Consorcio G Grupo Dina, S.A. de C.V.

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Consorcio G Grupo Dina, S.A. de C.V.

Tlacoquemecatl 41
Mexico, D.F. 03100
Mexico
Telephone: (525) 420-3900
Fax: (525) 420-3981
Web site: http://www.dina.com.mx

Public Company
Incorporated: 1951 as Diesel Nacional, S.A.
Employees: 4,934
Sales: 5.91 billion pesos (US$596.97 million) (1999)
Stock Exchanges: Mexico City New York
Ticker Symbols: DINA; DIN (ADRs)
NAIC: 325211 Plastics Material and Resin Manufacturing; 33612 Heavy Duty Truck Manufacturing; 336212 Truck Trailer Manufacturing; Offices of Other Holding Companies

Consorcio G Grupo Dina, S.A. de C.V. is a holding company that, through a subsidiary, is one of the leading producers of medium- and heavy-duty trucks and tractor-trailers in Mexico. It also has a 39 percent stake in MCII Holdings (USA), Inc., a leading manufacturer of intercity bus coaches and automotive replacement parts. In addition, Dina manufactures plastic components for internal use and external sale.

Government-Owned Automotive Company: 1951–89

The company was founded in 1951 as Diesel Nacional, S.A.—popularly shortened to Dina—with the Mexican government as the majority shareholder and Italian private interests forming the minority. Its mandate was to produce, assemble, and distribute motor vehicles—including automobiles, trucks, and trailers—as well as diesel engines for industrial and agri-cultural use, plus accessories and replacement parts and molds. A manufacturing plant was established at Ciudad Sahagun in the state of Hidalgo.

Dina signed a pact with Fiat, S.p.A. in 1952 to assemble and distribute heavy diesel trucks in Mexico for the Italian manufacturer. Between 1955 and 1959 it assembled Fiat’s 682, 682T, and 682RN models. Production ended in 1959. The company assembled and distributed Fiat 500, 1100, and 1400 automobiles from 1957 to 1960. Dina signed a contract with Regie Nationale des Usines Renault in 1962 to provide parts and assembly in Mexico for the French manufacturer. It began assembly of Renault’s D-500, D-680, and D-700 buses in 1963, production of NT and NH engines in 1968, and Delfine buses in 1971. A Dina subsidiary also assembled Renault automobiles, which held about ten percent of the Mexico new-car market in 1976. In 1978 Renault established its own assembly operation in Mexico, with Dina taking a 60 percent share. This stake was sold to Renault in 1983. In 1973 Dina took a 60 percent stake in Motores Perkins, S.A., a diesel-engine manufacturer formerly in the hands of Chrysler Corporation’s Mexican subsidiary.

Dina, in 1980, opened a plant in Monterrey for the assembly of 1000-, 3000-, and 3200-model trucks. It was then providing the Mexican market with over 20 percent of its medium trucks and about 18 percent of its heavy trucks, a total of about 15,000 units annually. The following year Dina signed a ten-year pact with International Harvester Corp., by which the latter licensed Dina to manufacture three of its truck models, using its parts and components produced in the United States and sold to Dina.

The sharp fall in world oil prices of 1981–82 led to a financial crisis in Mexico that resulted in production cuts. The number of units assembled by Dina in 1982 fell from the planned 15,400 to 10,500; the number of integrated buses from 1,800 to 700; and the number of city-passenger buses from 4,000 to 2,000. By early 1983 Dina was operating at only a little more than 25 percent capacity. The company lost about 20 billion pesos (perhaps US$150 million) that year and adopted a reorganization program that involved laying off 2,500 of its 7,570 workers. It was helped, however, by a 1983 government decree requiring trucks over 11 tons to be diesel-powered and made only by companies with majority Mexican shareholding. By 1987 Dina had 75 percent of the Mexican market for semiheavy-duty and heavy-duty trucks, plus 25 percent of the trailer market.

