2013 one of the best

With 2013 ending on a much higher note than expected, how will the market behave in 2014?

A strong fourth quarter result drove the 2013 South African truck market to a new post-2008 record level of 30 922 units, which was also the fourth highest annual volume ever registered in the market’s documented history, ranking immediately below the three highest annual volumes for the market of 37 422, 35 002 and 33 139 units, recorded in 2007, 2008 and 2006, respectively.

The year total resulted in year-on-year growth of 11,1 percent, when compared to the equivalent 2012 outcome. This was a highly positive result for the local commercial vehicle industry, and substantially better than the most optimistic forecasts ventured at the beginning of the year.

It was made even more remarkable by the fact that, during the second half of the year, disruptive industrial action had afflicted the motor sector at several levels, including component supply, vehicle assembly and the delivery of completed units from assembly plants and ports. These strikes affected the processing of vehicles and their movement between factories, dealers, bodybuilders and end-users to varying degrees.

In the quarter-on-quarter comparison with the period immediately preceding July to September, the fourth quarter market performance reduced by a margin of 2,8 percent. This was to be expected, given the reduced number of working days available in December to process vehicle deliveries. Nevertheless, the market continued to exhibit considerable strength through the second half of 2013, when its average monthly sales volume, at 2 678 units, was considerably higher than the 2 476 unit average achieved during the January to June period.

The reasons for this improved trend have been quite difficult to establish, given that reported business confidence in South Africa has been quite erratic – being strong in some recent months and benign in others. However, the financing environment has been positive, with local interest rates at 40-year lows and indications that risk-averse operators have been shortening their fleet replacement cycles, taking full advantage of deal packages that underwrite the operating costs of new vehicles for periods of up to five years.

The growing business momentum between South Africa and its northern neighbours has also been beneficial to both the demand for new premium long-haul vehicles, and export opportunities for the quality used vehicles coming off terminated local full-maintenance leases.

The 2013 market result was beneficially influenced by substantial orders for a wide variety of trucks from major municipalities, new bus deliveries to bus rapid transit (BRT) systems and normal stage carriage services in Johannesburg, Cape Town and Tshwane (Pretoria).

Despite considerable publicity being afforded to the roll-out of Transnet’s “Market Demand Strategy”, and its associated R300-billion hardware procurement programme, as well as its recently announced logistics partnerships with Imperial and Barloworld, there is little evidence to suggest that freight migration from road to rail has taken place, as yet, and long-distance road transport continues to underpin local economic activity. This is likely to remain the case until the rail mode establishes a consistent ability to deliver “on cost, and on time”.

Segmentation dynamics

In reviewing the segmentation profile of the market at the end of 2013, it appears that very little has changed over the past 12 months. The heavy commercial vehicle (HCV) and extra-heavy commercial vehicle (EHCV) segments returned market shares in 2013 of 17,7 percent and 41,5 percent respectively, which differed by less than one full percentage point from their respective 2012 positions, of 17,9 and 41,7 percent.

The bus segment lost ground in 2013, returning a market share of 3,4 percent, compared to 4,1 percent in 2012, but the available space was taken up by the entry-level medium commercial vehicle (MCV) category, which improved from 36,3 percent in 2012, to 37,5 percent in 2013.

The deterioration in performance of the bus segment was largely owing to the fact that the substantial provincial school bus contract deliveries, that had taken place at the end of 2012, were not repeated during the year just completed.

The 2013 profile saw premium payload EHCV units retaining leadership of the market, while in recent months the MCV segment has started to recover from the reduced market share performances that it had returned for much of the 2008 to 2012 period. As we have noted previously, this segment is extremely diverse, being made up of light truck chassis, integral panel vans and their derived bus and tipper models.

Typical MCV operators also vary enormously, ranging from suppliers of consumer goods and their associated logistics service providers, through small businesses, fast freight companies, local and provincial authorities, taxi and tour operators, to a host of service industries active in large and small towns across the country.

A recovery in MCV sales is, therefore, a positive sign that, despite generally benign local and offshore macro-economic conditions, broad-based South African business has continued to function normally.

The cruiserweight HCV category has, over the past three years, stabilised its market share at around 17 percent, after having occupied levels closer to 20 percent since the turn of the millennium. Reasons for this repositioning appear to include an increasing use of heavier multi-axle EHCV vehicles in the distribution sector, where HCV units are predominantly employed, and some price-related downward drift into the upper echelons of the MCV segment, where physically smaller trucks with nominal payloads of around five tonnes are becoming increasingly common.

Some of this displacement may have been encouraged by HCV product shortages caused by the 2011 Tohoku tsunami in Japan, from which country the majority of HCV units are sourced. However, that factor has now been washed out of the market and Japanese vehicle availability has returned to normal.

As noted earlier, the performance of the bus segment in 2013 ended below 2012 levels, but expectations of a recovery still prevail. These are based on a number of major programmes supporting the roll-out of integrated public transport networks in 13 cities. The future recovery in the bus segment will however, depend heavily on the government’s continued ability to aggressively fund the progression of these BRT projects and their supporting feeder networks.

