2010: What lies ahead?
Yay! Given the fact that our industry – the over 3 500 kg Gross Vehicle Mass (GVM) market – only managed 18 934 unit sales last year, representing a 45.4% plunge from 2008 sales volumes, we’re all glad 2009 is over. But what does 2010 hold for the commercial vehicle industry? In true FOCUS tradition, CHARLEEN CLARKE asked the captains of industry to do some crystal-ball gazing.
Many South Africans expect the 2010 FIFA World Cup to magically cure our economic woes, while the hospitality industry sees the event as a mint. I hope neither party is too disappointed. But what will happen to the commercial vehicle industry this year? Will we – like our hospitality colleagues – be eating caviar and quaffing champagne by the end of December?
Nicholas De Canha, marketing director of Imperial Daihatsu, isn’t cracking the champagne just yet. “The bubble of capital expenditure for the World Cup will soon burst, although some infrastructural projects are continuing into 2011. And interest rates aren’t likely to fall: Australia is already on an upward cycle, in fact. Interest rates in South Africa may also go up as a result of power price hikes and large wage settlement agreements. However, the exchange rate is expected to remain stable, which is good news for inflation,” he maintains.
De Canha points out that commercial vehicle sales are most strongly linked to gross fixed capital expenditure (GFCE), which will decline this year. “On a more positive front, however, this could be offset by an overall improvement in trading conditions.” And the end result of these factors? “The light commercial vehicle (LCV) sector could see small growth this year – around 2% – but other commercial vehicle sectors will probably decline,” says De Canha.
Craig Wearing, general manager, DAF Trucks SA, is slightly more upbeat. “At DAF we anticipate a slow but steady recovery of the South African financial market, responding to and following international market trends. Contributions by the different market sectors to the overall economy may change, creating new opportunities,” he says.
“Typically, it’s been said that the consumer market has not felt the full effect of the recession and that the escalating cost of basic commodities, maintenance of infrastructure, fuel costs, and other elements will have an influence,” he continues. “Consumer pricing will have to be managed with affordability in mind which means there will be a continuous drive to manage the value chain, its cost and more specifically the efficiencies within. As transport is a major cost contributor, transport companies will increasingly look for elements within vehicles that inherently have the means to support these efficiencies.”
Jason Richardson, financial manager at DFM Warrior, agrees with the above statements. “I think 2010 will be a bit of a recovery year for the truck market; all sectors of the commercial vehicle market will grow!” he tells FOCUS.
Explaining the reason for his optimism, Richardson says that there is an ongoing need for commercial vehicles. “A number of companies held off in terms of replacing vehicles last year. Their existing fleet is now a year older and is due for replacement. Bearing this in mind, we won’t see a huge recovery but I feel there will be an increase of about 10% year-on-year. This should continue for the next three-to-four years to come,” he predicts.
Econometrix consultant and FOCUS industry correspondent, Frank Beeton, says that the outlook for 2010 is “marginally more favourable” than 2009. Looking back at last year, Beeton points out that it is generally accepted that the market was heavily influenced by extremely stringent asset financing criteria applied by the banking sector.
Having said that, Beeton notes that the South African economy moved back into positive growth territory during the third quarter of 2009, and is expected to remain there through 2010.
He believes that a best-case scenario for 2010 would be year-on-year market growth of around 20% in the over-3 500 kg GVM market. “We could see final sales volumes of slightly more than 22 000 units, although this is likely to be delivered in a somewhat erratic profile influenced by the sales reporting of larger multi-unit orders as they happen. There is a distinct possibility that the market will enjoy its main period of strength before mid-year,” he tells FOCUS.
Oscar Rivoli, managing director of Fiat Group Automobiles SA, is predicting an increase of between 6% and 7% in the combined passenger and LCV market. “Under normal circumstances one would expect the LCV market to experience higher growth than passenger sales. But contraction in the construction industry due to the winding up of World Cup Soccer building activities will impact somewhat on growth potential. From a Fiat perspective, we expect to realise the same market share as 2009. Having said this, there are some segment-specific opportunities. One of these is in the delivery van segment, in which we envisage becoming more competitive thanks to the availability of additional models in Europe’s best-selling Fiat Ducato van range,” Rivoli says.
Jacques Brent, vice-president of marketing, sales and service at the Ford Motor Company of Southern Africa, expects overall vehicle market growth of between 5% and 7% this year. “This is based on positive sentiment around the 2010 Soccer World Cup and also greater global economic stability. South Africa is one of the few markets that has not started to see some growth in month-on-month sales. Of course, a lot of growth elsewhere was stimulated by government incentive programmes in the USA, Europe, Australia and the East,” he points out.
