible by taking

to grow these services in B2B operations. As industry

advantage of Mexico’s airports and internal ports.

participants widen their supplier network, that gives

Managing all customs arrangements at these locations

UPS an opportunity to attract providers to its platform.

minimizes downtime, which is the third-biggest challenge

“Especially with manufacturing equipment, suppliers often

companies face during their logistics process, according

work globally. It is essential they have a strategic partner

to 82 percent of respondents in a UPS study developed

to ease international logistics operations,” he says. “We

by Grupo Expansión called Exports in Mexico: Challenges

are noticing more and more companies are willing to buy

and Opportunities (Las exportaciones en México: Desafíos

products online and now suppliers can take advantage of

y Oportunidades).

the experience UPS has developed in other countries.”

263

VIEW FROM THE TOP

TAKING THE EXPRESS TRAIN TO INTERNATIONAL ECONOMIC DEVELOPMENT JOSÉ ZOZAYA President of Kansas City Southern de México (KCSM)

264

Q: What areas of opportunity are there in railway

time. The company will continue investing in Mexico. We

infrastructure in Mexico?

have committed US$156 million for 2017 and have agreed

A: Investment in train infrastructure has risen but city rail

a joint venture with Watco and WTC Industrial for a large

beltways, border crossings in the north and some switchyards

fuel-storage facility in San Luis Potosi. If KCSM reaches

are areas of opportunity. Border crossings like Brownsville-

an agreement with the Ministry of Communications and

Matamoros and Laredo-Nuevo Laredo require better rail

Transport, we will participate in the train bypass in Celaya.

infrastructure and logistics for trains to cross the border efficiently. KCSM is building a double track, stretching from

Q: What is the percentage breakdown of the railway freight

the Sanchez Switchyard to the Nuevo Laredo International

KCSM moves?

Bridge to create a safe corridor. KCSM also works with

A: Railway freight accounts for about 27 percent of the total

organizations on both sides of the border to improve this

national freight transported. KCSM moves about 40 percent

bridge’s capacity by employing crews with dual nationalities

of railway-transported freight, 17 percent of which belongs

so that the train does not need to stop in the middle of the

to the automotive sector. Other important products KCSM

bridge as it currently does for a crew change.

transports are grains and fuels.

In the Bajio region, developing a major rail bypass in Celaya

Expanding the share of railway freight in Mexico is difficult

is an important area of opportunity for achieving more

because, unlike the US and Canada, Mexican topography

time-efficient railway transportation. Celaya experiences

is more rugged, making train operations costlier. Railway

plenty of train traffic because the local automotive industry

companies may eventually move up to 35 percent of the

requires high numbers of trains for logistics purposes and

total national transported freight but such growth takes a

because both Ferromex and KCSM operate in this city. This

long time. As production volumes in the automotive and

traffic forces trains to move slowly, which puts convoys at

agriculture industries grow, so will the use of railway freight

risk of being vandalized.

in those industries. KCSM would like to move as much merchandise as our capacity allows and we can provide

Q: How can KCSM expand the Mexican railway network

services to all industries moving products in containers.

when the network belongs to the government? A: Freight railways operate under a concession scheme

Q: What should be done during the next Mexican

granted to train companies, which have the responsibility

presidential term to achieve a world-class logistics hub?

and obligation to invest in the railway network's

A: Efficient logistics infrastructure is more than creating

maintenance and improvement along with equipment to

and maintaining the physical infrastructure of ports

keep the system in motion. However, railways as well as

and airports. Useful legal and regulatory infrastructure

adjacent and underlying land belong to the government,

is needed to enable logistics companies to transport

so any railway expansion must be submitted to public

merchandise swiftly so the capacity of a port or airport is

tenders. Expanding the railway network through new routes

increased. Providing certainty to transportation through

is not in KCSM’s hands but we can and do build longer

legal means increases a port or airport’s capacity beyond

sidetracks to enable several trains to cross a region in less

its physical capacity. Also, improving road and railway infrastructure will help Mexico increase its transportation abilities. Mexico is beginning to strategically place

Kansas City Southern is a rail transportation company that

logistics centers through the creation of Special Economic

connects Mexico and the US with a single rail network. The

Zones (ZEEs) situated in areas that have the required

company already transports vehicles from 12 automotive

infrastructure to promote trade. All these actions will make

companies and it plans to add four more by 2019

the country a world-class logistics hub.

VIEW FROM THE TOP

EXPERT IN BORDER CROSSINGS SEEKS DIVERSIFICATION ERNESTO DONNADIEU Director of Operations at Ryder de México

Q: What is Ryder’s target market and what strategies have

Q: What are the advantages of leasing a fleet over owning

you implemented to assure success?

one and how have you transmitted those advantages to

A: We work with OEMs, Tier 1 suppliers and aftermarket

clients?

companies. Our coverage is one of our main advantages,

A: Ryder has one of the biggest fleets in North America.

coupled with the development of a tailored solution for

This helps us acquire equipment at preferential prices, which

each of our clients regardless of their requirements or

allows us to provide the vehicles our clients’ operations

position in the industry. Ryder’s logistics engineers analyze

require. If we are going to transport heavy merchandise, for

each customer’s situation to detect new opportunities and

example, we can ensure the truck has the correct engine for

design build-to-suit solutions. The automotive industry

the job, a good transmission and everything that it needs to

requires precision and quality in each process and clients

save fuel and make its operation as efficient as possible. We

know we are capable of handling their processes.

have been in the market for 80 years. Customers can trust us and invest in their own business rather than in transport units.

We believe that networking is the most efficient way to attract customers. Our prestige and experience in the

Q: How attractive have your natural gas units been among

industry has also helped us create a name for ourselves and

your automotive clients?

word-of-mouth has been an effective tool to establish new

A: Sustainability is a priority for the company. Our natural

relationships. Once we identify a potential client, we can

gas units are currently restricted to the US market, along

arrange presentations to show our capacities and current

with electric trucks and hydrogen units, although we plan to

operations, highlighting our results, our key performance

introduce those in the future. However, we also have several

indicators and the services we can provide.

environmental projects in Mexico. We are currently trying to reduce power consumption in our warehouses. The company

Q: How is Ryder taking advantage of the number of border

is converting all its lighting systems to LED, resulting in less

crossings by truck between Mexico and the US?

energy consumption. We always strive to reduce costs and

A: Our focus is to make things easier for our customers

anything that can help us achieve that is welcome.

during cross-border operations. Our priorities are time and cost reduction at both the north and south borders

Q: What are Ryder’s growth projections for 2017?

and to manage that, we have several safety and quality

A: We will finish 2017 with double-digit growth in comparison

certifications, including the Authorized Economic Operator

with 2016, which is a better result than what we expected

designation granted by the European Commission. This gives

due to economic uncertainty and the volatile dollar-peso

us a direct link with customs offices, avoiding delays. We

exchange-rate. We have been in Mexico for 23 years and

also work with authorities from Mexico and the US to ensure

to date we have 3,000 employees and 3.5 million ft2 of

our trucks are allowed to use express lanes at the borders.

leased storage space. We trust in Mexico’s growth and we are optimistic about the local business opportunities we can

Our integrated service helps us guarantee our clients that

explore. The automotive industry represents 40 percent of

border crossings will take us between two and three hours.

our revenue and although it will always be our core market, in

When a truck departs to the US, we start filling out all customs

the coming years our goal is to diversify into other industries.

clearance documents so that everything is ready when drivers arrive at the border, preventing delays due to paperwork. Our goal is to do as much as we can in advance, which means that

Ryder is a logistics provider that offers transportation and

our quality must be on point to avoid any possible mistakes. In

supply chain management solutions to over 50,000 customers.

addition, we always make sure our trucks meet all standards

The company has over 80 years of experience and manages

and regulations to avoid any passing restrictions.

over 234,000 vehicles

265

VIEW FROM THE TOP

LOGISTICS DONE THE MEXICAN WAY José Vega Commercial Director of Dicka Logistics

Humberto Cantú CEO of Dicka Logistics

Q: As a Mexican company, what strategies have you

Just-in-time is crucial because a faulty process can freeze

implemented to compete against international logistics

a plant, which can lead to excessive costs. Developing our

giants?

know-how in the sector is imperative and the fact that we

JV: Some of our clients have had experience with

are already working with a leading supplier like Nemak can

international logistics companies but have found there

help us greatly when attracting new clients.

is no added value in their offering. Besides our storage 266

and distribution services, we try to improve our clients’

Q: What are your strategies to grow your presence in major

operations by recognizing and highlighting areas for

automotive hubs such as the Bajio region and the north

improvement. We like to consider ourselves a consulting

of the country?

partner for our clients. Rather than offering this as a

HC: Automotive clusters are recently playing a more active

separate service, we include it in our standard solutions.

role in the industry by promoting projects that can benefit their associates. We are establishing close relationships with

Dicka Logistics manages 152,000m 2 of storage and

clusters both in the north and in the Bajio region. Aftermarket

distribution space in the country, including both our own

companies, in particular, require new logistics providers to

warehouses and the in-house operations we manage

support their growing operations. Many original equipment

through agreements with companies such Nemak and

suppliers are entering this new business segment and we are

Whirlpool. In these cases, the client has its own warehousing

targeting both Mexican and foreign players.

facilities and we control all warehousing operations with our own employees, forklifts, scanners, security, racks,

Q: What technology have you implemented to make your

computers and preventive maintenance.

processes more efficient and to ensure traceability? HC: We just finalized a significant investment in a

Q: Which companies are Dicka Logistics’ preferred clients?

warehouse and transport management system to improve

JV: We are focused on big clients that need to move at least

our services. This platform will allow us to connect with

3,000 pallets. We do not serve small operations and we try

our clients’ interfaces in real time, ensuring inventory

to have a fixed number of customers to offer a personalized

control and traceability in all warehousing and distribution

service. Other companies our size like to handle 350 clients

operations. Within the automotive industry and particularly

with between one and 3,000 pallets. However, those are

in the aftermarket, we have found both fully automated

complex operations because small customers can be very

companies and others that manage their operations

demanding. We sometimes service companies with 2,000

traditionally. There is a great opportunity with all of them.

pallets or less but that depends on their growth expectations Q: How much has Dicka Logistics grown and what are your

and how well they are doing in the market.

expectations considering the potential of the automotive Q: Being a provider for Nemak, how important is the

market?

automotive sector for your operations?

JV: Automotive keeps growing and we are ready to meet more

JV: The automotive industry looks for good service; it does

clients in this sector, especially in the aftermarket segment

not care that much about price as long as it can get quality.

that is growing at double-digit rates. Many companies want to grow their distribution centers, which means we can offer them our own facilities or in-house management of their

provides

warehouses. We want to make this industry a priority for

comprehensive but personalized logistics services to improve

Dicka Logistics and our goal is for it to represent 20 percent

supply chain operations, both as a third party partner or as an

of our revenue. In 2016, we grew approximately 45 percent in

in-house operator

revenue and we are expecting similar results this year.

Dicka

Logistics is

Mexican

company

that

INSIGHT

SIGN, SEAL, DELIVER: INTEGRAL SOLUTION OFFERS COMPLETE PACKAGE RAFAEL MORA Commercial Director of Corrubox México

The Mexican packaging industry expects production to climb

Corrubox’s first contact with the automotive industry is via

5 percent in 2017, just as it did in 2016, to produce a total

OEMs, through which it has a relationship with 90 percent

of 10.8 million tons of packaging. As the Mexican Packaging

of the auto parts industry. The company has supplied Mazda

Association (AMEE) points out, everything produced

and Honda, and works with Ford, GM, Volkswagen, Audi and

anywhere needs packaging to be transported and sold. That

Nissan. Corrubox is starting to support FCA’s operations. The

creates room for companies like packaging solutions and

only OEMs it does not service are Kia and BMW. 267

logistics services provider Corrubox to not only maintain growth but to increase it.

“The lack of services from general packaging manufacturers left a gap in the market that became Corrubox’s area of

Corrubox’s business strategy is to develop its participation

opportunity,” says Mora. Industries like automotive know the

in the supply of logistics services, from packaging-material

risks of halting a production line because Tier 1 and 2 suppliers

management to road logistics and storage. “We work with

have to regularly hold stock for some manufacturers. Clients

60 percent of the automotive market in Mexico. This is

may run into problems when their suppliers cannot meet

possible thanks to the OEMs making consolidated purchases

short orders, so they have to keep high volumes of inventory.

of packaging. OEMs sent Corrubox as a service provider to

“With good suppliers that meet orders, automotive clients like

some of their auto parts manufacturers, which allowed us to

OEMs do not need huge stocks. This saves on warehousing

gain this leading positioning,” says Rafael Mora, Commercial

and logistics costs,” says Mora, whose company aims to be

Director of Corrubox México.

that reliable supplier to automotive companies.

Corrubox’s solutions include a rapid-service offering that

Mora says one of Corrubox’s advantages is its flexibility to tailor

provides temporary assembly plants and storage for three

its offering, providing an integral solution from the beginning

or four-month periods. These facilities store parts that the

of packaging production to the product’s delivery. To adapt,

industry manufactures frequently, improving the flow of

the company has a skilled engineering area with 20 years of

packaging and logistics. “We manage packaging from the

experience supported by the imagination of capable young

raw material to assembly, handle JIT stock, packing lines for

talent and can adjust packaging from the developmental

the clients and then store products until they are sent to their

stage. The company’s just-in-time (JIT) delivery allows it to

destination. This saves our clients time and money, which

stand out as a candidate to handle deliveries for production

makes us competitive in the sector,” says Mora.

lines, as companies have stock on hand when needed, creating further savings.

Logistics services have been booming in Mexico and Corrubox provides the competitive advantage of offering

More than half the company’s operations are focused on the

the raw materials for safe transport of products without

automotive sector but the company is looking to grow as a

needing third-party suppliers, which helps keep costs

logistics solutions provider. Corrubox’s success was derived

down. The main competition is from foreign companies

from its service to Mexico’s automotive hubs.

but Mora says his company stands out because of its economical service and its familiarity with the local

Mora sees opportunities beyond Mexico as well. Between 2018

market. Providing a solution that meets all logistics

and 2019, Corrubox plans to open locations in the US, starting

needs, from packaging to delivery, is a more substantial

with a branch in Texas, and is sketching plans for another

business model than most companies currently manage

in Detroit because many suppliers based outside of Mexico

and has resulted in growth of 35-40 percent per year,

supply local OEMs. The main challenge will be labor, which

says Mora. In 2017, Corrubox projects 60 percent growth

is more expensive abroad, making it harder to replicate the

thanks to industry demand.

successful business model Corrubox has used in Mexico.

INSIGHT

WORKING FROM THE INSIDE OUT MIGUEL CAVAZZA Vice President of Logistics and Distribution of Walmart de México y Centroamérica

The challenge of implementing growth plans in Mexico

example. The collaboration and integration of supply

is that the country simply has huge potential to fulfill,

chain transportation will continue looking to become

according to Miguel Cavazza, Vice President of Logistics

more efficient every time. We want to improve the quality

and Distribution of Walmart de México y Centroamérica.

of life for Mexican families by saving them money,” says

This opens the field up to many plans suggested in-house

Cavazza.

but not all are suitable for such a large region. 268

The Backhaul service is a win-win for many companies. Cavazza is from Argentina, which has the smallest

The 3,300 daily trips made by the store’s fleet require

number of Walmart stores worldwide — 108 compared

efficient routes, so satellite tracking is used to improve

to the challenge that 2,300 Mexican stores present.

planning and save fuel. “Satellite tracking allows us to

Walmart is the biggest private company in Mexico and

be more efficient, to share our economic productivity. It

has targeted US$1.3 billion for logistics infrastructure over

also guarantees a closer relationship with vendors and

the next 10 years to support its commercial strategy and

suppliers, fuller loads and sound product scheduling,”

total enterprise benefits. This represents 1 percent of the

says Cavazza.

US$127 billion in direct investment in Mexico registered

“

in the four years to 2016.

The collaboration and integration of supply chain transportation will continue looking to become more efficient every time”

One key to Walmart’s improvements is the technology used to track units. The company initiated a significant investment in various systems in the second half of 2015. It has invested in servers such TMS and GLS and in a computer system that Walmart uses at an international level to operate its distribution centers. Looking forward, Cavazza has considered boosting the eco-friendliness of Walmart’s vehicles, electric or hybrid trucks. This would require large investments from automotive companies, however, and the sustainability of such an option is questionable, he says. The company

Walmart’s investment will create 10,000 new direct jobs,

continues to evaluate the idea, considering expectations

to be added to the 192,434 jobs the business already

for the future of transportation, as well as cost-savings

generates in 471 cities in Mexico. The retailer spent 2015

should fuel prices rise again.

boosting productivity. In 2016, it implemented a threeyear growth plan that its main logistics service named

With 2,300 stores across Mexico, the company has a

Backhaul. In Mexico, this logistics solution facilitates

long reach and its logistics are demanding. “The regional

merchandise transfers from facilities to distribution

dispersion that we handle with multiformat stores is

centers and verifies effective delivery.

huge. Our logistics network is the largest in the country,” Cavazza says.

Backhaul moves dry and perishable goods for all parts of the supply chain, avoiding trips with empty trucks by

To continue growing in the domestic market Cavazza

moving products from other companies. This saves on

expects to be even more efficient in transportation, to

transportation for Walmart’s suppliers and contributes

improve relationships with vendors and suppliers and to

to sustainability efforts. “We handle more than 30

become the most honest, transparent logistics service in

percent of Unilever transportation through Walmart, for

the market, working from the inside out.

VIEW FROM THE TOP

HEAVY TECH ALSO SUITABLE FOR LIGHT VEHICLES ÁNGELO GORDILLO Managing Director of Sitrack México

Q: How has Sitrack used opportunities in the market to

Q: How has the market received Sitrack’s new solution to

develop new technology and benefit its clients?

protect against gasoline theft?

A: Sitrack México has focused on security issues for the

A: We launched our gasoline solution in December after

past six years. As technology became more prevalent

testing its full capabilities and we are already negotiating with

in transportation, we saw a need to improve our value

our first clients for this product. But even this solution is not as

proposition to remain competitive. Tracking technology

groundbreaking as our new technology, which will be unveiled

has evolved around the world but in Mexico it has yet to

during 2017. We are still finalizing our testing process and the

find a market. As margins for transport companies shrink

next step will be to launch it with Qualitas. Once this first field

due to elevated operational costs, we offer the advantage

is fully operational, we will approach new clients.

of a multi-brand solution, making us more cost-competitive and attractive to potential clients. Together with our

Q: How likely is it that this technology will be implemented

headquarters in Argentina and our Chilean branch, we have

in light vehicle fleets?

developed new technology to help our clients and insurance

A: Even though a heavy vehicle engine is different to a car’s

partners face ongoing challenges related to unit theft.

engine, we know our expertise will be applicable to light vehicles as well. Although our main client is Qualitas, we

Criminals will eventually understand how tracking

have already participated in the insurer AXA’s latest tender

technology works and how best to avoid it. Our new

and hope to offer it a solution for light vehicles. This new

platform nullifies that possibility with secure new locks

technology is part of a long-term regional strategy and even

interacting directly with vehicles’ onboard computers. The

though 2017 seems to be a challenging year, we also see

system detects if a unit is being stolen and sends an alert

enormous opportunity to incorporate developments that

to the authorities.

we have yet to bring to Mexico.

Q: What challenges did Sitrack face and how did the

Q: How will Sitrack’s collaboration with the State of

company overcome them?

Mexico’s government impact the company’s growth?

A: The main deficiency was the dependence on hardware,

A: We are the only company that has dedicated people

which can be ineffective because criminals always know

in the State of Mexico’s C-5, which is a new building that

where a truck’s GPS unit is located and can disable it.

comprises all data regarding the state’s security measures.

Sitrack’s technology merges the hardware with a software

This allows us to have a direct connection when our system

solution that cannot be overridden. The possibility of

sounds an alarm. Our team in C-5 contacts the police

criminals removing the tracking unit led most insurance

immediately, initiating a recovery strategy for the stolen

companies to lose interest in transportation companies.

unit. Our six years of experience in the Mexican market has

The situation was further aggravated by the peso’s

also generated statistics regarding criminal activity in the

depreciation from the end of 2016 because the resulting

country, which the government has found useful. We signed

rise in the cost of auto parts boosted demand on the black

our agreement in October 2016 and as our operations grow,

market even more. Cargo only adds another attraction for

we expect to create new alliances with intelligence units

thieves. Although insurance companies are projecting a

from other states.

rise in vehicle theft in 2017, we expect our technology to restore their confidence in the market by ensuring their potential return on investment. Besides the benefits offered

Sitrack manages processes for heavy vehicle companies,

to insurance companies, transportation businesses must

optimizes and protects their operations with security solutions.

consider the value this technology represents in keeping

Its service extends to driver safety, the efficiency of routes and

their logistics network operational.

measuring fuel consumption and theft

269

INSIGHT

TAKING FLEET OPERATORS BEYOND TRACKING ANDREU CASADELLÀ General Manager Mexico of TomTom Telematics

270

Orchestrating logistics in a country as large and diverse

gives each driver a grade based on their driving manner,

as Mexico can be complicated. The CIA Factbook lists the

evaluating fuel usage, the amount of time a vehicle is idle and

country as spanning 1,964,375km2, making it the 14th-largest

braking conditions. “There is a fear of telematics becoming

worldwide. TomTom’s Traffic Index tagged Mexico City as

a watchdog for drivers,” Casadellà says, “but a professional

the most congested in the world for the second year in a

human-resources strategy could make it a development

row, leading companies to lose approximately MX$16 billion

opportunity for the company and driver alike.”

(US$800 million) per year due to traffic conditions. One of TomTom Telematics’ cornerstones of development Navigational and tracking systems are vital in this

is its integration capability with clients’ ERP and customer

environment but Andreu Casadellà, General Manager

relationship management platforms. The company created

Mexico of TomTom Telematics, believes the solution

an application programming interface that enables them

to improving traffic conditions lies in the efficacy of

to connect hardware and software with open code, and

technology integration. TomTom Telematics division focuses

collect information for internal management use. “This is

on fleet management and tracking systems. “There is a

a keystone of our strategy as companies are digitalizing,”

lot of competition focused on security and unit recovery,

Casadellà says. With CRM applications, for example,

whereas we are more dedicated to light- and commercial-

TomTom Telematics’ software WEBFLEET is now fully

vehicle fleet distribution and added-value services through

integrated to Salesforce. This allows fleet managers to know

technology and connectivity,” says Casadellà. TomTom

how long an employee spent with a client or how best to

Telematics currently holds a small share of the total market

organize the fleet in line with client requests.

in Mexico if companies selling simpler B2C GPS services are included in the sector, but this is set to change quickly. “We

The next step for the company is to innovate in connectivity

are doubling in size year on year. We have been well-received

and connected car applications. TomTom Telematics also

by the Mexican market and it is now the country where the

runs an online marketplace of homologated applications,

company sees the most growth,” says Casadellà.

developed by third parties. These apps usE the data generated by the platform and complement it with analytics from

While some companies would shy away from investing in

external applications. Casadellà says the company will launch

Mexico after the global challenges of late 2016 and early

a tablet with an Android operating system called PRO 8, which

2017, Casadellà says TomTom has no intention of leaving.

will help vehicles integrate both TomTom’s WEBFLEET and

“Despite the uncertainty seen since the end of 2016, TomTom

all third-party apps so the client can access both at all times.

is investing in Mexico,” says Casadellà. “Our opportunity lies in linking hardware. Software and maps as technology

“The most important thing for TomTom is for clients to

solutions are our strong suit.” TomTom’s experience in

embrace what the platform can offer them,” says Casadellà.

navigation software gives its telematics solutions an edge.

Previously, fleet managers were only concerned about leasing

The company also develops its own universal SIM for 3G

the company’s fleet and its maintenance, not the operational

connectivity, linking GPS tracking with data transmission.

details. Although that is gradually changing, many clients still see fleet management operations as simple route and tracking

By using TomTom’s solutions, clients save an average of 20

systems. Casadellà and his team have made it a priority to

percent on costs through fuel savings, logistics management,

offer webinars and face-to-face training to teach clients

lowered maintenance costs, accident avoidance through

about TomTom Telematics’ platform. “Without the correct

safer driving and savings on insurance policies. But

information, clients do not know how they can save money,”

integrating drivers into the process is paramount for the

he says. “It has been an uphill battle to lead clients away from

solution to be successful. TomTom’s OptiDrive 360 solution

basic tracking services but we have seen a gradual change.”

VIEW FROM THE TOP

DATA-DRIVEN MANAGEMENT FOR SECURITY, COST-SAVINGS BARAK GAZIT CEO of Traffilog Latin America

Q: How has Traffilog’s business in Mexico and Latin America

hardware. Our role in this partnership was to create the

developed over the past year?

software for TomTom’s Breach device, which is a screen

A: We have several customers in the pipeline as Traffilog

that displays real-time information on the truck’s status and

has been well-accepted by the Mexican market, particularly

keeps drivers in constant communication with each other

by bus companies. Their interest in our product stems

and their home base. TomTom describes Breach as the most

from the fact it provides them exactly what they need.

complete application it has ever had. 271

Last year, we signed a contract with Transportes LIPU, a large transportation group present across the country. We

Q: Why did Traffilog decide to ally with TomTom?

provide them with a vast amount of useful information,

A: TomTom is the Apple of software for the vehicle market.

prioritizing safety and cost savings through the planning

While other software companies are starting to develop their

of routes, time frames and stops.

own programs for vehicles, TomTom has taken the lead for vehicle-driven technology and the alliance will be fruitful for

We also have a strong alliance with Navistar, one of the

both of us. The Breach device has a broad series of features,

biggest heavy vehicle OEMs in Mexico, and now every

including cameras, passenger counters, ticketing machines

Navistar truck has our software on board through the

and Wi-Fi. It is a product that complements our portfolio.

OnCommand Connection program. One of the most important features of this program is telematics. Through

Q: How has Traffilog developing its relationship with the

Navistar we have increased the value of second-hand trucks.

insurance market? A: This year we launched Traffilog in Israel and we are

Q: Given its successful partnership with Navistar, is the

negotiating a collaboration with an insurer in Mexico, but

company planning to work with other OEMs?

this is a slow process. We are planning a product that will

A: That is in our plans. We are negotiating with other OEMs

incorporate a collision detector that will change the way

but those kinds of discussions take a long time to finalize.

insurers deal with accidents. A large problem in Mexico

We hope to have at least one of these agreements in place

is that many cars are uninsured, either because people

by the end of 2017. Our solution is comprehensive. In the

cannot afford cover or they feel it is unnecessary because

case of SENDA and CEMEX, companies with which we have

they seldom use their vehicles. For these customers, we

worked for the past three years, we began in just one area

are designing an insurance product that is driver-based

and gradually incorporated several more services. SENDA

rather than car-based and which will allow clients to request

now incorporates our services in nearly every single area,

insurance as a prepaid package for specific distances, such

including human resources, maintenance, ticket purchasing,

as 1,000km for instance. It is a model used in Israel and

planning, traffic and fuel control and safety. CEMEX’s system

Europe mostly for high-risk or young drivers.

notifies both the server and the customer whenever a truck leaves or arrives at its location.

We always try to do something that is comprehensive and innovative. In this case, the product we are offering requires a

We provide much more than just information on the specific

strategic alliance with an insurance company. We have a good

location of a vehicle. We connect a vehicle’s onboard

and interesting product. Now we need a partner.

computers and collect the data that is generated. This is similar to the internet of Things wherein all systems are connected to each other, producing and collecting data

Traffilog is a telematics solution provider for automakers,

that can be used to address various needs. In Europe,

insurance companies and fleet managers. The company was

we launched a program alongside TomTom that we will

founded in 2003 and has specialized in mechanical solutions

soon debut in Mexico. TomTom excels in maps and truck

and predictive diagnosis

ROUNDTABLE

HOW SATISFIED ARE YOU WITH THE AVAILABLE TALENT POOL IN MEXICO IN TERMS OF LOGISTICS?

Talent availability is an issue for all companies with manufacturing operations in Mexico. The talent pool in the country cannot satisfy the demand from all the players in the market. However, for logistics companies the problem is even greater. Universities do not normally offer logistics specializations, which means corporations must settle with graduates from unrelated majors. At the same time, these players must face the same challenges as all other industry participants regarding talent development, retention and employment satisfaction. Mexico Automotive Review asked industry leaders their views on talent in Mexico.

Digitalization is a key trend in the industry. Although it poses new business development opportunities, it also forces us to adjust our processes and our way of thinking. Companies that cannot face this transformation process are doomed to disappear. Hellmann is 272

currently at this crossroads and we are evolving to offer solutions for the 21st century. Specialized training courses for our labor force help us ensure a healthy transition. Our two-year International Leadership Management program focuses on making sure our top

PIOTR ZALESKI President and CEO of Hellmann Mexico

managers are well-trained to adopt more responsibility and to understand clientsâ&#x20AC;&#x2122; needs. We also have a middle-management initiative called International Graduate (Intergrad) Program, which works similarly to the dual-education program.

Professionalism in logistics is important. Operators who have worked within the area for some time struggle to obtain higher qualifications. For 10 years, some universities have been offering bachelorâ&#x20AC;&#x2122;s degrees in logistics when the closest to this specialty used to be international trade or international relations. There are already graduates contributing to building this field and professionals with years of experience who want to be better prepared by having these degrees, often with a focus on the supply chain. We launched

MIGUEL TREJO Sales Director of Agility Mexico

an evaluation of our business to see if we have the right people in the right jobs or if anyone needed specific training. We want their job to be as professional as it can be so we must have skilled people willing to do an excellent job to keep our customers happy.

For many applicants and recent graduates, logistics is not as attractive as other careers. The sector is largely unknown and logistics companies do not have the same exposure as other industry players. Industries like automotive and aerospace have succeeded in communicating their needs to academia but in logistics the problem remains that few young people study specifically to work in logistics. Unlike in countries such as Germany and France, most Mexican applicants come

ERIK MEADE Country Managing Director Mexico of Panalpina

from international business and similar majors. These are much more oriented to the establishment of trade agreements rather than the actual shipment of products around the world and the regulations that reign over international trade. We are trying to change this and we have already established relationships with universities such as ITESM to boost awareness of the career possibilities.

Talent is not scarce and Mexico is among those countries that graduate the most engineers per year. There is still an opportunity to align academic programs to what employees will actually do in their work life. We have developed our own human capital methodology and have found that how most people learn is by actually doing their job rather than by watching their peers or through courses and training. We do have training and mentoring programs in place but the most effective way to accelerate the applicants’ learning curve is to introduce them to their own activities as soon as possible.

DANIEL MIRANDA Marketing Segment Manager Automotive Industry of UPS Mexico

Companies always look for the best talent available but it is also their job to train new hires to ensure they have the skills required to perform at their best. Rotation is also a main area of opportunity for logistics companies. Competition is growing 273

and there are not enough people to satisfy the industry’s labor demands, which means it is also the company’s responsibility to find a way to retain its talent. Corporations must take the human factor into consideration, giving workers the best tools to carry on with their job and to ensure they are in the best possible working environment. Currently, my biggest challenge is to lower the company’s

ANTONIO VARGAS CEO of Mexproud Shipping

rotation rates.

Talent with experience in logistics is scarce. We look for people with experience and we try to keep them with us as long as possible. We have developed a strong talent strategy with attractive job conditions, good payment plans and training so people feel they are part of the company. If these people grow with the company, that will be reflected in Dicka Logistics’ customer service. There are few people with many years in the sector though, which is why we try to form teams staffed by both experienced people and newcomers. That way, we can pass on our experience to younger people and they can participate in the development of new and innovative solutions.

JOSÉ VEGA Commercial Director of Dicka Logistics

Mexico is filled with creative and ingenious people who must find their professional path. There is growing demand, especially for engineers and technicians, in many sectors, including supply-chain management and operations. The demand is there but we still need to find a way to link the objectives and necessities of the three players that participate in the development of Mexican talent: individuals, companies and academia. First, individuals must remain well-informed about their options and possible opportunities in order to develop a medium and long-term growth plan. Second, the industry must have a clear definition of what it looks for in applicants, both in terms of knowledge and soft skills. Finally, academia must create effective models that develop the skillsets required by the industry, rather than just focusing on scientific knowledge.

JOSÉ LUIS GARCÍA Vice President of Automotive Operations at DHL Supply Chain México

Morgan 3 Wheeler

SALES & FINANCING

The market is moving toward a digital age where the client knows everything about a product and its alternatives. Similarly, purchasing priorities are changing and these favor environmental sustainability and sharing-economy solutions. OEMs and distributors must therefore change their marketing and sales strategies to adapt accordingly. An integration between sales and service has also become paramount, especially in a market as varied as Mexico, with financing and insurance solutions as pivotal factors in this transformation.

This section analyzes the strategies that distributors and OEMs are implementing to appeal to an evolving audience, both in age and purchasing habits. The relationship between distributors and financial partners is addressed to offer a clear perspective on the evolution of the Mexican market. Expansion plans for dealership groups are also contemplated, as well as the impact of new brands entering the already highly competed domestic market.

275

CHAPTER 11: SALES & FINANCING 278

ANALYSIS: Domestic Market a Mixed Bag of Success

280

ROUNDTABLE: Will Digital, Autonomous and Sharing-Economy Advances Put the Distribution

Business at Risk?

282

VIEW FROM THE TOP: Eduardo Sáenz, Grupo Picacho Automotriz

283

VIEW FROM THE TOP: Carlos López de Nava, Grupo Alden

284

INSIGHT: Ángel Torres, Grupo Torres Corzo

285

VIEW FROM THE TOP: Fernando Enciso, Grupo Autofin México

286

VIEW FROM THE TOP: José Gómez, Grupo Gocar

287

INSIGHT: Ignacio Caride, MercadoLibre México

288

INSIGHT: Ricardo Bustamante, SICOP

Yamil Zarate, SICOP 289

VIEW FROM THE TOP: Juan Manuel Díaz de León, Overlap Consulting Mexico

290

VIEW FROM THE TOP: Gerardo San Román, JATO Dynamics

292

INSIGHT: Thierry Merienne, ALD Automotive

293

INSIGHT: Roberto Varallo, LeasePlan

294

VIEW FROM THE TOP: Aureliano García, Scotiabank

296

VIEW FROM THE TOP: Miguel Plazas, GM Financial de México

297

INSIGHT: Rafael Portillo, NR Finance México

298

INSIGHT: José Chacón, Navistar Financial Corporation Mexico

299

VIEW FROM THE TOP: Cédric Desplats-Redier, BNP Paribas Personal Finance

Jorge Álvarez, BNP Paribas Personal Finance

300

VEHICLE SPOTLIGHT: Harley-Davidson CVO™

302

VIEW FROM THE TOP: Gerardo Gómez, J.D. Power

303

INSIGHT: Eveline Loza, Marsh Brockman and Schuh Mexico

277

ANALYSIS

DOMESTIC MARKET A MIXED BAG OF SUCCESS They say all good things must come to an end and Mexico seems to be reaching its saturation point in terms of sales. Opinions from AMDA and AMIA say the market has a potential for 2 million new vehicles sold every year but for that, financing needs to keep growing and companies must adapt to new purchasing conditions Closing numbers from 2016 showed record-breaking sales

From the perspective of financing companies, the evolution

growth of 18.6 percent, reaching a total of 1.6 million units

of the domestic market remains positive. But, there is some

sold. It was pretty much downhill from there. The industry

debate over what certain indicators regarding customer

plunged from those lofty heights to single-digit growth

preferences and behavior could mean for companies.

that in the first half of 2017 topped out at 8.9 percent in

AMDA data shows an increased preference for long-

March. The accumulated figures for January-June show sales

term commitments of 36, 48, 60 and even 72 months.

decelerating to just 2.9 percent. By the end of the year, most

Approximately 30.9 percent of all contracts signed between

insiders expect moderate growth of no more than 5 percent.

January and June 2017 were financed with 60-month plans, which represents a 31.3 percent increase in preference

278

The sales decline and conservative forecasts have not

for this modality when compared to 2016. Meanwhile,

dampened financing, however. Overall, the financing market

even though they only represent 12.3 percent of all loans,

grew approximately 7 percent between January and June

72-month plans showed a 53.1 percent increase when

2017, according to information from AMDA, even after two

compared to the previous year.

months with negative numbers in April and June of 5.3 and 3.7 percent, respectively. The 21 and 22.5 percent increases

“Longer payment terms are becoming more attractive

of January and March offset those missteps and the market’s

for clients and financing institutions, and both banks

average has it on an upward trajectory, with financing now

and multiple-purpose financial institutions (Sofomes)

representing 68.2 percent of all sales in Mexico.

are promoting these terms as a sign of certainty in the development of the domestic market and in Mexico’s

OEM financing arms remain the biggest players in the

economic situation,” said Eduardo Solís, Executive President

domestic financing market with a 71.3 percent market share.

of AMIA. Gerardo San Román, Head of Latin America at

A small hiccup in January made NR Finance lose its leading

JATO Dynamics, has a different view: “When the industry’s

position to GM Financial when the company enjoyed a brief

average for contracts was 48 months, companies could

one-month reign. According to Rafael Portillo, Director General

manage their development cycles accordingly and renew

of NR Finance México, this was merely a result of the increased

their platforms every two years. Now, sales cycles are

demand for NR Finance’ solutions in December 2016. The

elongating and eventually companies will lose the clarity

company regained its leadership position in February. AMDA

needed to know how to design and develop processes.”

reports that between January and June 2017, the company

Financing players must keep these changes in mind and

held 20.1 percent of the financing contracts in Mexico, with a

understand how the market might fluctuate in order to

total 101,918 units financed in the period.

maintain a healthy portfolio with minimal overdue contracts.

