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Why’s Volvo hot on Mexico?

GUADALAJARA, Mexico -- Volvo Trucks has set out to become a more prominent player in the Mexican truck market, by expanding its dealer presence there and re-evaluating its traditional approach to this market.

GUADALAJARA, Mexico — Volvo Trucks has set out to become a more prominent player in the Mexican truck market, by expanding its dealer presence there and re-evaluating its traditional approach to this market.

That was the message from an invigorated Matthew Walsh, managing director of the Mexico region for Volvo, during a media roundtable held prior to the Expo Transporte trade show. The Mexican truck market is growing and now represents about 25,000 Class 8 vehicles per year, putting it on par with Canada. Volvo’s share of that, year-to-date, is about 7%, but closer to 10% in the Class 8 tractor segment where Volvo plays.

Volvo this year is on pace to sell nearly three times as many new trucks in Mexico as it did in 2011. The company has launched an ambitious initiative to gain 15% of the market by 2015 (a market share goal it hopes to also achieve in the US and Canada). A key component of that plan in Mexico will be expanding its dealer network from 36 locations today, to about 65 by the end of 2015. That would put it behind only Paccar in terms of dealer footprint, Walsh noted.

Volvo, up till now, has been unable to crack the large private fleets belonging to the ANTP association of private fleets. However, Walsh said the company now has demo units with eight of the largest ANTP fleets and that they are performing favourably.

“We’re very optimistic that next year we will see very good penetration from the Volvo brand into these large private fleets,” Walsh said.

There are about 750,000 Class 8 trucks in Mexico today, and 400,000 of those are at least 20 years old. The government is now incentivizing the purchase of newer models, by issuing tax vouchers that can be redeemed towards the purchase of new trucks when older units are scrapped through government-approved agencies.

These vouchers cover about 16% of the cost of a new truck.

“Eighty per cent of our sales here in Mexico involve scrapping certificates,” Walsh said.

There’s also a healthy import market to contend with. Walsh said about 8,000 used Class 8 trucks will be imported to Mexico from the US and Canada this year. Many of them will come from Canada, since Mexican trucking companies favour a Canadian-spec’, with 46,000-lb rear axles.

Mexico allows EPA04 and Euro 4 emissions-level engines, but Volvo adheres to the more stringent Euro 4 standard, Walsh said.

“We, as Volvo Group, certify our engines to Euro 4, but the rest of our competition certifies to EPA04. We produce half the particulate matter than our competition does, with similar NOx, so we do run a cleaner solution here in Mexico than our competition,” Walsh said.

In 2018, Mexico will adopt the EPA10 emissions standard.

Part of Volvo’s strategy for Mexico is to focus on value, rather than the price of its new trucks. Initially, the company entered the Mexican market in 1994 convinced it needed a low-cost product to compete. However, Walsh said customers are beginning to see value in things like stability systems, automated transmissions and even disc brakes.

One example of this new approach is the launch of the I-Shift automated manual transmission in Mexico. Walsh said he’d like to see at least 35% of Volvo trucks sold here equipped with the I-Shift by 2015. Seven fleets are piloting the transmission with good results, running between one and 100 units.

“These were strategic relationships or strategic applications where we wanted to get in-market verification, to make sure they have the performance and fuel economy we were looking for,” Walsh said of the testing. “We have yet to put the I-Shift in a demo unit where the customer does not want to buy it at the end.”

Goran Nyberg, president of North American sales and marketing with Volvo, said Mexican fleets want the same things carriers in the US and Canada do: fuel savings; reliability; safety; and the ability to more easily attract and retain drivers. Next year, Volvo will bring its Remote Diagnostics to the Mexican market, providing fleets with a way to reduce downtime.

Volvo’s investments into the Mexican market mirror the initiatives it has undertaken in the US and Canada over the past few years, Nyberg noted. Since 2010, Volvo Trucks North America has: invested $350 million into its dealerships; launched 52 projects to improve capabilities (such as building or renovating facilities); increased service bays by 31%; expanded its technician base by 54%; increased parts inventory by 37%; and expanded its parts department staff by 68%.

With Volvo placing a renewed emphasis on the Mexican truck market, one had to wonder if it would eventually move production there, like many of its competitors have done. Nyberg said emphatically that will not be the case. The company has examined the viability of building trucks in Mexico, and found the logistics involved in delivering them to Canadian and American customers would negate any savings.

“We have made major investments in the US (plants) and we have capacity for our growth from there,” Nyberg said. “We haven’t seen the benefits of moving any production to Mexico, yet we are actively investing in the commercial side of the Mexican business. Manufacturing today for North America is in the US and that’s our plan to continue.”

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