Mexico a “land of opportunity”, says Daimler’s Kurschner

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Today’s Trucking  /  December 8, 2016

In a year when dealers in Canada and the U.S. face a dramatic downturn in truck sales, Mexico is a world apart. As of November the market for Class 4-8 vehicles was up 18.5%, and Daimler Trucks North America accounted for 36% of it -- up 7.8% over last year.

But Stefan Kurschner, president and Chief Executive Officer of Daimler Vehiculos Comerciales Mexico, says there’s room for more.

“It’s a country which has its problems, but it is a land of opportunity as well,” he said today in a briefing to media from across North America.

The year-to-date sales of 30,190 Class 4-8 trucks – 26,890 of which were Class 8 models – is still a fraction of what the country should require, he said, suggesting the market could handle double those volumes. The average age for a truck in Mexico is also 17.8 years; more than 150,000 vehicles on the road today are still over 20 years old.

There are undeniable economic challenges, though. The Gross Domestic Product will grow by just over 2% this year. And the peso continues to struggle in the face of low oil prices. The national currency is worth about 6.5 cents against its Canadian counterpart, and has fluctuated wildly.

Daimler is offsetting the currency challenge by setting prices in pesos, unlike other manufacturers in the market, and guaranteeing the prices for six months at a time. Prices had been set in U.S. dollars until as recently as 2015, leaving dealers to account for shifting exchange rates in quotes and when filing taxes. “It was very, very complicated,” said Fernando Zapata of Zapata Camiones, a dealership group with 558 employees. But the peso pricing has simplified the issue, and is playing a role in Daimler’s growing market share, he added.

Many customers collect their revenue in pesos, Kurschner says. “If they earn pesos, they want to pay in pesos.” Daimler, meanwhile, has access to financial instruments that can help to hedge against currency shifts.

But there are other challenges ahead.

Mexico is also preparing to move from EPA 04 emissions standards to EPA 13 technology. The draft rules were unveiled only weeks ago, but could take hold as early as 2018. And there is still work to do before that happens. Ultra Low Sulfur Diesel, widely available in Canada and the U.S., is not available everywhere in Mexico. Local governments also set up their own emission-related rules, Kurschner said. Some larger cities have restricted truck access in a bid to tackle pollution.

Drivers and mechanics alike will need to be educated about the new standards, Kurschner said. The change could also lead to a “pre-buy” if fleets rush to buy EPA 04 equipment to delay the higher costs associated with the newer generation of equipment.

 “That’s obvious with every emission change,” he said.

Mexico does have an incentive program for those who want to scrap old trucks, but it is very bureaucratic, Kurschner added, noting how Daimler has applied it to about 1,000 vehicles.

Refined systems

The country’s dealers are clearly taking steps to eliminate red tape on their own, adopting programs that streamline processes and establish best practices.

The recently adopted Promesa Mutua – essentially a customer bill of rights – commits to optimizing operations, simplifying processes, effectively communicating, and establishing the same level of service from one dealer to the next.

A new Dealer Management System more seamlessly shares data between dealers and the Original Equipment Manufacturer, said dealer council president Alejandro Rivera, offering the example of one change that has emerged. His own dealership, Camiones Rivera, was also one of the first to be certified through the Evolucion Elite program, which commits to measures such as better service times. “We are measuring the time the customer spends in the workshops, trying to make it shorter every day,” he said.

And gains are being realized. The country’s 56 Freightliner shops completed about 65,000 service orders last year, but saw 110,000 of them in 2016. Where service and repairs took an average of 9.8 days in 2013, they now average 2.7 days. Spare parts, which were delivered just once a week in 2014, now arrive every single day.

Jose Luis Gonzales of Euro Centro Camionero refers to a Joint Action Development Group that has helped reduce warranty-related paperwork by about 70%.

“Everyone in the headquarters gets the chance to work a couple of days with the dealer,” Kurschner said. It’s where finance teams have the chance to see issues like invoice-related challenges first hand. “Turning a table has created a much easier conversation with the dealer network … Everybody sells in our company.”

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Mexico truck market keeps growing

Fleet Owner  /  December 8, 2016

Showing double-digit growth for the third year in a row, heavy-duty sales up 20%

For the third year in a row, the Mexican Class 8 truck market will show double digit growth, beating 2015 sales by 20% if it hits the projected 26,000 units, according to Stefan Kurschner, president and CEO of Daimler Commercial Vehicles Mexico. Overall Class 4-8 truck sales are expected to near 33,000 units for an 18% increase over last year.

Forecasting similar growth in 2017, Kurschner said the domestic market here is strong enough to continue growing well beyond 30,000 trucks even following annual sales growth of 12% to 14% over the last three years.

“The [truck]market is not as big as it should be for the size of the overall domestic market,” he said at a press briefing for U.S. and Mexican journalists. Renewal of the Mexican truck fleet, which currently has an average age of 17.2 years and more than 150,000 units over 20 years old, along with continued steady GDP growth and a strengthening of oil prices should support a normal annual Class 4 to 8 sales of around 60,000, according to Kurschner. “We’ve seen three years of good growth and see the same to come. No matter what, we will see growth.”

Questioned about possible trade disruptions between Mexico and the U.S. under the new Trump Administration, a Daimler Trucks North America spokesperson declined comment, saying “it is not our policy to comment on political speculation.” He added that DTNA “as any good corporate citizen, will continue to engage in constructive dialog with governments in all countries in which it operates.”