FINANCIAMIENTO (TASAS DE CRECIMIENTO ANUAL %) FINANCING ANNUAL GROWTH RATES IN MEXICO 30 22.8

16.3

10 0

11.7

15.4

2013

2014

27.4

0.7 -1.1

-1.3

-10

-13.5

-20 -30 -40

-33.7

2006

Source: AMDA

2007

2008

2009

2010

2011

2012

2015

2016

FINANCING TERMS 2016

FINANCING TERMS 2017

POPULARITY OF FINANCING TERMS IN MEXICO (months)

2016 Source: AMDA

2017

26.4% 48 25.1% 60 15.4% 36 10.8% 24 8.6% 72 13.7% Others

30.9% 60 19.3% 48 13.9% 36 12.3% 72 9.3% 24 14.3% Others

11% Mazapil

2% Sahuaripa

11% Mazapil

2% Sahuaripa

9% Cananea

2% Morelos

9% Cananea

2% Morelos

7% Nacozari dethe Garcia 2% Eduardoregarding Neri Financing is not only thing changing customer

Nacozari Garcia 2%would Eduardo enjoy 7% driving but ade third of them getNeri rid of their

5% FresnilloThe latest data from 2% Aquila preferences. AMIA shows that between

5% ifFresnillo 2% Aquila costs become vehicles maintenance and operations

4% Ocampo 2% Alamos January and May 2017, 4,249 hybrid and electric vehicles were

4% Ocampo 2% Alamos too high. In terms of sustainability and alternative-fuel

4% Caborca Chinipas sold, which represents a 94.71% percent increase compared to

4% Caborca 1%five Chinipas technologies, Nieblas says that in years, 78 percent

2%figures Sierra Mojada otherthese cars are still far the from 2016. At 0.747% percent,

2% Sierra Mojada will prefer 47% other of millennial consumers alternative powertrain

Source: CGM, Ministry of Economy With figures to March of 2015 from impacting overall sales volumes in the country but their

1 Source: Ministry of Economy Withhybrid figures to March of 2015 vehicles, 38 CGM, percent of them favoring models.

279

numbers are growing past the accumulated sales numbers of brands like Peugeot and MINI. Unless technology costs

The millennial generation is also transforming the sales

decrease, these will not represent a significant portion of

process, boosting the popularity of digital. Yamil Zarate,

Mexico’s vehicle park in the near future. “Research into

Commercial Director of SICOP, says that practically 100

battery technology will eventually lead to lower prices,”

percent of all potential clients start their search process

said Guillermo Rosales, Director General of AMDA. “In the

online. He adds that priorities have changed and now

meantime, the government must implement fiscal incentives

dealerships and automakers must choose a digital

to further cut prices of hybrid motors.”

marketing strategy as their preferred option to target potential customers. While that may be true, companies are

Government regulations aside, sustainability has made its

still unfamiliar with the digital sales process and according

way to the automotive market, transforming the industry

to Ángel Torres, General Director of Grupo Torres Corzo, “no

toward a mobility-oriented vision. Companies are starting

dealership group knows exactly how social media works.”

to change their business model to address these demands, which are mostly fueled by younger generations. According

Dealerships and auto companies in general should figure

to research on millennials and their mobility needs in

it out quickly – their reputations might count on it. “Once

Mexico, from Partner and Manufacturing Industry Leader

clients post something online, it is impossible for brands

at Deloitte Mexico Manuel Nieblas, cost of ownership has

to change the perception the post has generated,” said

become an important purchasing decision for younger

Juan Manuel Díaz de León, Automotive Practice Director of

customers who favor sharing-economy solutions. According

Overlap Consulting Mexico. “In this era, what a company’s

to Nieblas’ findings, 59 percent of all Mexican millennials

webpage says is not what customers pay attention to.”

FINANCIAMIENTO (MILES) FINANCED VEHICLES IN MEXICO (thousands of units) 100

——2016

98.3

——2017

92.1

87.9 81.2

80.6

78.6

84.6

77.1 78.5

January

Source: AMDA

74.3

75.2

February

March

73.0

April

May

June

ROUNDTABLE

WILL DIGITAL, AUTONOMOUS AND SHARING-ECONOMY ADVANCES PUT THE DISTRIBUTION BUSINESS AT RISK?

Distribution groups keep opening new dealerships but instead of visiting them, many clients only go there to finalize their purchasing process. Online research has become the new normal in the industry and gradually, companies are realizing the importance of a strong digital presence to attract new customers. Used vehicle sales have already moved from the classifieds in newspapers to a digital world and although Mexico is still a young country in terms of e-commerce, new vehicle sales could one day leap to the internet. At the same time, the evolution of autonomy and the sharing economy opens the question of how much vehicle sales could grow when ownership is no longer a priority.

We might be near the end of the dealership business as we know it and yet we continue inaugurating dealerships every year. We only hope we have the talent and strength to continue listening to our customers. People will always need mobility solutions. However, new developments such as the evolution of electric and self-driving 280

platforms will transform our business. Only one of these technological developments could radically impact how we see our business today; yet they are all coming at the

ARTURO ZAPATA President of Corporación Zapata

same time in a “technological tornado.” All industry participants need to start planning ahead, redefining what the new distribution model will look like into the future and developing solutions that will solve our customers’ mobility needs going forward.

As the industry evolves, Mexico faces an imminent challenge in distribution and manufacturing. Our whole industry is based on a product that in 10 or 15 years will cease to be relevant. We must prepare for when that happens. Global trends now dictate that cars must emit zero emissions and aim for zero accidents, while reducing ownership. Although we still do not know when it will happen, we can be sure that just as vehicles are now transforming, so will the role of dealerships. I do not think they will

GUILLERMO ROSALES Director General of AMDA

disappear, however. Their activities might become more digitally oriented but there will always be a need to have a point of contact between the OEM and the consumer.

Digital marketing and social network presence will become a priority for all distributors. However, I do not think clients will ever stop shopping at dealerships. Cars will not be sold online, at least in the short term. There will be a need for a strong community managing strategy that translates leads generated online into actual sales in the dealership but this will be a complementary process rather than a transformation strategy. Shared economy will not destroy the dealership business model either. People

EDUARDO SÁENZ Director General of Grupo Picacho Automotriz

that own a car will be able to share it, just like people that do not own a place at the beach can now access one through an internet application. Global forecasts predict technology will decrease new vehicle sales but I do not see that happening. Mobility needs keep growing and services like Uber create a new market segment.

The industry is still in a development phase and we need to see these innovations as an opportunity rather than a threat. Many things need to improve and even our dealerships are worried about how technology will impact their business. Retail will change to incorporate digital outlets but physical presence will always be necessary to offer maintenance and repair services, so I do not fear the destruction of the distribution model. On the contrary, shared economy will become the new normal, boosting industry growth in a different way.

RADEK JELINEK President and Director General of Mercedes-Benz México

Technology adoption deadlines have narrowed immensely. No dealership group knows exactly how social media works, yet it is probably the most cost-efficient way to position the brand in the market and generate new leads. I see both dealerships and digital sales platforms as complementary rather and opposing 281

forces. Even though companies like Amazon have had success in clothing sales, department stores have not yet disappeared. Therefore, we are working with a company in Silicon Valley to help us understand how the digital world will evolve and which new virtual tools and strategies we will have to put in place in the future.

ÁNGEL TORRES Director General of Grupo Torres Corzo

There has been a noticeable decrease in traffic to showrooms. Right now, buyers who visit dealerships have already decided to make a purchase, since they have researched what they want and the terms of their purchase. For that reason, our main strategy is to grab this opportunity by not letting anyone leave our showrooms without a sale. Dealerships will keep running but the high rental prices of real estate and local maintenance make it more difficult for car distributors to survive in metropolitan areas. Bigger facilities are no longer sustainable and the model is beginning to adjust.

JOSÉ GÓMEZ CEO of Grupo Gocar

Almost 69 percent of the used-vehicle market exists online and one day, people will buy new cars online. Clients will still have to receive maintenance and repair services every six to eight months at dealerships so our responsibility will become offering excellent service, first and foremost. Even though our support represents a cost for automakers, we also help them solve many problems and deal with the client directly. People have been predicting the death of the dealership for 60 years but it has not happened yet and dealerships will not disappear even if platforms like Amazon enter the business. When autonomous cars become a reality, we will shift our focus toward them just as we have done with all innovations entering the market.

CARLOS LÓPEZ DE NAVA Director General of Grupo Alden

VIEW FROM THE TOP

THE BIRTH OF AN IMPORTERDISTRIBUTOR-MANUFACTURER HYBRID EDUARDO SÁENZ Director General of Grupo Picacho Automotriz

Q: How has Grupo Picacho’s participation in the Mexican

operations in Mexico in April 2017. Although BAIC’s initial

automotive market changed since 2016?

target was the Mexican market, more ambitious plans to

A: Grupo Picacho is among the top 15 Ford dealerships

target Latin and South America are now in place with a

nationally. Picacho was the first Mazda distributor in

strong vision toward the North American market.

Mexico. Excluding two of Mazda’s dealerships, which are

282

managed by a different Grupo Picacho division, we are

Q: What were your concerns about the image of Chinese

the fifth main Mazda distributor in the country. Among

vehicles in Mexico and how did you address them?

Lincoln distributors, from 2013 to 2016 we were the top-

A: I was unsure how the public would react to Chinese

selling group although in 2016 we dropped to second place.

vehicles, particularly in the metropolitan area. But clients

The main driver that increased Grupo Picacho’s profit was

have moved past the previous misconception they had

operating efficiency and the growth in Ford vehicle sales.

about these cars. We conducted blind tests and clients

Even though other brands like Jaguar and Land Rover were

never guessed that these vehicles were Chinese. Interest in

negatively impacted by dollar-peso exchange rate volatility,

Chinese brands is growing considerably. Many groups and

2016 was the best year for Grupo Picacho.

individual dealerships are now approaching us, which shows the market’s acceptance of the new BAIC brand. The real

Q: What opportunities did Grupo Picacho see in BAIC to

challenge we found was in facing that same mindset with

become its distribution partner in Mexico?

potential financing partners. We struggled to find a financing

A: BAIC contacted us looking for distributors and we met

branch that would trust our product.

Francisco Fu, the PR Director of BAIC de México. The company was one of the fastest-growing players in China. Worldwide, it

Q: How does working with a Chinese company and your

is among the 150 biggest companies internationally and it has

approach to their business evolution differ from other clients?

a strong financing arm in Hong Kong. In just three years, BAIC

A: Chinese companies have a young, dynamic team eager to

went from having presence in three countries to more than 50.

understand our market. They are accessible when analyzing how the business model must adapt to the local market.

The problem BAIC faced in its previous business model was

We reconfigured our operations to meet their needs and

finding an importer that could manage all the distribution

became an importer-distributor-manufacturer hybrid in this

and marketing operations in our country. Our initial

joint venture. We are making every decision in collaboration

efforts were aimed at showing them the true value of the

with BAIC but eventually, the brand will probably handle

Mexican market and BAIC’s development opportunities.

all manufacturing operations while we focus on distribution

We started negotiating our distribution agreement but my

and marketing.

personal goal was to bring BAIC not only as a brand but as manufacturer. We showed BAIC’s executives how other

Q: What is the market potential and your development

companies handled their production operations in Mexico

forecast for BAIC?

and how they could eliminate the 20 percent tariff they

A: If we focus on the end-user market, our target is to hold

were paying to import their vehicles. We eventually reached

a 3 percent market share in the compact, SUV and small

an agreement and the company launched its manufacturing

SUV segments. The latter two are growing at rates of 7 and 8 percent and could represent half of the current compact market in a couple of years. The market potential is close

Grupo Picacho originally began as a Ford distributor and

to 20,000 units but we could reach 8,000 units per year

eventually added Lincoln, Land Rover, Jaguar, Mazda and FAW

once our portfolio and dealership network are complete

Trucks to its portfolio. In 2016, the group integrated the BAIC

in January 2018. We plan to open a new dealership every

brand, extending its network to a total of 20 dealerships by 2017

month until the end of 2017.

VIEW FROM THE TOP

SMALL, MEDIUM FIRMS CONTROL INDUSTRY’S DESTINY CARLOS LÓPEZ DE NAVA Director General of Grupo Alden

Q: What are your expectations for domestic market sales,

might take gradual steps to reach their desired prices but

considering economic deceleration forecasts?

other are taking extreme measures with sudden increases.

A: The industry has grown since 2014 and in 2016, it reached

Even though the most affected are importing companies, local

unbelievable heights. Brands like Kia sold impressive quantities

manufacturers are also impacted by the weak peso.

of vehicles and others like Hyundai were only limited by their own inventory. Brands like Kia and Nissan are barely coping

Dealerships are facing problems as well. We borrow the

with the demand. I thought sales would fall by 10 percent in

money to buy cars from financial institutions, some of which

2017 but early results are positive. Each brand and analyst has

are linked to OEMs, until we sell them, then we are charged

different expectations but the industry will probably remain

the price plus interest. These rates are increasing along with

stable, allowing for slight variations of 3 to 5 percent. But even

prices, which means we pay more for every month the car

if my initial predictions hold true and sales fall by 10 percent,

stays in inventory. If the vehicle stays in the dealership too

most companies would continue to feel positive about the

long, eventually we lose whatever profit we could gain from it.

1.6-million result in 2016. Volatility in prices has also created another complication Q: How might different brands participate in the market’s

for automakers. Although we make sure we stay clear of

evolution?

these practices, several exporters are now buying vehicles

A: While certain brands are gaining ground in the local market,

from dealerships at standard Mexican prices and sending

others might fall behind. Ford, for example, took a hit in 2017

them to foreign markets such as Europe. This creates unfair

mainly because of negative media attention around their plant

competition since these people are selling units at much

construction’s cancellation in San Luis Potosi. Many clients

lower prices than clients would pay in a registered European

canceled their orders and Ford was criticized on social media.

dealership, but they are still making significant profits.

The rise or fall of the industry will depend on OEMs. Despite

Q: What opportunity do you see to incorporate Chinese

uncertainty created by US President Trump’s comments and

brands into your portfolio?

potential changes in his country’s relationship with Mexico,

A: It is about time we get involved with Chinese companies.

there is still high demand. Companies are restructuring their

There might not be that many exchange-rate limitations

sales strategies because it is not currently that attractive to

with these brands if they start manufacturing in Mexico. We

sell cars in Mexico. Some brands may cap the number of cars

have already invested in risky ventures, so this would be no

they bring to the country to limit the financial losses they are

different. We must act now or possibly regret passing up an

incurring due to the peso’s weak position against the dollar.

opportunity. People previously mistrusted Chinese vehicles

Toyota will probably import the same number or a few more

due to negative safety perceptions. Standards in these brands

cars in 2017 as in 2016 but Mazda announced it will import

were much lower than any other competitor in the market but

fewer. We have interminable waiting lists for several models

I believe that has changed. Chinese companies are getting rid

but not all brands are interested in meeting that demand.

of their stigma for copying technology and the way they are

Nissan plans to keep its momentum. Mexico is the fourth most

perceived is changing. These still remain a risky investment

important market for the company, now representing a market

but we are in a good position to take the bet.

potential between 450,000 and 500,000 units. Q: How will price increases impact the industry’s

Grupo Alden is a new and used vehicle dealership group

development?

that started operations in 1984. The group now handles 13

A: It will all depend on how companies manage their sales

different brands including Kia, Hyundai, Ford Mazda, Audi

strategies. Companies like Mazda, Toyota and Volkswagen

and Lincoln

283

INSIGHT

BRAND, REGION SPECIALIZATION ÁNGEL TORRES Director General of Grupo Torres Corzo

People are always advised to not bite off more than they

priority is to be sure they are attended perfectly by people

can chew and the same is true in the business world. While

who know how to sell their products. “The probability of a

many distribution groups handle various car brands, Grupo

client buying something increases when they feel comfortable

Torres Corzo decided to focus on just one. As it happens, this

in the space, so we make sure they feel at home.”

brand eventually became the biggest in the Mexican market. Overall, automotive sales are expected to grow around 5 284

Grupo Torres Corzo’s strategic partnership with Nissan began

percent in 2017 but Torres has a more ambitious goal to

with the opening of their first dealership in Zacatecas in 1987.

double that forecast, catalyzed by training Grupo Torres

Following its core values of discipline and loyalty, the group

Corzo’s sales personnel. The company also invests in its own

has been devoted to the brand and now has 10 dealerships,

mystery shoppers to visit every distributor once a week.

one in Mexico City and the others in the Bajio region,

Torres says they pay special attention to the state of the

Zacatecas, San Luis Potosi, Aguascalientes and Guanajuato.

dealerships and how effective the team is when closing

“In 2010, Nissan restructured its dealerships to optimize

the sale. “Nissan expects a lot of us, so we must be equally

geographical coverage and therefore get the best results,”

demanding of our people,” he says. “The quality of our

says Ángel Torres, Director General of Grupo Torres Corzo.

investments is measured by the number of first visits to the

“Our entire circle of influence is within less than a two-hour

dealership. After that, we track the effectiveness of account

radius, including Mexico City considering a 45-minute flight.”

managers with customers’ returning visits and the number of signed contracts.”

According to data from AMDA, the Bajio states, where Grupo Torres Corzo is present, contribute over 8 percent of the

Grupo Torres Corzo applies the same technique to aftersales

national sales. Including Mexico City pushes this number to

service. Torres says that Nissan is keen to be the best car

almost 27 percent. Both regions have noticeable differences

brand in aftersales operations and he is confident about the

that impact the way distributors work. “The fast development

results Grupo Torres Corzo can deliver. “Clients start their

of states like San Luis Potosi and Guanajuato make it hard for

driving experience at 18, so over 50 or 60 years driving, one

distributors to keep up with demand,” says Torres. Guanajuato

person could buy a new vehicle from us around 10 times,”

is a challenge in itself, being the sixth-largest economy in the

he says. To guarantee a long-term relationship with these

country with 6.5 percent growth, according to INEGI.

clients, the distributor must ensure a positive aftersales experience. “Although we strive to make our clients’ visits

The size of the Bajio states and their population also impact

to the dealership as comfortable as possible they will always

Grupo Torres Corzo’s participation. Torres says that even

want to leave as quickly as possible, so our aftersales service

though competition exists throughout the country, it is fiercer

has to be swift and efficient.”

in Bajio states where the same brands that battle in a large marketplace like Mexico City target a smaller population.

The executive team at Torres Corzo leans on IT to make

The company has to guarantee clients are attracted to the

gradual improvements in the way sales are handled and for

shop floor. “Marketing is one of our biggest strengths,” says

efficient maintenance and service scheduling. “There is still

Torres. “My first responsibility is to ensure that when someone

room for development with clients who visit our dealership

wants to buy a car, their first thought is Nissan. And after

but leave without any of our cars,” says Torres. “But our

that, clients should think of Torres Corzo.” The company

goal remains to become one of the best dealerships in the

invests approximately MX$3 million (US$170,000) per month

entire country.” Although there are still opportunities to be

on marketing, including radio spots, promotional events,

addressed regarding digital payments, the company will

YouTube videos and Instagram among other social networks.

launch a new project by the end of 2017 that it says will put

Having drawn customers into the dealership, Torres’ next

it ahead in the technological race.

VIEW FROM THE TOP

DIFFERENT FINANCING ALTERNATIVES FOR DIFFERENT MARKET CONDITIONS FERNANDO ENCISO CEO Automotive Division of Grupo Autofin México

Q: How attractive is self-financing in Mexico as an

Mexico and monetary incentives are not as attractive as

alternative to traditional financing?

those offered in the US but benefits include flexibility.

A: Self-financing is an attractive option in developing

Younger demographics are also the perfect target for

economies and can coexist with traditional financing

new mobility alternatives because they are not as rigidly

methods. It becomes a viable option for clients when

set on ownership as older generations. Companies are

interests grow and financing opportunities decrease.

made up of many generations and we must also flexibly

Regardless of the economic environment in the country,

cater to any client. 285

self-financing is also an alternative for demographics who do not have access to traditional financing options due

Q: How does Grupo Autofin manage its relationship with

to a lack of stable or verifiable income.

automakers and other dealerships? A: The dealership part of Autofinanciamiento México

Q: What role does Grupo Autofin play in the car loan

works like any other multibrand player in the market.

company Autofinanciamiento México?

The Chevrolet dealer sells Chevrolet models, Mazda offers

A: We operate within a conglomerate of more than 60

Mazda vehicles and so on. Some of our points of sale are

companies participating in different industries. The

even number one dealerships for many brands. One of

holding company is Grupo Autofin México and one of

our distributors is the top Mazda seller nationally and the

our divisions is focused on the automotive sector. In

second one globally.

almost 50 multibrand dealerships across the country we sell cars traditionally, offering financing alternatives

We work with budgets rather than models in self-

through banks and OEM financial arms. The group also

financing. Clients establish the maximum amount they

has a bank called Banco Autofin México and a third

want to spend and based on that we offer them the

branch solely focused on self-financing services called

models we have available. Automakers sometimes have

Autofinanciamiento México. This broad portfolio allows

extra vehicles in stock, allowing us to make a deal with

us to cover different market needs and to prosper in any

OEMs for a large fleet of vehicles, giving clients direct

economic environment.

access to a specific model. We manage most brands in the market through self-financing and we even manage some

Q: What are Grupo Autofin’s growth expectations,

high-end brands like Jaguar and Land Rover, although

building on its 10 percent self-financing market share?

these volumes are more limited. We must adhere to each

A: We expect to remain at that same level in terms of

brand’s specifications. Mazda, for example, does not allow

self-financing. We are in the middle of renovating our

us to market its products through self-financing but we

brand and see self-financing as a good option not only

can sell them through our traditional dealerships using

for people without a steady income, but also for young

Mazda’s own self-financing branch. Nissan allows us to

clients acquiring their first financing product. Millennials

sell their cars through self-financing as long as we do

and recent graduates often lack a financial history and

not exhibit them. For brands that we do not manage like

this solution is an alternate starting point for them.

Toyota, Autofinanciamiento México can negotiate with another dealership to offer clients the car they prefer.

As part of Autofinanciamiento México, we are also betting on increasing market participation through traditional financing and new leasing services. Mexico

Grupo Autofin is a Mexican financing company with more than

is an emerging market in terms of leasing and other

60 subsidiaries participating in different industries. Grupo

alternatives to ownership in which we see an opportunity

Autofin pioneered the self-financing system and it has more

to expand our operations. Leasing is still expensive in

than 30 years of experience in the Mexican market

VIEW FROM THE TOP

USED CAR SALES STARTING TO CLICK JOSÉ GÓMEZ CEO of Grupo Gocar

286

Q: What led Grupo Gocar to explore the used car market?

Q: How have digital solutions boosted your sales and

A: We see used vehicles as a complimentary option to new

recognition in the market?

car sales. I have worked as a distributor for 22 years and

A: We launched our Business Digital Center in November

used cars have been important since the beginning of my

2016 and online sales represented 5 percent of new and

business. We are focusing on online sales because it gives

used cars. This is excellent because we are just beginning.

us opportunity areas to grow and also allows us to sell more

Our goal is to increase used vehicle sales to 25 percent of

cars in better condition. For this, you need a quality car

our total sales by the end of 2017. All our numbers indicate

inventory and knowledge of digital marketing. Financing

that this is achievable, partly thanks to our online sales

for used cars is getting easier. Certifications and warranty

representatives offering personalized attention. Hiring a

extensions are more reliable and expected by customers,

team of salespeople working homogenous schedules at the

so income from used cars can be even bigger than that of

same location increases internal performance and customer

new vehicles.

experience during purchases through our Business Digital Center (BDC). We also have a web page called Seminuevos

Q: What factors are boosting the used car market in Mexico?

Gocar that lists the group’s inventory.

A: There are several reasons to explain why the used car market is becoming more important in Mexico. In the last

Grupo Gocar also works with CarPlanet and the practices

few years, the Mexican car market has been maturing and

of both have helped us improve Grupo Gocar’s internet

consumer behavior is becoming similar to the European

performance, applying best practices across platforms

and American markets. A great achievement was the

and strengthening both. CarPlanet holds inventories from

federal government’s decision to close the market for

many car dealerships as well as private users. Gocar only

so-called “chocolate” cars, as used units coming from the

manages its dealerships’ inventory, so customers using

US are known. This action provided OEMs, car dealers and

CarPlanet have many more options compared to Gocar’s

used vehicle distributors with certainty and generated

smaller but higher quality stock. We use Google AdWords

momentum for the professional used car business both

for search engine optimization and we have a live chat on

at the brand and dealer level. Today, the internet has

our web page that connects customers with a specialist

underpinned the fast development of the used car

salesperson, who offers personalized advice. In the live

market, providing the business with transparency, agility

chat, they can close a sale and sign the contract. All these

and reliability.

practices keep us at the forefront of online vehicle sales.

Q: Which used model is the favorite of the Mexican market?

Q: What are Grupo Gocar’s growth expectations for 2017?

A: Depending on the area in which used vehicles are

A: Results have been positive and our goal is to maintain high

being sold, we see different vehicle preferences. In Mexico

customer satisfaction across all the activities we do, and to

City’s Santa Fe and San Angel neighborhoods, the cars

focus on greater digital sales numbers. On the CarPlanet

sold are luxurious and more expensive. Within the State

website, we are now also offering used motorbikes, which

of Mexico, we see distinct buyer profiles varying from

is a huge market. We are still unfamiliar with it but we can

expensive to low-value cars.

handle this segment on CarPlanet. Regarding Grupo Gocar’s future projects, we are opening a new Renault store in the south of Mexico City and our goal is to double the sales of

Grupo Gocar is a dealership group that buys and sells used

used cars. New car sales are more frequent than used cars,

and new cars, while offering financing solutions. Through its

so we negotiated an alliance with Bancomer to increase sales

CarPlanet platform, the group also participates in the online

through car loans from 30 percent of our total used sales to

market

60 percent, which is our objective.

INSIGHT

E-COMMERCE GROWS AS CONSUMERS GAIN CONFIDENCE IGNACIO CARIDE Director General of MercadoLibre México

As more people gain confidence in e-commerce and take

tool for distributors.” Caride highlights it is simpler for

their shopping online, those involved in automotive sales are

consumers to look at one inclusive webpage than to visit

recognizing an opportunity to widen their reach, says Ignacio

numerous individual sites. Dealerships, he says, are realizing

Caride, Director General of MercadoLibre México.

the advantages this strategy can offer.

“Previously, when someone wanted to sell their car, the

Opportunity creates competition but Caride is not fazed

only way for potential clients to see the vehicle was to visit

by the arrival of other e-commerce leaders such as

a dealership,” says Caride. “Now, the internet allows people

Amazon. He believes the increase in online sales platforms

from all over the country to see it.”

will foster confidence among consumers in the online shopping market in Mexico, resulting in more business for

The internet has simplified the process of model comparison

MercadoLibre. “We do not expect to lose market share.

and has reduced the time clients spend looking for a vehicle.

Competition in digital sales will only affect traditional

Carlos López de Nava, Director General of Grupo Alden and

retailers,” says Caride. “Many car dealerships remain

other players in the distribution segment agree that the next

attached to outdated sales structures.”

step in automotive sales is in the online market. During 2016, general e-commerce grew 36 percent compared to 2015,

Caride says MercadoLibre’s diversification will also help lift

which is above the automotive industry’s growth of 18 percent.

it above other online retailers that are solely focused on the

“This is the future,” says Caride. “We are growing more than

automotive market, such as Seminuevos.com and Soloautos.

100 percent each year, we had 17 million hits on our site each

mx. “Even though the market is growing, we cannot depend

month and sold approximately 1 million used cars in 2016.”

on a single business line,” Caride says. “That being said, automotive is one of our business verticals and we have a

With a focus on used vehicles, popular models such as the

team dedicated just to that area.” While consumers are

Volkswagen Jetta, Chevrolet Aveo and Ford Focus are the

gaining confidence in the online shopping experience, they

most sold at MercadoLibre. Certified programs have been

remain wary of payment security, says Caride. MercadoLibre’s

crucial in boosting sales in this market, since according to

platform addresses this concern by allowing clients to talk

Caride, they give clients confidence regarding the functionality

directly and privately with the owner of the article. By the end

of the vehicle and the warranties clients can claim. However,

of 2017, consumers will be able to pay a deposit to hold a

the premium and luxury segments have also found a niche in

product or vehicle for a specified time. If the transaction is not

the online market. Currently over 1,000 vehicles above MX$1

completed, MercadoLibre will return the money to the buyer.

million (US$54,900) are on sale on the platform, with brands like Porsche, Ferrari, McLaren, Aston Martin, Maserati and

Caride says MercadoLibre will continue investing in its

Lamborghini. The company also has its own section focused

automotive vertical and it is also analyzing the option of

on auto parts and is working with suppliers like Bosch and

offering financing to both buyers and sellers in an effort

distributors such as NAPA. “By the end of 2016, MercadoLibre

to keep growing online transactions. “There are millions of

had already sold 1 million auto parts,” says Caride.

Mexicans outside the financial system, not because they do not want it but because they are rejected by the banks,”

Demand growth in the digital market will continue in the

says Caride. “We have a great advantage over traditional

coming years, according to Caride, and carmakers are

financial institutions mainly because of the information we

realizing they need a partner that knows how to grow their

can gather from our clients and from businesses that use

online business. “Vehicle brands are excellent at what they

MercadoLibre as their distribution platform. We know their

do but they do not know how to do online sales,” he says.

overall performance, how much their business is growing

“We can offer OEMs our expertise and become the perfect

and how they resolve conflicts.”

287

INSIGHT

HELPING DEALERSHIPS EMBRACE THE DIGITAL AGE

“

Digital leads for new vehicle sales have grown to 30 percent from just 4 percent since 2013” Ricardo Bustamante, CEO of SICOP

288

intricacies of the domestic market. “Personnel turnover is high in the distribution sector at over 120 percent every year,” he says. “There are many different businesses and departments to manage including financing, fleet management and used vehicle sales.” SICOP’s goal has been to create a disruptive solution that can help dealerships connect efficiently with its clients and within its own departments, tracking the entire sales

The automotive industry has entered the digital age.

process from the generation of the lead to the delivery of

Yet, according to Ricardo Bustamante, CEO of SICOP,

the vehicle. “Dealerships using our platform call clients five

dealerships are ill-prepared to deal with online lead

minutes later and they reach 100 percent of the people

generation and digital marketing strategies. “In the used

interested in buying a vehicle,” says Bustamante. “This

car segment, digital leads account for 80 percent,” says

method transforms the original 1 percent of sales coming

Bustamante. “Meanwhile, digital leads for new vehicle sales

from digital leads into 14 percent.” SICOP works through

have grown to 30 percent from just 4 percent since 2013.

an application downloaded by both the client and the

But of this percentage, only 1 percent of all leads become

distributor, allowing the company to track information on

actual sales.”

the clients’ most popular vehicle requests and the busiest months in terms of sales.

Following an 18.6 percent sales increase in 2016, this year is gradually decelerating and by July, the average growth

Regarding their digital marketing strategy, Bustamante

compared to the previous year was only 1.4 percent. This

says SICOP’s platform can help clients identify which

means that distributors must seize any opportunity to

media outlets generate the best results. “A ‘like’ does not

boost their numbers. “Currently, it takes dealerships 48

mean that someone is really interested in the product,”

hours to call interested buyers back and they only do

he says. “Companies can purchase spaces on many

this with 29 percent of the customers at most,” says

social media pages but 50 percent of leads generated

Bustamante. Even though digital marketing has become a standard for OEMs and distributors, Bustamante thinks there is still potential to improve companies’ strategies. Ángel Torres, General Director of Grupo Torres Corzo, agrees, saying in an interview with Mexico Automotive Review 2017: “No dealership group knows exactly how social media works, yet it is probably the most costefficient way to position a brand.” “Although 30 percent of all leads are digital, we could safely assume that 100 percent of all potential clients start their search process online,” says Yamil Zarate, Commercial Director of SICOP. “This is a tool we have

“

are not serious.”

Although 30 percent of all leads are digital, we could safely assume that 100 percent of all potential clients start their search process online” Yamil Zarate, Commercial Director of SICOP

to take advantage of.” After 20 years in the automotive market, SICOP has become an expert in lead management

Both Bustamante and Zarate agree that the best

and Customer Relationship Management (CRM).

conversion rate from lead to sale comes from organic

According to Zarate, SICOP is already working with all

leads, which represent people who register on the clients’

the OEMs present in Mexico through their distributors

website because they are already interested in information

and some of them, including Nissan, FCA and Ford, have

regarding a purchase. However, only 5 percent of all digital

made SICOP their CRM standard.

leads come this way, according to Bustamante. “The goal is for companies to grow these leads with effective

Although CRM platforms are widely used in the industry,

marketing strategies that result in all clicks landing on the

Bustamante says global solutions cannot evaluate the

OEM’s or the dealership’s website,” he says.

VIEW FROM THE TOP

REACTING, ADAPTING TO FREE-MARKET MODEL JUAN MANUEL DÍAZ DE LEÓN Automotive Practice Director of Overlap Consulting Mexico

Q: How could financial uncertainty affect automotive

structure. After that, they must train people in brand services

financing in Mexico?

and customer experience. If the aftersales department does

A: Automotive financing will continue growing, though this

not offer appropriate service, people are going to find out

growth will decelerate. The main driving force the internal

through social media and sales may be affected. OEMs

market experienced in past years was due to import

struggle to renew their reputation and keep using certain bad

restrictions on used cars from the US. This means that to a

practices, which ends up affecting their sales. Meanwhile, new

point, we are seeing the Mexican market’s real potential for

OEMs have a clean slate with regard to service and reputation,

new vehicle sales reflected in numbers. Because of the current

which can work to their advantage.

exchange rate, car prices will likely go up starting with one or two of the biggest OEMs and the rest will follow. Overall

In terms of new brands like BAIC that are just entering the

sales will be impacted within the first months of the year but

market, they should provide incentives and a well-organized

the market will adjust by the second half of 2017. Decelerated

communication strategy that highlights their customer

growth will also lead to an increase in used car sales.

service. These companies must provide good guarantees and maintenance contracts. Mexico is a highly price elastic market

We need to take gasoline into consideration. People are angry

so Chinese OEMs can find a market niche here.

about the rising prices but eventually they will get used to this free-market model. Following a period of adjustment,

Q: What is the main opportunity in dealerships’ service?

consumers will rationally analyze their purchases more closely

A: The problems dealerships have in maintenance services

and start considering factors such as engine efficiency and

relate to the reception of a vehicle. It is common for service

gas mileage. OEMs will push to portray vehicle efficiency and

consultants to just file orders without advising clients on

reasonable total costs of ownership. Rising prices will also be

the vehicle’s problems. Drivers take their cars to be repaired

positive for hybrid cars as demand will surpass the current

but they break down again on leaving the agency because

supply. I expect three markets to grow, namely sedan vehicles,

the customer service team could not offer an adequate

hatchbacks and SUVs. The demand we have seen so far for

assessment of the car’s condition. A significant percentage

these segments will continue growing, particularly for small

of client dissatisfaction comes from vehicle failures that were

crossover SUVs.

not even detected when the car was first received.

Q: What does the distribution network need to do to adapt

Follow-up is another important opportunity area, as well as

its sales model to car-sharing?

keeping promises made. Dealerships need to comply with

A: We need to provide the necessary information for analytics.

dates and times of delivery as well as explaining the work

Final users no longer go to dealerships to get information,

done on the vehicle. Another potential improvement area for

which means brands need to work on their online reputation

some OEMs is related to appointments. In Mexico, we are

and adapt their products to new markets, including units

used to taking our vehicles for service whenever we feel like

economically designed for car-sharing services.

it, which means that repair centers end up saturated. It is important to implement an appointment system through

Q: What would more traditional OEMs need to do to remain

which clients can easily make appointments.

competitive in terms of sales? A: There are two main methods that OEMs could employ. The first is to analyze product offering to reach an accessible

Overlap Consulting is a rapidly growing consultancy based in

market, as not every brand has vehicles for every demographic.

Spain. The firm has three areas of expertise focused on sales

OEMs need also analyze dealership structure, size, equipment

and commercial profitability, business transformation and

and potential customers to define a modern dealership

client experience

289

VIEW FROM THE TOP

HOW LONG CAN MEXICO MAINTAIN ITS SALES GROWTH? GERARDO SAN ROMÁN Head of Latin America at JATO Dynamics

290

Q: How do OEMs now view the domestic market?

Secondly, I see a challenge in how companies are managing

A: The domestic market has undoubtedly become more

their marketing and financing strategies. OEMs have

attractive and the perfect example is the entrance of two

accelerated the purchase process and this will affect future

new Chinese brands to the country. It seems that BAIC

sales. Clients who planned to buy their car in 2017 may have

will play with a more moderate strategy but JAC will

already acquired it in 2016 and will no longer buy one now.

face the industry head-on. These companies, alongside

Aggressive strategies have resulted in financing contracts

Korean manufacturers, installing facilities in Mexico is no

offering long-term plans of up 72 months. When the

accident. Perhaps Hyundai and Kia arrived when there was

industry’s average for contracts was 48 months, companies

less uncertainty but OEMs make their investment plans

could manage their development cycles accordingly and

following long-term strategies. Many things can happen

renew their platforms every two years. Now, sales cycles are

in short periods of time, which means companies must

elongating and eventually companies will lose the clarity

be patient and consistent in their plans. Companies might

needed to know how to develop processes.

experience losses but those will be compensated once the market stabilizes and their investment consolidates.

There is currently no harmony between manufacturing, sales and the aftersales process. If financing moves the

Uncertainty has made projections difficult but new investors

entire market and clients are choosing the longest plans,

consider the worst-case scenario right from the start.

companies need to adapt to clients having less purchasing

Investors are probably calculating their profit according

power. Both OEMs and clients must take the car’s total cost

to a 10- or even 15-year strategy. Companies like BAIC and

of ownership into consideration, not only the loan’s monthly

JAC are betting on the domestic market and eventually they

payment. If these costs start pressuring a client’s purchasing

will take advantage of Mexico’s relationships to target the

power, the overdue portfolio is bound to increase.

North and Latin American regions. Q: How will new trends such as increasing gasoline prices Q: What will the government’s role be in the development

impact technology integration in Mexico?

of the domestic market?

A: All brands are pushing to downsize their engines and

A: Mobility strategies implemented by the government

incorporate fuel-efficient technologies. This is a good trend

will be crucial for the evolution of the domestic market.

because it is helping companies amortize the costs related

Initiatives like the Mexico-Toluca Interurban Train are helping

to technology development. Eco-friendly technologies were

suburban areas evolve, and are not distracting travelers

previously only available in high-end vehicles but now clients

from the automotive industry. Trains will help distribute the

are requesting these features in volume models. Paradigms

growth of domestic sales. Dealership networks in regions

are breaking and brands whose signature engines were

like Mexico City are decelerating growth but there are many

six or eight cylinders are now moving to a four-cylinder

other regions that are becoming stronger.

turbocharged engine platform. Even sports brands are betting on fuel efficiency and the incorporation of hybrid

Q: What do you see as the main challenges that could

technologies. The only thing that could have driven this

hinder the continuous evolution of the domestic market?

change was a direct impact on final customers’ pockets.