In 1985 Dina established a US$100-million joint venture with General Motors Corporation to produce some 50,000 diesel-powered trucks a year, mostly for export to the U.S. market, by 1987. GM received 40 percent of the equity and was charged with marketing the vehicles abroad, but this agreement never went into effect. In 1987 Navistar International Corp. (the former International Harvester) purchased a five percent stake in Dina Camiones for US$1.5 million. Dina was producing Navistar’s new S-series of trucks and trailers, which had been specially designed for use on Mexico’s roads and highways. Chrysler’s Mexican subsidiary followed suit later in the year by acquiring eight percent of this subsidiary for US$2.4 million. Dina also had a connection with Ford Motor Company, supplying plastic bumpers for the Mercury Tracer.

Financial Ups and Downs: 1989–99

Dina, which became a holding company in 1982, now consisted of seven manufacturing companies. It lost US$25 million in 1988 and was sold in 1989, apparently for US$84 million in cash plus the assumption of US$148 million in debt, to Raymundo Gomez Flores, a Guadalajara businessman who re-named it Consorcio G, S.A. de C.V. Gomez Flores extended US$30 million of his own money and received financing from Union Bank of Switzerland, which provided a 15-year, US$150 million loan that Gomez Flores paid off in three years. Chrysler and Navistar retained their shares in Dina Camiones, and the Mexican government also kept a 5.7 percent stake in this subsidiary. Navistar raised its stake in 1991 to 17.5 percent and negotiated a deal to supply Dina Camiones with diesel engines produced at Navistar’s plant in Melrose Park, Illinois.

The new management, in return for flexible work rules, promised the union there would be no layoffs, established bonuses based on productivity gains, and placed union floor man-agers and quality-control personnel in management positions. The company became more of an assembler and less of a manufacturer by purchasing more components abroad. It licensed a bus body design from Brazil that was mounted on a chassis made from U.S. parts and more than tripled its truck production. “Dina was an uncut diamond,” its chief executive told Ted Bardacke of Euromoney in 1993. “But the state is simply not a good administration and the company was being used for political purposes. Now all anyone here, including the union, thinks about is making money and giving a good return on investment to the shareholder.”

Consorcio G became Consorcio G Grupo Dina, S.A. de C.V. in 1991, when a public offering of shares on the Mexican stock market and American Depositary Shares (ADRs) on the New York Stock Exchange yielded about US$342 million and represented about 30 percent of the outstanding shares. The company had sales of more than US$900 million that year and—for the first and only time—declared a dividend, following a US$91 million profit in 1992.

Dina’s bus manufacturing subsidiary was now the largest facility of its kind in North America. After the Mexican government eliminated regulations on bus fares in 1990, the company raised its production of buses to about 2,000 a year. These included the Paradiso, a superluxury coach intended for Mexico’s growing system of new highways, and the Viaggio, a smaller version of the Paradiso. In 1993 Dina held a 46 percent market share of the Mexican intercity bus market, which was significant in size since the vast majority of Mexicans traveling between cities were doing so by bus, because air fares were high and not many people could afford an automobile. Dina also held 40 percent of the Mexican truck market.

In 1994 Dina purchased Motor Coaches Industries International Inc. (MCII), the largest manufacturer of intercity bus coaches in the United States, for US$311.6 million in stock and debt securities. This acquisition made Dina the largest bus manufacturer in North America, with annual revenues of US$1.4 billion. However, Mexico’s highway-construction pro-gram came to a grinding halt with the capital flight of late 1994 that resulted in the devaluation of the peso and a severe economic recession. Net sales plummeted to 5.25 billion pesos (about US$687 million) in 1995. Bus sales fell from 2,040 to 169 and truck sales from 30,644 to 5,219. This catastrophic drop was not only due to the Mexican recession but also to the effect of the North American Free Trade Agreement (NAFTA), which opened wider the Mexican market to U.S. competitors.

NAFTA, however, also had positive aspects for Dina, be-cause it could now buy U.S. components at lower cost. In addition, it could more easily penetrate the U.S. and Canadian markets through its alliance with Navistar and its acquisition of MCII, which became MCII Holdings (USA) Inc. in 1996 and absorbed Dina Autobuses, S.A. de C.V. in 1997. In 1998 only 23 percent of Dina’s revenues came from Mexico, and 83 percent of its profits were in dollars. MCII had an installed base of about 75 percent of the bus coaches operating in the United States and Canada. More than half of Dina’s trucks were being exported. In 1998 Dina severed its alliance with Navistar and unveiled a new lineup of medium- and heavy-duty trucks.