Moving to the over-3 500 kg GVM market specifically, Brent expects this to be flat with “some swings between the medium commercial vehicle (MCV) and heavy commercial vehicle (HCV)/bus segments”. Says Brent, “We foresee a 10% decline in MCVs and a 7% growth in the HCV/bus market. In fact, the bus segment is likely to be responsible for most growth: specifically the roll-out of various city bus projects and the demand for luxury coaches ahead of the Soccer World Cup. Lower MCV volumes will be due to a slow-down in retail development following the late-2008 economic crash and its effect on distribution vehicle requirements.”
General manager of vehicle sales at General Motors South Africa, Chase Hawkins, anticipates a 5% improvement in the LCV market. “We believe most infrastructure-related purchases from a LCV perspective have already taken place. The forward planning required for FIFA would have dictated that most infrastructure be completed ahead of time. Any new requirements would probably be replacement purchasing. Some LCV sales may be driven by a mild resurgence in consumer demand for higher-opulence vehicles, such as double cabs. We see this happening later in 2010 as consumers start recovering from the general household debt burden,” he predicts.
Hawkins says some growth will come from the half-ton commercial segment. “With Corsa, Bantam and the NP200, consumers now have greater choice. This is driving more competitive pricing, which should influence consumers to opt for utilitarian products providing greater leisure and business flexibility than a passenger car,” he points out.
As we’ve already said, 2009 was not a year this industry would care to repeat. However, Casper Kruger, vice president of Hino in South Africa, makes an important point. “One positive indication that emerged from the overall result for 2009 in the over-3 500 kg GVM market was the consistency exhibited during the March-to-December period, where individual monthly results were tightly clustered around the 1 536 unit average,” he tells FOCUS.
The good news is that Kruger believes that this level should act as a firm base for growth once recovery starts, which is expected from February 2010. “However, the rapidly-approaching Soccer World Cup will place considerable demands on the country’s consumer goods distribution and passenger transport infrastructures, so short-term spikes in demand for MCVs, HCVs and buses could manifest over the next six months. These will supplement an expected recovery in extra-heavy commercial vehicle (XHCV) volumes driven by the continued national emphasis on fixed investment projects up to and beyond 2010,” he maintains.
Unfortunately, Kruger says several recent events are likely to prolong uncertainty. “Government utterances on proposals to reduce axle mass limits and a lack of clarity surrounding the legal road transport of high cube containers may discourage local operators from investing in expensive new equipment threatened with legislated obsolescence. Drastically reduced sales volumes in 2009 will also have dampened the risk appetite of truck manufacturers, importers and dealers, so buyers could find themselves facing shortages,” he says.
Kruger predicts that sales patterns this year could be erratic, with the market showing a measure of volatility. “Substantial firm orders for buses and coaches will have a positive influence on reported sales volumes as these units leave local plants or arrive at ports of entry during the first half of 2010,” he states.
Ultimately Kruger sees growth of between 3% and 5.5% for 2010, or 19 500 to
20 000 units. “Last year started a bit more optimistically, and then the wheels came off. We all hope this trend will not repeat itself again in 2010.” Kruger tells FOCUS. We couldn’t agree more!
Ettienne du Preez, general manager of Hyundai’s Commercial Vehicle Division, expects a tentative start to the year, with the second half seeing some growth. “I doubt that the overall commercial vehicle market will grow. However, LCV sales should continue to tick over; we are calling 3% growth in that market this year,” he predicts.
Du Preez expresses concern at the fact that “most construction work and contracts around the Soccer World Cup are nearing completion or have come to a standstill due to lack of funds”. He notes, “The MCV and HCV segments could contract by at least 2 to 5% as a result. Having said this, we hope for an increase in road freight transport, which could benefit the XHCV market to the tune of 2% growth at best. This may still happen if agricultural and mining activities improve, although the stronger rand doesn’t help prospects.”
Furthermore, Du Preez warns that the conclusion of construction projects will result in a number of used mixers and tippers hitting the market. “This could have a negative effect on new vehicle sales because companies with on-going road improvement contracts may be tempted to invest in used vehicles to reduce capital investment and increase profit,” he says.
The same is eventually likely to happen with buses. “Demand in the passenger transport sector during the World Cup will have a positive effect on the sale of buses with both large and smaller seating capacities, including 28-seaters and below. But what will happen to these vehicles after the Soccer World Cup?” Du Preez asks.
Craig Uren, chief operating officer of Isuzu Truck South Africa, predicts sales of 20 350 in the over-3 500 kg GVM market this year, “including a big bus component of around 2 000 units”.