A: I am more worried about internal than external

The increase in gasoline prices was inevitable and in the end,

challenges. The country needs to address security and

this will be beneficial for incorporating new technologies.

transparency concerns to remain positive in the eyes of potential investors, both national and international. National

Gasoline prices will have a definite impact on the market’s

companies are the first to feel the impact of unclear

development and it is already starting to show. Companies

regulations and a faulty rule of law.

will also incorporate it in their development and planning

process. The real impact will come when companies like Tesla

Exchange rate volatility has been more of a macroeconomic

roll out vehicles like the Model 3 at only US$35,000. The

challenge than a microeconomic obstacle. The domestic

Mexican government needs to stop subsidizing everything

market has developed enough to remain strong amid

and people need to understand the real costs of what they

complications and many vehicles sold in the country are

consume. People are already buying more efficient home

produced locally, minimizing the potential impact a strong

appliances and gadgets, so why not do the same with cars?

dollar could have.

Q: What role will leasing play in the market’s consolidation?

Prices were adjusted but in volume brands the difference

A: Leasing is a great alternative for the Mexican market and it

was minimal. Furthermore, the variation was practically

could also contribute to the amortization of technology costs.

eliminated by aggressive marketing and financing

The US market would have never reached its current numbers

strategies from most brands. In the end, the panic

without embracing leasing as an alternative. Mexico’s domestic

was far greater than the actual effect on the industry.

market could easily grow to 4 million vehicles per year thanks

Uncertainty has receded and it seems that the dollar and the peso have found a balancing point.

to leasing but we still have many legal and fiscal issues to address before this can happen. Right now, this service is restricted to people with corporate activities. Leasing companies are present in the market and they are willing to enter

60-72

This is certainly not ideal but it has also

financing terms gaining popularity in Mexico

foreign investment, attracting countries

months

the private client market. Once the

brought other advantages. The weak peso makes Mexico more attractive for like China. 291

Q: What is your view on Mexico’s

government implements clear policies that allow companies

relationship with the US and potential changes to the

to have more strength and credibility in their legal processes,

NAFTA agreement?

the leasing market will boom. This will also help Mexico in

A: While Mexico depends heavily on the US, as long as

its technology integration process, as fleet managers favor

demand exists in the US and Mexico remains capable of

cheaper and lower-maintenance vehicles.

supplying those vehicles, we have nothing to fear. President Trump has proposed several measures to block cross-

Q: What pushed Mexico’s domestic market to grow 18

border trade but the only possible outcome is that any

percent in 2016?

extra taxes will be passed on to consumers in the US.

A: No one knows for sure what spurred so much growth in 2016 because most industry participants had more

The US stance switched to making only cosmetic alterations

conservative projections. My original forecast was that

to NAFTA, which is probably the wisest thing to do.

the market would grow approximately 5 percent but it

Changing or even removing an agreement so intricately

ended up at 18 percent. Uncertainty in the second half of

ingrained within the Canadian, Mexican and US economies

2016 due to the presidential elections in the US did not

will only cause problems for all involved, and not only in

deter the market’s momentum which maintained pace

the automotive sector. People need to be more pragmatic

all the way to the end of the year. Anticipated purchase

about decisions on trade policies, as no single person is

plans from many clients who wanted to take advantage

responsible for decisions.

of aggressive financing offering contributed to growth. By the end of the year, 66.5 percent of the vehicles in

Nonetheless, Mexico has the advantage of having

Mexico were sold through credit. But maintaining such

commercial relationships with 45 countries, in addition to

a price-elastic market is not easy and we have noticed

NAFTA. We are also enjoying a domestic market capable of

signs of deceleration in 2017’s sales.

supporting the country’s development. In previous years, we talked about a recuperation phase after the crises of 1995

Q: How will the dollar-peso exchange rate impact

and 2008, but now we are seeing true growth. Financing

automakers and the industry in general?

has become the engine behind the domestic market and the

A: The effects of volatility in the dollar-peso exchange

only question now is how long we will maintain the same

rate have already passed. The market has maintained its

growth levels without putting the market at risk.

development trend. OEMs endured the worst months at the end of 2016 although some players have been late to implement price adjustments. Some brands are probably

JATO Dynamics is a business intelligence provider focused

losing money in the hopes of maintaining their market

on the automotive industry. The company has specialized

share. Each company has its own strategy but this is not the

solutions for car and auto parts manufacturers, distributors

most viable alternative considering the market’s dynamics.

and fleet managers

INSIGHT

NAVIGATING AWAY FROM OWNERSHIPORIENTED MINDSET

“

Cars are a necessary evil for our clients”

their operation, saving time and making processes more

Thierry Merienne, Director General of ALD Automotive

complementing leasing operations with fleet management

It is no secret that Mexican vehicle culture is ownership-

efficient. Full service is the ace up ALD Automotive’s sleeve and a key factor for its growth in the country. “The idea of strategies appeals to big corporations and so far, only one other company can match us on services,” says Merienne. “The concept is new for most of the companies we approach and is not even that common in the US.”

oriented. But that is gradually changing and financing

292

companies are noticing. Leasing grew approximately 40

The full service option includes the leasing of the vehicle, as

percent in the country between 2013 and 2016, according

well as all services related to its use and maintenance. The

to Fitch Ratings, and both national and international players

company administers clients’ units, managing corrective

are betting on double-digit growth within the automotive

and preventive maintenance, taxes, insurance, plus all

industry. With strong expertise in the European market,

other technical and financial aspects. Merienne says that

ALD Automotive is one of the contenders preparing to take

fleet management expenses are highly volatile but ALD

advantage of the opportunities Mexico has yet to explore.

Automotive’s expertise allows it to project how much vehicles will cost over three or four years. The company assumes the

“Mexican companies put a lot of emphasis on owning

risk related to these factors, including the car’s residual value.

their assets,” says Thierry Merienne, Director General of ALD Automotive. “The culture is oriented to building

“Full service leasing has progressed significantly but

patrimony and leasing goes completely against that idea.

companies are yet to understand and embrace this

But companies, on the other hand, are being pressured to

alternative,” says Merienne. Part of the challenge for

compete with global standards.”

ALD Automotive is clients’ knowledge of total cost of ownership. Big companies usually know their fleet’s total

Celebrating its 10th anniversary in Mexico in May 2017, ALD

cost of ownership but smaller players do not always have

Automotive is now one of the two main participants in the

a clear idea of how much they spend on their cars. “At

national leasing market and Mexico is an important part of

first, potential clients are put off by the cost of our full

ALD Automotive’s international strategy. Its success has

service solution, until we explain all the costs they incur

spurred other ventures in nearby countries. “Latin America has

owning their fleet. Sometimes, our first approach with

become a priority for us,” he says. “We opened offices in Chile

new clients can be offering traditional fleet management

in 2015 and a Peruvian branch in 2016. We will start operating

operations and eventually upgrade them to a full service

in Colombia in 2017 and have signed two partnerships to

scheme.” Fiscal advantages represent another unknown for

attack the Argentinean and Central American markets.”

most Mexican players, according to Merienne. The country offers tax exemptions that are not available in other markets

That leasing is an incipient market in Mexico has not

but clients are generally not aware of them. Therefore, the

stopped ALD Automotive on the road to success. “Some

company must make companies understand what there is

might see this as a challenge but we see it as the main

to gain and what they can expect from leasing.

strength that will lead ALD’s development,” says Merienne. “Mexico has considerable growth potential. Many of our

After reaching more than 20,000 leased vehicles in Mexico,

international clients are already present in the country and

ALD Automotive wants to keep up the momentum. “We are

we see opportunities to target national players.”

a proactive company and are constantly looking for new partnerships with automakers and banks that can support

Fueling ALD Automotive’s high expectations is the fact

our local operations,” says Merienne. ALD Automotive also

that the most important thing for companies is resource

acquired other leasing players in Europe that helped it

allocation to their core business. “Cars are a necessary

strengthen its operations. Although there is no short-term

evil for our clients,” Merienne says. These players need

plan to approach local players, the possibility exists. The

big fleets to follow strict maintenance and administration

next target, says Merienne, is SMEs. “We will do our best to

schedules. The advantage ALD Automotive can offer fleet

address these companies to present our offering and our

owners is the chance to externalize this crucial part of

partnerships will help us penetrate the market.”

INSIGHT

CONVINCING LESSORS WITH DIGITAL INTEGRITY ROBERTO VARALLO CEO of LeasePlan

Launch a physical company, then digitalize processes to keep

contact is comforting. “Lower than 5 percent of our leased

up with technological advances. Master operating in your

fleet uses the app.” The company’s overriding objective is to

home country, then extend to other markets. This cookie-

encourage the people that have downloaded the app to use it.

cutter business strategy has worked for many businesses. But car lessors identified the market need, supplied the solution

Having practiced elsewhere is also helping LeasePlan in

and were halted by a reluctance to accept that solution.

its digital focus for 2017. The rising trend toward mobility alternatives such as Uber and Cabify requires cars and will

The obstacle is a deep-rooted Mexican value for vehicle

need the support of leasing companies to grow. “Shared

ownership as a status symbol. LeasePlan combats reluctance

mobility companies have similar internal business models and

with digital integration, offering shorter response and

our European operations have already targeted this market,”

processing times to simplify car leasing by supplementing

says Varallo.

technology with the human touch The company's CEO, Roberto Varallo, says: “As soon as we get around the

Europe was also the guinea pig for the company’s Operative

ownership obsession and perceive cars as tools to meet

Client Management (OCM) now being used in Mexico.

objectives, companies will turn to leasing to contract cars.”

LeasePlan will continue to invest in integrated systems as long as they provide added value for customers as well as

The size of the market within Mexico means the number of

increased internal efficiency. In March 2016, the company

fleets could be up to 700,000 vehicles, Varallo says. “But this

began developing technology platforms that manage

is not the size of the market’s potential. We hope that in two

workflow for suppliers, drivers and clients. “When a car

or three years we will see the market welcome the leasing

arrives at a workshop, or an insurance quote is approved, the

model and have this model’s penetration exceed the current

system is updated and generates full control on this specific

15 percent.” To encourage people to embrace a solution that

process, also providing alarms when there are delays. This

can financially favor drivers and simplifies fleet management

allows our personnel to dedicate themselves to accompanying

for companies, LeasePlan launched its physical company

customers.” Shorter processes save time and results in fewer

in Holland, went on to master the European market and

tickets for LeasePlan to resolve.

extended to other markets. Following standard practices and learning from experience in other markets is a sound business

“SME and private leasing markets are accelerating, especially

strategy, a strategy LeasePlan has observed while digitalizing

in Europe. LeasePlan will meet this demand by creating a

its processes. “Europe taught us that people are important

global private lease and SME offer, building on several

for certain moments of the transaction but human resources

successful propositions in key markets,” says Varallo. SMEs

can be maximized and driver experience improved, if we also

save money by being able to contact LeasePlan for a quote

provide the option of digital contact when appropriate.”

digitally. This segment grew in the first quarter of 2017, and could be supported by a leasing solution called FlexiPlan,

In an increasingly digitalized industry, delivering a superior

launched in the same year to offer more flexible contract

tech-enabled service is essential to establishing a leading

duration and mileage. Digitalizing methods and boosting SME

market position. “We are therefore actively investing in

participation should lead to LeasePlan’s professional gain and

automation and customer-facing technologies to enhance

encourage Mexicans to trust leasing as a concept. Varallo says.

our service offerings,” says Varallo. A mobile app for LeasePlan

“We expect to grow 16 percent in 2017, to 24,000 cars from

drivers is part of the digitalization of the physical company.

21,000 by the end of the year. We need to reduce costs and

Drivers can consult their lease contract or car information,

be efficient, planning our internal processes so as not to be

request repairs or maintenance and speak to the well-

overwhelmed by growth. As defined by our headquarters,

allocated employees regarding insurance when human

this is ‘smart growth.’”

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VIEW FROM THE TOP

SPEARHEADING INNOVATION IN AUTOMOTIVE FINANCING AURELIANO GARCÍA Automotive Financing Director and CFA of Scotiabank

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Q: What are your expectations for the automotive financing

their sales outcome. Many companies are rightly choosing

market after a near 27 percent increase in 2016?

to increase prices gradually throughout the year, which has

A: I think the market will remain stable in comparison to

a positive impact on the client. In the end, prices might go

total vehicle sales. Mexico achieved a record of over 1.6

up 4 or 5 percent but will vary each month by less than 0.5

million light vehicle units sold in 2016 and almost 1 million

percent. By March 2017, most companies were already at the

were offered through a loan. The year 2017 promises to be

price level they need to maintain to counter the effects of

more challenging and industry growth might decelerate. In

exchange rate volatility.

January 2017, sales grew only 3 percent compared to 2016. We are now at one-digit levels after 16 months of double-

From a financing standpoint, these increases will most

digit growth.

likely slow our clients’ decision-making process and force them to weigh up different options. We do not see sales

There is definite uncertainty due to the political and economic

being affected by this and in fact, financing will become

climate so many people postpone purchases until the market’s

more important than ever. We will offer clients the option

future is clearer. Even so, we are confident about Mexico’s

to dilute the extra MX$20,000 (US$1,135) or MX$30,000

growth opportunities. The automotive industry is cyclical and

(US$1,700) that inflation will imply for their monthly

even during the worst economic crisis, Mexicans always buy

payments, softening the blow.

cars. The only variable is who is going to sell these cars. OEM financing arms have grown aggressively, supported Our main goal for 2017 is to support clients throughout the

by interest rate subsidies and bonuses for cars sold through

lifetime of their loan to provide the best solution for their needs

financing. But when interest rates are higher than OEMs expect,

and payment abilities. Back in 2016, an automotive financing

banks have an opportunity to increase their participation.

boom saw many companies grant loans to people who could

We adjust to the market’s rates so we are not impacted by

not afford them. We want to be mindful of how we grant

increased subsidy costs. If current momentum continues in

loans and to whom. Particularly in the face of uncertainty, our

the market’s cyclical nature, we forecast a stronger position

responsibility as a bank and financial institution is to sell while

for banks by 2019.

supporting the client. Provided the industry remains at similar levels to 2016, we can expect moderate growth for Scotiabank

Q: With so many loans granted in 2016, how likely is it that the

of 7 or 8 percent by year-end. The bank holds a 4.5 percent

industry will collapse under unfulfilled payment obligations?

share of the automotive financing market and our goal for

A: The possibility exists but in Scotiabank’s case, we

2021 is to achieve 8 percent. Reaching 5.1 or 5.2 percent in

have maintained an overdue portfolio below 1.5 percent.

2017 is a challenging target for us.

Scotiabank’s conditions for loans are accessible but the goal is for clients to pay off their loan and acquire another one to

Q: What impact will higher car prices resulting from peso

continue growing personally. It is in no one’s interest to offer

weakness have on the financing market?

loans to people who cannot pay them. We do not forecast

A: Carw prices have been rising since November 2016. But the

fraud or overdue problems and I am proud of Scotiabank’s

way companies choose to play with their prices will determine

risk management strategy. Other institutions used aggressive sales strategies during

Scotiabank is the Canadian bank with the largest international

2016 and after 12 months they will start to realize how

presence. It was founded in Halifax, Nova Scotia in 1832 and

that will impact their portfolio. As a result, overall results

it reached the Mexican market in 1996 in collaboration with

might be lower compared with 2016 but this is fortunately

Grupo Financiero Inverlat

not the case for Scotiabank. We keep our risk department

in the loop to determine the best options for our clients and the bank. Q: How has Scotiabank’s strategy for electric and hybrid models evolved since 2016? A: Sales of hybrid and electric models totaled 8,260 by the end of 2016 fueled by stricter emissions regulations that spurred an increase in loan applications. Electric and hybrid products are a cornerstone of our social responsibility and environmental consciousness. Our excitement about the electric vehicle market led us to organize the first national event to gather all brands marketing electric or hybrid models. We are organizing the event with several dealerships. The event will target VIP Scotiabank clients and we expect the event to boost Scotiabank’s current financing of 10-15 vehicles every month. The event will send a clear message to the Mexican audience about our interest in the market as the only bank with a solution specifically designed for electric and hybrid cars. Once the government decides to offer the same incentives available in other countries, electric vehicle sales will boom. We want to be there when that happens. Scotiabank Mexico is spearheading innovation in financing for electric models and many of our other branches are already approaching us to understand how the market works. Q: What new projects is Scotiabank introducing to Mexico in 2017? A: Part of our strategy for the year is to form long-term alliances with automakers and distribution groups. We now have agreements with 38 dealership groups in the country, having already signed to become Subaru’s financing arm and we are in negotiations with Suzuki. Our alliance with Mazda celebrates its eighth anniversary in 2017 and we have increased from 21 percent penetration to 37 percent since July 2016. The certified used-vehicle market spurred us to introduce four or five events throughout the year, at which 30-40 distributors will show 400-500 certified used vehicles. We feel it is our obligation to offer an integral solution that covers new and used vehicles sales, as well as financing for new dealerships or remodeling projects. In the motorcycle market, we are now Piaggio’s financing arm. Rather than just financing cars, we seek to offer our clients an integrated mobility portfolio. Not everyone’s lifestyle suits a car and young people are looking for easier and cheaper mobility solutions that also demonstrate a certain social status. Piaggio is the perfect option to satisfy these demands and our collaboration with Corporación Zapata was a match made in heaven. The group has an aggressive growth strategy for the distribution network and we expect double-digit growth each year, with 35-40 percent penetration in Piaggio’s total sales.

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VIEW FROM THE TOP

DIFFERENT BRANDS NEED DIFFERENT STRATEGIES MIGUEL PLAZAS Sales, Product and Marketing Director of GM Financial de México

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Q: What were GM Financial’s results in 2016 and how did you

Q: What are your strategies to remain among the top two

bank on the domestic market’s development?

financing companies in the Mexican market?

A: The number of car loans we granted grew by 68 percent

A: Our main target is to create long-lasting relationships with

compared to 2015, totaling 177,428 vehicles. Our synergy

customers. If we focus our efforts and innovations toward

with GM and its dealer network nurtured this development.

cultivating customer loyalty, success and industry leadership

Both the OEM and GM Financial have generated a strong

will ensue. In 2016, we managed to offer 84.7 percent of GM’s

message to target customers based on an attractive portfolio

sales with financing, which was the largest participation any

of vehicles and financial services easy to implement. The used

financing partner had with its own brand. This shows that

vehicle market also holds potential and is already presenting

our collaboration with dealers is paying off. We reached the

the highest growth in the company at approximately 45

top position in automotive financing in January 2017 and we

percent in 2016. Our dealer network is increasing used-vehicle

are certain we will see this result sustained. We are subject to

sales, fueled by our certified used-vehicle program.

possible changes in the domestic market’s demand but we will keep supporting GM and its goals. We expect to continue

GM Financial has also benefited from overall growth in the

financing at least 84.7 percent of GM’s sales and the first half

domestic market and the importance the industry is placing

of 2017 indicated we were at 86 percent.

on financing. Customers are finding it much easier to buy vehicles thanks to the array of credit options available. We

Q: What role do you expect digital channels to play in GM

offer low down-payments of about 5 percent of the car’s total

Financial’s development?

cost and payment plans of up to 72 months.

A: We keep looking for easier ways for customers to replace their old vehicles with new ones. One of the best strategies

Q: As the financing arm for all GM brands, how does your

to connect with them is through social media and other

strategy differ for each?

online resources, so we have invested heavily in our website

A: We adapt strategies to the market we want to target. The

and launched an aggressive social media campaign in

celebration of our 85th anniversary in 2016 marked the launch

collaboration with GM. We are already contacting customers

of a successful project, separating divisions for each of GM’s

via email and text messages with the goal of maintaining

brands. In 2017, we announced Chevrolet Servicios Financieros,

permanent contact with them. These investments are proving

Buick Financial Services, GMC Financial Services and Cadillac

efficient and digital media is emerging as the future for brand

Financial Services, creating a specific branding strategy

awareness and market positioning.

for each type of client. Chevrolet benefits from a focus on interest-free and low monthly payments, extended warranties

Q: How risky do you think elongated financing plans are for

and a wide portfolio of insurance options. Our luxury brands

the industry and for your operations?

Buick, GMC and Cadillac show better results from our leasing

A: Our overdue portfolio has remained stable. We have

solutions. We started offering leasing Chevrolet in 2016 but we

grown consistently by not risking uncertainty in payment

already see an excellent opportunity for this market in Mexico

plans. Although we offer elongated loan terms of up to 72

market thanks to fiscal advantages and the attraction of being

months, not all customers choose this option. Depending

able to replace a vehicle every 36 months.

on their needs, we find the best payment scheme to finance their purchase. Even before the plan is paid off, we invite customers to renew their contract by leaving their used car

GM Financial is the second-largest automotive financing

at the dealership and get a new one. This strategy has been

company in the Mexican market. Currently, the company holds

very effective for ensuring a healthy payment strategy and

a 22.8 percent market share in the domestic market managing

has helped customers move from an entry compact model

the Chevrolet, GMC, Cadillac and Buick brands

to a higher-end vehicle or even an SUV.

INSIGHT

EXPANDING THE MARKET, ONE SME AT A TIME RAFAEL PORTILLO Director General of NR Finance México

Automotive financing has grown in double-digits since 2011

vehicles. “Companies have much to learn about how they can

when 464,172 units were sold through credit. Data from AMDA

outsource their assets but NR Finance México, among many

shows that 2016 was a historic year with an increase of over

financing competitors, feels 2017 will be the year for leasing.”

27 percent in contracts resulting in more than 66 percent of all light vehicles being sold through financing.

The second pillar supporting NR Finance México’s development is the success companies like Uber and Cabify

Of the total number of loans granted in 2016, over 72 percent

have enjoyed. Thanks to its experience in handling applications

were offered by captive companies and the indisputable

without income receipts, the company has gained a distinct

leader remained NR Finance México, with close to 22 percent

advantage in this segment. Both Nissan and Renault are

of the entire market. The company has reached out to the

among the preferred brands and the Versa is currently the

unbanked population in the country to grow its presence. Its

most used vehicle for private driver services. These contracts

goal now is to build on the company’s success and improve its

now represent 13 percent of the company's portfolio.

processes using the most effective communication channels. These initiatives have fueled NR Finance México’s rise. Portillo Rather than being fazed by the peso’s weak position against

says the company receives approximately 25,000 loan

the dollar, NR Finance México rose to the challenge to

applications every month, 35 percent of which are approved

maintain its position in the market. After the Interbank Interest

immediately without the client presenting any documentation.

Rate (TIIE) increased to 6.5 percent from 5.34 percent in

The company enjoyed an excellent fiscal year from April

November 2016, the company began to work intensively with

2016 to March 2017, delivering record results with more than

the Renault-Nissan Alliance’s dealership network to maintain

200,000 contracts. “We contribute to over half of Nissan’s

competitive interest rates. “We can still offer our clients 0

sales, we have a 65 percent penetration in the Renault brand

percent rates on 24-month plans and we have several single-

and approximately 36 percent with INFINITI.” The company

digit rates to offer,” says Rafael Portillo, Director General of

has already invested over US$21 million in its new corporate

NR Finance México.

building in Aguascalientes, to be inaugurated in October 2017. This location will manage almost all of NR Finance's

Portillo says two pillars are at the heart of the company’s

operations in Mexico and it will include a support office for

main drivers for growth. Its Súbete program has helped

the US and Canada. The company has positive expectations

the company attract successful entrepreneurs who cannot

for 2017 and even though it has set the bar high with growth

present income receipts. This program targets both private

rates of 18 and 20 percent in 2015 and 2016, Portillo forecasts

clients and SMEs, a segment where Portillo thinks there is

growth between 7 and 8 percent in 2017.

enormous potential. “Many of these players have little or no experience with loans, so we made our processes faster and

Among NR Finance México’s strategies to ensure its continued

much friendlier,” he says.

success, is a digital marketing and sales strategy. “To date, we only capture leads digitally and we complete the process via

NR Finance México involves the Mexican development bank,

telephone or a visit,” Portillo says. Yamil Zarate, Commercial

Nacional Financiera (NAFIN), to incentivize growth in the SME

Director of SICOP, says 30 percent of all leads for new vehicle

market. “SMEs are showing strong growth and our overdue

sales are digital although practically all customers start their

portfolio in this segment is practically zero,” says Portillo.

search process online. “We want to be the first company to

“This segment will be one of the cornerstones for our future

sell a financing plan without the client having to visit the

growth.” He adds that leasing appears to be growing as an

dealership. We can already give clients a response within

interesting option for SMEs due to the fiscal incentives it

seconds, so now our goal is to improve the sales experience

offers and a 100 percent deductibility on rental of commercial

using social media and other digital platforms,” says Portillo.

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INSIGHT

FINANCING CRUCIAL TO MODERNIZE VEHICLE PARK JOSÉ CHACÓN Executive President of Navistar Financial Corporation Mexico

In the commercial and heavy vehicle business, financing

contribution is around 60 to 65 percent. Although the

is vital for companies that face the need to expand or

company’s priority is to look out for its clients’ best

upgrading their fleet, according to José Chacón, Executive

interests, Navistar Financial has also found a way to

President of Navistar Financial Corporation Mexico. Support

support its parent company’s operations by financing

to meet such capital needs is necessary to renew the

vehicle exports to Latin America.

country’s current fleet. Navistar Financial’s portfolio has grown 14 percent on average 298

“Financial institutions play a key role by supporting new

for the last five years and it expects to maintain this momentum

and old clients with capital injections for their transport or

at least until 2021. Along with traditional financing, Navistar

logisitics operations,” says Chacón. Unlike what happens in

Financial has developed leasing solutions that according to

the light vehicle segment, where financing plans and loans

Chacón “are perfect for clients that want to grow their fleet

are oriented to the end user, heavy vehicle financing is crafted

but do not have the needed capital structure. Leasing can be

to support the particular needs of a company, regardless of

ideal for clients with contracts of a fixed duration,” he says. “At

size or corporate structure. Chacón says Navistar and Navistar

the end of the contract, the client can choose to either return

Financial lean on development banks, private banking and

the vehicle or purchase it at the market value.”

debt investors to secure funding sources. To maintain steady growth for the next five years, Chacón Navistar Financial has found in NAFIN and Bancomext the

knows that Navistar Financial must adapt its plans and

perfect allies to support companies with imminent fleet

solutions to provide the best fit for each client. The company

renewals, including owner-operators and small companies

already provides its clients with expert advice regarding

with an average fleet age above 17 years. These development

the best financing and leasing plan based on the clients’

banks provide the funds to deliver units and Navistar

specific needs. The company is also working on structured

Financial crafts tailor-made solutions that may include

insurance programs and Chacón says Navistar is offering

financing of used vehicles in cases when the purchase of a

insurance solutions for cargo, employees and even a

new unit is not an affordable option. For companies requiring

company’s facilities. Digitalization has been another priority

hundreds of units, Navistar Financial partners with banks

in the last few years, deriving benefits for clients such as

and other investors.

the possibility to monitor their financial and credit status online. The company’s goal for 2019 is to build a user-friendly

Private parties share the risk when getting involved with

digital platform that will foster a tighter relationship between

financial assets issued by Navistar Financial, which is why

Navistar Financial and its clients.

the company is committed to managing its credit-risk ratio to ensure portfolio quality. “Our overdue portfolio remains

Amid economic uncertainty and a volatile exchange-rate

stable at 2-2.5 percent and all our financing plans are backed

environment, Navistar Financial denominates its financing

by the significant residual value of our vehicles,” says Chacón.

plans in pesos and offers clients fixed terms for financing

Navistar Financial’s structured financings have earned good

and leasing. “Those elements eliminate payment volatility,”

ratings from entities such as HR Ratings and Standard &

says Chacón. “It helps Navistar maintain its sales and ensures

Poor’s — HR AAA and mxAAA, respectively — bolstering

clients can follow a healthy payment program.” Our business

investor confidence in the medium and long term.

strategies should ensure continued growth in 2017, says Chacón. “We estimate positive results in 2017, likely surpassing

Navistar Financial participation in its parent OEM represents

the OECD’s projections for the country’s GDP. This would

50 percent of the company’s overall sales. According to

mean that Navistar Financial expects revenue growth above

Chacón, considering only truck sales, Navistar Financial’s

2 percent for 2017.”

VIEW FROM THE TOP

INTERNATIONAL FINANCING EXPERIENCE FOR THE DOMESTIC MARKET Cédric Desplats-Redier CEO Mexico of BNP Paribas Personal Finance

Jorge Álvarez CEO Mexico of BNP Paribas Personal Finance (July 2013-July 2017)

Q: How does the company manage its duality as an

Q: How can BNP Paribas compete against captive

independent financing company and a financing arm for

companies, while maintaining a strong position compared

OEMs?

to longstanding banks such as Bancomer and Banorte?

JA: We act as the main financing arm for Kia, Peugeot and

JA: Our differentiated offer depending on the brand will be a

Volvo. We also have an agreement with Hyundai but we are not

key part of our strategy. At the same time, BNP Paribas has

its only financing partner. Our strategy to maintain a healthy

tried to make its operating costs as competitive as possible to

relationship with all these companies is to have independent

counter the negative effects of elevated inflation rates. We are

operations for each brand. We have a commercial team for

also betting on the business opportunities we can create by

each OEM and we create different products for all of them

targeting Mexico’s unbanked population. There are still many

depending on their target market.

people who do not have access to financing solutions and our growth will depend on how well we can target new markets.

CDR: One of our main advantages as an independent financing company is our international experience with

CDR: We may not have the same footprint as other banks

different brands across the world. Our partners know our

in Mexico but we do have much more expertise thanks to

service will be consistent from one country to another, both

our other international ventures. We know how to work with

in terms of financing for distributors and for the end user.

new financing solutions and we understand what OEMs and distributors need to grow their business. There are not many

Q: What are your expectations regarding the growth of the

financing institutions that can offer support to carmakers in

domestic market and the role BNP Paribas will play in its

as many countries as BNP Paribas.

development? CDR: In slow-growth scenarios, financing becomes even

Q: How do you think the financing market could better target

more important for domestic sales. OEMs and distributors

the needs of the Mexican population?

need strong financing plans to keep renewing their stock.

CDR: I expect Mexico will have a much more integrated

Meanwhile, end clients rely on financing to maintain a

service portfolio in the mid to long term. Use of the vehicle

varied portfolio of vehicles and financing solutions. From an

will become more important for financing solutions and

outsider’s perspective, I think Mexico has good foundations

companies will cease to focus just on ownership. Leasing will

for growth but volatility will continue to be an issue in 2017

be a crucial solution for end users, as it includes both use and

and until mid-2018.

maintenance for the same monthly fee.

JA: Financing penetration in overall sales will keep growing.

A healthy car replacement strategy could also have an effect

Back in 2014, financed sales accounted for approximately

on the development of Mexico’s secondary market. The used-

50 percent of all domestic sales. That number has now

vehicle market in the country is underdeveloped and not many

grown to over 65 percent. The industry is decelerating but

distributors give it the importance and attention it needs.

we think financing will continue to be a key element in the

Having a more varied financing portfolio could offer more

country’s growth. Although inflation rates climbed until 1Q17,

clients the chance of acquiring a vehicle, maybe not new but

we are entering a recovery stage and our forecasts have

still in excellent condition.

already factored in lower rates for 2018. We have positive expectations for our participation in Mexico and due to its growth, our main partner will continue to be Kia. The brand

BNP Paribas is a French bank with presence in 84 countries,

keeps increasing its sales numbers and at BNP Paribas we

managed by 200,000 employees around the world. The

expect to achieve similar growth to Kia by the end of 2017

bank came to Mexico in 2004 under the Cetelem brand and

of approximately 35 percent.

established as BNP Paribas Personal Finance in 2008

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VEHICLE SPOTLIGHT

300

HARLEY-DAVIDSON CVO™ With a goal of revolutionizing long and urban motorcycle rides, Harley-Davidson has developed a high-end vehicle line with design and performance attractive enough for the most demanding drivers. The CVO™ line comprises three different models: CVO™ Pro Street Breakout®, CVO™ Street Glide® and CVO™ Limited, all with defining characteristics. CVO™ Pro Street Breakout® is all about style and performance. The bike includes an 1800cc V-Twin Screamin’ Eagle® air-cooled twin-cam 110B engine with smoked satin chrome finishes on the pipes, push rods and cylinder heads. This engine is the largest Harley-Davidson offers in the Screamin’ Eagle® line. The Screamin’ Eagle® is coupled to a six-speed Cruise Drive® transmission, delivering a torque of 147.9Nm at 3,500rpm. The Pro Street Breakout® has stylish finishes from fender to fender, complemented with a dark and elegant color that round out its aggressive look. It also sports a five-spoke Aggressor wheel in the front and the rear but the bike has a 240mm rear tire for better grip during acceleration. The granite-black, 1,870cc Twin-Cooled™ MilwaukeeEight® 114 powering the Street Glide® is the best-performing engine in Harley-Davidson’s portfolio with a torque output of 168.1Nm at 3,250rpm. The bike has a rear suspension designed to be easily adjusted through emulsion shock absorbers with 23 turns of precharged adjustment. CVO Street Glide® combines performance with a powerful sound and infotainment system. Street Glide® features a 6.5-in touchscreen display as part of the BOOM!™ Box 6.5GT system coupled with 6.5-in BOOM!™ Stage II front speakers connected to a 300W amplifier. The system is Bluetooth™ friendly, with voice recognition and the capability to connect multimedia devices through a USB port. Finally, CVO™ Limited goes all out on comfort. Its TwinCooled™ Milwaukee-Eight® 114 engine and the BOOM!™ Box 6.5GT system are the same as the CVO™ Street Glide® but the CVO™ Limited also includes a BOOM!™ Audio SiriusXM® satellite radio system. This bike is supported by a dual-bending valve front suspension and rear emulsion shock absorbers, coupled with Reflex™ Linked Brembo® brakes with antilock braking system (ABS) to ensure more handling control and driving comfort. The CVO™ Limited also includes heated hand grips and suspended, dual-control heated plush seats with backrests for both the driver and the passenger.

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VIEW FROM THE TOP

ANALYZING THE AUTOMOTIVE MARKET GERARDO GÓMEZ Director General Mexico of J.D. Power

302

Q: What advantages derive from comparing Mexico with

Q: J.D. Power has found that fewer people are test-driving

other countries where J.D. Power has operations?

vehicles at car dealerships. Why is this?

A: We listen to and represent customers. Our added value

A: We have found that fewer people are doing so because

comes from measuring all OEMs by the same yardstick,

it involves a lot of paperwork and few people feel confident

so we can provide comparative feedback and they can

driving a vehicle that is not theirs. We are lobbying to make

improve their products. We know the competitors in the

this procedure easier because it is the best way to compare

automotive industry and what their clients are looking for,

brands, fall in love with a product and finalize a purchase. If

which is valuable to OEMs when designing their strategies.

test drives were simpler, it might make it easier to close a sale, which would boost domestic vehicle sales.

Our quality perception research is not only gathered in the national market. We also look at parallel information

To change this tendency of customers not asking for test

from the US and Japanese markets, identifying global

drives, dealerships must have clean vehicles available, with

customer needs and trends. We always consider presale

license plates and paperwork in order. Dealerships would

services at the dealership, aftersales services such as

like to make this process easier but negative experiences

repairs and follow-up, a vehicle’s quality perception and

often stop them thinking about their customers and instead

new product launches, gathering data at every stage.

they focus on protecting the vehicle. The market must find a middle ground where the experience can be much more

Comparing several markets allows us to provide more

pleasant for the consumer but safe for the company.

extensive information because all the products in Mexico could potentially be exported to foreign markets. In

Q: How can OEMs increase customer satisfaction when a

Mexico, the retail stage is currently demanding most of

vehicle is bought with a part-exchange?

our attention.

A: Customers who leave a vehicle at a dealership as part of the deposit for a new vehicle reportedly have lower

Q: What were the results of J.D. Power’s latest Sales

satisfaction rates than those who do not. We began

Satisfaction Index?

evaluating this new area in 2015 to understand the quality of

A: BMW, Buick and Audi were the most popular in the luxury

service during vehicle part-exchanges. The results indicate

section while the top vehicles in the volume section were

that excessive legal and tax-related red tape is not helping

RAM, Honda and SEAT. This ranking was created according

this transaction run smoothly. Dealerships will have to

to customer satisfaction in a questionnaire that measures

change how they sell to the public to match the current

the same factors from different brands.

market conditions and service expectations.

The questionnaire is completed by buyers seven months

When the customer negotiates a purchase with a part-

after purchasing a new vehicle. During these first few

exchange, it is handled by two different departments

months buyers can still remember how they were treated,

that may deliver service differently, affecting clients’

from when they crossed the dealership’s threshold to taking

perception of continuity within the brand. Concessionaries

delivery of the vehicle.

and dealerships must rethink this process to make the sale more customer-friendly. When people buy a vehicle, they sign 24 pieces of paper on average just for the vehicle

J.D. Power is a global leader in consumer insights, data, analytics

to be delivered. If they also contract a car loan, that will

and advisory services. It has 17 offices worldwide and over 750

require another 15-20 signatures. Requiring 40 signatures

professional analysts, statisticians, economists, consultants and

for a vehicle gives the impression that the process takes

experts in demographics and consumer behavior

precedent over customers and their experience.

INSIGHT

INSURANCE BASED ON PROTECTION NOT ACCIDENTS EVELINE LOZA SVP Director of Marsh Brockman and Schuh Mexico

The insurance industry must create confidence among

communication between representatives in different countries

consumers if it is to transform a culture that eschews coverage

and the sharing of intellectual property and leadership

beyond the required liability, says Eveline Loza, SVP Director

strategies. Together, this keeps the company at the forefront

of Marsh Brockman y Schuh Mexico.

when it comes to solutions for customers.

At the end of 2016, Marsh reported Mexico’s automotive

Marsh has established a strategy involving credit and mobility

insurance industry grew 20 percent compared to 2015. “For

that caters to current trends away from ownership. “For

us, this is an important piece of data because while it reflects

example, Uber is a modern company providing private drivers

the growth of the industry, it is teamed with an increased

and we offer a solution with a certain type of insurance suited

accident rate,” says Loza. According to Marsh, accidents in the

to the financial organisms that provide car loans,” says Loza.

automotive industry grew by 15.59 percent in 2016 and only

For specific cases, Marsh can adapt products and solutions so

in the light vehicle segment they increased by 15.52 percent.

that end-users have a policy suited to their needs.

“Our biggest challenge is to reduce this by supporting clients with strategies, preventive measures and consultancy jointly

Technology can boost adaptability, as applications change the

with insurance companies.”

communications landscape. Several insurance companies in Mexico offer cell-phone applications that allow customers to

There are 83 insurance companies in the Mexican market, 32

report accidents or check information about policies but it is

of which offer automotive coverage, according to statistics

generally necessary to promote their use among customers.

from the Mexican Association of Insurance Companies (AMIS).

