This is an excerpt from the 2019 edition of Mexico Automotive Review. Don’t miss the opportunity to get the latest insights from key automotive players. Register now to get your tickets for Mexico Automotive Summit on October 2, 2019!
Horacio Chávez is Managing Director of Kia Motors México. Kia Motors is a South Korean OEM founded in 1944. The brand entered the Mexican market in 2015 and in 2016 began its local production in the municipality of Pesqueria, Nuevo Leon. In only three years, the brand became the fifth-largest seller in the country.
Q: How close is Kia Motors to enter the Top 3 best-selling brands and reach annual sales of 100,000 vehicles in Mexico?
A: Without a doubt, we have become one of the main players in the Mexican vehicle market. In only three years since we arrived, we have become the fifth top-selling OEM in the country and we want to continue improving. Kia is aware that 2019 will not be an easy year. We estimate a 5 percent sales drop in the domestic market. Despite this landscape, the company has enjoyed growth and is on track to sell 100,000 Kia vehicles per year.
Q: What alliances does Kia need to keep its sales momentum?
A: We have generated alliances with dealership groups, financing and insurance companies, promoting our vehicles among them and receiving a rather good response. For instance, our alliance with Cetelem, formerly BNP Paribas, is key because it acts as Kia’s financial branch in Mexico. Together, we have developed a robust vehicle financing option for customers. Our financial product lineup is innovative and attracting interest from potential car buyers, which has helped Kia Finance earn a solid share in the Mexican car-loan market, improving Kia’s sales.
Q: What are the main factors behind the success of South Korean OEMs in the Mexican market?
A: Kia’s cars are associated with eye-catching designs and for coming equipped with plenty of safety and connectivity equipment. We were a completely unknown brand when we entered the country, so we focused on generating the trust factor among consumers, which entailed developing some of the largest showrooms in Mexico to avoid being perceived as a small brand. We also offer warranties that cover seven years of use or 150,000 kilometers to convey that Kia is a quality brand. This was our main letter of presentation to Mexican car buyers. Kia also offers the lowsest maintenance costs in the Mexican market, which is decisive for customers who are looking for a new car. Kia has also maintained a significant marketing campaign to communicate that it is a vibrant, quality brand.
Q: How has the Mexican market reacted to Kia’s Konfidence program for pre-owned vehicles since its launch in 2017?
A: This program was launched too early, and no customers wanted to trade in their car to acquire a new Kia model. However, it was a good way for us to understand and prepare for Mexico’s pre-owned vehicles market. This program is intended to generate a solid resell value for Kia cars in the Mexican market. Not only do we earn a solid gross profit margin on each used car sold but this program also benefits both buyers of new Kia cars and helps Kia create a client base that will purchase a new Kia car after entering the Kia family with a pre-owned vehicle. Since its launch, Kia has expanded this program to a network of 17 Konfidence showrooms, and we hope to add another eight by the end of 2019. Most of the vehicles that we sell are certified before reaching the showroom, which helps us maintain warranties on used cars.
Only 35 percent of all cars sold in these showrooms are Kia because there are few Kia customers that have concluded their repurchase cycle, which in Mexico lasts five years. The first 11,000 units that Kia sold in Mexico upon entering the country in 2015 are reaching the end of their repurchase cycle and customers are only now starting to change their current Kia for newer models.
Q: How has the Mexican market reacted to Kia’s hybrid lineup and what challenges do green vehicles face?
A: Price is the main challenge these vehicles face to become more commonplace, but economies of scale will make green cars more affordable eventually. Kia’s hybrid Niro has achieved our expected sales of around 80 units per month. This SUV is attractive to Mexican consumers because of the great mileage it offers. We are analyzing the introduction of more green vehicles from Kia’s global lineup to Mexico that could fit the Mexican market with the goal of expanding our hybrid and EV lineup. This is, however, not an immediate option. It is still difficult to acquire an EV in Mexico and even harder to drive it over long distances. For us, the future are the hybrids that offer full autonomy and have great fuel efficiency while reducing polluting emissions.
Q: How important are Mexican companies in the supply chain of Kia’s local assembly operations now that production has stabilized?
A: Kia landed its assembly operations in Pesqueria because we detected the presence of a significant number of auto parts suppliers in the Nuevo Leon region. We quickly developed a national supplier network comprising more than 500 Mexican companies and continue to add more local suppliers. It takes time to develop national suppliers because of the high quality, price and speed standards that we demand from auto parts suppliers to enter our base. Local suppliers are key to offering better prices to customers, so it is important to work closely with them.
Q: What are the most important factors hampering the recovery of the Mexican vehicle market?
A: There is still some level of uncertainty despite the Consumer Confidence Index showing positive results. These levels of consumer confidence are not reflected in the pockets of buyers. Interest rates also are high. We are also missing the influx of private investment and the government has reduced public expenditure. We hope to see a market reactivation by 2H19 that will help the Mexican vehicle market to recover from the steep sales drop that the Mexican market has experienced in the last two years. If all goes well, we will see a radically different scenario in 2020.
Q: What are your most important growth projections and expansion plans for Kia in Mexico in 2019?
A: Kia pays great attention to results, so we expect these to meet our projections. We are trying to generate more affinity with Mexican consumers and convince them to test Kia cars. With more than 270,000 Kia drivers in the country, we hope our customer base will help us by providing good recommendations for our products; Kia drivers demonstrate a great level of satisfaction and are likely to buy from us again. This will help Kia gain a greater market share. The compact vehicle segment is strong in Mexico. It accounts for more than half of all sales in the market. On the other hand, some passenger-vehicle segments, such as full-sized sedans and SUVs, have experienced significant drops in sales but others, such as small SUVs, are on the rise. Some drivers are migrating from sedans to SUVs. Kia is analyzing new products that can be launched in Mexico to reinforce the company’s lineup.
Q: What new vehicles is Kia planning to add to its lineup in 2019? A: In 1H19 we launched the new generation of Soul, which is an important exponent of what Kia can bring to the compact SUVs segment. The company also introduced a new member to the Kia lineup, Sedona. This vehicle will help us enter a market that has few competitors: minivans. A few months after its introduction, Sedona has become the second best-selling vehicle in that segment. We decided to bet on this segment keeping in mind that the target population segment of minivans usually are people with good economic profiles that generate mouth-to-mouth recommendations to other potential buyers.
At Mexico Automotive Summit 2019, Luis Lerma will represent Kia Motors during the Mexico’s Position Within OEM Plans panel, which focuses on Mexico’s overall attractiveness as an automotive market and main factors that could boost national sales results. Register now to find out more.