Hauling Down to Mexico : Exports Helping Truck Makers Overcome Currency Crisis
Just four years ago, the Kenworth truck assembly plant here was flying high, churning out about 5,000 heavy rigs a year, enough to corner 40% of Mexico’s big-truck market and keep 1,300 employees busy in what is Baja California’s only major automotive plant.
Last year, the Kenmex plant, owned by Paccar Inc. of Bellevue, Wash., rolled out just 239 trucks after standing idle for 6 months, the victim of a rush of new competition and the peso crisis that slashed a two-year backlog of orders to zero almost overnight and forced a 50% cut in payroll.
Mexican truck orders are slowly trickling back in, a sign the economy is on the mend, industry officials say, and Paccar is struggling to reposition its Mexican operation.
It’s taking the same route as most auto makers here, from Ford to Nissan: shifting production to cars and trucks bound for U.S. and Canadian markets.
The move is no stop-gap measure: the low cost and sound quality of the Mexican labor force have turned around the auto industry’s skeptical attitude about manufacturing here, observers say.
Sure, there are drawbacks, such as frequent confusion with customs officials at the border and managerial problems relating to a foreign work force. But international truck manufacturers overall have increased the use of Mexican plants for production.
Five years ago, 90% of the Paccar plant’s production was destined for Mexico. This year, the same percentage is headed to fleets north of the border and South America, said Samuel Means, general manager of the plant in the dusty industrial zone southeast of Mexicali.
Paccar’s shift is typical of how U.S. companies have had to adjust to the trauma caused by Mexico’s economic crisis.
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Paccar moved some U.S. truck assembly to its Mexicali factory, as well as production lost in a crippling strike at its largest Canadian plant.
In fact, on Tuesday, Paccar said it will shutter the Quebec plant for good, leaving 1,100 striking workers without jobs.
Even though the U.S. truck industry overall expects to ship 25% fewer trucks this year, compared with its record 207,000 heavy truck sales last year, Paccar’s Mexicali plant will produce “significantly more” than its total last year, Means said.
Admittedly, that’s an increase from a shrunken base--but an increase nonetheless. Some of the hundreds of workers laid off last year may be called back to work, he said.
With 1995 revenues of $4.6 billion, Paccar is the second-largest U.S. heavy truck manufacturer behind Freightliner, the Portland, Ore.-based subsidiary of German giant Daimler-Benz. In most years, Paccar’s Mexican operation has contributed 10% of its revenues, said Paul Latta, an analyst with Ragen MacKenzie, a Seattle-based investment bank.
The company moved into Mexicali in the late 1950s, long before most foreign auto makers. It formed a joint venture with Gustavo Vildosola, whose father, a Mexican federal senator, helped pave over the rough political patches. Paccar bought out Vildosola last year and now owns 100% of the operation.
The plant first assembled only Kenworth trucks and only recently added Paccar’s Peterbilt line. Ninety percent of the components are shipped over the border from U.S. suppliers.
Until 1992, Mexican manufacturer Dina (which has since formed a partnership with Navistar) was its only competitor with a major manufacturing presence in Mexico.
But the increasing internationalization of the truck market and prospects for Mexico’s economic growth brought a host of competitors, chiefly Daimler-Benz and Volvo, the world’s largest and second-largest worldwide truck makers.
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Daimler-Benz outsold Kenworth in the Mexican market last year as sales of Kenworth’s heavier, more expensive vehicles, which cost about $85,000 each, all but dried up.
Although Mexico’s heavy truck sales were barely 5% of the U.S. volume last year, analysts say manufacturers increasingly see the need to spread out manufacturing capacity to places such as Mexico where truck-buying cycles run counter to those in the United States.
“The truck market is war fought on a global scale and Mexico is a good place to be,” said analyst Latta.
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Hitting the Skids
Kenmex, the Mexican division of Paccar Corp. that assembles Kenworth and Peterbilt trucks at a plant in Mexicali, has dominated Mexico’s heavy truck market for the last 30 years, although its hold has slipped since 1991 with increased competition and the peso crisis.
KENMEX
Annual sales in Mexico, in units:
1995: 239
ALL TRUCKS
Annual sales in Mexico, in units:
1995: 1,206