Loza says customers are used to handling accidents or claims

“The insurance market has grown more than the general

over the phone. “Insurers have invested in the digital aspect

economy in Mexico during 2017,” says the SVP Director, but

of insurance, especially the largest companies, but there is a

the insurance culture has room for improvement, according

need for more digital culture among end-users,” says Loza.

to Marsh’s professional team in Mexico. Direct premiums in

In an effort to establish technology and innovation models,

the industry including light and heavy vehicles, tourist and

Marsh invested in developing differentiating products with

mandatory policies grew by 20.44 percent in 2016, compared

strategies aligned to the brand specifically.

to 2015, and only cars presented a growth of 19.98 percent in that same period according to AMIS.

The current economic challenges motivate Marsh to work on technology solutions, commercial strategies to continue

The company’s focus is on quantifying risks and defining areas

increasing penetration, to improve insurance conditions and

of opportunity. Marsh believes premiums should reflect broad

to diversify policies. Marsh’s success over the past 55 years is

options for drivers to protect their vehicles with value-for-

thanks to its collaboration with authorities and clients. This has

money rather than a rise in the number of accidents. “Less

led to a return on investment from risk management, through

than 30 percent of Mexico’s vehicle fleet has insurance.

a defined process called Marsh 3D methodology. With this

Insurers need to change their commercial strategy to boost

method, the company seeks to support entities by promoting

consumer confidence. Buyers need to see the importance

and encouraging insurance as a protection measure.

of having insurance, besides the fact that regulations today demand all drivers have liability insurance. That has not been

Although 2017 has been a difficult year for some because of

100 percent achieved to date,” says Loza.

fluctuations in the exchange rate, Loza sees an opportunity. “An increase in interest rates is expected but we see this as

Marsh is described as a multidisciplinary broker because it

an opportunity to establish commercial strategies and work

has specialized practices for each individual industry. The

on innovative projects that simplify insurance for consumers

company’s automotive practice has a global span, permitting

with more user-friendly tools,” she explains.

303

Bosch's engine analysis technology

AFTERMARKET

With approximately 40 million vehicles, Mexicoâ&#x20AC;&#x2122;s vehicle park offers a plethora of opportunities for auto parts suppliers and aftersales services. However, the country also presents significant challenges as the average age of these vehicles fluctuates around the 17-year-old mark. Companies must keep updated with the latest technology without neglecting the large number of older vehicles circulating on the streets. At the same time, digitalization becomes a stronger trend in the domestic aftermarket, forcing companies to adopt online strategies to reach the final customer.

The Aftermarket chapter focuses on the challenges and opportunities auto parts companies face outside the original equipment segment. Technology integration is crucial, as well as keeping track of new brands and models arriving to the market. Different distribution models are analyzed, the relevance of quality versus price in a dollar-dependent market, along with the obstacles that lowerprice imports present to quality players.

305

CHAPTER 12: AFTERMARKET 308

ANALYSIS: Price No Longer Controls the Market

309

INSIGHT: Alejandro Calderón, ARIDRA

310

VIEW FROM THE TOP: Gerardo Varela, ZF Services

312

INSIGHT: Andreas Schmid, MAHLE Aftermarket México

313

INSIGHT: Thomas Kerkhoff, Valeo Service Mexico

314

VIEW FROM THE TOP: Eugenio Bergeyre, Haldex Products de México

315

INSIGHT: Hideki Ono, Pioneer Electronics de México

316

VIEW FROM THE TOP: Isabel Díaz, HELLAMEX

318

VIEW FROM THE TOP: Víctor Ochoa, Sherwin-Williams Automotive Finishes

307

Efrén Zagal, Sherwin-Williams Automotive Finishes

319

INSIGHT: Sergio Álvarez, Hankook Tire de México

320

TECHNOLOGY SPOTLIGHT: HELLA Miniature Light Bulbs Black Edition

321

VIEW FROM THE TOP: Wilson Vizeu, Exide LATAM

322

VIEW FROM THE TOP: Mario Argüello, Blue Side

324

INSIGHT: José Pescador, Fast Autopartes

325

INSIGHT: Benjamín Centurión, Dacomsa

326

VEHICLE SPOTLIGHT: Range Rover Velar

328

INSIGHT: Eduardo Tamer, Industrias Tamer

329

INSIGHT: Fernando Murguía, TecAlliance Mexico

ANALYSIS

PRICE NO LONGER CONTROLS THE MARKET Customer preferences are continuously changing and companies must learn to adapt quickly to the new priorities their clients identify. Particularly in an environment as tough as the Mexican aftermarket, remaining ahead of new trends is a must for all players

308

Price has been for years the sole deciding factor for a

and the more than 40 brands competing locally have created

company’s success in the Mexican aftermarket. Due to the

a vehicle diversity so rich that companies cannot hope to

lack of proper regulations regarding quality for imported

cope with demand for every single brand and model available,

components and the open nature of the national market,

much less when factoring in the differences between older

low-quality parts and knockoffs could compete against

and newer models. “Now, availability is the main driver for a

original and, therefore, more expensive components from

company’s success,” says Isabel Díaz, Managing Director of

leading international brands. The result is obvious: “There is

HELLAMEX. “Especially among retailers, availability is key

an oversupply in the market and it has become increasingly

to retaining customer loyalty.” Although companies cannot

difficult to offer a quality product at a competitive price,”

guarantee service to the 40-million national vehicle park,

says José Pescador, Director General of Fast Autopartes.

Díaz says companies can choose the market segment where

Imported components enter the market at lower prices

they want to participate and become experts in that specific

than the industry’s standard, creating unfair competition

niche. “Specialization has also become a trend among

for companies that cannot lower their prices further lest

wholesalers and we found suitable partners to commercialize

they compromise their quality.

our products with success,” she says.

“

Especially among retailers, availability is key to retaining customer loyalty” Isabel Díaz, Managing Director of HELLAMEX

Digital trends are also catching up to the aftermarket. Companies are gradually changing their strategies and from small national providers to large multinationals, players are looking to build a presence in the online world. “The biggest change we will face in Mexico is going to be e-commerce,” says Gerardo Varela, General Manager of ZF Services. “In our strategic plan, we will skip retailers and start participating directly on an e-commerce platform, including our distribution network. We started in July 2016 and we are already seeing sales increase through this channel.”

This condition is finally changing. Companies are noticing a

According to UPS’ Pulso del Comprador en Línea (Pulse of

gradual change in mindset in the Mexican consumer who is

the Online Buyer) research, 44 percent of tablet users and

now favoring quality over price. “The market has debugged

39 percent of smartphone users have made online purchases.

itself and brands that couple quality products with good post-sale services prevail,” says Benjamín Centurión,

Díaz agrees on the importance of digital strategies saying:

Managing Director of Dacomsa. Aftermarket players are

“It is now time to create a strong digital strategy if we want

finding it easier to approach customers with a better value

to be competitive in the years to come. We must update on

proposition without fear of being rejected due to a higher

a regular basis the information on our webpage so users,

price. Technology integration has also been a contributing

spare-part dealers and distributors can take advantage of

factor in the growing acceptance of quality and original

our catalogue and offer a better service to their own clients.”

equipment components. The implementation of stricter

UPS’ study says only 70 percent of all online buyers are

emissions tests in the country have also forced clients to

satisfied with the quantity of information related to the

seek the best option to avoid No-Drive Day restrictions.

product that helps them decide whether to buy or not.

“Knockoffs can fool the client at first sight but they cannot bypass digital scanners,” says Alejandro Calderón, President

Online strategies are gradually replacing traditional

of the National Association for Representatives, Importers

marketing and product-management strategies and

and Distributors of Spare Parts and Accessories (ARIDRA).

companies that fail to keep up with this transformation will put their participation in the market at risk. “The brand that

However, price is not the only factor that has become a

creates the best digital platform will be the one that controls

priority for the customer. Mexico’s 17-year-old vehicle park

the market,” says Pescador.

INSIGHT

DEMAND FOR QUALITY ON THE RISE ALEJANDRO CALDERÓN President of the National Association for Representatives, Importers and Distributors of Spare Parts and Accessories (ARIDRA)

Technology integration has become crucial in the industry

to growth in the aftermarket segment of between 3 and

and is pushing companies to develop and learn how to deal

5 percent, in terms of spare part consumption as well as

with these innovations, says Alejandro Calderón, President

preventive and corrective maintenance,” says Calderón.

of the National Association for Representatives, Importers and Distributors of Spare Parts and Accessories (ARIDRA).

The auto parts sector in Mexico represents approximately 3 percent of national GDP and production has a market value

An example is how the new standards for vehicle emissions

over US$86 billion. Of this number, US$68 billion is destined

tests are impacting clients’ mindset. In the second half of

to exports while the country imports over US$43 billion. This

2016, Mexico City and other major metropolitan areas in

results in a net consumption of over US$61 billion in Mexico.

the country implemented stricter emissions testing rules

But that total includes components used in the automotive

for vehicles bought after 2006. The process became much

supply chain as well as spare parts sold in the aftermarket.

more technological and instead of connecting the car to

Calderón says that 70 percent of market consumption is

traditional emissions gaging equipment, testing centers

linked to the automotive supply chain, leaving US$18 billion for

started using On-Board Diagnostics (OBD) technology.

general spare parts used in mining, agriculture and automotive

Now, the gage connects to the vehicle’s central computer

applications. “In the end, US$9 billion worth of components

and revises 15 monitors with information on different

reach spare-part retailers and large distributors.”

components and sensors. Eliminating the possibility of human error forced drivers to see that pirated components

Potential for aftermarket players can be measured by

and low-quality equipment only set them up to fail the city’s

the size of Mexico’s vehicle park, which is over 40 million

new standards. “Knockoffs can fool the client at first sight

units. Calderón predicts continuing market strength, even

but they cannot bypass digital scanners,” says Calderón.

considering the current political climate. Mexico’s commercial agreements have been beneficial for the aftermarket,

The new rules disqualified six out of every 10 drivers from

according to Calderón, since they allowed for a reduction

using their cars every day of the week, says Calderón.

in tariffs that led to a more controlled market. He says that

Vehicles that fail the emissions test must be rested one

before Mexico entered the General Agreement on Tariffs

weekday every week and two Saturdays per month,

and Trade (GATT), a commercial partnership between 23

assigned according to license plates. Despite the traditional

countries, importing some components could have entailed

price-oriented nature of the Mexican market, Calderón

tariffs of over 300 percent. Distributors could either deal with

says that the more accurate testing technique presents an

locally manufactured products or resort to the black market.

opportunity for distributors to focus only on components with the same quality as original equipment. This will

The tariffs at 0 percent throughout 2016 fueled an increase

also mean companies and repair shops must profoundly

in demand for original equipment. “President Trump’s beef is

understand how technology works. “Demand for high-

with automakers, not with the aftermarket,” says Calderón. “If

quality products will increase significantly and clients

the US were to pull out of NAFTA, export and import taxes

will realize that quality components can lower the cost of

between Mexico and the US would have to revert to their

ownership and help reduce fuel consumption,” he says.

previous state. Since both countries were part of the GATT, trade taxes on auto parts were at zero so it would not make

The effects of this change in mindset are already palpable

sense to raise them to 20 or 35 percent.” Calderón also says

and the association sees companies struggling to cope

that breaking a relationship as intricate as NAFTA would not

with demand. “The vehicle park keeps growing and more

only impact the automotive industry. “A trade agreement like

than 1 million new vehicles enter the country on a yearly

this would have implications for agriculture, mining, retail and

basis. Coupled with more stringent regulations, this will lead

many other sectors in both economies.”

309

VIEW FROM THE TOP

REINVENT AFTERMARKET TO REACTIVATE MEXICAN MARKET GERARDO VARELA General Manager of ZF Services

310

Q: What challenges has the company faced in

fortified strategy. We needed to recognize that selling

consolidating and integrating ZF Services after TRW’s

components alone was no longer a strategic approach, so

acquisition?

we began selling integrated solutions. TRW used to sell

A: We integrated two large groups with different business

“corner modules,” a concept that integrates brake pads,

strategies and organizational cultures. TRW was a public

shock absorbers and other suspension parts. All these

company in the US while ZF was a private German

elements experience constant wear so though it might

company. The way both planned and managed operations

seem an additional expense to change an entire module

was dissimilar. This situation created foreseeable

when one thing wears down, in the long run doing so is

consolidation difficulties, as well as opportunities to look

safer for end-users.

for internal benchmarks and implement the best of both. ZF now sells concepts that make sense to distributors, Initially, TRW was considered a new division within ZF’s

installers and consumers. Distributors only have

business structure, retaining its complete structure and

one supplier to negotiate with for complementary

operations. After evaluating the merger, a special group

components. We believe that this new concept responds

was created to conduct the process integration, focusing

to current market trends. Selling components or spare

on fixed objectives and strategies while learning from

parts is not enough to compete in the market, sales

each part.

must be accompanied by added support and aftersales services.

The group identified synergies and gaps between the companies. Finally, with a better and broader idea of how

Q: Do you have plans to pursue a horizontal integration

to best proceed, the company started an integration-

with TRW?

consolidation process, applying the best of both

A: ZF only has manufacturing sites for original equipment.

companies’ techniques. The group tried to balance the

Consequently, all our machinery and equipment are the

use of each company’s resources. The divisions focused

same for OEM components and the aftermarket. This

on OEM customers were consolidated more quickly, while

means that every piece has the same quality and the

those serving the aftermarket were the last to integrate.

same technology is used in its production. TRW’s strategy

This was mainly due to the complexity of integrating our

included manufacturing sites focused on aftersales, where

One Aftermarket division and ensuring it had a global

conditions and quality demands are fine-tuned if necessary.

scope for all the product lines.

These sites could fix flaws found in original equipment, while keeping costs to a minimum. We now have an investment

Q: How did the newly founded merger ensure each

plan in place to integrate these two strategies horizontally.

company’s strengths remained present? A: The head of One Aftermarket is a ZF representative

For this horizontal integration, we are prioritizing offering

but the remaining important positions within the structure

global coverage for the vehicle park. We want to cover at

were designated among ZF and TRW executives. We

least 95 percent of the vehicle park in any given market.

based our merging strategy on the ideas of integration

In Mexico, for instance, our 95 percent coverage of the

and the creation of new sales concepts.

shock absorber line is much greater than in other countries worldwide and we will align those markets to this strategy.

The different structures we use to attend to the aftersales

Achieving our coverage goal is going to take time but we

market dictated the need to eliminate duplicities and

have already started its development. We could get closer

use synergies as much as possible. We identified each

to the goal by buying other plants that will focus entirely

company’s strengths and merged them to create a single

on the aftersales market.

ZF completed the acquisition of TRW in 2015

Q: What other products are you developing with TRW? A: We are mostly developing electronic components and devices for mobility, connectivity and safe driving. These apply to passenger cars and both light and heavy commercial vehicles. In the auto parts segment, our team is working to develop product lines missing from each market, combined with the creation of service readiness to provide addedvalue solutions and greater business for our distributors. This encompasses a trained technical support team, high spare part availability and documentation in several languages. Q: After TRW, what other acquisitions or mergers are you

US$12.4 billion Value of the acquisition

95%

ZF Servicesâ&#x20AC;&#x2122; coverage of the shock absorber market in Mexico

considering? A: ZF Services has identified opportunities to acquire more manufacturing facilities worldwide but they are not declassified due to strategic reasons. We do understand

ZF Services wants to supply components for autonomous vehicles by 2025

that no single OEM manufacturer has the capability to produce all the applications of any product line globally without additional investment for specific aftersales requirements. Q: What new technologies do you plan to offer the market with your ZF 2025 strategy? A: We recently sold our Engineered Fasteners and Components division to Illinois Tool Works, the revenue from which is already allocated to future investments. We need to prepare and offer new added-value components for the automotive industryâ&#x20AC;&#x2122;s upcoming innovations, such as autonomous cars. Autonomy and new technologies will impact the aftermarket division. Fortunately, there is still time to prepare for this. We expect to see autonomous cars on the streets by 2025 or earlier and ZF needs to be

ZF Services wants to cover 95 percent of the vehicle park in any given market

prepared to supply components for them. We have a plan in motion although we do not yet know which components we

start participating directly on an e-commerce platform,

will need. There are currently three possible technologies

including our distribution network. We started in July

intended to be included in these vehicles, all of which were

2016 and we are already seeing sales increase through

proposed by Silicon Valley companies, so we need to wait

this channel.

to see which of the three will come out on top. Helping end-users to correctly identify the part they need Q: What best practices could Mexico import from

to buy will lead to higher online sales. A complete change

aftermarket-oriented regions to reactivate the local

in the way we sell spare parts will not happen. There will

market?

always be users who want to go to a workshop and see

A: Mexico has to reinvent itself. Repeating the patterns

the pieces before they buy them. But we are pleased to

practiced in the US is not an option because it is depredatory

see how our distributors respond to this change and are

for horizontal distribution. Big retailers have put several

adapting to find innovative ways to remain competitive.

spare parts suppliers out of business due to conditions

We are living in times of accelerated change so we need to

they establish. These may include payments over one-year

invest in technology and its proper application.

periods or sending product returns without verifying with the supplier. Selling to these companies is very expensive and we cannot follow the same pattern in Mexico.

ZF is a global leader in driveline and chassis technology. The company's portfolio includes powertrain and chassis technology,

The biggest change we will face in Mexico is going to be

commercial vehicle and industrial technology, e-mobility, the

e-commerce. In our strategic plan, we will skip retailers and

aftermarket and active and passive safety technology

311

INSIGHT

ACHIEVING PROFESSIONALIZATION THROUGH DIVERSIFICATION

“

Companies are now more willing to invest between US$5,000 and US$8,000 in professional equipment, resulting in better quality, cleaner and more efficient services” Andreas Schmid, Director General of MAHLE Aftermarket México

become a one-stop solution for clients,” he says. Outside the OEM shop segment, service points are normally specialized either on engine or tire maintenance, which means clients are forced to find several shops that can offer a complete service for their vehicles. “Diversification can help tire maintenance shops become full-service points, creating customer satisfaction by delivering timely services.” Schmid will not wait for Service Solutions to take off to grow the company’s position in Mexico, however. As one of the leading suppliers in the original-equipment segment, MAHLE can translate its innovation efforts to the aftermarket in its engine component, filter and peripherals and coolant divisions. The challenge the company faces is that it is not

312

Many repair shops operating outside dealership networks

always easy to convince the client about the advantages

are still reluctant to incorporate advanced equipment but

new products can bring, an obstacle Schmid will also have to

Andreas Schmid, Director General of MAHLE Aftermarket

overcome while marketing the company’s Service Solutions

México, says this could lead to a more professional industry.

line. “Particularly with the final users in repair shops, we need to make sure they understand how the new technology works,

“In small repair shops, oil changes are usually done

not only the moment we show it to them but afterward, when

manually,” says Schmid. “Not only is this inefficient but it

they are planning their next purchase,” he says.

also compromises the employee’s safety.” MAHLE detected a need for specialized fluid-exchange equipment in Mexico

Looking to remain competitive amid economic uncertainty

and although the company is mostly known in the aftermarket

spurred by a weak peso, the company has implemented

for its engine components, a new opportunity arose after

specific strategies to combat exchange-rate fluctuations.

the company’s acquisition of RTI Technologies in 2012. This

“Many of our products have suffered, either because they

company specialized in maintenance equipment for fluid

are imported or because the raw materials are priced in

exchange, nitrogen tire-inflation systems and air-conditioning

dollars,” says Schmid. MAHLE is negotiating with its suppliers

services. MAHLE incorporated these machines into its portfolio

to establish better costs for raw materials without impacting

and is now penetrating a previously unexplored market.

the final quality of its products. At the same time, Schmid has made sure to understand the requirements of the aftermarket,

“Our first client is an Asian automaker and we are currently

which in most cases are not as strict as those in the original-

looking for other partners in the distribution and repair-

equipment segment. Other companies such as Schunk

shop segment,” says Schmid. “It is still a green segment

Electro Carbón have also identified the difference between

for MAHLE but we have detected that companies are now

original equipment and aftermarket standards as a potential

more willing to invest between US$5,000 and US$8,000 in

opportunity to reduce costs. “Standards are different in the

professional equipment, resulting in better quality, cleaner

aftermarket, so companies cannot justify the investment

and more efficient services for the client.” Thanks to RTI

in manufacturing components with the same materials

Technologies’ portfolio, which is now part of MAHLE’s new

as original equipment,” says Daniel Romero, Americas

Service Solutions division, the company has also identified

Automotive Division Manager of Schunk Electro Carbón.

an opportunity to collaborate with tire maintenance and repair shops, especially because of the benefits nitrogen

Schmid says MAHLE can “meet industry standards without

can offer to clients in Mexico.

incurring in added expenses that could potentially affect our clients.” He also highlights the importance of keeping

Service Solutions is still a growing segment in Mexico but

an adequate balance between cost-reduction strategies

the company has positive expectations for its development.

and the incorporation of new trends and technologies in the

Schmid says repair shops must understand that this new

development of new products. “We are incorporating new

offering presents further opportunity for professionalization.

materials in our product-development process, with the goal

“Incorporating advanced technology can help repair shops

of achieving better performance at a lower cost,” he says.

INSIGHT

EVEN EXPERIENCED PLAYERS FACE ENTRY CHALLENGES THOMAS KERKHOFF Division General Manager of Valeo Service Mexico

Entering the Mexican aftermarket is challenging for even

our main constraints. We must make our locally produced

the most experienced players. Valeo is already a strong

spare parts available to the Mexican market to strengthen

player in the global aftermarket but its focus in Mexico has

our presence and make us attractive to customers.” Of

been the original equipment segment. The company has

course, the company knows that it cannot succeed alone.

10 production plants distributed across five Mexican states

Strong foundations in the market will depend on a well-

but now it wants to build a strong position for its service

structured distribution network and the company is relying

division, says Thomas Kerkhoff, Division General Manager

on wholesalers to insure its development plan. “Our well-

of Valeo Service Mexico.

balanced distribution network means we can choose the right partners who are looking for new and fresh business,”

The aftermarket represents 11 percent of Valeo’s global

says Kerkhoff.

sales and in Mexico, Valeo is in the startup phase. Fortunately, the company has a wide enough reputation

Along with the need to grow as a company, Valeo’s

to start building a name in this segment. One in every

motivation is fueled by the opportunity that exists in the

three clutches sold globally in the original equipment

aftermarket. Mexico’s vehicle park comprises almost 40

segment is Valeo and in 2016, six out of the 10 most-

million vehicles, according to INEGI and the expectation

sold vehicles in Mexico had a Valeo clutch. Kerkhoff says

for growth arising from an increase in new vehicle sales has

that this is the kind of recognition Valeo wants in the

inspired Valeo to adopt an aggressive strategy for Mexico.

aftermarket. “Although repair shops know our brand

“We are the main windscreen wiper provider globally but

thanks to our presence in original equipment, most

we do not sell a single unit in Mexico,” he adds. “That is only

distributors still need to become familiar with Valeo. It is

one of many examples of the massive market potential that

easy to communicate the tremendous business potential

is encouraging us to develop a firm market share here in

they could have by working with Valeo as we have a very

the next five years.”

strong original equipment footprint and are a leading technology company.”

Rushing into this unexplored market has not blinded the company to inherent challenges of servicing the millions

Gaining wide visibility is the main concern for Kerkhoff.

of vehicles in the country. “Unfortunately, in Mexico

Valeo competes with more than 800 entities that

many vehicles are sold in their most austere versions and

commercialize spare auto parts and the company is not

sometimes they do not even have basic safety systems like

yet a household name. “Valeo only started to have a more

ABS brakes. This relegates some products with advanced

serious presence in the Mexican aftermarket five years ago.

technology to the bench,” Kerkhoff adds.

Now, our goal is to elevate our status to the same level we have in Europe,” he says. “This is possible if we strengthen

The company’s experience in Europe handling technological

our leading position with radiators as well as making our

advances is less relevant in Mexico, which is still growing in

clutch offering available in Mexico. We are also launching

terms of its vehicle renovation. “Connectivity and autonomy

our leading range of windscreen wipers in 2017 to the

features are available in Mexico but only in the high-end

Mexican aftermarket.”

segments. There is still time for the volume production aftermarket to develop enough to supply more advanced

Kerkhoff thinks a strong service and support approach is

technology,” he says. Valeo will have to test the water and

key to achieving these goals, coupled with competitive

adapt accordingly. “As we make our way into the Mexican

prices and coverage of the main product lines in the

aftermarket, we will determine the kind of technology we

country. But to achieve this, the company cannot drag its

can bring to clients and the business potential for each of

heels. “Mexico is a diversified market, making time one of

our product lines.”

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VIEW FROM THE TOP

‘BRAKING’ THE COMPETITION WITH QUALITY EUGENIO BERGEYRE National Sales and Service Manager of Haldex Products de México

314

Q: What are the biggest challenges facing the aftermarket

blossom. Subsequently, local companies worked against

in the heavy vehicle industry that the company could help

the domestic market, importing pieces that do not meet

address?

our standards through ignorance of regulations or lack

A: One of the main issues is working under inappropriate

of etiquette. Brakes are such an important part of the

regulations. Regulations in Mexico in general are outdated

vehicle’s safety that we cannot overlook potentially

and until they catch up with international standards we

dangerous imitations. Air brake standards are strictly

will continue battling against the knockoff components in

stipulated by the US Department of Transportation,

the market.

just as in the European Union. Mexico has been a heavy vehicle manufacturer for such a long time, we should

It is natural for businesses to want to save money on every

have a regulatory framework that reflects this history in

part of their process. But this can stretch to using cheap

the market.

parts for heavy-duty trucks to cut down logistics costs, mainly related to fuel and tires. We helped launch an

Q: How do you manage competition and maintain a quality

unofficial standard, called NMX-D313, that stipulates the

image in many countries?

standard quality of brakes on large vehicles specifically.

A: We invoice 12 percent of sales in North America but

This is a step toward standardizing component care and

compete with many distributors operating in the US, where

replacements across the market.

a lot of trucks are produced. Haldex prefers to focus on selling new genuine parts, designing and manufacturing

Q: What external factors influence your operations and the

them. The company supplies OEMs directly, and offers price

overall market quality?

lists, catalogues, designs and production information to

A: Sometimes, tires imported from unofficial suppliers

ensure transparency and to gain the trust of dealerships.

can cost between US$150 or US$300, which is much

The downside is that providing this classified information to

lower than the commercial price of a quality product. A

original equipment suppliers can open our components up

valve that costs US$33 can be bought for US$13 from a

to being copied. We still consider it worth the risk because

lower-quality manufacturer. This demonstrates the need

it reflects our etiquette.

for regulatory improvements because they are unclear in Mexico and practically non-existent in Central America.

Q: What are your expectations for Haldex’ operations

Many suppliers can therefore sell low-quality parts

in 2017?

directly and cheaply to places like Panama, Guatemala,

A: We see the greatest potential for our market to grow

Costa Rica or Mexico.

within Mexico’s own ANTP and among private fleets, as well as urban transportation fleets, especially because we

Independent parts shops represent direct competition

work with two of the largest fleets in Mexico. Our interest

for aftermarket chains, but this only becomes a problem

in competing worldwide is not diminished, however.

if independent sellers start selling low-quality auto parts.

Having seen a 2 percent drop in sales in 2016 compared

Since 2000 and especially after the US financial crisis in

with 2015, we will implement survival strategies. This is

2008, many suppliers, particularly from Asia, started to

not a negative forecast, as no fleet or logistics company can function without brakes, which also need to be changed sooner or later. Constant parts renewal means

Haldex provides innovative brake solutions to the global

few players in the brake and suspension market leave to

commercial and heavy vehicle industry with a focus on

explore other markets. Hybrid and electric technology

enhanced

may affect other vehicle manufacturers but our products

dynamics

safety,

environmental

awareness

and

vehicle

simply evolve.

INSIGHT

LOCAL PRODUCTION COUNTERS NEGATIVE CURRENCY EFFECTS HIDEKI ONO President and Director General of Pioneer Electronics de México

Volatile exchange rates can have a negative impact on

orders. “After these necessary price increases it is time

importing companies but local production can be a

to make our products cheaper, especially in our most

stabilizing factor, according to Hideki Ono, President and

basic categories,” says Ono. “The aftermarket presents an

Director General of Pioneer Electronics de México.

excellent opportunity in Mexico.”

“Our mission is to make our products more affordable,”

Although initial operations were oriented to the aftermarket,

he says. “Local production can help us do that.” As an

Pioneer’s plant in Lagos de Moreno will also supply

aftermarket supplier of infotainment units, Pioneer faced

original equipment starting in 2018. Ono’s expectations

a challenging transition since the second half of 2016. As

are for this new site to reinforce its clients’ supply chain.

US President Donald Trump’s campaign against Mexico’s

“Once we consolidate our operations and grow our sales

automotive manufacturing operations gained strength, the

in our most basic product lines, we will bring production

peso weakened beyond what the company could withstand.

of new multimedia solutions compatible with Android Auto, CarPlay and Waze,” he says. Pioneer also wants to

The situation worsened for Pioneer after the liberalization of

take advantage of the country’s free-trade agreements

gas prices at the beginning of 2017. Not only was purchasing

with Colombia, Peru and Argentina, among others. In the

power diminished for vehicle owners, popular discontent

meantime, Ono says the company is already exporting

led to unrest that affected several businesses, including

speakers for the US aftermarket.

major retailers that sell Pioneer products. According to a statement issued by Walmart to the Mexican Stock

According to Ono, Pioneer made the decision to invest

Exchange, 27 stores were closed in January 2017 as a

in Mexico prior to Trump’s election victory. “This left us a

preventive measure against looting from protesters. The

bit uncertain about the future of our investment and the

company also reported an impact of approximately 150-

potential obstacles we could face exporting to the US

200 base points on its revenue, resulting in growth of only

aftermarket,” he says. However, the company has had time to

6.2 percent compared to 2016.

analyze the potential threats to its operations and thanks to the optimistic perspectives of both analysts and government

“Too many negative factors piled up at the same time and

officials, Ono says their forecast is much more positive now

we faced a grim first quarter in 2017,” says Ono. In response,

than at the beginning of the year. “Negotiations will not be

Ono was forced to adjust prices across the company’s entire

so dramatic. NAFTA will be revised and the treaty will include

portfolio, raising them by 20 percent in what he believes

new addendums to focus on things like e-commerce that did

will be a temporary measure. Two factors are behind Ono’s

not exist before,” he says. “If negotiations go wrong, it will

optimism: the peso is already gaining ground against the

not only be bad for Mexico but also for the US.” This view

dollar, hovering around MX$18 after reaching a peak of

is shared by most industry experts including Eduardo Solís,

MX$21.9 on Jan. 19, 2017; and Pioneer’s new manufacturing

Executive President of AMIA and Guillermo Rosales, Director

plant in Lagos de Moreno, Jalisco will cut production and

General of AMDA as portrayed in their interviews in Mexico

logistics expenses. Headquartered in Japan, the company

Automotive Review 2017.

has shipped most of its products from abroad to supply its retailer clients both in Mexico and the US, a process that

The goal for Ono right now is to maintain steady growth

took approximately one month.

and to concentrate on making its products more affordable. “Our projections are not that aggressive,” he says. “We have

Pioneer’s new plant was inaugurated in January 2017. By

already seen recovery in our sales in 2Q17 but we still have

March, the company had begun testing production for

inventory left from the first months of 2017. Our target for

the aftermarket and in May it started to deliver its first

the end of the year is to reach single-digit growth.”

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VIEW FROM THE TOP

AVAILABILITY OVER PRICE: THE NEW MARKET STANDARD ISABEL DÍAZ Managing Director of HELLAMEX

316

Q: What are the main challenges for companies participating

We did an intensive analysis of our product portfolio and

in the Mexican aftermarket?

developed the strategic plan for product categories where

A: The market’s complexity demands reinforcement in

we saw the best opportunity to grow in the different markets.

marketing and product management so companies can

As a commercial branch of the HELLA Group in Mexico,

develop proper strategic business plans that feature a deep

HELLAMEX decided to focus mainly on lighting, electric and

analysis of the company’s target markets and its priorities

electronic products, as well as components coming from our

to consolidate its brands in the market.

two joint ventures. One of them is focused on thermal and cooling systems as a result from a collaboration between

The way we do business is another challenge altogether, as

Behr and HELLA that spurred the Behr Hella Service brand.

younger consumer generations change trends giving more

The other is a partnership between HELLA and Pagid,

importance to online business. Auto part players must invest

resulting in Hella Pagid Brake Systems.

in new technologies, marketing campaigns, market research and human resources that bring different and innovative

Our venture with Pagid is a perfect example of our

approaches to service and how the company connects with

specialization strategy. After analyzing the Mexican market,

existing and potential customers.

we realized we could not satisfy the needs of European, Asian and American brands at the same time. When we launched the

Q: What opportunities do you see in the growing domestic

Hella Pagid Brake Systems brand, we decided to only focus

vehicle park and the new brands entering the country?

on European automakers and we established a promise to

A: The auto parts markets is highly dynamic, mainly due to the

satisfy the demand from these vehicles. We understood that

increase in the number of car brands and models available.

by focusing just on this market segment, some distributors

This represents a challenge for all players in the aftermarket

would not want to do business with us. However, specialization

and distribution sectors in terms of availability and flexibility

has also become a trend among wholesalers and we found

to provide adequate services to the customers. Specialization

suitable partners to commercialize our products with success.

by brand or by mechanism could be an option for companies

We are now in the process of integrating a product portfolio

to solve this problem. That way, players can focus on specific

oriented toward Asian brands and our goal is to be as reliable

sales and market share targets, providing a complete

as possible for that specific niche.

product portfolio for a selected niche. The best opportunity for aftermarket companies is to couple specialization with

Q: How has the client mindset changed and how has that

an innovative product portfolio, supported by a healthy

affected aftermarket players?

distribution network and a strong marketing and production

A: The aftermarket had always been characterized as a

management plan that includes an online strategy.

price-driven segment and companies tended to focus purely on offering low prices to maintain their competitiveness.

Q: How has HELLAMEX integrated specialization into its

However, this trend has changed and now availability is

corporate strategy?

the main driver for a company’s success. Especially among

A: HELLAMEX' strategy was defined 5 years ago. Our goal

retailers, availability is key to maintain customers’ loyalty.

was to consolidate our brand in the Mexican aftermarket.

Price has now taken a backseat in the consumers’ mind and even quality has climbed up the ranks on the clients’ list of priorities and is now just as important as availability.

HELLA is a German family-owned auto parts supplier founded in 1899. The company specializes in lighting and

Aftersales services have also grown in importance, as

electronic components and has more than 125 locations

well as marketing strategies supported by online tools to

around the world

make the purchasing experience as smooth as possible.

Consumer behavior has changed and we should focus on

A: Although it is difficult to establish our true position in

the buyersâ&#x20AC;&#x2122; needs and how to do business with them using

the market because of the number of product categories

all available technologies to make their experience easier

we manage, we are certain that HELLA enjoys a significant

and faster.

share of mind. The final consumer identifies HELLA as a leading brand with high quality standards. We have gained

Q: What role do you expect digital trends to play in the

such a presence in Mexico that our share of mind is even

development of the Mexican aftermarket?

greater here than in other European markets.

A: One of Hellaâ&#x20AC;&#x2122;s priorities to remain successful in the country is to develop a strong online platform. It is now

We strive to maintain our processes as cost-efficient as

time to create a strong digital strategy if we want to be

possible but we have no interest in competing with low-

competitive in the years to come. We must update the

cost and low-quality products. Therefore, we must ensure

information on our webpage on a regular basis so users,

that clients understand HELLA is the best alternative both

spare-part dealers and distributors can take advantage

in quality and total cost of ownership. We have invested in

of our catalogue and offer a better service to their own

training for our technical staff to support our clients in the

clients. At the same time, we are working on our response

best way possible, showcasing the advantages of using a

time regarding warranties and purchase orders, making

quality product, and we try to keep in close contact with

availability a core value for the company.

our customers as much as possible.

Technology will be crucial for companies and for the

Our goal for 2018 and 2019 is to consolidate our product

industry to develop more business and increase customer

portfolio and our retail operations in the Mexican

satisfaction. Digital databases are important in this process,

aftermarket. Our exports to Latin America are limited but

linking all new products to the vehicles they are destined

retail and our business relationships with companies such

to. They also provide a clear connection between clients

as AutoZone and Walmart have opened a new door for us.

and distributors, helping companies to properly track

We also see an opportunity to grow in a segment we call

availability.

Special Original Equipment, supplying non-exclusive parts for OEMs that have low production volumes. At the same

Q: What position does HELLA enjoy in the Mexican market

time, we want to grow our business in different industries

and what is your strategy to deliver brand awareness?

like mining, construction and special vehicles.

317

VIEW FROM THE TOP

COLORING THE AUTOMOTIVE MARKET Víctor Ochoa Director General of SherwinWilliams Automotive Finishes

318

Efrén Zagal Commercial Director of SherwinWilliams Automotive Finishes

Q: How important is the automotive aftermarket for

Q: How have your prices been affected by economic

Sherwin-Williams and what growth expectations do you

fluctuations and how have you countered these negative

have for Mexico?

effects?

VO: Sherwin-Williams acquired the Mexican brands Excelo

EZ: Volatility in the dollar-peso exchange rate at the

and Flex in 1997 and 2007, respectively. The company

beginning of 2017 affected us considerably. Raw materials

decided to retain the original brand image of both, which

also increased in price due to general inflation and as a result

allowed us to grow in the domestic market. Today, we have

we also had to raise our prices. Right now, we are trying

1,200 points of sale specialized in automotive refinishing.

to keep our prices stable by optimizing our processes. We

Our distribution network has allowed us to target vehicle

have a logistics group called Global Supply Chain that is in

fleets and refinishing shops, both independent and OEMs,

charge of our plants’ administration and one of its priorities

leading us to double-digit yearly growth rates since 2015.

is to implement lean manufacturing practices.