Key Dates

1951:: Mexican government founds Diesel Nacional, S.A. (Dina).
1963:: Dina begins assembling buses in Mexico for Renault; it later assembles and distributes automobiles for Renault as well.
1980:: Dina is turning out 15,000 trucks a year.
1989:: Dina is sold to Raymundo Gomez Flores, a Guadalajara entrepreneur.
1994:: Dina becomes the largest bus manufacturer in North America after acquiring Motor Coaches Industries International (MCII).
1999:: Dina sells 61 percent of MCII in order to pay down its debt.

Nevertheless, although Dina made money in 1996 and 1997, it remained in serious financial difficulty. Although sales reached about US$1.14 billion in 1998—the first time it had topped the billion-dollar mark since 1994—the company incurred a net loss of about US$85.14 million because of large interest payments on its debt, which was about US$700 million at the end of 1998. By June 1999 Dina’s ADRs had fallen from their January 1994 high of US$31 a share on the NYSE to US$1.25. In order to reduce company debt, Dina sold 61 percent of MCII to the New York-based buyout firm Joseph Littlejohn & Levy Inc. for US$175 million in June 1999. The sale included Universal Coach Parts, Inc., which was producing and distributing replacement parts, and Mexicana de Manufactures Especiales, which was manufacturing automotive parts for MCII. MCII had accounted for more than 90 percent of Dina’s operating profits between 1995 and 1998.

Consorcio G Grupo Dina: 1998–99

MCII Holdings constituted 68 percent of Dina’s net sales in 1998. Based in Des Plaines, Illinois, this company was operating bus plants in Pernbina, North Dakota, and Winnipeg, Manitoba, as well as at Ciudad Sahagun. Its customers included Greyhound Lines, Inc. and Coach USA, Inc. Its Dina Autobuses, S.A. de C.V. subsidiary had an installed base of about 65 percent of the estimated 34,000 industry-wide fleet of coaches operating in Mexico and a 25 percent market share in 1998. MCII was also providing used-coach and dealership services.

Trucks represented 14 percent of Dina’s revenues in 1998, with 2,304 units sold, of which 1,166 were for export. Its share of the Mexican market was ten percent. Dina Camiones continued to maintain its assembly plant in Ciudad Sahagun, while a new subsidiary, Dina Internacional, was manufacturing trucks in Mercedes, Argentina, for the South American market. The truck segment of Dina’s business was not profitable in 1998.

Seventeen percent of Grupo Dina’s 1998 revenues came from Universal Coach Parts, MCIFs replacement parts subsidiary. It was making over 160,000 replacement parts, including diesel-engine parts for trucks and coaches, and chassis for buses, in Guadalajara. Less than one percent of Dina’s revenues were generated from the manufacture of plastic components.

The sale of 61 percent of MCII Holdings reduced Dina’s net sales to 5.91 billion pesos (US$596.97 million) in 1999. The company had net income of 498.29 million pesos (US$50.33 million). Of this total, its 39 percent stake in MCII accounted for about 30 percent of its sales and about 95 percent of its net income. Of Dina’s 1999 sales, Mexico accounted for 26 percent and other countries 74 percent. A Gomez Flores family corporation, Grupo Empresarial G, S.A. de C.V., owned 62.5 percent of the Class B shares of common stock in Dina at the end of 1999.

Principal Subsidiaries

Desarollo Integral de Nuevas Actividades, S.A. de C.V.; Dina Camiones, S.A. de C.V. (92.59%); Dina Comercializadora, S.A. de C.V.; Dina Internacional, S.A. de C.V. (Argentina).

Principal Competitors

DaimlerChrysler Corporation; Ford Motor Company; General Motors Corporation; Kenworth Truck Co.; Navistar International Transportation Co.; PACCAR Inc.; Prevost; Van Hool.