June 26, 2010 Catching Up in a Hurry

Volume 13 | Issue 3

Iveco, the Fiat Group’s subsidiary specializing in commercial trucks, has only been operating in Brazil for 10 years. But as Michael Sommers

When Iveco arrived in Brazil, it hit the road running. With 25,000 employees and 1,200 dealers worldwide, Fiat’s commercial truck and bus subsidiary is responsible for 20 percent of the Fiat group’s worldwide revenues (which, in 2009, topped US$16 billion). Although Iveco’s presence in Latin America was nothing new – its plants in Venezuela and Argentina have been around for 56 and 40 years, respectively – the company had long set its eyes on the region’s largest automotive market: Brazil.

In 1997, the company purchased a 25.3 million square-foot site in Sete Lagoas, Minas Gerais, not far from Betim, where Fiat’s plant – today the largest in the world – had been installed since 1973. Over the next three years, no expense was spared in the building of a manufacturing plant that, when inaugurated in 2000, quickly gained renown as being the most modern, state-of-art truck factory in the country due, in part, to its high level of flexibility in terms of production.

A CUTTING-EDGE PLANT & PRODUCT DEVELOPMENT CENTER
Today, at this 1.3 million square-foot complex, 3,000 employees are involved, directly and indirectly, in the production of Iveco buses and light-, medium-, and heavy-weight trucks, as well as light commercial vehicles produced under the Fiat brand name. Planned with sustainability as a priority, the plant meets stringent environmental rules and features an “ecological island” where all water and production bi-products are treated before being recycled or disposed of in an environmentally responsible manner.

With the goal of ramping up production levels, last year a new unit – whose assembly stations were projected by employees in order to guarantee ergonomic benefits and, as a result, increase productivity and quality – was added, which specializes in the manufacture of semi-heavy and heavy-weight trucks. As a consequence of this new addition, Iveco expects to increase annual output of these vehicles from 6,000 to 20,000 units.

Meanwhile, perhaps the most radical of the many implementations the company has introduced is its Center for Product Development (CDP). Completed in 2008, it comprises Iveco’s only other engineering center outside of Europe. With links to Iveco’s other R&D facilities around the world, Brazil’s CDP has a clear mission: to dream up vehicles that are perfectly and ideally adapted to the legal, climatic, and geographical realities of both the Brazilian and Latin American markets.

“The center is not necessarily original, but it certainly is necessary,” confesses, Marco Piquini, director of communications for Iveco. “In order to comply with Brazilian legislation and to meet the specific demands of Brazilian customers, we often can’t sell the same products here that we developed in Europe – it’s essential that our vehicles are adapted to the realities of Brazil.”

ADAPTING TO BRAZIL’S REALITIES
Piquini points out that when the company first brought Iveco vans from Europe to Brazil and tested them for the market, the company’s engineers realized that the European vehicles were no match for Brazil’s roads, many of which are precarious and riddled with potholes. Moreover, in Brazil, very few commercial truckers respect weight limits, and overloading places great impact on vehicles. “As a consequence, vehicles really have to be prepared in terms of durability and resistance,” admits Piquini. “The suspension system, the chassis – all sorts of modifications have to be made.”

There is also the question of adapting to different laws. In Europe for instance, the maximum cargo each truck’s axle can carry is 6 tons – in Brazil, it’s 8 tons. Once again, modifications were necessary. Other vehicles, such as cement trucks, which in Brazil can carry 26 tons of cargo, require 6×4 traction – which doesn’t exist in Europe. So Iveco Brasil invented a truck with a 6×4 chassis.

“And these are just basic adaptations,” warns Piquini. “There are others, thousands of them, which are much more complex. For this reason, we have 150 full-time engineers working at the CDP. In fact, some of the products that we’ve created for the Brazilian market have been so unique – and so interesting – that we end up exporting them to Europe.”

Such was the case with its recently launched new models of its Daily truck. In Europe, the Daily line features vehicles that can carry between 3.5 and 6 tons, but in Brazil, a version was launched with a 7-ton capacity, which required entirely different steering and suspension systems. “Now, Europe is using the 7-ton trucks – and we’re perfectly positioned to supply them. Ultimately, the CDP ensures that there is a constant exchange of technology and know-how. This gives us a strong competitive edge and also ensures that our product mix is the most modern and innovative on the market.”

FOCUS ON INNOVATION
From the start, Iveco’s primary focus has been on innovation. “We have the newest product lines available in the segment,” boasts Piquini. “None of our models are older than three years old. We’re constantly launching new models and updating old ones, and we place a great emphasis on meeting the market’s needs with speed and agility.”

Indeed, the creation of the CDP was part of an overall acceleration strategy, adopted in 2007, which is backed by an initial investment of R$570 million (roughly US$325 million). The plan is to launch two new product families every year, in Brazil and Latin America. An example of one such product is the Vertis, which marks Iveco’s entrance into the medium-truck category of vehicles that boast a GVW (Gross Vehicle Weight) of 10-15 tons. “This category represents 22 percent of all truck sales in Brazil,” says Piquini. “Ten years ago, we only controlled around 3.5 percent of the market. Today, we already have an 8 percent share, but we’re only competing in 80 percent of the market. Now that we have the Vertis, we can go after 100 percent of the market.”

Propelled by its new production unit, production levels have already increased and sales have skyrocketed, increasing from 4,000 units in 2006 to 12,000 last year. Sales have been spurred by a massive expansion of dealers throughout the country. Having risen from 52 (in 2006) to 91 (today), the number of dealers is expected to reach 108 by the end of this year.

Although Iveco’s results in such a short time have been nothing less than impressive, the company is aware that its newcomer status presents it with some challenges. Ranked against its main rivals, Iveco currently occupies fourth or fifth place in terms of market share (running neck-in-neck with Volvo-Scania). The top three places are occupied (respectively) by Volkswagen, Mercedes, and Ford.

“They’ve all been around quite a lot longer than we have,” confesses Piquini, pointing out that Mercedes and Scania have been in Brazil since the 1950s. “In the truck market, image and tradition are very important because trucks are capital goods, not consumer goods. You’re investing in something that will increase your productivity. And so a customer who purchases a truck is making a very rational decision. You buy a truck to make money. So you’re going to ask questions such as: What will my return be? How much will the operating costs be? How much will the resale value be? Traditional brands have the advantage of having a strong track record, which is a handicap for a newcomer like us.”

“Instead we play up the newness of our products and the innovativeness of our technology. With lots of investment in marketing our brand and developing new technology, we’ll overcome this handicap. In fact, already this strategy is working – we’re growing.”

Of course, growth is important, but quantity means nothing without quality. For this reason, Iveco is pleased not just with its bottom line, but also with the accolades it has been receiving from clients and colleagues. “In 2007, 2008, and 2009, we won “Brazil’s Truck of the Year”, an annual award given by Autodata, the automotive sector’s leading magazine,” says Piquini, proudly. “The fact that we’re winning recognition from the automotive industry itself shows that we’re definitely on the right track.”

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