EZ: Our production facilities in Mexico supply 95-98 percent

Q: What do you see as the biggest challenges Sherwin-

of our domestic sales and thanks to technology transfers

Williams faces in the automotive aftermarket?

from our US sites, we now export some of our products to

EZ: One of the main challenges is technological because

that country. Mexico is also home to one of our four global

Mexico is divided in two regions. From the Bajio upward,

research laboratories. Working with with our centers in the

technology is much more similar to what we can find in

US, India and Brazil, this site has developed 25 percent of

the US, where companies are oriented toward efficient

the colors managed by Sherwin-Williams. The company is

processes. However, from the Bajio downward, we still see

growing and we are optimistic about our opportunities in the

demand for acrylic lacquer, which we originally thought

automotive sector. Sherwin-Williams represents 30 percent

would disappear from the market.

of the refinishing business in Mexico. We expect to maintain our momentum and reach double-digit growth in 2017.

VO: We also face problems in terms of color. This topic has become increasingly complex; pigments are more

Q: What are your strategies to maintain that level of growth

sophisticated and it has become harder to match colors

in 2017?

when repairing a vehicle. Color matching is an art and there

EZ: One of our main drivers for growth is the size of the

is no machine that can match tones exactly, even when

vehicle park and the increase in new car sales. More than 60

vehicles are painted on the same manufacturing line. To

percent of all new vehicles are financed and insured, which

have functional refinishing operations, shops must have an

means that if they have an accident they must be fixed

experienced colorist. We offer training to our clients but

immediately. That presents a great business opportunity

what really makes a good colorist is constant practice.

for Sherwin-Williams. When a car is no longer insured or its repairs are no longer done at the OEM’s workshop, we can

Q: Where is the biggest market opportunity for Sherwin-

also offer our products at independent shops. Our biggest

Williams in the automotive sector?

participation is with volume cars but we are also growing

EZ: Around 25 to 30 percent of our entire market is with

in the premium and luxury segments.

repair shops, both independent and those belonging to OEMs. There are around 3,000 shops within this segment and we are their second preferred option. Vehicle fleets are another

Sherwin-Williams is a US company founded in 1866 and focused

important segment that represents around 10-12 percent of

on the production and distribution of paint and coatings for

our refinishing market. There is especially high demand for

industrial and commercial applications. The company has been

our products in the bus segment because these units have an

in Mexico for over 84 years

image to maintain when they are part of a transportation fleet.

INSIGHT

FOCUS ON ORIGINAL EQUIPMENT TO TARGET THE AFTERMARKET SERGIO ÁLVAREZ Commercial Director of Hankook Tire de México

When the bottom fell out from under crude oil prices,

the country. This new distribution center will complement

companies like tire maker Hankook took the opportunity to

Hankook’s operations in Queretaro, which will focus on the

pass on its savings by way of a steady diet of discounts for

center and south of the country.

its customers, bolstering its overall sales. Now that prices have rebounded from lows, those discounts are fewer and

The company also plans to target the digital market with

farther between, and Hankook says it will widen its footprint

a new website that allows customers to locate Hankook

to keep growth at targeted levels.

distributors or service centers more easily. To shop online, customers only need to input the brand and measurement

Costs in the tire manufacturing segment are highly

of their tires to locate several related outlets. “We are

dependent on prices for raw materials, especially crude.

committed to e-commerce,” says Álvarez. “In Mexico, only

“When oil prices plunged from US$108 to US$31 in January

1-2 percent of all sales are carried out online. In about five

2016, companies like Hankook Tire could offer attractive

years that number will grow to 5-6 percent. The success of

discounts on their products to boost their overall sales,”

e-commerce starts with young people, who are not afraid

says Sergio Álvarez, Commercial Director of Hankook Tire

to buy products through the internet.”

de México. However, that situation could not last forever and now that the cost of crude is rising again, those promotions

Álvarez says, however, that the aftermarket will not be

are no longer viable. “Higher oil prices are managed

Hankook’s sole objective in Mexico. In 2017, the company will

gradually, with seasonal discounts in the summer or over

open a tire factory in Tennessee that is expected to produce

the Easter holiday,” says Álvarez.

6 million tires annually. This project will help Hankook target the original equipment market in Mexico. “We have 10 percent

Oil price fluctuations have contributed to the company’s

participation in the global market. We keep growing thanks to

overall growth, which hit 12 percent in 2015, and 16 percent

our work with brands like Ford, GM, Kia, Hyundai, Volkswagen,

in 2016. Though the situation is not as favorable as in

Nissan, Mercedes-Benz, Audi and BMW with our run-flat tires.

2016, Álvarez still expects the company to close 2017 with

These allow cars to travel at a speed of up to 80km/h, even

double-digit growth. However, to meet this expectation

after losing air pressure due to tire damage. We are the sole

Hankook Tire will have to expand its distribution footprint

suppliers for the Chevrolet Spark globally and will soon be

in the country, he says.

working with a Japanese OEM,” says Álvarez.

Since 2010, Hankook Tire has been strengthening its

The heavy vehicle market also represents an opportunity for

distribution network but Álvarez says the company is now

Hankook. While the brand targets the light vehicle segment

trying to target a niche segment. The company is growing

with the Hankook and Laufenn brands, truck fleets and

its Hankook Masters network, which are highly specialized

manufacturers favor its Hankook brand. Together with fuel,

shops focused on the premium market. At the same time,

tire replacement costs are the two main expenses truck and

although previously focused on medium and small-sized

bus fleets have to face. Álvarez says Hankook tires offer the

retailers, the company is looking for new distribution

performance and safety necessary to ensure driver comfort

channels among large supermarkets, such as Sears, Sam’s

while cutting costs per kilometer between 10 and 15 percent.

Club and Chedraui, which offer a more attractive option

“Hankook protects its presence with logistics companies by

for clients looking for their preferred product. To support

offering long-lasting premium tires, thus reducing maintenance

these goals, Hankook Tire will be opening a new distribution

costs,” he says. “Our company follows four main values which

center in Monterrey. The project will be finalized in the

are performance, safety, comfort and sustainability. We apply

third quarter of 2017 and will serve customers in Nuevo

all of these with the goal of maintaining the same growth we

Leon, Coahuila, Chihuahua, Durango and the northeast of

have achieved in the past 10 years.”

319

TECHNOLOGY SPOTLIGHT

HELLA MINIATURE LIGHT BULBS BLACK EDITION Drivers who have found themselves caught in a fog bank

tests include geometric measurement, vibration and paint

in the middle of a highway know how important it is to see

adhesion tests and light output measurement.

the tail lights of the car in front of them. The same applies

320

when driving at night down an unlit road. Lighting is a key

HELLA’s commitment is for its Black Edition line to comply

component in automotive safety and aftermarket or original

with expectations from the original equipment market,

equipment products must deliver optimal results under any

both in fit and performance. Their quality standards make

conditions.

Black Edition light bulbs a perfect fit for newer models.

HELLA Black Edition miniature automotive light bulbs meet

The brand has an extensive portfolio to cater to practically

the toughest requirements regarding quality. All the company’s

any vehicle in the market, be it light, commercial or

products must undergo extensive testing and HELLA’s quality

agricultural, and to be used in any application: front, rear,

assurance engineers work to the highest standards in the

lateral, interior, number plate, glove compartment, trunk

market, including international benchmarks such as DOT,

and dashboard. HELLA’s Black Edition line includes light

ECE, Inmetro and VSCC depending on their application. This

bulbs of 6V, 12V and 24V and all products must surpass

is managed through the use of state-of-the-art measuring

legal requirements in terms of useful lifetime, a crucial

equipment to confirm that all light bulbs comply with the

safety factor for aftermarket clients looking for the best

minimal properties needed. Some of HELLA’s standard quality

available option.

HELLA’s Black Edition line includes light bulbs of 6V, 12V and 24V

VIEW FROM THE TOP

TESTING THE WATERS TO EXPAND BATTERY REACH WILSON VIZEU Vice President-General Manager of Exide LATAM

Q: How has Exide positioned itself in the Mexican market

stage, and the second stage is its formation process. We

against its competitors?

pay close attention to the quality of both steps. Exide has

A: Our share is small compared to the actual size of the

existed for 128 years and we are leaders in the development

Mexican market and our potential market share. To date,

of new technologies. We have been producing start-stop

we hold around 2 percent but we see many opportunities in

vehicle technology for over 60 years, though this remains

the country, particularly in the original equipment segment

largely unknown and represents a small market share.

and the aftermarket.

Nevertheless, our constant innovation and generation of new technologies has helped us to create reliable and

Q: What are the main strategies that Exide is following to

stable products.

expand the brand in the local market? A: Both the light-vehicle and heavy-vehicle segments are

Q: What level of importance has Exide given the hybrid

important for our positioning strategy. We have experience

and electric car market?

and presence in the heavy-vehicle market but in the light-

A: Over the years, we have made and continue to make

vehicle market we still have room for growth and to extend our

investments in R&D for the hybrid and electric vehicle

presence. Exide has considered moving part of its production

market, and products for these vehicles have been released

to Mexico. We are conducting feasibility studies but to make

in Europe. We are closely monitoring market trends and

this decision we must consider our global partners, the size

doing what we can to develop the market through work at

of the market and several other factors before investing.

our two research centers, in Germany and in the US.

There is a general agreement in Exide that a presence in the country would be beneficial, with local production and local

The global automotive industry has yet to define its future

development, rather than just distribution.

path regarding battery technology for green vehicles, moving away from lead acid batteries. The short-term future

Q: What segment is Exide’s priority market in Mexico?

of the automotive industry involves the development of

A: Exide’s current priority is the aftermarket. We like that the

hybrid technology. We believe that this kind of technology

segment sees quick response times and we have laid solid

has room for improvement and many companies will invest

foundations to increase our participation in this sector. Original

in this segment in the next few years.

equipment is also an important market for us even though it involves a longer work cycle, wherein market conditions such

Q: What are your growth expectations for the distribution

as product approvals and investments in production lines can

segment?

delay operations. Developing our aftermarket participation

A: We need to work together with our distribution networks

remains part of the company’s medium to long-term strategy.

so they can prepare for our growth. In some regions, our

To do so, we need to double our service and support efforts.

network will have to grow and become more professional.

When the company first established operations in Mexico, we

Our distribution efforts will focus on developing commercial

were heavily invested in national distribution services. Now we

presence with independent distributors, some retailers and

need to develop services and support for both our distributors

some national accounts. Working with retailers is probably

and wholesale clients.

our best bet because of the sales volume they manage.

Q: What differentiates your premium products from other brands’ offerings?

Exide produces batteries that are present in top-selling

A: The production process of batteries has two critical

automobiles and heavy-vehicles in North America, Europe and

stages. The first is related to the internal construction of

Australia. The company operates in Mexico via a distribution

the battery and its components, which is the most critical

center in Tepotzotlan, State of Mexico

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VIEW FROM THE TOP

SPECIALIZATION PAVES ROAD TO SUCCESS MARIO ARGÜELLO Director General of Blue Side

Q: How are Blue Side’s different business lines distributed

18 lines of components that we could manage for cooling

geographically to best integrate its projects?

systems and we currently offer only 10, which leaves enough

A: Blue Side started by focusing on cooling system

room for development. We have gradually added new

components for light vehicle applications with the K’nadian

product lines to our portfolio, ensuring that existing lines

brand. Previously, clients imported cooling components

are already mature before introducing a new one.

separately and there was no company that offered a

322

specialized approach for this system. I started offering this

Q: What role does your distribution network play in Blue

integration at another company and eventually I created Blue

Side’s development strategy?

Side in 2007 as a specialized brand. Blue Side has become a

A: Approximately 90 percent of our products are imported

holding company managing five different businesses in the

and the rest are manufactured in Mexico so distribution

automotive segment, three of which are in Mexico. Blue Side

is crucial for the company’s growth. Our direct clients are

retained its focus on cooling components for light vehicles

large wholesalers and regional distributors and our main

while Blue Side Manufacturing and Trade Solutions has a

collaboration in Mexico is with Autozone. We started our

cooling portfolio for heavy vehicles with the K’nadian Heavy

relationship in 2011 and we have learned a lot from it.

brand. Our KND Germany business manages other system’s

Autozone has brought professionalism to the sector and has

spare parts components for popular models in the domestic

taught companies to rely on the quality of their products and

market.

service. This collaboration also led us to explore the option of manufacturing our own products. When we started the

Our other two companies are in the US. Blue Side USA in

pulley business, we approached a plastic injection factory

Florida manages our exports to South America, Florida and

in Mexico to help us develop our own molds. Thanks to our

the Caribbean, and Sunflower in Texas focuses on the digital

relationship in Mexico, we are now in the early stages of

US aftermarket through eBay and Amazon. Blue Side USA

negotiating with Autozone US.

started a year ago and we are now exporting our products to Colombia, Ecuador, Peru, Dominican Republic, Puerto

Q: What are your expectations regarding Blue Side’s digital

Rico and Florida. We chose to manage our international

presence?

operations from the US because it made our logistics more

A: The digital market is emerging as a dominant trend. The

efficient and accessible for clients. It also gave us an opening

industry has changed radically from small distributors to

to target the US market. A new project will be finalized in

large wholesalers and digital platforms will be the next big

the first half of 2017 that will integrate KND Germany’s

transformation. In the short term, 80 percent of the industry

operations. This new venture will focus on manufacturing

will be managed digitally, so now is the time to explore

activities and the development of a small industrial park.

our options. The internet is an excellent platform to target market segments in which we have little participation or

Q: Where do you see the biggest areas of opportunity for

have faced entry obstacles.

Blue Side? A: We see the biggest growth opportunities in Blue Side

Mexico is still new and inexperienced in these matters but

and Blue Side Manufacturing and Trade Solutions. There are

some of our clients are now delving into digital applications. We are supporting them with a complete catalog and rapid service. Riding the digital wave, we recently launched a new

Blue Side is an aftermarket distributor specialized in cooling

application that allows clients to consult our catalogue on

system components for light and heavy vehicles. The company

their cellphones. We do not yet manage sales through the

has 10 years of experience in the Mexican market and is number

app in Mexico but would like to use it to create a stronger

one in sales for cooling applications

relationship between our wholesalers and the final customer.

Q: What is K’nadian’s position in the Mexican market and

have always made sure we import quality components

how does it compete with other imported brands?

from certified equipment manufacturers. We now have a

A: As Blue Side grew as an importer for third-party brands,

commercial office in Taiwan that follows the development

our value proposition became to offer a build-to-suit solution

of new products and manufacturing quality standards.

for distributors to distribute imported products under their own brand or with the K’nadian label. But we were slow to

Q: How has exchange rate volatility affected Blue Side’s

develop the K’nadian brand, so we have worked hard since

activities?

2014 to build our reputation in the domestic market. Today,

A: As an importer, it has certainly impacted us, even our

several distributors commercialize our products under the

manufacturing operations. Although only 10 percent

K’nadian brand with excellent results. We work closely with

of our products are made in Mexico, raw materials and

our distributors and offer them our full support, regardless

components are imported. This impact is similar for all

of whether they market our products under their own

industry participants, so we have worked to find a way

name or ours. We want these players to view us as their

to minimize it and remain competitive. Many of our Asian

purchasing department for cooling system components.

suppliers have benefited from the exchange rate volatility. We have reached agreements with clients to keep prices

Q: How has your strategy as an importer evolved and

stable to affect our clients as little as possible.

impacted your products? A: Our main advantage is that we offer near-premium

Q: What are your growth expectations based on 2016’s

products at competitive prices. The gap between the

results?

premium and the volume market has narrowed in quality

A: Our growth has been constant thanks to our expertise

and price, which means that clients do not choose based

in the market. In 2015, we grew 35 percent and in 2016

on a product’s origins, as long as they are certified. When

we grew 34 percent. We believe 2017 will be a difficult

we started the company, 40 percent of the components

year as we start approaching Mexican elections in 2018 but

were imported from Taiwan, 40 percent from China and

Blue Side was born in times of crisis, so we know how to

the remaining 20 percent came from the US, Canada and

manage our growth in tough conditions. We will face new

South Korea. Our portfolio has gradually evolved in line

challenges developing our network, so we must especially

with the Mexican aftermarket’s development and now

try to integrate new product lines. Our goal is to grow at

Chinese products represent the bulk of our portfolio. We

least 20 percent by the end of 2017.

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INSIGHT

SAFETY STANDARD FOR COMPONENTS NEEDED JOSÉ PESCADOR Director General of Fast Autopartes

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Almost 25 million vehicles were being used in Mexico in 2006

Fortunately, Fast Autopartes has found a way to compete

and only 10 brands focused on brake components to service

against low-cost and low-value brands. Pescador says these

these units. In 2017, there are almost 35 million vehicles on

competitors are tied to large volumes and narrow margins.

the roads and the number of brake parts suppliers is now

Given the exchange rate volatility between the peso and

over 120. Having become an extremely competitive sector

the dollar, low-cost players have to adjust their prices

saturated with local and international brands and providers,

continuously to maintain stability. Distributors like Fast

the Director General of Fast Autopartes, José Pescador,

Autopartes only change their prices once or twice a year

sees price as the foremost driver in the country.

at most. Fast Autopartes has countered rising dollar prices by tweaking its agreements with Asian manufacturers. By

“There is an oversupply in the market and it has become

changing component pricing to yuan instead of dollars,

increasingly difficult to offer a quality product at a

Pescador has offset costs related to the dollar-peso

competitive price,” says Pescador. “The most common

exchange rate. “We also price our European imports in

enquiry for distributors is the cost of a Tsuru brake pad.” The

euros and depending on demand, certain components cost

Tsuru is the perfect embodiment of how the aftermarket

the same whether we source them from Europe or China.”

works, according to Pescador. For many years, this Nissan model has been the low-cost standard in Mexico and a

Although the company depends on some international supply,

strong contender despite safety deficiencies, according

it also strengthened its local offering to counter the added

to Stephan Brodziak, Air Quality and Vehicle Safety

cost in imports. Fast Autopartes started a new relationship

Coordinator of El Poder del Consumidor. Similarly, Pescador

with Bosch’s national brake plants and even though it is not

among several executives specializing in the aftermarket,

looking for a new partner, it is open for business with any local

says that many spare components enter the market without

manufacturer that is interested. “Establishing relationships

having to comply with any safety standards, which puts

with local manufacturers and building a strong e-commerce

quality and more expensive components at a disadvantage.

network is behind our company’s prowess.”

Despite the market conditions, Fast Autopartes has searched

E-commerce is the final stepping stone in Pescador’s

for ways to remain competitive while offering high quality

development plan. The company lists components in

and safety standards. Although the company sources its

MercadoLibre and invests in technology integration in

products from Mexico, China and Europe, it follows the

an effort to bypass wholesalers and other distributors.

R90 European norm for all its brake parts. This regulation

Building on four large distribution centers in Monterrey,

establishes a limit of up to plus or minus 15 percent quality

Guadalajara, Mexico City and Queretaro, Pescador’s goal is

standard compared to original equipment components.

to create microcenters across the country, approaching local distributors. “We want to become providers to smaller players

To reinforce industry standards, Fast Autopartes has bet

so they can have access to our entire product portfolio,”

on training programs as a direct promotion technique

he says. “We can finance the products through a payment

to its clients. The company created the Dynamik Brake

plan, giving the distributor access to our digital platform.”

Center initiative to certify mechanics as professionals in its

He sees a digital strategy as a door to new opportunities.

products and collaborated with Michelin to broaden the

“The brand that creates the best digital platform will be the

scope of the program. Pescador still sees standards as a

one that controls the market,” he says. Fast Autopartes has

pressing need for the industry. “Chambers of commerce

a 2.5 percent market share in Mexico and Pescador says

need to promote the creation or adoption of a quality

developing the company’s traditional business model as well

norm,” he says. “Our training efforts have paid off but the

as its digital presence and establishing new alliances with

market remains price-driven.”

national manufacturers could take it to a 3 to 4 percent share.

INSIGHT

CHALLENGES FOR PARTS SUPPLIERS INCLUDE GLOBALIZATION, AGING VEHICLE PARK BENJAMÍN CENTURIÓN Managing Director of Dacomsa

Although the aftermarket offers growth possibilities both

quality and imitations. Centurión assures us that the market’s

domestically and for export, each market’s needs could not

self-regulatory processes do not allow these products to last

be more different. While the export market demands pieces

long. “The market tends to debug itself and brands that couple

for newer models, the Mexican market relies heavily on pieces

quality products with good post-sale services prevail.”

for older models. Centurión predicts the existing relationship between the According to Benjamín Centurión, Managing Director of

national industry and US products will impact prices to the

Dacomsa, the vehicle park has seen an accelerated increase

benefit of Mexican manufacturers. “Though the economy

since 2010. INEGI in 2015 reported almost 40 million

is somewhat dependent on the price of the US dollar,

motorized vehicles registered in Mexico. This has translated

national products with US materials or services included in

into a more pressing need for spare parts, particularly once

their manufacturing will increase prices. But the increase

vehicles’ guarantees have expired. Despite the obvious

will not be as hard-felt as that experienced by imported

business opportunity for Centurión’s company, it also poses a

products,” says Centurión. “National manufacturers that

challenge: holding spare parts for cars that might be too old.

offer quality products and services will see this situation as an opportunity to grow.”

“The vehicle park in the country has been growing at record levels in recent years but this has not forced older cars to

Though uncertainty seems to be the rule for 2017, Centurión

disappear. They are still in use and still need spare parts,”

identifies several things to be considered when assessing

says Centurión. The longevity of the local vehicle fleet is

the probable performance of the industry. “A weaker peso

undeniable. Mexico’s vehicle park is on average 17 years

means more competitive exports, at least temporarily.”

old, with 52 percent of registered vehicles being over 14

Another important consideration is that the aftermarket has

years old. This number is particularly high compared to the

its own dynamics, generally disassociated from automotive

11 years that US vehicles average or the median 13-year-old

production cycles. “The aftermarket is more connected to

Brazilian vehicle park.

direct demand from consumers rather than automotive industry cycles,” says Centurión. “If the economy does not

The complexity of catering to the Mexican market does not

grow or market liquidity is limited, users might postpone

end with supplying parts for older vehicles. “The real challenge

decisions regarding car repairs.”

in our company has been supplying parts for the entire array of new cars that have entered the country since NAFTA came

Despite the industry’s atmosphere of uncertainty, the

into effect,” says Centurión. He says that on some occasions

expected impacts of new US economic policies began to

OEMs introduce new cars but no spare parts to the market,

be defined during the first quarter of 2017. “The year 2017

which makes it harder for aftermarket suppliers to create the

is a complete enigma. So far, the automotive industry has

necessary products.

been one of the country’s engines for development. If the industry faces deceleration, consequently the economy will

Once the product is developed it is easier to export,

slow down.” Even with the gloomy outlooks some have of

however. “Fortunately, production platforms are becoming

2017, Dacomsa expects to maintain stable sales numbers in

homogenous worldwide so the same vehicles are sold in

2017 although Centurión does not expect the company will

different countries. This gives us the opportunity to export

beat 2016’s 8 percent growth rate. “Our plan to maintain

our products to South America, the US and Europe,” says

our commercial situation is to remain close to our clients,

Centurión. Unlike the European and US market, the Mexican

final users, workshops, mechanics, retailers, distributors and

market is fairly open, which means that several types of

small businesses. We want to understand their needs and

products can be commercialized, including those of doubtful

what we can do to improve,” Centurión says.

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VEHICLE SPOTLIGHT

326

RANGE ROVER VELAR After 47 years in luxury SUV production, Land Rover digs up an old name to match the face of its most recent model. With the new Range Rover Velar, the British automaker expects to offer clients a minimalist and elegant option that features state-of-the-art technology at the driver’s fingertips. On the outside, the Velar’s smooth lines strengthen its aerodynamic capabilities, complemented by deployable door handles and an integrated rear spoiler. Its matrix-laser LED headlights also add to a sense of continuity that starts with the front grill and ends with the vehicle’s LED taillights.

Range Rover Velar offers six different engines, depending on the market 327

The clean and minimalistic approach continues within the new Velar, the name that graced the first generation of Range Rovers almost 50 years ago. The vehicle features two 10-inch touchscreens with Land Rover’s Touch Pro Duo infotainment system, plus an interactive driver display, a heads-up display and two 8-inch rear-seat entertainment screens. Premium leather and textiles coupled with configurable ambient lighting add to a feeling of comfort for all passengers, complemented by a panoramic roof that fills the cabin with natural light. “[The] new Range Rover Velar’s interior is a calm sanctuary, created through elegant simplicity and a visually reductive approach,” says Gerry McGovern, Chief Design Officer of Land Rover. Designed to fill the gap between the Range Rover Evoque and the Range Rover Sport, the Velar delivers the characteristic off-road performance that defines Land Rover models. Its all-wheel drive system with Intelligent Driveline Dynamics optimize torque distribution and fuel efficiency, while delivering maximum traction under every condition. The Velar also features innovative traction technologies including Hill Descent Control, All Terrain Progress Control, Terrain Response and Terrain Response 2 to cope with any road. Depending on the market, the brand might offer a choice of six different engines, ranging from the most fuelefficient, turbocharged 2-liter V4 Ingenium version capable of delivering 180CV of power and 430Nm of torque to a supercharged, 3-liter gasoline V6 with 380CV of power and 450Nm of torque.

INSIGHT

DIVERSIFY FOR SURVIVAL, STABILITY AND GROWTH EDUARDO TAMER Director General of Industrias Tamer

328

When the peso plunged to its lowest level ever against the

According to a study by technological consulting company

dollar after the US presidential election and continued its

Tecnocom, by mid-2016 about 65 percent of Mexican

slide in the following days to slip past MX$21, aftermarket

companies had a webpage and 22.5 percent of those

participants took a cautious stance. Coupled with the

businesses were selling online, either through their own

renegotiation of NAFTA, the new landscape has its challenges

platform or a third party’s site. This percentage is expected

but it also has spurred companies in Mexico to diversify, says

to reach 40.6 percent by the end of 2017, according to

Eduardo Tamer, Director General of Industrias Tamer.

Tecnocom. “Those who are not using this tool should pay attention and those who are using it quickly notice the

“The market is changing and it is increasingly necessary for

speed with which Mexicans are adopting this medium,” says

companies to develop specialized business models in many

Tamer. This sales tool has its own added challenges because

different areas,” he says. In the near term, however, the

sellers sometimes do not take packaging and distribution

exchange rate is reining in spending. “Aftermarket clients

costs into consideration, according to Tamer, only noticing

are showing more responsibility by keeping purchases

later that their pricing strategy may not be turning a profit.

in check and only buying what is needed,” Tamer says, adding that he expects this conservative trend to continue

Industrias Tamer is also entering the air conditioner niche as

throughout 2017. Industrias Tamer, which commercializes

part of its diversification strategy. “We produce a manifold

its own Mikel’s brand of aftermarket equipment including

product which can be used by Carrier, Rim Air and Calorex,”

wrenches, jacks and other tuning tools, grew at over 20

says Tamer. “While this sector is very different from the

percent for the past 15 years and Tamer expects net growth

automotive industry, they resemble each other in audits

for 2017 of approximately 12 percent.

and the need for efficiency alongside competitive prices.”

As the NAFTA talks get underway, Tamer sees many

Diversification can be a necessary strategy and is exactly

significant growth opportunities for the country and for

what Mexican industry must do to survive long term, says

the automotive industry thanks to Mexico’s manufacturing

Tamer. Industrias Tamer supports its automotive activities

capabilities. “As a low-cost country, Mexico has known how

with other divisions, while Mexico supports its trade

to take advantage of its capabilities to increase its exports

balance targeting destinations other than the US. The

and manufacturing base,” he says. “Even if investment

Director General of Grupo Bursamétrica, Ernesto O’Farrill

from the US falls, the Mexican automotive sector is still

Santoscoy, is among those that encourage diversification as

attractive enough to many other destinations.” Mexico has

a method to survive transitions, “Mexico needs to diversify

a significant manufacturing automotive industry beyond the

its markets, either through new international agreements

US. In fact, in 2015 most of the cars manufactured in Mexico

such as the Asia-Pacific Economic Forum (APEC) or new

were from Japanese maker Nissan, totaling 822,948 units.

bilateral agreements in the Asia-Pacific region.”

Tamer says he is also seeking further opportunities in other

To weather the current conditions surrounding US trade,

locations, even if this is a slow process. “We increased our

Tamer recommends both precaution and perseverance. “We

exports to Central and South America by 2 percentage points

took preventive measures against economic hurdles but it

in 2015 and now this market represents 7 percent of our

may not have been enough to account for the cost of the

sales.” Companies troubled by this period of uncertainty may

dollar,” Tamer said. “Yet, our work will continue no matter the

find it convenient to diversify more. One area Tamer finds

exchange rate as we do not take unnecessary risks.” Tamer

attractive is e-commerce. “For our company, e-commerce

has hopes for expanding his market north of the border. “We

has grown over 100 percent during the past year.” Online

are looking for a partner to generate a market in the US.

sales are increasingly gaining strength in Mexico.

Once we find one, we will be able to grow in this market.”

INSIGHT

NEW THINKING NEEDED TO USE INFORMATION EFFECTIVELY FERNANDO MURGUÍA Director General of TecAlliance Mexico

Modern businesses collect data in many ways, recognizing

network and services can reach out to all companies, from

the exercise’s contribution to a faster and more efficient

those handling parts distribution to the final customers

automotive aftermarket service. But the industry needs

purchasing replacement parts.

to develop a different way of thinking in the spare parts, accessories and vehicle components market to use this

The operating strategy behind TecAlliance works in three

information effectively, to report on trends and to react to

different ways. First, all the information regarding auto

them, says Fernando Murguía, Director General of market

parts manufacturers is gathered and organized. Through

intelligence business TecAlliance Mexico.

wholesalers and spare part stores, TecAlliance gathers further information to complete its auto parts search engine.

TecAlliance sees itself as the international driving force behind

Third, the company provides web-based solutions for the

data, processes and integrated solutions in the automotive

information collated in its TecDoc Catalogue.

aftermarket. “We provide market intelligence and services that generate a community,” says Murguía. TecAlliance

Murguía explains that his team helps the aftermarket sector

gathers market intelligence data about vehicles and spare

to improve its business in line with the era of digitalization.

parts directly from automotive suppliers and the industry. Its

“We convert a parts catalogue from an old-style printed

shareholders are the leading companies in the international

version to a standardized electronic web solution that can

parts industry. They promote TecAlliance as both partners

be easily updated and transferred to the final user.”

and customers. In Mexico, few companies try to improve technology by The company developed operations in Europe, Asia, South

focusing on parts manufacturers, distributors, workshops or

America and the US before coming to Mexico. It cut the

installation facilities. Many are unaware of the easiest way

ribbon on its new installations north of Mexico City and

to do so. Manufacturing companies in general could make

started operating officially in 2016. Since then, it has been

a greater effort in this area and adopt best practices from

creating its expansive auto parts database in the country,

TecAlliance, Murguía says. “Companies should try to produce

targeting aftermarket commercialization and distribution

a standardized parts catalog of electronic and web solutions.

with the intention of changing the way companies negotiate

TecAlliance provides expertise in digital information to help

in this segment. The team has set up modern tools for

them.” If companies approach TecAlliance early on, they

consulting services, data delivery and implementation, the

can create their own electronic catalogue and extend this

most common users of which are auto parts manufacturers,

data to an e-commerce solution, for example. This is made

repair shops, spare part distributors and strategy and

possible through the creation of the largest vehicle database

marketing departments of automotive companies. The

in Mexico, with more than 65,000 types of vehicles, over 6

platform provides market intelligence that increases the

million automotive parts, information dating back to 1945

presence of all parts manufacturers in the market, while

translated into Spanish and a range of images.

providing information on the national vehicle park to identify new business opportunities.

“Our catalogue provides comprehensive information for vehicle identification to facilitate the appropriate selection

Keeping pace with the ever-changing requirements

of vehicle spare parts,” says Murguía. “Our goal is to create an

of the digital aftermarket, the company also offers an

electronic parts catalogue with the highest number of parts

up-to-date and integrated electronic parts catalogue.

manufacturers to support the entire commercial chain.” If

Murguía needs to prove the value of the company to the

parts manufacturers do not have the resources to make this

Mexican market. Supported by 25 years of experience in

process, TecAlliance is prepared to support them by offering

the global market, he strives to show how TecAlliance’s

cataloging services.

329

Industrial Park FINSA Puebla

BUSINESS DEVELOPMENT

Companies arriving to Mexico must deal with an ever-changing bureaucracy that can only be understood with the help of the right partner. There are many political, legal and customs pitfalls to be deliberated, which investors might not consider right from the start, and cultural differences that might prove challenging for new investors. In addition, location has become one of the key factors to achieve success in the market and finding the right place to establish requires detailed analysis and careful growth projections.

The Business Development section focuses on the advantages that Mexico offers as an automotive production and exporting hub and the way companies can make the best out of the countryâ&#x20AC;&#x2122;s challenging business environment. Industrial developers are featured, as well as legal, financing and consulting companies that can offer an updated overview on Mexicoâ&#x20AC;&#x2122;s political, legal and economic framework. The latest changes in international trade are also featured along with their potential impact on foreign investments in Mexico.

331

CHAPTER 13: BUSINESS DEVELOPMENT 334

ANALYSIS: Treaty Talks Expected to Bolster Mexico’s Competitiveness

335

EXPERT OPINION: Bruno Graikowski, HSBC Mexico

336

INFOGRAPHIC: To Invest or Not to Invest

338

VIEW FROM THE TOP: Mario Hernández, KPMG Mexico

339

VIEW FROM THE TOP: Akira Yamada, Ambassador of Japan in Mexico

340

VIEW FROM THE TOP: Viktor Elbling, Ambassador of Germany in Mexico

341

VIEW FROM THE TOP: Eduardo Muñiz, Bancomext

342

VIEW FROM THE TOP: Gerardo Tietzsch, Unifin

344

Eduardo Castillo, Unifin

VIEW FROM THE TOP: Héctor de la Garza, E factor Network

Adrián de la Garza, E factor Network

345

INSIGHT: Guillermo Bilbao, PA Consulting

346

VIEW FROM THE TOP: Ricardo Castro, Baker McKenzie

347

INSIGHT: Jorge Barrero, Santamarina + Steta

348

VIEW FROM THE TOP: Josef Koberl, Comerica Bank

349

INSIGHT: Abel López, World Bank Group

350

VEHICLE SPOTLIGHT: Ferrari 488 Spider

352

VIEW FROM THE TOP: Salvador Magaña, PARQMEX Industrial Development

354

ANALYSIS: China Makes Inroads Into Mexican Market, Wants More

355

INSIGHT: Mauricio Garza, Interpuerto Monterrey

356

VIEW FROM THE TOP: Michele Porrino, WTC Industrial San Luis Potosi

357

VIEW FROM THE TOP: Alejandro Lara, American Industries

333

ANALYSIS

TREATY TALKS EXPECTED TO BOLSTER MEXICO’S COMPETITIVENESS Mexico is the quintessential manufacturing hub and companies have leveraged its advantages to minimize production costs and optimize profitability. A natural location, however, would be nothing without the proper business connections. Investors are confident NAFTA negotiations will result in better conditions for Mexico

334

Mexico has, according to the Ministry of Economy, 12 free-

elections in 2018. Among Trump’s promises regarding

trade agreements (FTAs) with 46 countries, 32 investment

NAFTA was the implementation of a 35 percent tariff

promotion and protection agreements with 33 countries

on automotive exports entering the US, which was later

and nine partial-scope economic complementation

transformed into a border adjustment tax that would

agreements. Its commercial network connects the country

favor US exporters while charging companies importing

with players such as the US, Canada, the EU, Latin America

products to the US. Both of these initiatives have found

and Japan, representing over 1 billion potential customers

resistance from investors and members of the Democratic

and 64.9 percent of the global GDP, according to ProMéxico.

and Republican parties but Automotive News reported in

Mexico is also a member of the World Trade Organization

July 2017 that the border tax adjustment proposal might

(WTO), the Asia-Pacific Economic Cooperation and the

still be pursued, impacting production costs and final prices

Organization for Economic Cooperation and Development.

for the end consumer.

All these commercial agreements bring many benefits to

Rules of origin might also be revised during NAFTA

potential investors in terms of low export and import tariffs.

negotiations but AMIA and its counterparts in Canada and

However, they also entail certain obligations. Companies must

the US are already lobbying to keep regulations unchanged.

have a fixed percentage of local content in their production,

“NAFTA represents a success story and we should not be

a regulation that is commonly known as rule of origin. In the

messing around with important topics such as rules of

automotive industry, depending on the export destination

origin,” says Eduardo Solís, Executive President of AMIA in

and the applicable FTA in the region, corporations must have

an interview with El Financiero in May 2017. “Our members

between 22 and 65 percent of local content in their products.

feel very strongly that rules of origin are not the tools to

NAFTA regulations require regional content of 62.5 percent

use to re-shore jobs into the US,” said Ann Wilson, Senior

for vehicles for 15 passengers or less and 60 percent for

Vice President of Government Affairs for the Motor and

vehicles for 16 passengers or more.

Equipment Manufacturers Association in an interview with Reuters in July 2017.

Without a doubt, out of all its FTAs, NAFTA has been the most beneficial to Mexico. According to data from AMIA, between

One of US Trade Representative Robert Lighthizer’s

January and July 2017, 76.4 percent of all light-vehicle exports

objectives is to ensure rules of origin favor material

were destined to the US. However, NAFTA has also allowed

sourcing from the US. The goal is to decrease the US$74

North America to become a strong automotive hub, capable

billion trade deficit the US has with Mexico and limit the

of competing against the European market and the growing

entrance of Chinese auto parts to the region. However, a

Asian forces. Óscar Albin, Executive President of INA, says

more stringent limit than the 62.5-percent local content

“(Canada and the US) need Mexico’s low-cost manufacturing

regulation already in place would force automakers to go

because it is the only way for North America to remain

straight to paying the added tariff, according to a statement

competitive internationally. Europe has low-cost partners

from Charles Uthus, Vice President for International Policy

such as Turkey and Tunisia, while Japan and South Korea are

of the American Automotive Policy Council issued in July

supported by Thailand, Malaysia and the Philippines.”

2017.Although negotiations are barely under way, investors are confident that the outcome will suit all three nations.

President Donald Trump’s threats about the US pulling out

Many of MAR 2017’s interviewees are optimistic about

from NAFTA might not come to fruition but the agreement

the talks and 42.9 percent of them say Trump’s positions

is nonetheless being renegotiated. The first round of talks

will have a moderate impact on Mexico’s development. In

started in August in Washington, D.C. Representatives

fact, there could even be a unforeseen benefit for Mexico.

expect seven rounds of negotiations, scheduled every three

“Changes to Mexico’s commercial relationship with the US

weeks to be finalized before the end of 2017. According to

will push the country out of its comfort zone and bring

El Financiero, one of the Mexican negotiators stated this

new opportunities to local industry,” said Adonai García,

was planned to avoid an overlap with Mexico’s presidential

Managing Director of KWH Mirka Mexicana.