He says that lack of access to finance will continue to inhibit the market. “The banks are not going to lend more money, especially after Dubai. They have shareholders, so they must start showing a return on investments and profits. While they will start easing up on lending very slowly and loosen the purse strings to a certain degree, don’t expect any fireworks in this regard,” he warns.
Uren believes that a number of negative realities will need to be faced this year. “Some companies are still in cost-reduction mode and the used truck market is scary,” he notes.
But there are many positive factors to consider. “The other side of the coin is: we have growth in the bus market as municipalities try to get some reliable public transport going. We need to deliver food, drinks and merchandise to stadiums, fan zones, pubs, restaurants and hotels during June, which will require trucks. We also have a certain level of fleet ageing, which operators will want to address as soon as they sniff any sign of a market upturn. Furthermore, most industries have run down inventories to lower-than-sustainable levels, so they must start production. We have passed the bottom of inventory liquidation,” he points out.
Furthermore, Uren says the world needs commodities. “As manufacturing orders start again it will take trucks to keep the exports rolling, because it will be many years before our rail service can deliver,” he comments.
While 2009 was largely a doom and gloom year for the industry, Eddy Chvatal, managing director of IVECO SA, is reasonably upbeat about prospects for 2010. He’s calling a 15% improvement in the truck market and a 15% increase in the spares business. On the downside, he says the bus market will decline by “at least 35%”.
He has reason to be upbeat about the truck and spares markets. “IVECO’s business in central, eastern and southern Africa now stands at in excess of R2 billion. We improved our spares and bus revenue by 15% last year, and – while the local truck market declined by 48% – our sales only declined by 42%, which means some market share gain,” he notes.
Of course, 2009 was not without its challenges: the company had to de-stock at dealership and manufacturer levels, for instance. And this year won’t be a bed of roses: Chvatal believes that the banks will continue to be cautious, which could inhibit sales. Having said that, he’s reasonably optimistic. “2010 will also be tough but we are starting the year on a good footing, with well manageable stock levels and acceptable financial exposure. I can also confirm the arrival of the 16- and 19-seater Power Daily in April,” he concludes.
MAN TRUCK AND BUS
Dave van Graan, management board member of business development trucks at MAN Truck and Bus, believes that there are clear signs of increased activity directly related to the derived demand for commercial vehicles. “For that reason, we are confident that 2010 will be no worse than 2009. The real art comes in predicting by which percentage markets will recover!” he notes with a smile.
From a common customs union perspective, MAN has pegged a conservative 5% growth onto the 2009 market size. As far as the African continent is concerned, Van Graan anticipates more record years for some countries where delivery on capital-intensive development projects is peaking. This could result in growth of up to 20% over 2009 figures.
“Africans have always been very resilient to adverse economic, social and political conditions. For that reason, our markets tend to ride the wave of cycle changes better than many others. We are nevetheless part of the world economy, meaning that a prolonged level of poor business sentiment will have a constrained effect on the availability of capital, resulting in lower-than-required credit availability, the slow recovery of production output and an unnaturally constrained demand for commercial vehicles,” he comments.
Kobus van Zyl, vice-president, Commercial Vehicle Division at Mercedes-Benz South Africa, is forecasting a moderate increase in the over-3 500 kg GVM market of between 3 and 5%. “We expect an increase of approximately 10% in the MCV market, mostly stimulated by Soccer World Cup-related activities, especially in the people transport sub-segment. We are calling a 5% increase in the HCV market, closely related to developments in the fast-moving consumer goods (FMCG) segment,” he tells FOCUS.
When it comes to the XHCV market, Van Zyl believes that there is sufficient existing capacity in the industry to support continued investment in infrastructure from both the public and private sectors. “A strong recovery in the sales of construction-related vehicles will follow additional infrastructure investments in both the private and public sectors. We also see some increased activity in service-related industries in preparation for the Soccer World Cup and beyond. We believe that the XHCV segment will grow in the order of 3% during 2010,” he predicts.
Despite very depressed market conditions during 2009, Mercedes-Benz’s Commercial Vehicle Division performed well, increasing its market share across all segments. “We were especially strong in the XHCV segment with an increase of 3,9%,” Van Zyl tells FOCUS.
John Barnett, dealer development manager at Navistar International Trucks Southern Africa, is holding thumbs for a better XHCV market this year. “Last year was a very bad year for XHCV sales, with the market falling over 54% in the 6×4 and 8×4 over-22 500 kg market sector. However, we are positive about 2010. Assuming that no unforeseen circumstances occur, the market should increase this year,” he believes. “With continued fixed investment spending on infrastructure, we are confident that the XHCV market sector for over-22 550 kg trucks could increase by more than 20% this year. This assumes that bank finance becomes more readily available.”
