Mexican Truck Maker Heads to New Destinations

Dina 861 in like new condition. Nogales, AZ 1986.Four years ago, the Government got rid of a state-controlled company that lost $25 million a year turning out smoky buses and trucks that could barely climb Mexico’s mountains.

That same company, Consorcio Grupo Dina, is now operated by a team of businessmen and has an annual profit of $90 million on a new line of trucks and buses. It is one of five Mexican companies listed on the New York Stock Exchange.

Three weeks ago it announced a preliminary agreement in the United States market with the acquisition of Motor Coach Industries International of Phoenix, the largest bus manufacturer in the United States, in a stock deal worth $336.6 million.

It surprised many analysts that a Mexican company — especially one with a rocky past — made the first major cross-border acquisition in the new era of free trade among the United States, Canada and Mexico. A Precarious Position

Because Motor Coach Industries has operations in Canada, the acquisition creates one of the first new North American companies since the North American Free Trade Agreement was approved in Washington, and indicates that Mexican businesses are hardly waiting to be acquired by American companies once Nafta takes effect on Saturday.

DINA coach with a Marcopolo bodyThe deal also reflects the precarious position that even strong Mexican companies face because of uncertainty over the value of the Mexican peso and the anemic performance of the Mexican economy, which in the last quarter declined 1.2 percent from the period a year earlier.

Analysts say it makes sense for a company like Dina to make major purchases now because a devaluation of the Mexican peso is possible in 1994 and would make any foreign acquisition more difficult and more costly. They also say that while diversifying across borders should be beneficial in the long run, it could weaken the company next year because it will divert resources at a time when growth in the Mexican economy — on which companies like Dina greatly rely — will continue to be restrained.

“This deal will probably hurt the short-term outlook for the company,” said Jorge Garza, an analyst with Vector, a financial services company in Mexico City. “In the long run, though, Dina is pursuing a diversification of its market that will help it avoid the kind of contraction it has suffered this year by relying only on the internal market.”

By most counts, Dina is one of the success stories of Mexico’s ambitious program to get the Government out of business. Since 1987, Mexico has sold off or shut down nearly 1,000 state-run businesses.

Diesel Nacional, the forerunner of Grupo Dina, was formed by the Government and Italian private investors in 1951, and for years was run without much attention to efficiency or service. The Mexican market was effectively closed and buyers had little choice but to take the underpowered, poorly designed trucks that Dina sold.

In 1989, a group of Mexican investors bought the company from the Government for $232 million. The package included Dina’s medium- and heavy-duty truck operations, as well as the company’s urban transit and long-distance bus plants.

Ernesto Moya Pedrola, 47, was recruited from a Mexico City financial services firm and made director general. His strategy for turning around the company had three thrusts — productivity, strategic alliances and assembly.

“There are no magic wands,” Mr. Moya said. “What we’re looking at is more volume, smaller margins, more efficiency and more competition.”

In May, the company signed a new contract with its 4,900 employees that based promotions on merit rather than seniority, and included productivity incentives of the type that the Administration of President Carlos Salinas de Gortari now proposes.

Productivity gains are obvious. In 1988, the last full year under state control, the company made and sold 2,967 trucks. With roughly the same number of employees, this year it will assemble and sell more than 12,000.

Since 1989, the company has also entered several strategic alliances. One of the most important is with Navistar, the maker of International trucks in the United States, which owns 17.5 percent of Dina’s truck operations. A Brazilian Connection Dina now sells essentially the same truck in Mexico as Navistar sells in the United States. Each company has agreed not to cross the border and sell in the other’s territory.

Dina’s bus operations have affiliated with the Brazilian manufacturer Marcopolo.

Since 1990, when the Mexican Government lifted regulations on bus fares, a new segment of the intercity bus business has opened with air-conditioned, luxury buses. Dina has a 49 percent market share of the intercity bus market and an even higher share of the new first-class segment, according to a Salomon Brothers report on Dina that was published in October.

The third arm of Dina’s strategy was to switch from manufacturing its own truck parts to buying them from suppliers — many in the United States — and becoming an assembler. Dina buys most major components for its trucks from United States companies like Cummins, Caterpillar and Detroit Diesel. Prospects Are Strong

On paper, Dina’s long-term market prospects are strong. During the economic crisis of the 1980’s, many Mexican companies could not afford to replace aging trucks in their fleets.

Roberto Swaine Bell, president of the association representing Dina’s 65 dealers, said that if the Government allowed interest rates to come down, Dina’s sales could surge in spite of Mexico’s weak economy

No, the dates are not incorrect in this story. This was published 15 years ago on December 27, 1993 in the New York Times Business section. You might ask what point does it make about the cross border program and Mexican trucks? If you read closely, you would understand. You are looking at serious business acumen on the part of Mexican businessmen, privatization of industries in Mexico which is fueling the emergence of a very strong and wealthy Mexican middle class. It shows the alliance between International Navistar and Dina, which explains why the old Dinas look suspiciously like IH Loadstars and Transtars of years past.Maybe this is what got Jimmy Hoffa up in arms. The proof that Mexican companies can compete on an equal plane as US companies and excel through ethical business practices and good labor agreements with their workers. And they can do so without the need for unions. Oh, and if you don’t recognize the name MOTOR COACH? INDUSTRIES, think GREYHOUND.