EXPERT OPINION

WHAT CAN THE RENEGOTIATION OF NAFTA MEAN FOR MEXICO? BRUNO GRAIKOWSKI Director of Global Banking, Multinationals at HSBC Mexico

NAFTA gave everybody a political and economic playing

which is high in demand by all companies present here.

field that, at the moment, is shattered. But Mexico is well-

This shortage creates one of the main challenges for the

prepared for renegotiations and the country will benefit

industry. This is true not only for automotive but for all

long-term from this.

other industry sectors in Mexico and solving this issue will be one of the main roadblocks for Mexico’s future

A good example of how the Mexican automotive industry

economic development.

has developed is in Juarez City. Juarez is a popular industrial destination and the second-busiest crossing

In the case of a fundamental renegotiation of NAFTA that

between Mexico and the US after Tijuana. I always find

would lead to a decrease in foreign direct investment,

it a bit surreal that a big part of the Mexican automotive

Mexico will need to create further incentives for companies

industry calls this dry and desert-like environment home.

to invest in the country, while focusing on further training

Many US auto part companies established in the region

and development of the Mexican workforce.

and they are still there despite the tweets and comments from President Trump.

Regardless, Mexico is still the most attractive emerging market with almost US$27 billion of foreign direct

Another good example of success for the Mexican industry

investment in 2016 and will be for some time due to its

is the German investment coming to the country. With the

geopolitical position and the advantages it brings even

Germany-Mexico Dual Year finished, Germany is the main

with a renegotiated NAFTA. But Mexico, and even the US,

commercial partner for Mexico in Europe, representing 1.1

will lose some momentum as uncertainty is not a word

percent of all Mexican exports as of 2016 and 3.6 percent of

that companies need while deciding on multimillion and

Mexican imports. Germany could find the full cancellation

even billion-dollar investments with a five to 10-year

of NAFTA beneficial as the US still represents 81 percent

timeframe. HSBC Mexico’s conservative estimate for total

of Mexican exports. However, for the European automotive

foreign direct investment coming to the country in 2017

industry Mexico is the platform to reach the US market

is US$16 billion.

competitively, which means that a fine-tuning of NAFTA would be even more beneficial.

Mexico’s track record and expertise in arranging trade agreements will help in negotiations. Negative migration

German direct investments in Mexico have increased by

numbers between Mexico and the US are a result, among

US$2.2 billion in 2016, representing 9 percent of all foreign

other factors, of the job opportunities NAFTA has created.

direct investment, while the US leads the list with around

In the end, the underlying trade flows and dependencies

39 percent. Yet, a qualified workforce is crucial to deliver

between the US and Mexico are beneficial for both

products with a quality standard similar to the “Made in

countries and will remain.

Germany” brand. Discussions regarding the dual-education program after the German success model are intensifying.

HSBC is uniquely positioned in the NAFTA market and

Education is being enhanced by including technical skills

North America is at the heart of our core strategy. Our

and knowledge into standard education programs. More

network and knowledge within the region and our ability

companies are implementing the dual-education scheme

to deliver our expertise to clients are among the main

and graduates are in high demand.

attractors for companies in Germany and other countries alike. We are a global bank, founded to support trade flows.

NAFTA is being renegotiated at the request of the US

We still believe in the opportunities of cross-border trade

but in Mexico, it is business as usual. The main issue the

flows and our strategy is designed to facilitate our clients’

country still faces is the lack of a qualified workforce,

access to the US, Mexico and Canada markets.

335

INFOGRAPHIC

TO INVEST OR NOT TO INVEST Early numbers from the Ministry of Economy show that the country could receive more investment by the end of 2017 compared to results from 2016. Still, Mexico Automotive Review 2017 has found obstacles and areas of opportunity that could impact Mexicoâ&#x20AC;&#x2122;s chances to remain an attractive business destination Despite the renegotiation of NAFTA, executives have not

Automotive industry executives also have clear opinions

lost their faith in the Mexican market. More than half of

about measures the government could take to boost

the 184 directors surveyed by Mexico Automotive Review

further investment in the country amid a difficult political

showed a willingness to invest in their Mexican operations

environment. It is important to note that clear policies for

in 2017, although uncertainty remains the main factor

doing business and transparency are the two main factors

hindering projects and their competitiveness, along with a

influencing investors, followed by a longstanding need for

volatile currency exchange rate environment.

fiscal incentives.

AUTOMOTIVE FDI RECEIVED PER STATE (US$ millions)

TOTAL

336

2015

2016

1Q17

6204.6

5301.9

1258.8

1 3 4 5

6 9

State

2015

2016

1Q17

Sinaloa

25.6

2.8

0.1

Durango

39.5

Zacatecas

25.6

31.1

-14.1

San Luis Potosi

239.4

368.8

168.5

Jalisco

159.7

78.5

-30.4

Aguascalientes

446.8

242.3

287.6

Guanajuato

318.7

587.2

90.8

Queretaro

137.5

345.4

88.9

Veracruz

0.2

Colima

0.1

0.3

State of Mexico

578.3

351.1

92.8

Mexico City

65.3

159.9

38.7

Tlaxcala

36.2

1.4

Puebla

296.9

663.9

101.9

Morelos

137.5

21.6

Tabasco

0.6

Chiapas

2.1

Campeche

7.2

Quintana Roo

0.4

11 13 State

2015

2016

1Q17

Baja California

212.8

276.3

45.6

Baja California South

102.6

Sonora

195.2

74.9

-34.3

Chihuahua

1383.4

722

102.6

Coahuila

721.5

355.5

84.4

Nuevo Leon

766.9

798.2

161.8

Tamaulipas

183.3

161.7

21.2

12 17

15 18 19 20 22 21

25 24 23

NAFTA NEGOTIATIONS TIMELINE

2017

2018

2019

August 16

September 8

December 31

July 1

November 6

December 1

October 21

NAFTA negotations started

Presidential campaigns in Mexico

Deadline Mexico and the US have established for NAFTA negotiations

Presidential elections in Mexico

Midterm elections in the US

Mexicoâ&#x20AC;&#x2122;s new President takes office

Federal elections in Canada

Sources: Mexico Automotive Review, Ministry of Economy, Business Insider

TOTAL FDI RECEIVED PER STATE (US$ billions) Aguascalientes

HOW CAN THE GOVERNMENT BOOST MEXICO'S COMPETITIVENESS?

Baja California Baja California South Campeche Chiapas Chihuahua Mexico City Coahuila Colima Durango

24.52 Transparency 6.90 Import Substitution 23.37 Clear policies 4.48 Other 22.22 Fiscal incentives

13.03 International promotion

State of Mexico Guanajuato Guerrero

WHAT ARE THE MAIN FACTORS THAT WOULD HINDER YOUR COMPETITIVENESS AS A COMPANY?

Hidalgo Jalisco Michoacan Morelos Nayarit Nuevo Leon

TOTAL

Oaxaca Puebla

US$33.3

Queretaro

bllions in 2015

Quintana Roo

30.67 Uncertainty 18.67 Exchange Rate Volatility

17.33 Employee Turnover

11.33 High Internal Costs

5.67 Interest Rates

4.33 Lack of

Government Support

6.67 Other 5.33 No Answer

San Luis Potosi Sinaloa

US$27.4

Sonora

billions in 2016

Tabasco

DOES YOUR COMPANY PLAN TO INVEST IN MEXICO IN 2017?

Tamaulipas

US$7.9

Tlaxcala

billions in 2017 in 1Q17 (31,782.40 annualized)

Veracruz Yucatan Zacatecas

-1

57.61% Yes 17.39% No 25% No Answer

337

VIEW FROM THE TOP

DIVERSIFICATION ON RIGHT PATH BUT QUICKER PACE NEEDED MARIO HERNÁNDEZ Leading Partner of the IMMEX Segment at KPMG Mexico

Q: How will Mexico’s economy face the protectionist

carried out in the US. Production and living costs make this

rhetoric presented by other international markets?

economically inviable.

A: Mexico evolved in a globalized environment that fostered

338

international trade through fiscal incentives. The big leap

Unfortunately, many blame NAFTA for the sense of unrest.

for the country was NAFTA in the early 1990s, followed

But the reality is that with or without this agreement,

by trade agreements with Europe and other countries in

companies needed a way to be efficient. The trade and

Latin America. The TPP was set to consolidate this idea

customs barriers that were implemented in prior years to

of an open economy, decreasing Mexico’s dependence on

protect the US market and manufacturers were insufficient.

the US dollar and the North American market. The country

The decision to become an open economy is still valid.

still has a strong economic link with the US in terms of oil and manufacturing, and with Canada in the mining sector.

Nonetheless, NAFTA’s main bases remain strong. Countries

Several governments have tried to diversify our commercial

can regulate the economy but companies set the rules. It

relationships and even though there have been success

is not a political but an economic decision and as long as

stories, Mexico is far from the position it should have.

this remains the same, there should not be no major effects.

The recent changes in the global economic landscape,

Q: How will Mexico’s commercial position evolve as an

will mean that Mexico along with other Latin American

exporting country?

economies will feel an impact on their development

A: As globalization impacted more and more countries,

strategies. There is uncertainty as to what will happen in

companies started to invest in markets without considering

the years to come and right now the only thing the world

all influential factors. Manufacturing savings did not counter

has is campaign promises. Mexico’s strategy to diversify

the logistic costs that corporations needed to make, leading

is on the right path but our efforts have to be faster,

to the creation of regional economic blocks. Mexico and

boosting strategies like the Energy Reform. We have natural

Central America became the manufacturing hub for North

resources, tourism, a strong manufacturing base and an

America, Eastern Europe became the main production

excellent location between North and Central America to

destination for Europe, while China, Korea, Singapore, India

expand our international presence.

and Vietnam targeted the Asian markets.

Q: What is your view of the US President’s attacks on

When European and Asian companies started to invest in

NAFTA and the prospects for a renegotiated treaty?

Mexico, they did so with the intention of targeting the North

A: There were worries in the US regarding employment

American market and not their home regions. Investment

generation, independent of whoever was elected president

will be directed at the US and South American markets.

for 2017. The country has a considerable commercial deficit

Companies will not move their production facilities to the

and debt and as in many other markets, companies had to

Americas to target the Asian or the European markets. On

move abroad to remain competitive against China, Korea

that same note, investors will not move their manufacturing

and Japan. But it would be unrealistic to talk about a fully

sites out of Mexico unless it is economically beneficial.

protectionist idea wherein all manufacturing activities were If the US wants to solve its employment issues, it needs to find a way to improve its competitiveness. Many US states KPMG provides audit, tax and advisory services globally and

have offered incentives to companies looking for a new

for automotive clients, specializes in regulatory compliance,

production site. China went through the same process once

international commerce and customs, and market entrance or

manufacturing activities began migrating to Vietnam and

growth strategies

Singapore. The reason is completely economic-oriented.

Q: Which countries might find the greatest advantage in

currently many companies already located in Mexico are

investing in Mexico?

wondering if Mexico has the necessary infrastructure to

A: Mexico remains as one of the most attractive

support its projected growth. We also hit a fiscal bump

manufacturing destinations thanks to its costs and

two years ago, which needs to be resolved in the coming

economic and political stability. Our demographic

years. The country continues to operate under the same

distribution is perfectly centered and the domestic market

manufacturing scheme it created almost 50 years ago.

is equally strong. The country offers a great opportunity

Mexico has not incorporated the local supply chain into

to target North America and it has now become the main

the process and still needs to make the leap toward higher

entry to the Latin American market. Brazil is currently

added-value activities.

undergoing political, economic and social problems, making Mexico a sound alternative for investors as our

Even though we produce engineers, we do not target

fiscal environment is far simpler. Europe, China, Japan

areas that could boost the industry. We focus on industries

and Korea will be important players in attracting foreign

that already exist without creating any new products.

investment to Mexico in the future.

The relationship between the automotive and aerospace industries is a clear example. It took decades for the

Q: How can Mexico move past incentives and into an added

automotive sector to develop adequate human talent and

value for companies looking to invest?

to establish a few research and engineering centers in

A : We co n s i d e r t h a t M ex i co co u l d b e l o s i n g

the country. Now that the aerospace industry is growing,

competitiveness against other countries with similar

companies are looking to the automotive sector for

business models related to manufacturing operations and

engineers but they still need training. 339

VIEW FROM THE TOP

JAPANESE COMPANIES EYE YOUNG POPULATION, BEMOAN INFRASTRUCTURE BOTTLENECK AKIRA YAMADA Ambassador of Japan in Mexico

Q: What are the main concerns of Japanese OEMs and

infrastructure bottleneck for export and import operations.

what can Mexico do to address them?

Other important challenges include security and education.

A: Mexico as a country has both advantages and challenges.

Both the Japanese government and companies assign

Like any other country in the world, Mexico faces some

much importance to human resources development.

political problems but it enjoys political stability as a democracy. Despite economic constraints, economic policy

Q: Whatever the outcome of a renegotiated NAFTA,

in the country is sound and stable. Inflation is controlled

what main value will Mexico continue to offer foreign

and although the country’s economic growth might not be

companies?

remarkable, it is growing at a steady rate of 2 percent with

A: NAFTA has worked well for Mexico, the US and Canada,

stable labor conditions.

and it has been changing the face of Mexico in a positive way. When the treaty came into effect in 1994, a lot of people

Another advantage Mexico possesses is a young

were concerned about its impact, but in the long run I think

population that is entering the workforce. The geography

that NAFTA was instrumental in the country’s development

of the country plays to Mexico’s advantage, positioned

and is now one of Mexico’s most attractive assets.

between two oceans and with good highway and railway infrastructure. Mexico has a wide network of free-trade agreements with Japan, North America, Latin American

Akira Yamada , former Director General of the Foreign Ministry’s

and European countries. Improvement could be made

Latin American and Caribbean Affairs Bureau, now oversees

to secure solid growth, such as improving infrastructure.

Japan’s links with Mexico, home to more than 1,000 Japanese

The development of several industries has created an

companies’ manufacturing, sales and services operations

VIEW FROM THE TOP

TALENT DEVELOPMENT: A PRIORITY FOR BUSINESS GROWTH VIKTOR ELBLING Ambassador of Germany in Mexico

Q: How important is German investment in the development

demands. At the same time, training must not be limited

of the Mexican automotive industry?

to college-level students but promoted at the technician

A: There are already almost 2,000 German companies

level. In Germany, 60 percent of all high-school graduates

that have come to Mexico, totaling an investment of

do not go to university. Instead, they are trained directly

approximately US$35 billion. This amount is not restricted

by companies for two or three years until they become

to the automotive industry but we have identified this

technicians and specialists in their own sectors.

sector as a pillar for Germany’s commercial relationship

340

with Mexico. With the exception of Porsche, almost all

Q: What are the main opportunities to strengthen Mexico’s

German automakers have already brought manufacturing

commercial relationship with Germany?

operations to the country. Although OEM presence is clear,

A: Germany is already Mexico’s first commercial partner in

the business opportunity that German investment has

the EU and almost one-third of all commercial transactions

created for automotive suppliers and the effect this has had

are managed with Germany accounting for over US$18 billion.

on employment generation is also noticeable. According

The country is part of the NAFTA region, opening the door

to our estimations, for each direct job created by an OEM

to one of the largest consumer markets in the world, and

or provider, three indirect jobs are generated. German

its commercial agreements result in tariff-free trade with 46

companies are responsible for about 150,000 direct jobs

countries. There is still opportunity to grow our collaboration

across all industries, impacting over 450,000 jobs in total.

and we think there is still much potential to grow Mexican exports going to Germany in sectors like automotive,

Q: How have initiatives like the German dual-education

electronics and agriculture. Similarly, we see an opportunity

program permeated the Mexican industry?

to bring more Tier 2 and Tier 3 providers to the country.

A: When companies like Volkswagen arrived to Mexico, they brought their own training practices based on the German

The biggest challenge companies face is the scarcity of

dual-education program. Talent in Mexico grew to German

skilled talent, particularly in the most industrialized regions

standards but it was mostly because of a private effort from

of the country. Labor turnover has become a real problem

German investors. In 2013, Mexico created its own dual-

among companies, creating a war for the best talent.

education system supported by the German government,

Now that the industry is moving toward new trends such

to develop a strong network of Mexican talent that could

as electric mobility and autonomous driving, companies

participate in Mexican and German companies, as well as

need specialized people who can actively participate in the

in corporations from any other country. At the moment,

development of these technologies.

there are approximately 5,000 students enrolled in the dual-education system and the Mexican government’s goal

Q: How might the economic and political chill in US-Mexico

is to reach a total of 10,000 trainees by 2018.

relations alter the position of investors? A: We have observed that German players remain satisfied

Mexico needs both the government and the private sector

with their ventures in Mexico. There is caution regarding

to be involved in talent development so companies can

Mexico’s current relationship with the US but companies

have a rich pool of potential hires with the skills the industry

know their investments are long-term projects. No player invests with a four, eight or even a 12-year vision and particularly in the automotive sector, new projects require

Viktor Elbling was born on April 4, 1959 and is the Ambassador

over US$1 billion in resources that can only be justified with

of Germany in Mexico since 2014. He majored in Law from

a long-term development plan. Companies trust in Mexico

the University of Bonn and has graduate studies in Political

and there has not been one German company that has

Sciences and Romance Studies

expressed to us its desire to leave the country.

VIEW FROM THE TOP

FINANCING SUPPLY CHAIN TO COMPETE GLOBALLY EDUARDO MUÑIZ Automotive, Aerospace and Logistics Financing Director of Bancomext

Q: How can Bancomext help the Mexican aftermarket

are not bankable. So, alongside the Ministry of Economy,

become a more relevant global player?

we want to create financing structures that would support

A: For the automotive industry alone, we provided financing

it. This is part of our mandate and, as a development bank,

to over 220 companies. The bank is promoting financing

we are willing to participate in sectors that appeal less to

for the lower end of the automotive supply chain, helping

commercial banks, due to their inherent level of risk.

companies become competitive both nationally and globally. The extent of integration of Mexican companies

Q: How is Bancomext expecting interest and exchange

in global manufacturing chains signals that any company

rates to affect its portfolio?

that can be competitive domestically can compete in

A: I would even venture to say that the current exchange

international markets.

rate represents an opportunity for the sector. The exchange rate in 2015 meant costs of production were 10 percent

The automotive sector is Mexico’s main revenue generator,

lower in Mexico than in the US. Therefore, the current

such that the bank has developed specific strategies

exchange rate is pushing production costs in the country

to support subsectors involved in export operations,

even lower than they already were. The upcoming inflation

developing a specialization in the aftermarket sector. We

adjustment processes will impact overheads but we are

help develop full supply chains in the sector, from OEMs

currently enjoying lower costs of production. Regarding

to Tier 4 companies. Developing manufacturing chains is

interest rates, we are dealing with a global phenomenon

our priority, as are logistics and transport companies that

that is not restricted to the Mexican market. An significant

work with the sector. Since many aftermarket products are

part of our portfolio is in dollars, and interest rates continue

shipped overseas, we also provide financing for specialized

to be competitive. The companies we are financing are

terminals that handle automotive manufacturing at the ports

prepared to face probable international turbulence. Prices

in Lazaro Cardenas, Veracruz and Tuxpan, among others.

will have to be adjusted but we are open to renegotiate credit awarded to any of the companies that work with us.

Q: After a successful 2016, what can we expect from the ProAuto program by the end of 2017?

Q: What impact will decisions such as Ford reducing its

A: The results of ProAuto have been very favorable. Since the

investment in Mexico have on companies that form its

bank joined forces with other institutions, mainly the Ministry

supply chain?

of Economy, we have multiplied the number of companies

A: Though Ford’s announcement generated some panic,

that we support by five or six. The articulated coordination

it was made before the plant had advanced much beyond

between the bank and other governmental entities is the

foundation laying, so other projects associated with this

reason the program has yielded so many benefits. In addition

plant probably had not begun either. Furthermore, to be

to ProAuto’s usual financing tools, we rely on our network of

a player in the automotive industry, a company needs

commercial banks, which allows us to reach more people.

certifications that take several years to obtain. So even if

National and international banks located in Mexico are aware

an OEM moves locations, suppliers in Mexico would have

of the program’s risks and opportunities and decided to

secured these useful certifications to switch and supply

participate in the project nonetheless, showing great optimism

other companies.

among financial organisms. We work with more than 20 intermediaries and see potential to keep growing. The National Bank of Foreign Trade (Bancomext ) became the

Bancomext identified a very particular need in the tooling

number one institution in 2017 in automotive sector financing

industry. The Ministry of Economy and the bank believe it

in Mexico, allocating a MX$200 billion portfolio across several

is an unusual niche, since many companies in this sector

industries in 2016

341

VIEW FROM THE TOP

SOUND INVESTMENTS PROTECT AGAINST VOLATILITY Gerardo Tietzsch Business Director General of Unifin

Eduardo Castillo Deputy Director General of Automotive Financing for Unifin

Q: Why did Unifin choose to issue bonds instead of bank

went public, the company’s shares were worth MX$28 and

financing that could have lower interest rates?

now they are worth around MX$50. Our shares are behaving

GT: Rather than focusing on a specific financing source, we

positively thanks to the credibility of the company and the

diversify across three main financing sources. These are

confidence that all our investors have in the company’s ability

banking financing, securitization on the domestic market

to continue growing and yielding the results they expect.

and the 144A-Reg S global bond. All three mechanisms are

342

effective tools for Unifin. At the end of November 2016, we

Q: What are Unifin’s plans regarding taking on new

went through a securitization of MX$2.5 billion and even

business?

though the markets were facing unfavorable conditions,

GT: Our focus is always on providing our clients with tailor-

we were successful. We also refinanced our participation

made financial solutions. But building a relationship and

in the 144A-Reg S global bond. This allowed us to move

providing personalized solutions to small companies is

2019’s expiration to 2023, by setting a fixed peso rate with

challenging, so we plan to channel all our attention into

an exposure specifically to pesos. We have proved that

doing this successfully. In terms of selling ourselves to new

regardless of adverse market conditions Unifin is a solid

businesses, we describe Unifin as a one-stop shop that

company that is well-positioned to face the volatility ahead.

meets our clients’ financial needs.

We have experienced consistent growth of approximately

Q: How is Unifin working to strengthen its leasing services,

35-40 percent accumulated year on year. Our existing

while also diversifying business operations?

resources allow us to continue the same dynamic in our

GT: Leasing represents around 90 percent of our business

three business units, namely automotive financing, leasing

and 85 percent of our profits. Our leasing division finances

and factoring. Unifin designates 100 percent of acquired

transportation equipment and industrial equipment. These

resources toward procuring new portfolios.

two areas have grown well and proportionate to the growth of our portfolio. Unifin is one of the main financiers of the

Even when no future capital market placements are on

transportation sector and of SMEs. Our diverse portfolio is

the horizon, we always keep them in mind because market

one of our advantages as it means that the entire business

opportunities can arise unexpectedly. It also helps us to

does not depend on one area.

maintain solid ratios and metrics. Unifin has a capitalization level above 15 percent, which illustrates our stability. We

EC: Most of our operations are managed through assets,

would consider new capital market placements if company

so half of our portfolio consists of assets related to the

growth would enable us to obtain ratios under 12 percent.

transportation sector, while the other half is related to industrial equipment or other assets. Being a multibrand-

Q: What would you say is the main reason investors feel

financing company is one of our competitive advantages.

so comfortable with Unifin? GT: Capital markets by rule try to anticipate a company’s

Q: What is the strategy to have a greater impact on the

results, which means trying to anticipate the value of a

automotive industry?

company’s shares 12 to 24 months ahead of time. When Unifin

EC: We need to have a clear and strong presence where market opportunities may arise. Foreign financing companies have a significant presence in the Mexican

Unifin is a Mexico City-based entity that offers financial

market. The resource availability these companies provide

services. It was the first multiple-purpose financial entity

is a competitive advantage. That is why Unifin, with its focus

(SOFOM) to securitize its assets portfolio. Unifin handles

on SMEs, has found important market niches in which to

automotive financing, leasing and factoring for suppliers

establish a strong presence and highlight our competitive

advantages. We have always focused on providing rapid,

activity, accounting for around 0.5 percent of the

tailor-made solutions, complying with our clients’ demands

country’s total GDP. In comparison, total loans represent

in the least possible amount of time.

approximately 30 percent of the national GDP.

GT: By personalizing our business we can make our clients

The Mexican leasing sector is not fully matured compared to

aware of our capacities and by understanding their needs we

its Colombian or Chilean counterpart — in these countries,

can foster long-term business relationships. All our efforts

leasing represents around 8 percent of GDP. The sector has

in marketing are focused on making clients identify us as

potential in Mexico and competition is fair. In the leasing

a personalized solution rather than just financial products.

sector, no one player dominates, we all focus on our own market niche. Unifin’s specialty is helping SMEs, with an

Q: What is Unifin’s growth expectation for the automotive

approximate market share of between 10 and 15 percent,

financing market?

which positions us as segment leaders.

GT: We want to provide an agile and personalized service, which means authorizing a credit line for all our products

EC: Consumption patterns have changed immensely and

in less than 48 hours. This is something no other financing

to keep up, we try to be as agile as possible and upfront

company can do. We will continue promoting our existing

with our clients, always with the goal of supporting them.

products and complement our services with an insurance

Technology has changed the way people make decisions

division. Our auto loan division enjoyed the most growth

and we are always trying to learn new techniques to

during 2016 and our future growth depends on how we

understand the market. Even though automotive financing

approach customers and how they approach us. Instead

is not our biggest business unit, its behavior provides us

of selling a product, we want to sell a solution that meets

with insight into business patterns, allowing Unifin to

people’s needs. In 2017, we do not expect to grow in line

increase its automotive-financing segment faster than the

with market growth but to increase our market share by

competition. We expected 2016 to close with the highest

maintaining the growth levels we have experienced so far.

number of cars sold in the country, 1.5 million vehicles, of which 70 percent would have been sold through a financing

Our market participation must be evaluated differently,

scheme. Although financing did not reach this expectation,

depending against which institution we compare ourselves.

we still detected an opportunity for Unifin to increase its

In terms of GDP, for instance, leasing is not an important

market participation.

343

VIEW FROM THE TOP

SUPPLY-CHAIN FINANCING THROUGH PEAKS AND TROUGHS Héctor de la Garza Director General of E factor Network

344

Adrián de la Garza Director of Sales for E factor Network

Q: How have your market expectations changed since you

Q: To what extent does a one-sided repercussion on

told us about your company’s unusual offering in 2016?

inflation affect financing due to rising cost of loans?

HG: Supply-chain financing becomes relevant in times of

HG: Inflation always damages certain economic indicators

economic instability or market volatility. Our product is

but the central bank and the government’s policies will aim

particularly useful during periods of rapid expansion as

to minimize this impact. Automotive’s dependence on the

well as troughs in economic growth. If one sector of the

dollar means prices and revenue can fluctuate accordingly.

economy drops and a company needs financial support, or

The value of finance solutions will grow in line with an

unexpected growth demands sudden personnel recruitment

increase in prices. The impact of inflation on the base

and raw material acquisition, our product can play a starring

rate (TIIE), which increased over 300 base points in 2016,

role in caring for that company.

will impact the price of goods and services provided to automotive industry. Companies taking out a loan will pay

The US president’s election sparked instability and we saw

more for their loans, so the authorities need to reduce the

this alter the Mexican currency. Similarly, exports took a

impact of interest rates on the industry as much as possible.

hit. We do not expect this development to have a longterm effect on our economy but the impact on automotive

Q: What kinds of companies do you hope to include in

is interesting. For foreign companies, whose spending on

your client base?

human resources is their second or third-biggest expense

AG: We are focused on Tier 1 companies but are also

or who sell in dollars, a lower price for Mexican pesos is

negotiating with OEMs like Volvo, to support Tier 2 and

good news. For E factor Network, our business benefited

3s in their supply chains. We also visited Volkswagen and

from the uncertainty that Trump’s election generated. We

Nissan to explain the benefits we can offer their suppliers,

signed six new automotive companies within the month

hoping to secure them in the future.

following him taking office, ramping up financing much faster than the usual three or four years we would expect

We see opportunities in the Mexican market, and it seems

this growth to take.

Navistar has identified the same possibility. This crossborder venture shares the risk with the Bank of Mexico and a

Q: How has automotive participation in E factor’s portfolio

foreign financial entity. Another example is Nemak, a Mexican

changed since the company was created?

company for which we helped obtain financing for an Italian

AG: Our presence in Mexican manufacturing clusters

supplier of theirs. This was obtained in euros via French

resulted in 16 of the 60 corporations we manage being

bank Credit Agricole. One of the main benefits of using our

automotive enterprises. The industry represents more

cross-border platform is that it has led us to understand that

than 35 percent of our portfolio in loan values. Automotive

international companies need flexibility. We aim to become

clients set demanding timeframes for their suppliers, which

market leaders ourselves in electronic financing by 2021.

makes free cash flow and forward planning crucial to smooth industry functioning. Therefore, E factor provides

HG: E factor aims to develop the whole marketplace every

one of the few financial services that can keep suppliers

year, from banks to brand-new suppliers. We closed a deal

risk-free while companies have sufficient cash flow.

with Nemak in February 2017, having negotiated technology and financing solutions for this influential company. But the main value of having such a large company on our books is the

E factor Network carries out electronic invoicing for domestic

fact that it will attract all sorts of new players, strengthening

and factoring for foreign buyers using funding from national

the supply chain. The more we develop the full supply chain,

and foreign financial intermediaries. Its electronic platform

the more each new player will attract further suppliers,

provides financial solutions for efficient capital management

international or national banks, all the way up to OEMs.

INSIGHT

HOLISTIC APPROACH TO COST OPTIMIZATION GUILLERMO BILBAO Director General in Mexico of PA Consulting

In manufacturing and corporate activities, all processes

to help executives understand and manage change. Rather

can benefit from optimization strategies, although

than focusing on isolated processes, every operation must

there are different ways to achieve it. Guillermo Bilbao,

consider all the variables that might affect its outcome.

Director General in Mexico of PA Consulting, explains that companies work from a strategic to an operational

Having worked with PEMEX and the Mexican government,

level and each has different cost-reduction approaches.

PA Consulting is experienced in the local market. Its expertise

“Process optimization is absolutely necessary and does

has been applied to logistics companies such as DHL Express

not require large investments. But when companies need

and DSV Road, creating an IT replacement system capable

to transform their organizational culture, they must bet

of supporting the division’s ambitions for growth. In line with

on a cost-out strategy.” Cost-out maturity is the basis of

technology development in manufacturing, Bilboa hopes to

PA Consulting’s offering, transforming its clients’ business

penetrate automotive companies globally as they can reach

radically. The company has already worked with leading

much higher maturity levels following a cost-out model.

supplier Magna Steyr in product-development processes

He sees the biggest area of opportunity is in developing

and it also participated in a project with FCA that resulted

competencies and skills, particularly regarding information

in savings of over €1 billion (US$1.2 billion) per year.

integration. Industry 4.0 might prove an ally in process development. The idea behind its concept is for companies

When faced with a cost-optimization problem, companies

to manage large amounts of data and apply it to decision-

have two ways of looking at it. They might choose a

making processes. Although it is a common concept in

transversal approach, seeking the best way to improve

manufacturing, all corporate processes can be improved by

interaction between departments within the company, or

effective data collection and analysis strategies, Bilbao says.

they can follow a functional strategy minimizing costs and cutting corners vertically, Bilbao says. Once executives

Industry 4.0 is just one example of how the industry is

implement these strategies, they often discover the project

moving forward and now that innovation is becoming

lacks a holistic approach that can combine both aspects.

standard industry practice, cost optimization is taking center-

Certain positions that seemed irrelevant at first might

stage. “Cost-out maturity allows companies to move past

be eliminated at a functional level but transversally they

innovation and into an implementation phase,” says Bilbao.

might be crucial to run operations seamlessly, says Bilbao.

He says sustainability is the perfect example of innovation.

As a result, cost-reduction projections are limited because

Although it might be seen as an obstacle for efficiency and

overheads might increase in order to maintain a healthy

investments might be larger at first, operations transform

interdepartmental communication.

positively in the long term and provide companies with the product offering needed to survive recessions and industry

“For cost-out maturity to be achieved, all different levels of

turnarounds. Bilbao explains how in the 2000s the global

an organization must be aligned under a single strategy and

automotive industry was peaking and was faced with an

communicate with one another,” says Bilbao. “A cost-out

imminent cliff edge. European companies, in particular, were

transformation strategy considers the company’s strategy,

struggling to compete with American and Japanese players

organization, processes, tools, skills and approaches to a

on costs and the only way to regain their competitiveness

certain problem. The analysis goes beyond handling only

was developing a disruptive product that kick-started new

manufacturing processes and we might end up transforming

product lifecycles. That is when companies turned to electric

even people’s habits.” Performing this level of analysis is

and hybrid technology. “When the industry started investing

not easy and Bilbao explains that the only way to deliver

in electric vehicle technology, it was not because they were

it properly is following system dynamics guidelines. This

interested in the environment. They did so because it opened

concept was created at the MIT Sloan School of Management

up a whole new business dimension,” he says.

345

VIEW FROM THE TOP

CHANGES TO KEEP INVESTORS INTERESTED IN MEXICO RICARDO CASTRO Partner at Baker McKenzie

Q: With talent scarcity becoming a problem for companies,

A: Due to the current amendments that Mexico has made

how will this impact the country as an advanced

to its energy legislation, manufacturing operations will have

manufacturing hub?

a better environment to become more cost-efficient. To

A: Mexico has proven throughout the years that its

reach these savings, companies investing in Mexico must

workforce delivers better results in terms of quality and cost

understand how regulations have changed and the way in

than other manufacturing hubs. Today, Mexico is one of the

which these amendments may impact their operations.

cheapest countries in which to do business in comparison

346

with other countries. Unfortunately, Mexico still has an area

Q: What are the biggest challenges and areas of opportunity

of opportunity in retaining the most qualified and talented

related to the development of the local supply chain?

employees, particularly with high-level knowledge and

A: The local supply chain suffers from a lack of legal certainty.

skills oriented to advanced technology operations. It is a

Even though Mexico has changed its legislation with the

common practice for Mexican automotive companies to

aim of becoming more competitive and attractive for new

hire CEOs, vice presidents, CFOs and COOs from the US,

investors, as well as established players, the automotive

Canada and Brazil, among other countries, to run their

industry does not have enough incentives in terms of taxes,

operations in Mexico.

real estate and labor elements, among others.

The biggest challenge for the local supply chain is the lack of legal certainty

OEMs and Tier 1 suppliers have been participating actively through the IMMEX in Mexico, analyzing the conflicts within the industry. The goal is to propose new incentives, amendments to the current legislation, as well as federal and local rules that apply to this industry. These activities are coordinated by the government at a federal, local and

Q: How ready is Mexico to participate in R&D and

municipal level, taking advantage of the associationâ&#x20AC;&#x2122;s

engineering activities?

experience and with the support of the corresponding

A: One of the biggest challenges that Mexico faces is that

experts in different areas, such as economy, tax, energy

sooner or later, it will have to adapt its internal legislations

and labor, among others.

in accordance with the automotive industry and how it is evolving toward a more technological future. Companies

Q: What are the areas of opportunity to improve how

will have to take into account the investment that represents

companies invest and participate in the local market?

and modify the way in which they are operating in Mexico to

A: Mexico has different advantages when compared to the

incorporate new machinery and equipment by terminating

US and Canada in terms of the quality of their services,

part or all of their workforce.

low labor costs and a legal environment that takes into consideration energy, real estate and labor. Every state in

Q: As manufacturing operations become more advanced,

Mexico is somehow competing with the others to be the one

what role will alternative power generation play in the

offering the best and most incentives. Therefore, companies

automotive industry?

that are willing to invest in Mexico and those that are already established in the country have the opportunity to compare the different incentive packages the government

Baker McKenzie is a global law firm focused on tax, dispute

offers. To make an informed decision, companies must be

resolution, banking and finance, M&A and capital markets. By

aware of the environment in Mexico and understand where

the end of the fiscal year 2017, the company reported US$2.67

it would be more suitable to invest in terms of logistics, tax,

billion in revenue

real estate and labor environment.

INSIGHT

DEFENDING AUTOMOTIVE INDUSTRY DEVELOPMENT JORGE BARRERO Lawyer and Partner at Santamarina + Steta

Growing inorganically in any industry through mergers and

presence in the largest and most influential automotive and

acquisitions means navigating a labyrinth of international

industrial hubs. “We are a full-service law firm with a long-

law. Corporate mergers can encroach on technology

standing international scope and tradition,” says Barrero, who

development, financial and strategic planning, guarantees

represents clients entering the market through acquisitions or

and authorization processes, says lawyer Jorge Barrero, of

starting greenfield projects, including property acquisitions,

Santamarina + Steta. But alliances feed growth, especially

facility lease or construction, obtainment of government

when rapid technology development is needed, he adds.

incentives and securing of permits and licenses.

“The Chinese strategy for entering a new market is

Working in such a diverse market and across several countries

a clear example,” Barrero says. “Chinese companies

gives the firm a global perspective of the industry. This means

have now carried out acquisitions in places like Canada

its team understands the trends, business cycles, weaknesses

and Germany. When expanding abroad they look for

and concerns of industry players, becoming experts in the

international businesses with a presence in other countries

supply of raw materials, parts and components, Barrero says.

and have consistently gained the technology they need

The experience they have acquired over the years working

through mergers and acquisitions.” Case in point: China’s

in international transactions and their best practices come

in the

in handy while providing advice and during negotiations,

global automotive industry, entered Mexico by leaning on

whether defending or arguing a patent or trademark or in

distributor Grupo Picacho to begin selling its cars.

strategically planning the obtaining of clearance for projects

BAIC group, which Fortune magazine ranks 13

by collaborating with authorities in several countries. Barrero sees M&A as Mexico’s road to deeper involvement in the automotive production chain. Limited R&D investments

Barrero highlights Grupo Industrial Saltillo (GIS), a client the

in Mexico hinder the country’s global competitiveness but

firm has supported for many years, during and after its initial

Barrero also sees an opportunity for Mexican companies

public offering more than 40 years ago. Recently, the group

to improve their competitiveness. “Local companies could

has grown vigorously through mergers, acquisitions and joint

take more advantage of joint ventures with investments

ventures. One of its most successful joint ventures was a

from large multinational players to build and strengthen

project with TRW (now ZF TRW) producing cast iron parts for

their technological skills,” he says. Although Mexico has

brake systems. GIS later worked with Fagor Ederlan, a large

taken great strides to become more competitive, there

Spanish cooperative in an equal-participation partnership

are many inconsistencies regarding support for local and

focused on machining of auto parts. At the end of 2015, GIS

international companies. “There is an excess of regulations

completed a friendly takeover of a Polish publicly-traded

covering imports and exports, in part because some players

company with plants in Spain, Poland and Czech Republic

have abused of fiscal incentives used to support industry

through a public offering. It not only received the base

participants in the past.” This over-regulation makes

operations but also the company’s management team and

crossing the border with goods time-consuming and costly.

its knowledge of the European market. In December 2016, GIS acquired Grupo Infun, a Spanish company operating six

anniversary,

facilities across Spain, Italy and China. “In addition to taking

provides legal representation to companies facing all sorts

advantage of all the experience and knowledge Santamarina

of legal issues from their creation, all the way their business

+ Steta has in Mexico, GIS also benefitted from the firm’s

consolidation. The firm has been an important part of the

unique global platforms and business collaborations, which

automotive sector, with some client relationships now

allowed it to rely on Santamarina + Steta as a one-stop shop,

exceeding 50 years, says Barrero. Santamarina + Steta has

by securing legal support in other jurisdictions, working

locations in Mexico City, Monterrey and Queretaro, giving it a

seamlessly as a single firm,” says Barrero.