A second company spokesperson pointed out that Daimler has deep roots in both countries, operating in Mexico for 30 years and in the U.S. for 75 years, where it currently has over 22,000 employees.

Daimler has two truck plants in Mexico including a 6-year-old facility in Saltillo building the current Freightliner Cascadia for both domestic and international markets.

In other Mexican truck market news, Kurschner welcomed the release of draft emissions regulations just three weeks ago. Known as Regulation 044, it calls for new trucks to meet U.S EPA 2013 emissions levels by 2018 with a two-year transition period that would allow OEMs to also sell trucks meeting EPA 2007 levels. Currently new trucks sold in Mexico must meet EPA 2004 emissions standards. With local Mexican states and municipalities often creating their own emissions standards, “the lack of clear definition makes it a bit difficult, but at least we have a draft on the table and a timeline to work with,” Kurschner said.

Daimler is also actively expanding its Select Truck dealership network in Mexico, seeing it as part of the solution to bringing down the national fleet’s average age. While 2014 and 2015 saw a spike in illegally imported trucks that did not meet Mexico’s emissions standards for used equipment, that problem is now largely under control, and Kurschner believes there is an annual market for 15,000 to 20,000 newer used trucks.

A current effort offering incentives to scrap older trucks “has had some success” in modernizing the Mexican fleet, he added, pointing to about 1,000 Daimler sales through the program. “It has some limitation, but we believe we still need the incentive program to help renew the fleet,” Kurschner said.

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Daimler grows market share in Mexico

Truck News  /  December 8, 2016

Daimler continues to grow its share of the Mexican truck market, in large part due to a strengthening of the dealer network.

The company now controls 36.2% of the Class 8 market in Mexico, up about 7.8% compared to last year, according to Stefan Kurschner, president of Daimler Trucks Mexico, who gave a business update here today. Daimler set out to become the industry leader in Mexico and has achieved its goal.

“We feel that above 36%, we can claim market leadership,” Kurschner said. “I don’t want to be arrogant about those numbers. It is a lot of confidence a lot of new customers have put in us. It’s a journey. We are on a road to leadership and that’s what we are going to continue.”

There is plenty of room for growth in the Mexican market, according to Kurschner. Today the Class 8 market represents about 30,000 trucks a year and is growing at a pace of about 18% annually. But that’s not enough, Kurschner said, given the size of the country and the age of the fleet. The average Class 8 truck in Mexico is 17.8 years old and there are 150,000 trucks in the country 20 years or older.

“I think an economy of this size should have a market of at least 60,000 and not 30,000, as it is represented today,” Kurschner said.

A scrapping program that provides incentives for replacing older trucks has been reasonably successful, Kurschner said, and needs to continue and expand. Daimler has sold about 1,000 new trucks through the program, which benefits the environment.

One key differentiator for Daimler in Mexico is its strategy of peso pricing. Traditionally, all OEMs in Mexico priced their vehicles in US dollars, complicating the sales process and putting customers at the mercy of unpredictable swings in currency. Trucks are now priced in pesos and prices are guaranteed for six months.

“It takes uncertainties from our customers away and we are going to continue that,” Kurschner said. “This is not an incentive program or a marketing gag.”

Dealers representing Daimler’s dealer council said at the briefing that peso pricing has been well received by customers since its implementation last year.

“Our customers can truly forget about the exchange rate and have certainty and standardization,” said Fernando Zapata, president of dealer Zapata Camiones.

“The dealer network said we need to do something, uncertainty really hinders our customers to do business. So, we did a lot of customer interviews and after realizing a lot of our customers have their revenues in pesos, it was a clear decision if they bill in pesos, they want to pay in pesos,” Kurschner said.

Zapata said other OEMs have attempted to copy the idea, but without success. Daimler has financial instruments at its disposal and the ability to hedge – tools that a fleet itself is unable to utilize.

The Mexican dealer network has modernized its processes and now works together as a cohesive unit across the country to better service customers. A key element to this is the so-called Mutual Promise, which all dealers commit to.

“It’s a document the dealer network and the OEM has signed that has a description on what we are going to deliver as a service experience to our customers,” Kurschner explained. “It’s a customer bill of rights, a promise of what we are going to do for the customer.”

Traditionally, according to Zapata, dealers were focused on serving only their own customers. Now a customer can expect the same service levels at any dealer in the country.

“The same service and same quality and same conditions negotiated with every single dealer, wherever he goes in the country,” Zapata said. “That is amazing.”

Alejandro Rivera, president of the dealer council and head of Camiones Rivera, said dealers have implemented new platforms so they enjoy better communication between dealerships and with the OEM. An Evolucion Elite program has also been implemented, recognizing dealers that have taken steps to improve processes.

Repair times was an issue in Mexico, with the average repair as recently as 2013 taking nine days to complete.

Jaime Tamez, president and CEO of dealership Difrenosa, said that has been driven down to less than three days and in most months this year, his dealerships have completed repairs on average in about a day.

“Our objective as a dealer network is to keep clients’ trucks on the road. We have done a lot of work behind the scenes to achieve this,” said Tamez.

One enabler has been 24/7 parts delivery. In 2014, Tamez said, the parts distribution center would send out one shipment per week. That increased to three a week in 2015 and now, deliveries are made daily.

“It means in many cases a huge difference for customers and also for dealers, because we have an opportunity to keep our inventories rotating and our customers much more satisfied,” Tamez said. “For every specialized part, we have a delivery 24 hours later. I can say this is a big accomplishment in the last few years.”