Chief executive officer of Nissan Diesel, Johan Richards, plans on a positive and optimistic note “to ensure we can maximize any opportunities that may arise”. This means that the predictions he shared with FOCUS are based on Nissan Diesel’s upper forecast level.
Be that as it may, like so many others in this industry (yours truly included), Richards is glad to see the back of 2009. “Nissan Diesel had a reasonably good 2009, finishing in third position overall and second in the combined HCV/XHCV market. But it was an uphill battle from beginning to end. Hopefully, we can look forward to an upswing in the commercial truck market. And because this is Soccer World Cup year, growth may just continue beyond 2010 as historically tends to be the case after a major sporting event,” he comments.
Richards expects some key factors to come into play. “The end of the recession is in sight. Then, also on the positive side, there is the impact of final preparations/logistics for the Soccer World Cup. On the negative side, the World Cup will mean a loss in trading days for the industry. But business confidence is improving and the leading indicators are up. We need to consider government expenditure post-2010 World Cup and the fact that Gross Domestic Product (GDP) is anticipated at 2% and GFCE at 0.7%,” he adds.
Ultimately, he believes that this could translate into market growth of about 15% to a total of 22 000 for 2010. See Table One for a specific breakdown of the market as Nissan Diesel sees it.
|SEGMENT||2009||2009 Split||2010 FC||2010 Split|
|MCV||7 227||38%||8 500||39%|
|HCV||3 839||20%||4 700||21%|
|XHCV||6 433||34%||7 400||34%|
|BUS||1 435||8%||1 400||6%|
|TOTAL||18 934||100%||22 000||100%|
NISSAN SOUTH AFRICA
Freddie Louw, product planning manager for Nissan South Africa’s marketing and planning division, admits that 2009 was a tumultuous year. “However, from a macro-economic perspective, while the South African automotive industry registered shrinkage of 27%, we expect a reversal of this trend; probably starting with a period of stabilisation in 2010 before stronger growth kicks in,” he tells FOCUS.
When it comes to the commercial vehicle market, Louw believes that the double cab segment may benefit as private consumers return to the market as a result of an easing in household debt and lower interest rates. “We also expect significant new model activity from current players in the one ton segment, as well as new entrants. Response Group Trendline (RGT) forecasts an increase of 27% in the LCV segment. From a Nissan perspective, although there should be growth in the commercial segment we don’t believe it will be as substantial as this,” he says.
Managing director of Peugeot, Jean Francois Bacos, expects the commercial vehicle market to pick up this year. But he says growth will be moderate: zero to 5% at best.
“The minibus and combi market could grow this year thanks to the soccer,” Bacos comments. He adds that the panel van market could also increase significantly.
Erwin Stolze, marketing manager at Powerstar, also expects the commercial vehicle market to grow during 2010. “There are a number of positive factors that could bolster growth: global markets are improving, the exchange rate is stable, there are World Cup spin-offs, the banks are becoming more flexible, and finance and exports are set to increase,” he says. With all this in mind, he foresees an 8% growth in the XHCV market this year.
However, he warns that there are a number of trends that could impact negatively on the market. “Following retrenchments during 2009, companies are reducing costs and down-sizing. They are also extremely cost sensitive. And we don’t know how much the Soccer World Cup will disrupt our economy: during the 1995 Rugby World Cup, most decision makers were unavailable. We are thus predicting low economic activity levels during June and July,” he tells FOCUS.
Like many of his contemporaries, Sebastien Delepine, general manager of Renault Trucks South Africa, agrees that 2009 was a very difficult year for any truck manufacturer with a huge downturn in market volume worldwide.
“2010 will remain challenging even though encouraging signs point towards the end of the recession,” he says, adding, “We based our forecast on a recovery of around 10% compared to last year’s truck sales.”
ROAD FREIGHT ASSOCIATION
While a series of both up- and down-bubbles and no real interim growth are expected on the international front, Gavin Kelly, technical and operations manager at the Road Freight Association (RFA), expects local business levels to be “pretty flat” after the World Cup.
Linked to this, Kelly sees the commercial vehicle market remaining on a plateau. “There could be far more use of yellow equipment and deepening pools of used vehicles. The used market will increase in volume terms. There are already over-stressed fleets looking at ways of ensuring maximum benefit for capital investments, with few real signs of transport revival,” he notes.