Santamarina + Steta, celebrating its 70

347

VIEW FROM THE TOP

US FINANCING EXPERIENCE HELPING THE NATIONAL MARKET GROW JOSEF KOBERL Senior Vice President and Country Manager Mexico of Comerica Bank

348

Q: How attractive have Comerica’s leasing solutions

International Finance group, we make doing business across

been among clients that want to upgrade their available

borders simple, streamlined and efficient. We understand

infrastructure?

the nuances of international investment and cross-border

A: Although Comerica does not directly offer leases in Mexico,

trade, and can help our customers hedge risks and increase

we have established strategic alliances with several leasing

profitability. In Mexico, we have adjusted our service offer

companies to carry out leasing operations, in which Comerica

to fit the needs of our local clients. We offer a variety of

funds the transactions through a discount on our clients’ lease

financial products such as US$ Financing, Supply Chain

agreements. Since our alliances are with the main leasing

Finance, Letters of Credit, FX and Forwards, as well as

companies in the country, the contracts available to our clients

Treasury Management Services. As for international clients

through this program are very competitive compared to the

seeking to establish or expand in Mexico, we have worked

conditions of the leasing market in Mexico.

proactively with other departments in the international area of Comerica, serving European, Asian and US clients to

Q: How do you help companies find the best ways to

identify their needs and address them in a timely manner.

finance their operations? A: For over 165 years, Comerica has actively supported

Q: What are the biggest challenges Comerica faces amid the

the manufacturing sector in the US Midwest, and we have

economic uncertainty created by the Trump administration?

significant experience and specialization in the automotive

A: The expectations for and the results of the US elections,

sector. In Mexico, our representative office was established in

their effect on the country’s relationship with Mexico and the

Monterrey to support our Mexican-based customers, which

volatility that was generated in the exchange rate caused

includes several automotive clients. Over the years, we have

several of our customers to delay their investments since

developed long-term relationships and cooperated closely

mid-2016. Despite these factors, we have seen that in recent

with manufacturing companies. In terms of products and

months our clients are resuming their investments. We hope

services, we provide a variety of loan types that give our

that the NAFTA negotiations that began in August 2017 will

customers flexibility in managing their finances. In Mexico,

conclude with reasonable terms for all three countries. One

Comerica offers commercial banking products and services;

of our challenges will be to adapt efficiently to the changes

we are not active in structuring capital markets transactions.

in the needs of our clients and to be competitive against local

From the financing standpoint, we offer working capital lines

banks in products for risk hedging.

and equipment financing facilities with different structures that can be adapted to the needs of our customers.

Q: How fruitful has the Mexican market been for Comerica’s development and what are your expectations for the

Q: How do you support national players looking to grow

automotive sector?

their operations and international companies looking to

A: Throughout more than 25 years in Mexico, Comerica has

establish in Mexico?

established long-term relationships with clients in diverse

A: Comerica is a bank with integrated commercial services

sectors, especially automotive and manufacturing. The

throughout Canada, Mexico and the US. With established

Mexican market has always been relevant for Comerica Bank.

business operations in all three countries and a dedicated

The new arrival of massive investment from automotive OEMs into Mexico presents several attractive opportunities. Many of our current clients in the US are establishing subsidiaries

Comerica Incorporated is a publicaly traded company

and manufacturing facilities in Mexico, which has allowed

focused on financial services. The company has commercial

us to develop close relationships with key players in this

branches in the US, Canada and Mexico and is headquartered

industry. We have initiated relationships with new customers,

in Texas

as well as expanded our relationships with existing clients.

INSIGHT

ALTERING THE TRANSPORT LANDSCAPE ABEL LÓPEZ Urban Transport Specialist at World Bank Group

The World Bank is doing something few entities could:

Finances also play an important role. “Governments are

changing the landscape of public transportation systems in

accustomed to assigning concessions and letting private

Mexico. This has been the main purpose of the US$350 million

individuals handle transportation services,” says López. This

credit line the bank extended to the Mexican government.

practice results in dependence on the private sector and

“The role we play is conveying good practices throughout

has led most local congresses to deprive cities of budget

the country,” says Abel López, Urban Transport Specialist

that would have been allocated to public transportation.

at World Bank Group. “We participated in the design of the Federal Program for Urban Mass Transportation (PROTRAM)

Although the bank’s credit line allows Banobras to fund up

and through the National Infrastructure Bank (Banobras) we

to 67 percent of the total debt of a project, a problem often

finance projects that contribute to PROTRAM’s objectives.”

encountered is the private-sector financing. Big commercial banks are also hesitant to provide financing to projects

While it is true that money does not solve every problem, the

like Metrobús, as it is considered too small to merit their

bank’s financing has contributed to the expansion of the (BRT)

involvement in the other 33 percent. “Local banks have

system throughout the country. “Eight years after PROTRAM

found a niche market that has been neglected by financial

started, we have financed projects, through Banobras in

institutions,” says López. “Nevertheless, banks have yet to

Monterrey and Tijuana. We are also in the process of financing

develop financial instruments to meet the sector’s needs.”

systems in Mexico City, Cuernavaca, Acapulco, Campeche, San

López believes the country still has a long way to go, signaling

Luis Potosi and Aguascalientes,” says López. The country’s

the need for an institutional, legal and financial overhaul.

changing landscape from rural to urban conditions makes the implementation of BRT systems an attractive option.

For the World Bank specialist, the present administration’s

According to López, Mexico has more than 93 urban zones

goal of adding 100km more of 10 Metrobús lines by 2018 seems

with over 100,000 inhabitants. “When PROTRAM began, we

out of reach. But a respectable total of 80km of additional

thought Mexico could house approximately 15 projects,” says

Metrobús lines would be perfectly attainable in Mexico City,

López. “Today, PROTRAM has at least 40 projects in different

according to López. Currently, the World Bank has agreed

planning stages of obtaining or using federal grants for BRT

to finance the Extension of Line 5, which will contribute

or city-wide transport systems.”

20km of the government’s 100km goal. The challenge ahead is convincing entrepreneurs and governments from

PROTRAM is not short of possible projects but most take

other entities of following the capital’s example. “The most

half a decade to complete. “There are several potential

important factors relate to concessions because they balance

complications such as finding a government that wants to

the challenges of the business’ operation.” According to the

carry out the entire project, obtaining the necessary funding

World Bank’s specialist, the government needs to provide

to complement PROTRAM’s support, negotiating with current

current microbus operators legal certainty regarding possible

service providers and preparing bidding documents for civil

investments in BRT or citywide systems.

works or for a public-private partnership arrangement,” López says. There are political and financial factors that have a direct

“The government needs to assure the private sector that there

impact on a project’s completion. “Most politicians like to be

will be transparency and fair competition,” says López. In this

seen inaugurating public projects. If a project takes five or

context, the World Bank’s work becomes more relevant. “We

six years to be completed, the time that most politicians are

work to convey good practices on a wide array of subjects

in office are not enough to finish it.” He argues that planning

that go beyond transportation such as road safety and the

should always be prioritized over cutting ribbons. “We believe

prevention of gender-based violence in public transportation,”

that those who plan and lay the first stone are those who are

says López, proving that the bank’s participation impacts

remembered in the long run.”

much more than just public transportation.

349

VEHICLE SPOTLIGHT

350

FERRARI 488 SPIDER Conceived in the Ferrari Design Centre, Ferrari has delivered its latest V8, convertible model from the well-known Spider architecture. The 488 Spider sports a radical design that highlights its aerodynamic capabilities, while framing the pleasure of drop-top driving. This model features a retractable hard top, following in the footsteps of the 458 Spider, the first ever vehicle with a mid-rear engine. Ferrari made it a priority to minimize resistance while maximizing the aerodynamic load in the 488 Spider. Though opposed, Ferrariâ&#x20AC;&#x2122;s engineers managed to bring together both concepts, resulting in an aerodynamic efficiency of 1.53, a record for a Spider Ferrari.

The Ferrari 488 Spider has an aerodynamic efficiency of 1.53 351

The 488 Spider was designed according to Ferrariâ&#x20AC;&#x2122;s Formula 1-inspired philosophy that places particular importance on the interaction between car and driver. Most controls are embedded in the steering wheel while the rest are distributed around it. The light and compact dashboard is also curved around the cockpit, featuring ultra-sport air vents. The heart of the 488 Spider is a turbocharged V8 engine of 3902cc that has become a technological reference in the industry due to its advanced architecture. Its power capabilities reach 670CV at 8,000rpm with a maximum torque of 760Nm at 6,750rpm. The engine is connected to a double-clutch, seven-gear F1 transmission, allowing the Ferrari to reach a top speed of 325km/h. The car can go from 0 to 100km/h in just 3s and from 0 to 200km/h in 8.7s with a progressive torque controlled by its Variable Torque Management system combined with specific gear ratios. The 488 Spider has a fuel consumption of 11.4 l/100km and average emissions of 260g CO2/km. With such power output, Ferrari had to make sure the 488 Spider could be easily maneuvered. With its Brembo Extreme Design braking system, the vehicle can brake at a 9-percent shorter distance compared with the 458 Spider. The company also perfected the pairing between the carâ&#x20AC;&#x2122;s mechanical configuration with its electronic systems, including an advanced version of its side slip control or SSC2 with a 12-percent faster longitudinal acceleration output. As a result, the 488 Spider has an average response time that is 9-percent faster than its predecessor.

VIEW FROM THE TOP

INDUSTRIAL OPPORTUNITY FOR PROPERTY MANAGEMENT SALVADOR MAGAÑA CEO of PARQMEX Industrial Development

Q: How does the automotive sector fit in PARQMEX’s

and private equity investment management. We decided

development strategy?

to vertically integrate ALIGNMEX as our investment

A: We cannot talk about the automotive industry without

fund management holding company and PARQMEX as a

talking about the Bajio region, especially Guanajuato and San

development subsidiary. This allows us to participate in

Luis Potosi. Before 2009, the country focused on industrial

the entire infrastructure development process, aligning

developments in the north of the country to satisfy the

interests with capital investors and optimizing cost and

needs of the US market. After the 2009 financial crisis, there

time variables to reflect higher profit margins.

was a shift in manufacturing activities all around the world 352

and companies started to look toward the Bajio region. In

As PARQMEX, we are now focused on industrial projects

the last three years, three new OEMs have established in

with a localized strategy and a presence in central Mexico,

Guanajuato within a 30-minute driving radius. Honda and

the Bajio region and the metropolitan area. This region

Mazda are already manufacturing their vehicles and Toyota is

offered clear advantages in terms of logistics, market

expected to start operations in 2019, so there is an enormous

demand, human capital and infrastructure. There are several

opportunity to target these companies’ suppliers. In San

universities that focus on the main manufacturing sectors,

Luis Potosi, BMW announced large investments in two new

and the entire area is interconnected by roads and two

plants to be built by 2019. Suppliers finalize their contracts

main railway systems. These are managed by Ferromex and

approximately three years before they begin operations

Kansas City Southern running from north to south and from

so many industrial-space clients are looking for a potential

east to west. The Bajio region is well-protected against most

location for their future investment right now.

natural disasters, which is relevant to time-sensitive and complex manufacturing processes.

The automotive industry is based on productivity and efficiency so any disruption to the process might result in

These benefits have attracted investors looking for high-

gaps in just-in-time and just-in-sequence operations. The

quality industrial spaces. Approximately 7 million m2 of class-A

government and private rail companies have announced

industrial space exists in Mexico City. Chicago, the second-

investments in rail infrastructure that will increase capacity

most important industrial market in the US, has 100 million

by 30-40 percent, while port capacity will also be doubled

m2 and a population of 10 million people in the metropolitan

in Mexico. The automotive sector is one of the main users

area. Meanwhile, Mexico’s 7 million m2 are distributed among

of these services so its growth will contribute to the

approximately 22 million people. There is an enormous

continuous development of manufacturing and export

disparity. With this analysis in mind, we developed a business

operations. We must provide strong foundations for the

model to address the most pressing needs in important

sector with proper industrial infrastructure.

industries like automotive, aerospace and e-commerce. Our system is based on modular developments of between four

Q: What opportunities did ALIGNMEX detect in the real

and 10 industrial buildings, gated with control access, focused

estate sector in Mexico to create PARQMEX?

on providing service and quality at an affordable price. The

A: ALIGNMEX’s professionals have years of experience

model gives us enough control of our operations and costs,

in the real estate sector, both in industrial development

while offering the best service to our tenants. Q: As the Bajio area continues its industrial expansion,

PARQMEX is the industrial development arm of the Mexican

what challenges are likely to arise in offering competitive

ALIGNMEX Real Estate Capital. It develops high-quality

infrastructure?

distribution warehouses and light manufacturing facilities in

A: Understanding our clients and the main areas of

Mexico to lease to corporate tenants

opportunity led us to detect, particularly in the automotive

and aerospace industries, that one of the most important

A: With our limited space per project, we can define a

factors is human capital. For that reason, our entire portfolio

specific timeframe for the entire process from construction

is located in regions with a strong labor base. We also

to 100-percent occupancy in approximately five years.

emphasize land that is close to main highways and accessible

Our first project is Celaya on a land parcel of 20ha and

to transportation services like railways or airports. Proper

approximately 102,000m2 of leasable space. Although we

infrastructure must include accessibility to services like water,

have more projects at different stages of development, this

electricity and natural gas. The country keeps developing so

is our most advanced venture and we already handed over

we must protect our clients from a lack of infrastructure or

the first building of over 30,000m2 in 1Q17.

services. Our expertise in regulations and permits needed for infrastructure developments provides an added advantage

Q: As the real estate sector is so dependent on domestic

for our clients. As long as they keep producing in a profitable

and foreign investment, how have your projections been

way, we can consider our objective fulfilled.

affected by decisions in the US? A: There might be some uncertainty regarding the change

Q: How does PARQMEX compete with other developers

in the US’ administration but Mexico’s supply chain is so

that look for the same advantages in their portfolio?

integrated into the global market that it will remain a strong

A: They work with a local company with a global reach.

manufacturing platform. The peso’s depreciation will result in

Our biggest strength is our focused strategy regarding our

more savings for international players. Added to commercial

location and our business model. Some developers buy and

partnerships with more than 40 countries, this only boosts

resell land, while others acquire old buildings and remodel

the opportunities for manufacturing and logistics companies.

them. Meanwhile, we have a clear strategy oriented to modular developments and building new Class-A industrial space.

When we made the decision to focus on the Bajio region, we

PARQMEX builds to lease finalized parks, keeping quality and

detected an enormous investment coming not only from the

good service in mind. Our regional focus keeps us close to our

US but Europe and Asia. These companies have a long-term

clients to provide a timely response in case of any problem

commitment to Mexico thanks to our commitment in turn to

our tenants might face. Security is one of our main concerns

free-trade agreements with many countries, so they will not

and wherever the client is located in one of our parks, they

go anywhere. The markets are volatile and the main lesson

will get the best service and infrastructure we can offer. Since

we have learnt from previous challenges is that we can always

our offering is limited and completely standardized, we can

bounce back after stumbling. The automotive industry is now

keep offering quality at competitive prices. Our developments

one of the main engines of the Mexican economy despite

are between 20ha and 40ha for each industrial cluster, which

taking a hit in 2009. Similarly, the aerospace industry is now

means we know exactly how much PARQMEX is going to

taking off and the country is gradually transforming to address

invest during the construction phase, where the entrances

new requirements. Real estate is a long-term investment and

are going to be located and how much the clients will pay for

we do not see the country changing its manufacturer status

their space and property-management services.

any time soon. Mexico is stable economically and politically, allowing for a free exchange in monetary resources. The

Q: How successful has PARQMEX’s model been and what are

country understands the need for competitiveness and

the company’s occupancy expectations for the near future?

investment will come based on economic decisions.

353

ANALYSIS

CHINA MAKES INROADS INTO MEXICAN MARKET, WANTS MORE NAFTA renegotiations have spurred Mexico to look at other markets for growth and China appears to fit the bill. China is eager to expand its global footprint — and its image. Mostly regarded as a low-quality source of both vehicles and auto parts, China’s latest ventures into Mexico are shifting the industry’s perspective As the “Three Amigos” — Mexico, Canada and the US —

Even after TPP negotiations fell through, there were

begin the work of modernizing NAFTA, another economic

discussions about creating a new agreement without the

powerhouse is letting it be known that it could also be a

US and including China.

good friend to Mexico. China, the world’s second-largest economy behind the US, is making a play for a larger

China’s main challenge in Mexico is overcoming the shoddy

share of the Mexican auto market and turning heads in the

image of its brand. Particularly in the aftermarket, low-

process. Often viewed as a producer of low-quality goods,

quality Chinese products have had a negative impact on the

the Asian dynamo is rapidly changing its image and making

development of a price competitive market. Eugenio Bergeyre,

inroads in a market dominated by the US.

National Sales and Service Manager of Haldex Products de México says, “tires imported from unofficial suppliers can cost

354

In just a few years, China has dramatically expanded its

between US$150 or US$300 dollars, which is much lower than

presence in the Mexican market. It is Mexico’s second-

the commercial price of a quality product.”

leading supplier of imports, with an 18 percent share, according to data from the US Congressional Research

Chinese players are now playing a different game, however,

Service. It also enjoys a trade surplus with the country,

latching onto advanced technologies and international

unlike the US. According to Mexico’s central bank, Banxico,

standards that has companies gradually changing their

the country’s trade deficit with China totaled US$30.3

previous views of the “Made In China” brand. “Standards in

billion between January and June 2017. In a July 2017

(Chinese) brands were much lower than any other competitor

interview with Xinhua News Agency, Francisco Gonzalez,

in the market but I believe that has changed,” says Carlos

Director General of Bancomext, said trade between the

López de Nava, Director General of Grupo Alden. “Chinese

two countries was expected to hit US$70 billion in 2017, an

companies are getting rid of their stigma for copying

increase of 9 percent from 2016. González also highlighted

technology and the way they are perceived is changing.”

the opportunities to grow in the Chinese market, saying that

Companies like Fast Autopartes and Blue Side have found

“exports to China represent barely 2 percent of Mexico’s

reliable partners in Chinese companies, ensuring reduced

total exports while the US maintains a share of 80 percent.”

costs without compromising quality. China, also, is taking its own steps to ensure growth in the North American region

According to the Ministry of Economy, figures from 2015 show

and, regardless of the outcome of NAFTA negotiations, the

imports of auto parts from the US to Mexico totaled US$19.8

country is becoming a stronger presence.

billion and US$4.0 billion in assembled vehicles, while Mexico’s exports to the US totaled US$46.0 billion in auto parts and

Branching out from the auto parts segment, the country has

US$49.3 billion in assembled vehicles. China, however, is

now exported two of its light-vehicle brands to Mexico. Chinese

already a significant player in Mexico’s aftermarket with

BAIC and JAC have partnered with Chinese heavy-vehicle

ambitions to do more. According to Óscar Albin, Executive

manufacturers that have a local presence, as well as with local

President of INA, 40 percent of the components used in

players Grupo Picacho and Grupo Inbursa, respectively, in an

the national aftermarket are imported, mainly from China.

effort to target Mexico’s domestic market and Latin America,

If according to Alejandro Calderón, President of ARIDRA,

with the ultimate goal of penetrating the US. A previous effort

Mexico’s aftermarket consumption accounts for US$18 billion.

by Chinese OEM FAW left only bad memories in the Mexican

This would mean that China represents approximately US$7.2

market but BAIC and JAC are pulling all the stops to show

billion in aftermarket imports alone.

their commitment to the country. “We determined that we needed a formal distribution channel to properly target the

Although very few pundits expect the US to leave NAFTA,

Mexican market, just like other international OEMs,” says

the talks have awoken Mexico to the need to diversify. With

Patrick Yang, Director General of BAIC de México. “We are

an established footprint in the country, China could be the

trying to use as many resources as we can from international

biggest beneficiary, since both Mexico and Canada have

companies to build our own strengths and advantages. Right

shown willingness to open more trade with the country.

now, we are in Mexico and we are a Mexican company as well.”

INSIGHT

SOFT LANDING FOR COMPANIES IN MONTERREY MAURICIO GARZA CEO of Interpuerto Monterrey

Although OEMs like Audi and Kia have shown a willingness to

The park is also combatting one of the industry’s main

invest in their locations, Mauricio Garza, CEO of Interpuerto

concerns: customs operations. Several logistics providers

Monterrey, says automotive suppliers now look for turn-key

including Hellmann and UPS say customs is among the

solutions that can provide a soft landing in a new country.

processes with the most opportunity to increase Mexico’s competitiveness as a logistics hub. Garza has created a

Nuevo Leon is already one of Mexico’s automotive hubs

development plan to address this. “Most of our clients are

along with states like Guanajuato and Queretaro and

importers and exporters, so an internal customs agency

according to Garza, “Monterrey is in a privileged position

would be a crucial advantage for us,” he says. Garza’s three-

right in the heart of the NAFTA market.” After Kia’s

stage program for Interpuerto Monterrey places a customs

manufacturing operations arrived in the state, many new

office at the top of the list, which must follow the Customs

suppliers started looking for the perfect site to establish

Technologic Integration Project (PITA) established by the

facilities. This created an opportunity for Interpuerto

federal government. This initiative seeks to automatize

Monterrey. Located in the Salinas Victoria municipality and

and expedite customs operations for products entering or

only an hour away from Monterrey’s city center, the park

leaving the country. “We finalized the details in July 2017 and

offered an advantageous position for companies wanting

we expect to deliver the facilities to the Tax Administration

to supply both the domestic market and the NAFTA region.

Service (SAT) by the end of 2017,” says Garza.

A two-hour drive is the only thing separating Interpuerto

In the medium term, Garza wants to make the park a free-trade

Monterrey from the nearest crossing to the US. If companies

zone (FTZ). According to the latest regulations established by

choose to source or work with companies in the Bajio

President Enrique Peña Nieto’s administration and SAT, parks

instead, they have direct access to the highway. Interpuerto

no longer require a minimal square footage to become an FTZ,

Monterrey also offers strong rail connectivity with both

they can be built in modules. Companies cleared under FTZ’s

Kansas City Southern and Ferromex lines passing right next

regulations can obtain benefits such as longer authorizations

to the park, which is rare given the limited rail infrastructure

for temporary import of up to 24 months for products entering

in the country. Garza is promoting the use of rail as a cost-

the supply chain. These advantages have made FTZs an

efficient solution for imports and exports. “Mexican logistics

attractive solution for recurrent importers and exporters. “We

are almost twice as costly as in other developed countries,”

are advancing with this project along with potential clients

he says. “But rail is an attractive option for investors when

that might use this service because companies have to be

comparing volume and shipment costs.”

certified to apply for free-trade conditions,” explains Garza.

“Interpuerto Monterrey can offer multimodal solutions to

Interpuerto Monterrey’s long-term initiative is to establish

fit clients’ specific needs,” says Garza, who does not want

a binational customs office between Mexico and the US.

to rely solely on its accessibility to promote Interpuerto

This would allow cargo to come directly to Interpuerto

Monterrey’s market position. The park has developed its

Monterrey without stopping at the border, pre-validated

service offering to the point of becoming a partner in real-

by customs agents from the US. Garza expects both its

estate solutions. “We can sell lots to clients so they can

customs and real-estate solutions to help Interpuerto

build their plants with any developer of their choosing, we

Monterrey have a clear service offering that can satisfy

can build their plants according to the clients’ specifications

its clients current and future needs. Even in its early stages,

and lease them or build the plant and sell it to companies

Interpuerto Monterrey already appeals to investors in

once finished, or develop speculative buildings and lease

the state of Nuevo Leon and Garza says both the state

them to tenants. In other words, we are a real-estate

and the municipal governments are using the park as an

solution company,” he says.

investment promotion tool.

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VIEW FROM THE TOP

PLETHORA OF SERVICES, AMENITIES KEY TO ATTRACTING PARK TENANTS MICHELE PORRINO Executive Director of WTC Industrial San Luis Potosi (WTC-SLP)

Q: What is WTC-SLP’s occupancy percentage and which

Queretaro is a competing region but one of its weaknesses

industries dominate the company’s facilities in San Luis

is air connectivity. San Luis Potosi’s airport is more practical,

Potosi?

with several daily flights to Houston, Dallas, Cancun and

A: WTC-SLP comprises two industrial parks: WTC1 and

Mexico City. The metropolitan area in which we operate is

WTC2. In the former we are at 93 percent occupancy and

peaceful. A study published by the Mexican Institute for

are closing negotiations to reach full occupancy in 2017.

Competitiveness (IMCO) in 2016 also ranked San Luis Potosi

We have already started signing contracts with companies

as one of the safest cities in Mexico.

that want to operate in WTC2. A commercial zone, an office 356

building and a hotel are among the in-park amenities that

Q: What are the challenges of operating in WTC-SLP and

attracted clients to our first park and we want to replicate

how is the state government supporting the automotive

those amenities in the second. We are also exploring

industry?

outside of San Luis Potosi and we built an industrial unit

A: The current road infrastructure struggles to cope with

for an important client in San Jose Iturbide, Guanajuato.

the consequences of exponential regional growth but local authorities are addressing that. We may participate

About 70 percent of our clients belong to the automotive

in a tender to build an alternative road to Highway 57 that

industry. WTC-SLP works closely with San Luis Potosi’s

would lead to the industrial zone and alleviate traffic. A

automotive cluster and ProMéxico’s offices. Our company

deficient public transportation system can harm employee

supports the automotive industry and vice versa, so the

mobility so companies need to invest in transportation for

more automotive companies there are in an area, the more

workers from residential areas who often depend on public

attractive the area becomes because suppliers are so close.

transportation to commute to WTC-SLP.

Still, although the automotive industry is very important for the company, we cannot depend on it. Therefore, we are also

Q: What is WTC-SLP doing to attract OEMs and what are

trying to attract businesses from a variety of sectors, mainly

your growth expectations for 2017?

chemical, electrical appliances and fuel-related companies.

A: 2015 and 2016 were years of spectacular growth after

The size of WTC2 enables us to divide the park by sector.

Ford announced a new plant in San Luis Potosi in 2015. This accelerated all our projects. We started 2017 with a promising

Q: What are the advantages of operating in WTC-SLP?

outlook, but on Jan. 5, Ford canceled its plans. That was a

A: We are interested in FDI coming to Mexico, specifically

shocking moment for WTC-SLP. Many of our clients put their

to WTC-SLP, so we promote our parks’ provision of services

expansion plans on hold and some canceled outright. This

such as natural gas, water and electricity. The state has

negatively impacted WTC-SLP initially but ultimately had

a young population, which means the area offers a well-

a positive effect because the worldwide media attention

prepared, competitive workforce that never goes on strike.

was the equivalent of free global advertising for us. There

We also benefit from having a strategic fiscal precinct that

are OEMs that are now interested in the location Ford

aims to reduce operational costs. The park has the largest

relinquished. If anyone decides to settle in Ford’s vacated

intermodal logistics terminal in Mexico, in-house customs

space it will occur at the beginning of 2018. I think growth will

services and amenities that include our commercial zone.

return to previous levels by 2018 as well. We will spend 2017 consolidating our growth and commercializing our parks, although not at the same rate as previous years. Our original

WTC-SLP is the logistics development property of real-estate

plan was to commercialize WTC1 until 2020 and start with

giant Grupo Valoran. It comprises two industrial parks: WTC1

WTC2 in 2022 but Ford’s initial investment accelerated our

and WTC2, a strategic fiscal precinct, customs agency and

projects. We will start commercializing WTC2 this year and

intermodal terminal

complete the first park by the end of 2017.

VIEW FROM THE TOP

SHELTER EXPERT SEEKS GROWTH THROUGH EXPANSION, DIVERSIFICATION ALEJANDRO LARA Director General of American Industries

Q: What advantages does American Industries offer the

market. We have land reserves in some of the best industrial

Mexican market?

regions in Mexico and a strong financial backbone with

A: We rely on the strength of our ISO 9001 2015-certified

some of the most respectable sources of capital globally.

services portfolio. Our Oracle-based IT platform and our experienced personnel have also proven an advantage

Q: Overall, what are your growth projections for American

that clients appreciate. We believe there is no one in the

Industries in 2017 based on your results from 2016?

market able to ensure the success of manufacturing clients

A: We expect to reach 15 percent growth in the number of

starting operations in Mexico the way American Industries

projects we manage thanks to the strong development in all

is positioned to do.

automotive regions. We have positive growth expectations for the industry, although we would also like to offer our

Q: How are you dealing with the lack of human talent,

professional services to other sectors such as IT or possibly

particularly in highly industrial areas such as the north and

the agro sector. We would also like to serve national

the Bajio?

companies with an international presence, rather than just

A: We recommend that our clients be creative in rewarding

foreign multinationals.

the loyalty of Mexican workers. Companies must build effective communications with their associates and of course, offer a competitive salary and benefits package, coupled with a strong career-development plan. Because shelter services are part of our core business, American Industries can offer its experience with our more than 50

American Industries expects 15 percent growth in the number of projects it manages

corporate clients in human-capital management and how to deal with talent attraction and retention challenges.

Q: What effect has economic and politic uncertainty had for shelter services?

Q: With the arrival of Mercedes-Benz to Aguascalientes,

A: We believe it has created some delay on investment

BMW to San Luis Potosi and Audi to Puebla, what are your

decisions from some companies. Nevertheless, Mexicoâ&#x20AC;&#x2122;s

plans to expand your shelter services into these states?

competitive advantages are still recognized and we believe

A: We are currently planning an expansion to San Luis

companies are aware that the country can contribute in

Potosi. We are supporting a soon-to-be-announced

a very positive way to the overall health of the North-

project of over 200 employees in that region. We are open

American productive economy. Our general expectation

to support companies in Aguascalientes from our nearby

is that NAFTAâ&#x20AC;&#x2122;s renegotiation will be constructive and

operation centers in Guadalajara or Leon in the short term.

will make the North-American economy stronger than

That being said, we have an open mind and we are not

before. We can even see that expectation reflected in the

closed to the possibility of opening a new operations center

foreign-exchange markets. Nevertheless, negotiations can

in Aguascalientes.

be filled with some drama. But, overall, we believe in the competitiveness of the Mexican workforce and production

Q: How attractive has your real estate portfolio been

infrastructure.

compared to your shelter operations? A: Real estate has been equally attractive. We have premier locations for shelter and real estate in most

American Industries is a shelter and real-estate services

major automotive clusters such as Guanajuato, Queretaro,

provider with more than 40 years of experience in the Mexican

Chihuahua, Nuevo Leon, Jalisco and San Luis Potosi. We are

market. The company has helped over 200 manufacturing

a flexible player with significant experience in the real estate

companies establish their operations in Mexico

357

Durango-Mazatlan highway, Grupo Hermes

THE ROAD AHEAD

Global developments will always impact Mexico’s development both as a manufacturer and a consumer. Even though truly disruptive changes like automated driving and other mobility alternatives might take a while to reach the market, they will eventually permeate the industry and its participants. Mexico is already feeling the impact of a mobility-oriented culture and the effects that technology integration will have on the country’s production activities.

The Road Ahead is Mexico Automotive Review 2017’s final chapter and an overall conclusion regarding automotive trends and practices that will define the country’s and the industry’s future. This section analyzes the feasibility of these trends reaching the Mexican market in the near future and the country’s position against other international markets. Expert opinions from consultants, lawyers and industry leaders are featured to illustrate a global insight on what executives think will be the next step for the national automotive market.

359

CHAPTER 14: STATE OF THE INDUSTRY 362

ANALYSIS: Autonomy Almost a Reality

363

VIEW FROM THE TOP: Guillermo Prieto, AMDA

364

VIEW FROM THE TOP: Arturo Zapata, Corporación Zapata

365

VIEW FROM THE TOP: Andrés Lerch, EY

366

VIEW FROM THE TOP: Juan Francisco Torres Landa, Hogan Lovells BSTL

367

VIEW FROM THE TOP: Manuel Nieblas, Deloitte Mexico

Alberto Torrijos, Deloitte Consulting Group

368

ROUNDTABLE: What Future Do You See for Alternative Powertrain Technologies?

370

VEHICLE SPOTLIGHT: Mercedes-Benz EQ

361

ANALYSIS

AUTONOMY ALMOST A REALITY While the integration of connectivity and digital features have made vehicles safer and better-performing, the integration of these technologies has one ultimate goal: to make self-driving vehicles a reality in the not-so-distant future. The technology exists, the only question is when it will be implemented

362

The industry is not that far from full autonomy. Semi-

highway markings. In case of wanting to change lanes or

autonomous features are becoming a common feature in

exit the highway, the driver had to take back control of the

consumer brands, mainly due to the safety advantages these

vehicle. Tesla has now upgraded its Autopilot software and

technologies offer. Lane-keeping assist systems are among

the driver’s involvement is practically unnecessary in highway

the common examples. In its most basic functionality, entry

scenarios. Autopilot can now switch lanes at will and exit main

models already include this technology, which acoustically

roads without assistance. The driver needs to intervene only

alerts the driver when the vehicle starts straying into another

when entering secondary roads. The company is confident

lane. Premium and luxury models feature an advanced version

that its technology can perform well-enough to ensure full-

that actively prevents the driver from changing lanes without

autonomous functionality under almost every condition.

using the vehicle’s signal lights. This entails a certain amount

However, according to Tesla’s webpage, the implementation

of control over the steering system, which was previously

of such advanced technology will depend on regulations

reserved solely for the driver.

established by federal governments.

Autonomous technology can be a viable option for Mexico. However, without a smart-city infrastructure … any effort will be worthless”

Industry experts agree that technology is not what limits

“

Andrés Lerch, Advisory Partner and Leader of the Operations Transformation Area at EY Mexico’s Automotive Center

the evolution of self-driving cars. “If you run over a person or you have an accident while in a self-driving vehicle, who is at fault: the driver, the manufacturer or the insurer?” asks Andrés Lerch, Advisory Partner and Leader of the Operations Transformation Area at EY Mexico’s Automotive Center. “The technology is ready but the problem is deciding how it should be regulated.” The difficulty with these technologies is that they are not a single company’s effort but the combination of different technologies that in the end, will be self-controlled. Today, insurance companies know who is at fault in a collision and if there is a malfunction in the car, the component can be traced back to its original manufacturer. Software and artificial intelligence applications are more difficult to control. On the

Technology is rapidly advancing and even emergency braking-

one hand, if drivers are not in control of the vehicle, how can

assist technologies have made their way to the consumer

they be blamed for something it did, even when they own

market. Depending on the conditions, these systems either

the car? On the other hand, who is to blame for a system

alert the driver when there is danger of a collision or take over

malfunction: the developer, the company who implemented

the braking system and reduce the vehicle’s speed to diminish

it or the OEM that assembled the vehicle?

the effects of an imminent impact. The combination of these technology platforms has allowed OEMs to delve further into

The US is leading the charge in the implementation of laws

self-driving applications.

and regulations focused on autonomous vehicles. According to the National Conference of State Legislatures, 33 US states

Tesla is now the poster company for semi-autonomous

introduced legislation focused on autonomous vehicles in

vehicles already available on the market. According to the

2017 and so far, 20 states have passed legislation, including

company, every vehicle produced by Tesla has the necessary

Nevada, which was the first state to authorize tests of self-

hardware for self-driving. This includes the Model 3, Tesla’s

driving vehicles in 2011.

newest and least expensive model at only US$35,000. With Autopilot, the company became the first market brand to

There is still a long way to go for autonomous vehicles and

offer an advanced degree of autonomy in its vehicles. In its

according to Lerch, Mexico’s time will come even further down

first version, Autopilot allowed the driver to relinquish control

the line. “Autonomous technology can be a viable option

of the vehicle to the software, which could control the car’s

for Mexico. However, without a smart-city infrastructure to

speed depending on traffic conditions and steer following

support connected cars, any effort will be worthless,” he says.

VIEW FROM THE TOP

WHAT THE FUTURE HOLDS FOR THE DOMESTIC MARKET GUILLERMO PRIETO Executive President of AMDA

Q: What role has financing played in the industry’s

are states growing well above the average of 6 percent,

development and what are your projections for 2017?

almost at 50 percent. But others are showing negative

A: Financing has been crucial for the development of the

growth rates, so reaching 11 percent growth would be

domestic market and will continue to be important for

difficult but not impossible.

Mexico to reach its true sales potential. Payment terms are becoming longer and interest rates remain competitive

The worst situation for the industry would be a decrease in

despite increased inflation. These conditions have been

sales of approximately 17 percent. This would be the case

favorable for the market and OEM financing arms are

if the US pulls out of the NAFTA agreement and refuses to

seeking funds to offer attractive solutions to clients.

comply with World Trade Organization’s regulations. But if

Carmakers’ financing branches now have a share of

sales dropped, we would simply go back to the results we

approximately 70 percent of the market. At the end of 2016,

saw in 2015 of approximately 1.3 million vehicles sold.

67 percent of all new vehicles were sold through financing and early numbers for 2017 show that by March, 71 percent

Q: Based on 2016’s results and your forecast for 2017, what

of the cars sold in Mexico were bought with a loan.

trends do you expect for the domestic market to 2020? A: Considering 1.6 million vehicles as the baseline for the

Q: What future do you see for the industry, despite economic

industry’s growth, the domestic market might reach around

and political uncertainty between Mexico and the US?

2.2 million vehicles sold by 2020 if three conditions are met.

A: Even though companies are gradually increasing

First, the industry must maintain its momentum so we can

their prices, price-tag adjustments have been moderate

reach 85 percent of new vehicle sales with financing, to

to maintain competitiveness. Margins for automakers

sell an extra 250,000 units. Second, if used vehicle imports

and distributors dropped considerably when the dollar

coming from the US remain capped at a limit of 110,00-

surpassed the MX$20 mark and interest rates skyrocketed

115,000 per year, we could add 200,000 more units to the

after the Interbank Equilibrium Interest Rate (TIIE) increased

new vehicle sales results. Imports decreased by 18 percent

to 6.8 percent. Both OEMs and distributors had to find a

in 2016 and norms regulating vehicle imports keep evolving.

way to reduce costs without risking the relationship with

Unfortunately, they are not as clear as we would like them

the customer. But price increases have now combined with

to be. But the Tax Administration Service has a positive

a 12-13 percent appreciation of the peso against the dollar,

perspective on the results these changes might bring.

giving companies more room to breathe. Although the end of 2016 and the beginning of 2017 were turbulent times

The third condition is related to Mexico’s economic growth.

for the industry, uncertainty has subsided. Considering

The automotive industry is directly connected to the country’s

the market’s development, we can imagine three possible

overall economic performance and in every crisis, the sector

scenarios for Mexico’s automotive market in the near future.

has suffered. Since automotive has been identified as a driver for Mexico’s development, the government has taken steps to

The most plausible and conservative outcome would be for

strengthen its operations. If the structural reforms take effect

the market to reach the 1.7-million mark in sales by the end

and the country reaches an annual growth rate of 3 percent

of 2017, which would represent an increase of 6 percent

starting in 2019, we could sell an extra 200,000 vehicles.

compared to 2016’s figures. This target is contingent on a careful and healthy renegotiation of the NAFTA agreement. The

Mexican

Association

Automotive

Distributors

The most optimistic outlook would be 11 percent industry

(AMDA) was founded in 1945 and it now represents over

growth. Some brands can barely cope with the high demand

1,800 distributors and dealerships located in more than 210

for their vehicles and regarding regional development, there

cities in Mexico

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VIEW FROM THE TOP

HOW WILL TECHNOLOGY CHANGE THE INDUSTRY? ARTURO ZAPATA President of Corporación Zapata

364

Q: How soon can electric vehicles become a relevant player

Q: What other trends have you detected that could

in the automotive market?

potentially pose a threat to your business model?

A: All new automobiles sold 10 years from now will be

A: Vehicle ownership will be threatened as technology

electric but I would dare say it will be even sooner than that.

develops, especially if we add autonomy to the equation.

Combustion engines are extremely inefficient, as only 35 to

In fact, we are already detecting a change in the market as

37 percent of the fuel’s potential energy is transformed into

new generations are choosing not to buy a car. The shared

kinetic energy, while the other 63 to 65 percent is released

economy concept is now a crucial element of mobility. Uber

into the atmosphere as heat and gases. An electric motor

is a pervasive alternative and Mexico City has become the

is lighter, smaller, encased, does not overheat and has an

single largest market for the company. On-demand driver

efficiency of approximately 70 percent. The only thing

alternatives do not require any special infrastructure or

holding back the transition between these two technologies

added investment from governments and self-driving

is battery development. Current battery technology is still

technology will only add to their efficiency.

similar to that available 15 years ago, which means that cars are essentially powered by a pack of cell-phone batteries,

Of course, there will always be people who want to own

which represents almost 30 percent of their total cost.

a car. The advantage may be that instead of buying two or three cars for every family, you will only need one self-

We made a significant investment about 10 years ago in

driving car that adapts to everyone’s schedule. Vehicles

a battery development technology that was theoretically

will become extremely efficient and they will extend their

brilliant. Unfortunately for us, the technology proved to be no

usefulness by avoiding being parked most of the day. I

more than just beautiful theory. That being said, this is only

expect autonomous technology to become accepted and

one of hundreds of similar theories being or already tested.

prevalent within the next five to eight years.

The objective is to be able to store energy in significant amounts and at lower costs. For now, electric vehicles remain

Q: How easy will it be for self-driving technology to enter

a luxury, targeting people who can afford them.

the logistics and transportation segment? A: There are laws and mindsets that need to change before

Q: How will electric vehicles impact the traditional

self-driving technology can fully permeate the heavy-

dealership business?

vehicle industry. If a car hits another on the way to pick

A: Our current distribution model is sustained on two pillars:

someone up, it is an inconvenience. But, if a truck without a

income from new car sales and income from auto parts,

driver hits another vehicle, the magnitude of impact, linked

maintenance and repair services. Electric vehicles require

to the fact the vehicle is owned by a corporation looking

much less maintenance and body work aside, vehicles

to reduce costs, could result in substantial liability issues.

would only need to replace brake pads, tires and lubricants for the first three to six years. Maintenance technology

Q: To what extent will technology developers participate

is also evolving and now most failures can be detected

in the evolution of the self-driving car?

through the car’s own computer. As sales become more

A: Integration will change the relationship between

digital, the current distribution model will have to evolve.

carmakers and technology developers similar to how computers are now sold. Previously, consumers chose a certain PC manufacturer because of the reliability the

Corporación Zapata is a conglomerate of companies with

equipment could offer but today we all choose them based

more than 57 years of experience in the vehicle dealership

on their operating system. The technology developers’ role

sector. The company operates in over 12 cities in Mexico and

in the adoption of self-driving technology and the design

manages brands such as Ford, Mazda and Mercedes-Benz

of new vehicles will be crucial in the future.

VIEW FROM THE TOP

TECHNOLOGY GAP NOT A RISK AT THE MOMENT ANDRÉS LERCH Advisory Partner and Leader of the Operations Transformation Area at EY Mexico’s Automotive Center

Q: What factors will help Mexico rise to sixth place globally

A: The local branches of global companies established

for light vehicle production and when will this happen?

in Mexico cannot decide which technologies they will

A: That will likely not happen in 2017. Mexico could be

integrate into their manufacturing or sales processes.

the sixth-largest automaker, overtaking India, but many

Those are corporate decisions that are made at company

factors must first fall into place. Uncertainty between

headquarters in Japan, Germany or the US.

Mexico and the US must be eliminated. US President Trump’s politics might be less aggressive now but they are

In the next five years the automotive industry will change

a constant source of uncertainty. Some OEMs are taking

more than in the last 25 years. Powertrain technology will

their investments to other countries, which in the end

evolve from internal combustion to hybrid and electric

might result in less investment in Mexico. The domestic

systems and although electric cars will never make up

market must also expand to boost Mexico’s manufacturing

100 percent of the global vehicle park, we think they will

capabilities. Both 2017 and 2018 will be difficult years due

represent 30 percent of it in about 15 years. Companies will

to Mexico’s presidential elections. Periods such as this

gradually integrate autonomous and self-driving solutions

normally generate much uncertainty, which keeps people

into their portfolios. The evolution of this technology will

from buying new vehicles. Our forecast is that Mexico will

depend on how regulations and infrastructure evolve,

take India’s place in the automotive manufacturing rankings

together with incentives from the government. According

between 2018 and 2019.

to an EY survey, local C-level executives recognize that these changes are coming but they do not know when or

Q: How tangible is the risk of Mexico losing its competitive

how to capitalize on them.

edge against other manufacturing hubs? A: The risk is always there. Though we normally focus

Q: How do you expect new trends such as connectivity and

on currency volatility, we must also consider changes in

autonomy to shape the future of the industry?

consumer preferences. Companies make huge investments

A: Autonomous technology can be a viable option for

in a certain brand or vehicle model but if clients start losing

Mexico. However, without a Smart-City infrastructure to

interest, the project might lose its value. As a country, the

support connected cars, any effort will be worthless. I

risk is that vehicles produced in Mexico suddenly lose

expect this technology will first permeate small Mexican

ground in the international market, particularly in the US,

cities and small areas of larger cities where pilot programs

which is our biggest export destination.

can be implemented. We are currently proposing a mobility plan in Santa Fe to test how we can take advantage of

However, I do not see a significant number of companies

digitalization and the city’s infrastructure. We intend to

exiting the country in the short term because the cost-

promote carpooling between neighbors and local workers

benefit ratio does not justify that. It is one thing to relocate

while enticing companies to implement staggered working

an investment that has not been finalized and another to

hours. This would reduce traffic and alleviate people’s stress

expatriate an entire project. For the time being, labor costs

levels. We are developing this initiative with the private

and Mexico’s other advantages outweigh the country’s lack

sector, the government and the schools in the area, forming

of manufacturing technology. Yet, sooner or later, OEMs will

an advisory council that can align the priorities of each

want to increase their productivity and that will create new complications for Mexico. Robotization could become a real threat for many direct jobs.

EY (formerly Ernst & Young) is a globally integrated professional services organization. The firm was created in

Q: According to EY, companies are ill-prepared to face

1989 after the merger of two consulting firms and is currently

technological disruption. Where does that leave Mexico?

headquartered in London

365

VIEW FROM THE TOP

EFFICIENCY, R&D TO DETERMINE PROFITABILITY JUAN FRANCISCO TORRES LANDA Partner at Hogan Lovells BSTL

366

Q: How could the economic environment encourage new

We will see more changes in the automotive industry within

mergers between large automakers?

the next five years than we have seen in the last century.

A: Consolidation in the industry is possible and has existed

Driverless cars, automation and digitalization will be part of

for the last 10 to 20 years. If we compare the number

the new automotive industry and this will mean a race against

of independent companies that existed before the

time to incorporate the latest technologies. Companies with

conglomerates that have formed over the years, there are

the resources to integrate developments will prosper and

now five or six big groups managing most brands in the

stay ahead of the market while the rest will disappear or fight

market. Further consolidation may occur but it is a difficult

just to survive. It is no coincidence that companies such as

process. For competition purposes, antitrust authorities will

Google, Apple, Yahoo and others are investing in forming

block consolidation efforts that could potentially result in a

joint ventures with large automakers or small technology-

player being too big. The groups we know today are already

development companies. This is an indication of how the

large, so any new mergers could only be between two or

industry will transform over the next few years.

three players, creating a similar union to those already participating in the market.

Q: What factors do most companies consider to remain competitive?

FCA is a natural candidate for this kind of process, considering

A: Relying on traditional methods and previous ideas of

it is not the same size as Toyota, GM or Ford. The situation

transportation will be the downfall of certain companies.

resembles that of Nissan and Renault before they joined

Even clientsâ&#x20AC;&#x2122; mindsets and the reasons they buy a car

forces. The companies realized they could not compete by

are different today. Over the next five years, there will be

themselves but combined they could be much more efficient.

fewer incentives to own a car, or at least the market will

Over the years there have been some mistakes, such as the

discourage private ownership. Self-driving cars will serve

consolidation of Daimler and Chrysler. FCA is seeing more

the same purpose as two or three cars, leading to a drastic

success today but it still struggles to compete against the

change in the industry since companies will not have to sell

market leaders. Aside from antitrust issues, large companies

as many cars as they do now. Traditional business models

like GM and Ford must make sure they synchronize their

will be discarded as demand drops between 50 and 70

geographical footprint, product portfolio, pricing and

percent and competition will be even more important as

technology before delving into a potential merger.

customers choose companies based on service quality.

Q: What role will technology play in the industryâ&#x20AC;&#x2122;s evolution

Companies are currently worrying about trade barriers

and the integration of different companies?

and the future of NAFTA but the real threat for the

A: The industry has learned from its mistakes but we will

industry is technological change and challenges.

see what changes arise with the new administration in the

Focusing on temporary issues is distracting us from the

US. There are SMEs that have managed to remain afloat,

bigger picture. Corporations must be ready for when

targeting a specific niche with higher margins. But the most

driverless cars become just another transportation

profitable companies in the years to come will be the most

method. Insurance, for example, will change dramatically

efficient and those that invest heavily in R&D.

in deciding who is responsible for an accident when there is no driver to blame. Premiums will have to change and risk allocation will be completely different with

Hogan Lovells advises clients in the automotive industry on

no human factor involved. Theoretically, accidents will

complex legal issues, having worked with government agencies

reduce dramatically with this new technology but there

and authorities. The international legal practice has counseled

are bound to be problems that must be ironed out as the

leading OEMs and automotive parts suppliers and distributors

new rules begin to be implemented.

VIEW FROM THE TOP

A TECHNOLOGICAL FUTURE AWAITS Manuel Nieblas Partner and Manufacturing Industry Leader at Deloitte Mexico

Alberto Torrijos Partner and Consultant at Deloitte Consulting Group

Q: How aligned is Mexico with the technological trends

AT: Technology integration is propelling the industry toward

adopted by other industrialized hubs?

a global strategy of connectivity between processes in

MN: Mexico has always been regarded as a low-cost

manufacturing and between vehicles and infrastructure

manufacturing destination. In contrast, Industry 4.0

regarding the end product. Cars operate with over 1 million

implementations require large investments. The moment

lines of code and the industry’s goal is to capitalize on the

technology becomes more affordable than human labor,

information gathered from both products and processes.

the industry will transform. According to the OECD, Mexico is the least prepared country in sensorization

Connectivity and advanced technology will play a defining

and digitalization. We can already see some robotic and

role in the industry’s future, not only in manufacturing but

automation strategies but human labor remains the most

also for the end user. The world is changing its focus toward

cost-effective alternative in the country. The problem

mobility and we expect the industry to transform in four

Mexico faces is that technology prices keep falling and

stages. We are already looking at a first shift in mindset related

it will not be long before they match the country’s labor

to ownership and assisted driving. Once users ditch the idea

advantages. The automotive industry’s innovation-oriented

of ownership, the market will move into a new phase of shared

vision will only accelerate this transformation.

economy. The third stage in the industry’s transformation will be full autonomy, which will eventually lead to a sharing

Q: How ready are Mexican companies to face technological

autonomy future where data collection and analysis will be

challenges posed by leading international players?

crucial to ensure safety and overall functionality.

MN: There are massive technology gaps in the automotive supply chain. SMEs are practically unaware of the

Q: How attracted is the Mexican consumer to autonomous

advantages these advances can offer and they do not

and connected features in their cars?

have the necessary resources to invest in advanced

MN: According to our Global Research on automotive

manufacturing equipment. The situation worsens when we

consumers, Mexican clients are more focused on safety-

consider there are no real incentives from the government

oriented technology and security features, such as how to

to incorporate advanced technology in national suppliers,

track vehicles remotely. Although this is not new to the

while the industry is not that committed to developing

industry, it is the basis for connected innovations and an

the local supply chain. For years, the driving force in the

autonomous future.

Mexican industry was to produce more with less. This is no longer enough according to international standards.

AT: Although the first priority for the user is safety, we found that clients are willing to pay more for advanced

AT: Mexican companies are not ready to face the technological

technology features in their vehicle. Mexican consumers

challenges presented by the industry; they are more focused

are among those willing to invest more in new technology

on surviving. If these companies do not offer an added value,

compared to other users in the international market. Our

their products will be commoditized, which will be a huge

research shows that members of the Y and Z generations

problem in the next five years due to the extreme competition

are open to spending MX$35,000 (US$1,900) for advanced

in the market. The country will keep manufacturing internal

technology, particularly in greener powertrain alternatives.

combustion vehicles but we will gradually see how companies make way for electrification. Small suppliers must find a way to enter the production chain or they will meet their end.

Deloitte Touche Tohmatsu Limited , more commonly known as Deloitte, is a conglomerate of independent firms that offer

Q: How will connectivity and advanced technology

audit, tax, consulting, risk and financial advisory services. In

permeate the development of automotive technology?

2016, the company generated US$36.8 billion in revenue

367

ROUNDTABLE

WHAT FUTURE DO YOU SEE FOR ALTERNATIVE POWERTRAIN TECHNOLOGIES?

Electrification is a growing trend in the global automotive industry but it is not the only available option to reduce the environmental impact from cars. Hybrid powertrains and fuel cells are among the technologies being developed for the market. Each option carries its own challenges, some related to the vehicle itself and others to the infrastructure needed to support new technologies. Automakers are choosing their preferred solution and the question is: which technology will prevail? Most importantly, how ready is Mexico to embrace each of these innovations?

We are ready to embrace new and greener automotive technologies. Unfortunately, Mexico’s infrastructure is not prepared. Other countries are already experiencing a technological transformation as gasoline and diesel consumption declines while methanol, electricity and hybrid alternatives grow. In advanced economies, it will take 10 to 12 years for these new technologies to become a key part of their industry but

ANDRÉS LERCH 368

Advisory Partner and Leader of the Operations Transformation Area at EY Mexico’s Automotive Center

in Mexico it will take the same time for these technologies to start permeating the market. There are benefits in owning an electric or hybrid car, including no ownership tax and less gasoline expenditure, but the initial investment to acquire one of these models is still too high. If the government does not offer fiscal benefits for leasing eco-friendly solutions, this market will not grow. Limiting deductibility in leasing is frankly retrograde and Mexico is the only country in the world with such regulations.

Electric and hybrid technology is certainly attractive and functional, so the only question is how soon it will permeate the entire market. Latin American markets, Mexico included, have less awareness of the environmental advantages that these models could bring. Meanwhile, markets like Europe are much more advanced and we have had years of participation in the electric-vehicle market. Renault, like many

ERIC PASQUIER Director General of Renault Mexico

other volume brands, started developing electric-vehicle technology with batteries having an autonomy of around 150km. Now, we have just presented the new Zoe with an autonomy of over 300km. In Mexico, the growth and acceptance of electric and hybrid models will depend on the cost-benefit advantages of the product and the development of the charging infrastructure. We hope the market grows for the next two years but I expect a real difference to be noticeable by 2027.

Alternative powertrain technologies are crucial for INFINITI and within the RenaultNissan Alliance, electrification is one of the pillars for growth and for the future of mobility. INFINITI is focusing on hybrid applications and its unique interpretation has allowed it to contribute to the Renault Sport F1 team in its technology development process, later translating those innovations to performance-oriented

PHILIPP HELDT Managing Director of INFINITI Mexico and Latin America

hybrid vehicles. We were among the first brands to introduce hybrid technology to the Mexican market and today we are among the best-selling brands regarding hybrid models, accounting for about 20 percent of our total sales volume. We will continue innovating in hybrid technology and we have already presented a new Q60 coupé concept with a hybrid configuration and similar energy-recovery systems like those used in the Renault Sport F1 team: our project Black S.

We are at a crossroads in the industry. Over the last 130 years, cars have not evolved dramatically in their inner workings. There is an ongoing battle between combustion engines and electric motors for either fully-electric or hybrid applications but fuel cells are another big, unanswered question. MercedesBenz has worked on these units for many years but one of the main struggles is developing the infrastructure for hydrogen refueling. Fuel cells basically work through a mini nuclear reactor, making it imperative to find safe and economically viable applications.

RADEK JELINEK President and Director General of Mercedes-Benz México

With the development of energy cells, electricity and hydrogen-powered vehicles, we have many projects planned for the industry’s future. Honda’s management in Japan does not commit to just one technology. The future is uncertain and we cannot know which type of energy will replace the current number-one fuel. Companies will begin investing in hybrids, electric cars or hydrogen cells and we are investigating all options. The future will probably be defined by governments and their ability to build enough hydrogen or electric vehicle charging stations to meet demand efficiently and remaining profitable.

EDGAR PACHECO Sales Subdirector of the Commercial Division at Honda de México 369

Technology still needs to evolve in the short term. Fuel cells remain too expensive and storing hydrogen in mass production vehicles is too complicated. It is unlikely that fuel cells can be used as the main power source in a car, however. Many variables impact the process. The amount of oxygen in the system limits the amount of energy a car can deliver so air quality plays a crucial role in the fuel cell’s efficiency. Nevertheless, fuel cells could participate as a back-up system to recharge batteries in an electric car.

ALEJANDRO ROJO Director of the Research Center for Automotive Mechatronics (CIMA) at ITESM Toluca

Hyundai has invested millions in R&D into alternative powertrain applications, including fuel cells, which means we must bring them to Mexico. We are the only brand with a production vehicle powered by fuel cells and we are testing its performance and acceptance in Nordic markets. Electric cars were a game-changer but fuel cells are the end of the line and when hydrogen recharging stations become a reality, there will be an industrial revolution. This scenario is still far from happening, unfortunately. Technology needs to improve and become more efficient to implement in mass production processes.

PEDRO ALBARRÁN Managing Director of Hyundai Motor Mexico

All energy alternatives will have their niche but full-electric vehicles still have a lot of potential to grow in the market. We created an alliance with BMW to develop the country’s charging infrastructure together. There are many hybrid options and alternative combustion-based solutions but the electric vehicle market is still relatively uncharted territory in Mexico. Until these cars become more affordable, the government must work on offering incentives that narrow the price gap between these and internal combustion engine units. Consumers are gradually becoming more interested in electric and hybrid vehicles and Mexicans are aware of the importance of using these technologies.

MAYRA GONZÁLEZ President and Managing Director of Nissan Mexicana

VEHICLE SPOTLIGHT

370

“

We have designed the EQ the way the car of the future has to be: networked, self-driving, free of emissions”

MERCEDES-BENZ EQ Science fiction predicted it and soon it may be a reality: zero-polluting cars that drive themselves. Mercedes-Benz, whose powerful engines and performance-driven vehicles have kept it a cut above the rest for years, is banking on connected and electric automotive trends to keep it there. A new spin-off brand will take the 130-year-old automaker into the future. EQ, which stands for Electric Intelligence, will deliver its first model in 2018. The new brand is part of Mercedes-Benz’s umbrella strategy called CASE, meaning connected, autonomous, shared and service, electric. Electric vehicles are expected to represent a significant portion of Mercedes-Benz’s sales by 2025. “We have designed the EQ to be the car of the future. It will be fully connected, self-driving and emissions free,” says Ola Källenius, Board Member of Daimler AG. The company expects the first real EQ to transform drivers into passengers at will, unless they prefer to be behind the wheel. Autonomous features such as real-time traffic analysis and environment recognition are expected to lead EQ models toward an accident-free future. The car will provide new realms of comfort by learning passengers’ preferences regarding routes, radio stations and ambiance control. While remaining in a personalized bubble is attractive, connectivity will also transform the car into a digital platform that links people to the outside world. EQ and Mercedes-Benz are adopting the slogan, “Network yourself with your car, and your car will network itself with the world.” Mercedes-Benz’s technology even considers health and New GLE 500 e plug-in hybrid

fitness. EQ vehicles will feature an integrated system connected with the Mercedes me platform, where drivers will introduce personal data that the car will translate into active and healthy lifestyle recommendations. The platform will monitor vital signs with sensors embedded in the steering wheel or through wearable devices and the car will respond adjusting the aroma, ambient lighting and climate to keep passengers in optimal health and stress-free conditions. All this new technology merits a significant visual transformation in EQ’s models. The development of a new concept of electro-aesthetics will replace buttons and other control devices for touchscreens and displays. The dashboard and instrument clusters will be replaced by a 24-inch thin-film transistor widescreen, side mirrors will be replaced by cameras that project images onto displays and the rear-view mirror will also transform into a display screen.

371

INDEX #-G 3D Systems 129, 152

Coats 99, 188

ABB 129, 135, 150, 374

COFEMSA 186

Acura 45

COFOCE 20

Adecco 165

Comerica Bank 348

Agility 250, 272

CONACYT 17, 169, 175, 176, 179, 194

Air Design 93

CONALEP 20, 110

ALD Automotive 292

Continental 96, 117, 147, 152, 169

Alturin 153

Contour Hardening 204

AMDA 8, 12, 31, 39, 118, 278, 279, 280, 284, 297, 315, 363

Corporación Zapata 234, 280, 295, 364

American Industries 357

Corrubox 267

AMIA 8, 9, 17, 22, 38, 39, 43, 44, 45, 55, 95, 259, 278, 279,

Covestro 188, 196, 197

315, 334

DACHSER 254

AMIS 303

Dacomsa 308, 325

ANPACT 8, 30, 64, 65, 67, 221

Daimler Buses 64, 69

ANTP 67, 314

Deloitte 80, 83, 129, 180, 224, 279, 367

Apple 106, 225, 271, 366

Desmex 186

Arbomex 82, 109

DHL Supply Chain 262, 273, 345

ARIDRA 80, 308, 309, 354

Dicka Logistics 266, 273

ART Robotics 134

Dow 192, 194

Aston Martin 33, 106, 111, 118, 119, 287

DSV Air & Sea 255

Audi 5, 8, 10, 13, 17, 38, 42-43, 45, 46, 84, 86, 87, 88, 89,

DuPont 106, 195

94, 134, 139, 146, 156, 166, 174, 200, 261, 267, 283, 302, 319,

E factor Network 344

355, 357

Easy 226

Automotive Cluster of San Luis Potosi 26

ECOBICI 213, 217, 229

Autozone 322

Econduce 227

Averna 147

Embassy of Germany 340

AXA 231, 270

Embassy of Japan 339

BAIC 9, 10, 17, 31, 58-59, 282, 289, 290, 347, 354

Epicor 128, 142

Bajaj 232, 236

ERM 190

Baker McKenzie 346

Exide 321

Bancomext 80, 298, 341, 354

Expeditors 253

Banorte 12, 58, 299

EY 83, 152, 244, 362, 365, 368

BASF 192-193, 203

Fast Autopartes 308, 324, 354

Bentley 117, 120

Faurecia 93

Bimbo 8, 177, 189

FCA 10, 19, 38, 44, 45, 50, 58, 89, 94, 130, 134, 169, 224,

BlaBlaCar 231

267, 288, 345, 366

Blue Side 322-323, 354

Ferrari 106, 116, 287, 351

BMW 9, 10, 19, 26, 39, 45, 46, 86, 87, 89, 94, 120, 130, 139,

FESTO 139, 169

148, 200, 224, 261, 267, 302, 319, 352, 357, 369

FINSA 186, 330

BNP Paribas 48, 49, 233, 299

FMT Christof Industries 200

Cabify 41, 180, 213, 217, 224, 225, 226, 293, 297

Ford 10, 12, 13, 19, 20, 38, 39, 44, 45, 50, 84, 87, 89, 93, 106,

CANAPAT 30, 64, 218

134, 140, 146, 148, 152, 169, 175, 224, 255, 261, 267, 282, 283,

CAPUFE 245

287, 288, 319, 341, 356, 364, 366

Carl Zeiss 133, 147

Gaden 146

ceat and Técnica test 173

GEFCO 251

CFE 186

Giant Motors 8, 9, 10, 11, 177

CIATEQ 173, 178, 179

GKN Driveline 20, 86

CIDESI 173, 175, 176, 178, 179

GM 20, 26, 38, 39, 44, 45, 50, 68, 88, 94, 130, 134, 140, 148,

CIDETEQ 179

150, 152, 203, 205, 261, 267, 278, 296, 319, 366

CIM Co. 172

GM Financial 278, 296

CIMA 176-177, 181, 371

Goodyear 110-111, 115, 122

CLAUGTO 21, 164

Google 106, 220, 225, 227, 286, 366

CLAUT 24, 25

Greyhound Lines 221

CLAUZ 25

Grupo Alden 45, 281, 283, 287, 354

INDEX G-S Grupo Autofin 236, 285

Marposs 140-141

Grupo Gersa Monterrey 150

Marsh Brockman y Schuh 303

Grupo Gocar 281, 286

MASA 74

Grupo Picacho 9, 58, 59, 282, 347, 354

Mazda 10, 19, 20, 38, 44, 45, 87, 111, 203, 261, 267, 282, 283,

Grupo Torres Corzo 279, 284, 288

285, 295, 352, 364

Guanajuato 8, 9, 18, 19, 20-21, 26, 50, 80, 81, 86, 87, 88, 95,

MercadoLibre 233, 287, 324

145, 148, 164, 186, 198, 203, 204, 284, 336, 352, 355, 356, 357

Mercedes-Benz 9, 11, 39, 45, 46-47, 53, 60, 69, 76, 86, 87,

Haldex 314, 354

89, 106, 119, 122, 146, 281, 319, 357, 364, 369, 371

Hankook Tire 319

Metrobús 74, 212, 213, 214, 216, 217, 219, 228, 229, 349

Harley-Davidson 213, 233, 235, 239, 301

Mexproud Shipping 258, 273

HARMAN 106

Microsoft 135, 144

Hays 161, 163, 181

Ministry of Economy 16, 17, 22, 25, 26, 80, 334, 336, 341,

HELLA 197, 316-317, 320

354

Hellmann 248-249, 272, 355

Ministry of Finance 16, 244, 245

Helmut Fischer 136-137

Mitsubishi Electric 72, 132, 186, 191

Henkel 92, 120, 198-199

Moldex 8, 10, 177, 189

Hino Motors 20, 73

Morgan 58, 111, 118, 119, 274

Hogan Lovells 366

Motorola Solutions 151

Honda 10, 19, 20, 38, 45, 54, 87, 124, 232, 237, 261, 267,

Navistar 68, 271, 298, 344

302, 352, 369

Navistar Financial 298

HSBC 58, 335

Nemak 205, 266, 344

Hyundai 11, 39, 44, 45, 48, 49, 50, 58, 59, 283, 290, 299,

Nissan 9, 10, 19, 34, 38, 39, 40-41, 45, 47, 50, 57, 80, 88, 93,

319, 369

106, 123, 134, 140, 152, 169, 186, 189, 203, 205, 207, 224, 267,

INA 22, 27, 80, 81, 334, 354

283, 284, 285, 288, 297, 319, 324, 328, 344, 366, 368, 369

Industrias Tamer 328

NR Finance 40, 41, 278, 297

INEGI 50, 64, 212, 224, 225, 234, 237, 284, 313, 325

Oracle 144, 150, 357

INFINITI 9, 40, 45, 57, 123, 297, 368

OSRAM 89

Interpuerto Monterrey 186, 189, 244, 355

Out Helping 164

Italika 232, 237

Overlap Consulting 44, 279, 289

ITESM 17, 25, 176, 177, 272, 369

PA Consulting 169, 345

Ixaya 144-145

Panalpina 244, 256, 257, 272

JAC 9, 10, 17, 31, 290, 354

PARQMEX Industrial Development 352-353

Jaguar 121, 282, 285

PEMEX 144, 218, 345

JATO Dynamics 12, 278, 290-291

Peugeot 45, 251, 279, 299

J.D. Power 46, 48, 51, 302

Pioneer Electronics 200, 315

Kaeser Compresores 201

Pirelli 87, 142

KCSM 264

Pochteca 203

Katcon 82, 85

PolyOne 92

Kelly Services 162

Porsche 118, 287, 340

Kia Motors 4, 8, 17, 24, 38, 39, 44, 45, 48, 49, 122, 283, 290,

ProMéxico 10, 16, 17, 20, 80, 160, 220, 225, 334, 356

299, 319, 355

PwC 13, 128, 129

KPMG 9, 338-339

Randstad 166, 181

Kronos 138

Renault 9, 10, 40, 41, 45, 55, 57, 123, 286, 297, 366, 368

KUKA 130, 150

Robert Bosch 82, 96, 107, 123, 160, 169, 180, 223, 287, 304, 324

Mirka 97, 334

Rolls-Royce 120

Lamborghini 102, 111, 118, 119, 287

Ryder 265

Land Rover 121, 146, 282, 285, 327

San Luis Potosi 8, 9, 11, 12, 13, 18, 19, 26, 44, 45, 50, 80, 84,

LeasePlan 293

110, 111, 136, 137, 148, 162, 176, 200, 203, 249, 264, 283, 284,

LOVIS 143, 150, 169

336, 349, 352, 356, 357

MACIMEX 83, 97, 112, 176

Santamarina + Steta 347

Magna 93, 150, 345

Scania 11, 64, 70-71, 73, 160, 220

MAHLE 312

Schneider Electric 178, 186, 187

ManpowerGroup 167, 181

Schunk Electro Carbón 83, 98, 312

MAN Truck & Bus 11, 66-67

Scotiabank 12, 234, 294-295

INDEX S-Z SCT 218, 244, 245, 264 SEDECO 19 SEDEMA 213, 229 SEMOVI 74, 212, 213, 214-215, 226, 233 SENER 14, 176, 186, 204, 205, 376 Sherwin-Williams 318 SICOP 279, 288, 297 Siemens 129, 150, 201 SIMSA 148-149 Sitrack 269 SmartBike 213, 228, 229 Spencer Stuart 168 StrikoWestofen 205 Subaru 56, 261, 295 SuKarne 95 Sumitomo Corporation 161 Tachi-S 88 Tax Administration Service 244, 363 TecAlliance 329 Techint 188 Teklas Automotive 94 Ternium 188 Tesla 94, 176, 291, 362 TI Automotive 84 TIBA Logistics Solutions 259 TomTom 74, 230, 269, 271 TomTom Telematics 270

ACRONYMS

AMDA

Mexican Association of Automotive Distributors

AMIA

Mexican Association of the Automotive Industry

ANPACT

National Association of Bus, Trucks, and Tractors Manufacturers

ANTP

National Association of Private Transport

BRT

Bus Rapid Transit

CONACYT

National Council for Science and Technology

CONALEP

National College of Technical Vocational Education

ERP

Enterprise Resource Planning

FCA

Fiat Chrysler Automobiles

FTA

Free-Trade Agreement

GDP

Gross Domestic Product

General Motors

IMMEX

Maquiladora Manufacturing Industry and Export Services

INA

National Auto Parts Industry

INDEX

National Council of the Manufacturing, Maquila, and Export Service Industry

INEGI

National Institute of Statistics and Geography

IPN

National Polytechnic Institute

ITESM

Monterrey Institute of Technology and Higher Education

ISO

International Organization for Standardization

KPI

Key Performance Indicator

ROUNDTABLES 82-83

What are the Main Priorities for Boosting the Local Supplier Network’s Capabilities?

122-123

How Will New Technological Trends Impact Vehicle Development?

180-181

How Will the Millennial Generation Impact the Industry?

188-189

How Will Environmentally Sustainable Practices Permeate the Industry?

232-233

How Much Potential Do Motorcycles Have to Become a True Mobility Alternative?

272-273

How Satisfied are You With the Available Talent Pool in Mexico in Terms of Logistics?

280-281

Will Digital, Autonomous and Sharing-Economy Advances Put the Distribution Business at Risk?

370-371

What Future Do You See for Alternative Powertrain Technologies?

SPOTLIGHTS 32-33

Aston Martin DB11

52-53

50 Years of AMG

Mitsubishi Electric Automation’s Redundant Control System

90-91

Universal Robots’ Adaptable Working Arms

100-101

MACIMEX, Manufacturing Meets Innovation

111

Morgan, Elegant Nostalgia

114-115

Goodyear Eagle 360 Urban

154-155

ZEISS COMET LED 2

170-171

VUHL 05RR

206-207

Nissan GT-R 2017

222-223

Bosch, We Connect the Mobility Indstry with the Digital World

ADVERTISING INDEX Inside Front Cover Universal Robots 6

Government of Guanajuato

28-29

ZF Services

Volvo Car

Grupo Picacho

62 Arbomex 67

MAN Truck & Bus

Carl Zeiss

ceat and Técnica test

105

Mexico Business Events

108 Arbomex 126

Mitsubishi Electric

137

Helmut Fischer

141 Marposs 145 Ixaya 149 SIMSA 158

Expo Manufactura

184 BASF

PHOTO CREDITS 4

Kia Motors

13 Audi 16 MBP 17 MBP 18

Government of San Luis Potosi

19 SEDECO 20

Government of Guanajuato

GKN Driveline

24 MBP 25 MBP 26

Automotive Cluster of San Luis Potosi

27 MBP 30 MBP 31 MBP 32-33

Aston Martin

34 Nissan 40

Nissan Mexicana

Audi México

46 MBP 47 Daimler 48 MBP 49 MBP 51

Volvo Car México

52-53 Daimler 54 MBP 55

Renault México

56 MBP 57 MBP 58 MBP 60 Daimler 65 MBP 66

MAN Truck & Bus México

68 MBP 69

Daimler Buses México

Scania Mexico

71 Scania 72

Mitsubishi Electric

Hino Motors Sales México

74 MBP 75 MBP 76 Daimler 81 MBP 82

MBP, Robert Bosch México, Katcon Global

MACIMEX, Deloitte Consulting Group, MBP, EY

Katcon Global

GKN Driveline

Pirelli Mexico

MBP, Tachi-S México

OSRAM México

90-91

Universal Robots

92 MBP 93

Air Design

94 MBP 95 SuKarne 97 MBP 98 MBP 99

Coats México

100-101 MACIMEX 102 Lamborghini 107

Robert Bosch México

109 MBP 110

Goodyear México

112 MACIMEX 113 VUHL 114-115 Goodyear 116 MBP 117

Bentley de México

119 MBP 120 MBP 121

Jaguar Land Rover Mexico

122

Mercedes-Benz México, Goodyear México, MBP

123

Volvo Car México, Nissan Mexicana, Roberto Bosch México, MBP

124 Honda 130

Universal Robots

132

Mitsubishi Electric

133

Carl Zeiss de México

134 MBP 135 MBP 136

Helmut Fischer

138 Kronos 139

FESTO Mexico

140 MBP 142 Epicor 143

LOVIS Mexico

144 MBP 146 MBP 147

MBP, MBP

148 MBP 151 MBP 153 MBP

CREDITS SENIOR JOURNALIST & INDUSTRY ANALYST: Alejandro Salas JUNIOR JOURNALIST & INDUSTRY ANALYST: Gabriela Mastache JUNIOR JOURNALIST & INDUSTRY ANALYST: Marisol Marín EDITORIAL MANAGER: Nadine Heir EDITOR: Ricardo Guzmán MANAGING EDITOR: Mario Di Simine SENIOR PUBLICATION COORDINATOR: Anaël Farah JUNIOR PUBLICATION COORDINATOR: Maximiliano Cervantes JUNIOR PUBLICATION COORDINATOR: Cagla Polat COMMERCIAL DIRECTOR: Jack Miller GRAPHIC DESIGNER: Ailette Córdova JUNIOR DESIGNER: Mónica López DESIGN DIRECTOR: Marcos González WEB DEVELOPMENT: Omar Sánchez SOCIAL MEDIA COORDINATOR: Karen Sujo COLLABORATOR: Alicia Arizpe COLLABORATOR: Brenda Salas COLLABORATOR: Sophie Murten COLLABORATOR: Agata Sobolewska COLLABORATOR: Bruna Brandão CIRCULATION MANAGER: Elizabeth Solís DIRECTOR GENERAL: Jeroen Posma

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