Kelly says that the best-case scenario would be an 8% increase on 2009, while used markets could increase by 12%. “There will be some movement in Government spending: civil projects, and the maintenance of power, water, sanitation, transport and health systems that are now beginning to fail. Also, there may be further developments in the agricultural sector and second-phase enterprises. Then there are the realities of congestion and infrastructure collapse, coupled with the role that rail transport will or will not play and the possibility of light-load distribution due to legislation and commodity policy changes from Government,” he comments.
Christoffer Ljungner, managing director of Scania South Africa, believes that the XHCV market should grow by “at least 15%” this year. “Last year, a number of customers were meant to replace their vehicles but simply could not afford to do so. They have now reached a stage where they must act; they have no choice,” he tells FOCUS.
Within the XHCV market, Ljungner is expecting more demand from long-haul operators and the mining industry. “We believe that the long-haul market will definitely grow this year. There are also signs that the mining industry is recovering, and so we expect a slight increase in this market. We don’t envisage more demand from the construction sector though; much of the construction work has been done and the roads have been built,” he explains.
Ljungner says Scania intends capitalising on the growing XHCV market. “During 2009, we grew our market share from 3.4% to almost 9%. We achieved this by offering the right product, in-house finance and delivering a superior level of customer support. That’s especially important in difficult times; customers want to buy from someone on whom they can really depend. We obviously want to maintain that market share and, if possible, improve on it this year,” he adds.
According to Andrew Kirby, Toyota South Africa’s senior vice-president: sales and marketing, there is a general expectation that the entire market – including passenger vehicles and non-reporters – will stabilise from its dramatic decline during the last two years and that total vehicle sales will grow marginally from 395 000 to around 415 000 vehicles this year. “Our own expectation is that the commercial vehicle market, notably the LCV sector, will mirror this movement and that LCV sales should account for roughly 28% of the market, or 120 000 vehicles, in 2010,” he maintains.
Growth is likely to depend on several factors. “The country’s GDP should show positive growth, especially because of an anticipated influx of foreign currency during the Soccer World Cup. However, most related infrastructure projects are nearing completion, which could dampen commercial vehicle sales. The sale of LCVs is unlikely to be affected the same way,” he adds.
According to Kirby, thanks to the depressed economic climate the market has moved its buying preference slightly more in favour of used vehicles. “It’s not clear what impact this trend will have on new vehicle sales during 2010, so keep an eye on it,” he advises.
As a manufacturer of bus and coach chassis, VDL’s outlook for 2010 is positive, although Sam Mansingh, managing director of VDL Bus and Coach, does point out that whereas 2009 was a year for orders in the bus sector, 2010 is more a year for deliveries.
“There will definitely be an upward trend for sales this year, although much of the orders within the commuter sector will be based on government’s decisions with tenders,” he adds.
Jaco Steenekamp, national sales manager at Volkswagen Commercial Vehicles, predicts that the LCV market will grow by 5% to approximately 122 000 units this year. “In the LCV market, the one ton pick-up segment grew fastest in 2009, now representing 59% of that sector. But although the LCV market seems to have turned positive, recovery is expected to be slower than after the previous downturn,” he comments. Volkswagen will introduce its Amarok double cab into this market during the third quarter of the year.
In Steenekamp’s view, the MCV market will grow by 2% to approximately 7 400 units this year. “There is more activity than usual in the large panel van segment, with strong demand for taxi and ambulance applications,” he concludes.
Like most of his colleagues Anders Lindblad, president of Volvo Southern Africa, says the 2010 FIFA World Cup is pivotal to market performance. “Together, the movement of this many people and the transport infrastructure required to support related catering and hospitality activities will have significant implications for the vehicle manufacturing industry,” he maintains. Lindblad believes that the commercial vehicle market will grow by 10% this year.
When it comes to the number of passenger vehicles required, most of the coaches and buses entailed have already been ordered and will be delivered early this year. “Volvo has a share in supplying a number of buses to certain cities for the event. The final negotiations for these buses will soon be concluded and announced,” he says.
Turning to trucks required by the construction sector, Lindblad says that most of the vehicles needed to support infrastructure development were purchased during 2008 and 2009. “I don’t see significant growth in this sector for 2010 because roads and stadium projects should be close to completion,” he adds.
However growth is likely to take place in the FMCG sector, with refrigerated, fresh and dry goods being in high demand. “While the events themselves only take place over a four-week period, a related spin-off is likely with visitors staying to tour and travel. Transport companies will have to balance the high short-term demand against the long-term demands of a recovering economy,” reflects Lindblad.
He also believes that the mining sector will improve during 2010, with increased demand for the reliable transport of raw materials from mines to related industries; particularly in the coal and power supply sectors.