Finally, in the review of application performance within the entry-level MCV segment, it should first be remembered that many bus units are included in the panel van grouping, while some tippers are still being lumped together with chassis-cab derived freight carriers. The reported MCV segment application penetration levels for the fourth quarter were: freight carriers 59,9 percent, integral vans 36,2 percent, buses 0,9 percent and tippers 3,1 percent. There has been no radical change in this pattern over the past year, but it should be noted that, since AMH/AAD has entered the reporting arena, the incidence of tipper sales has increased slightly.

Manufacturer performance

The accompanying chart illustrates the relative market performance and ranking of each participating manufacturer in the year just completed, as compared to the returns for the previous year.

The groupings contained in this section of the report are based on the rule that, if a manufacturer/group sells more than one brand through its distribution channels, then all sales for those brands will be consolidated in the result for the manufacturer/group. Thus, Mercedes-Benz includes Freightliner and Fuso, Toyota/Hino contains both brands. MAN includes Volkswagen (Constellation) trucks and Volksbus passenger units, but not VW commercial vans (listed separately), while Volvo Trucks includes UD Trucks as well as Mack and Renault. This last change recognises the very visible and freely acknowledged connection that now exists in South Africa between the Volvo Group and UD Trucks SA, and the recent announcement of some dealer outlets representing all three brands.

Readers should please note that 2013 was the first full year in which Chinese brands FAW and JMC have been included in this analysis, so there is no basis for year-on-year performance comparisons for these marques. It was also the first full year in which the Volvo Group was reported collectively, but we have included the aggregated 2012 result for Volvo, Renault and UD in order to present a meaningful comparison in this analysis.

Mercedes-Benz SA

Mercedes-Benz retained its long-held premier position in the SA truck market through 2013 with an 8,4 percent improvement in total volume sold over its 2012 outcome. This resulted in a small (0,4 percent) reduction in market share in the year-on-year comparison. The group ended 2013 with 25,8 percent overall market penetration and headed the listings in both the MCV and EHCV segments.

Its individual brands achieved 2013 market shares of 17,2 percent (Mercedes-Benz), 4,6 percent (Freightliner) and four percent (Fuso), compared to 18,4 percent, 4,6 percent and 3,5 percent, respectively, in 2012.

In addition to radical Freightliner and Unimog concept vehicles, the latest European-spec Actros (in 4×2 format) and the new Mercedes-Benz Sprinter van range (with seven-speed automatic transmission), MBSA exhibited an example of the eighth-generation Fuso Canter MCV truck at the Johannesburg International Motor Show (JIMS). This model, with its pioneering twin-clutch automated transmission, is expected to enter the South African market during 2014.

Volvo Trucks

This Volvo-led grouping, which includes Renault and UD Trucks, occupied second position in the overall 2013 market rankings, resulting in a “no-change” situation when compared to the consolidated 2012 Volvo and UD total (reported separately in our 2012 review). In the year-on-year comparison, group total sales volume increased by 3,3 percent, but, in the growing market, this resulted in a 1,2 percent reduction in market share, with the alliance finishing 2013 at 16,4 percent.

Of the individual brands, 2013 market shares worked out at 5,7 percent (Volvo), 0,7 percent (Renault), and 10 percent (UD), each of these being lower than the equivalent 2012 outcomes by less than one full percentage point. However, thanks entirely to UD’s contribution, the group maintained its leadership position in the HCV segment during the past year.

The Volvo Group was absent from JIMS, but held its own concurrent launch at Gerotek featuring the new Volvo FH (recently crowned 2014 International Truck of the Year), FM and FMX truck ranges. Unfortunately this decision ruled out exposure for group brands Renault and UD over the show period, despite substantial new model activity being reported overseas for both marques during 2013. However, it has been announced that UD’s new Quester “emerging markets” truck family will be coming to South Africa during 2014, and that the group will launch an additional new truck brand, positioned initially in the MCV segment, during the year.

Isuzu Truck SA (GMSA)

An outstanding fourth quarter result has propelled Isuzu Truck SA to third position in the 2013 market rankings – an improvement of one position on its 2012 outcome. This was accompanied by an astonishing 28,7 percent year-on-year improvement in sales volume, spread across all three goods vehicle segments, and elevation from a 2012 market share of 11,2 to 13 percent in 2013. This outcome indicated excellent market acceptance of Isuzu’s current N- and F-Series product line-up and fully endorsed the recent introduction of product enhancements, such as automated transmissions, crew cabs and all-wheel-drive to the local market.

It also reflected efficient logistical management of the opportunities provided by large-scale orders that were placed by local authorities and other major operators during the latter part of 2013.

The main thrust of Isuzu’s activities at and around JIMS was understandably the announcement of an increased 70 percent shareholding in the local company by its Japanese parent, Isuzu Motors Limited. In addition, there was a new product launch in the form of the AMT-equipped NMR 250 MCV category model with crew cab.

Hino/Toyota

The truck specialist division of Toyota SA returned volume growth of 8,7 percent in the comparison between the 2013 and 2012 calendar years, but ending the year in fourth place, gave up 0,3 percent in market share and one ranking position.

With an eye to improving its EHCV segment performance, Hino extended its 700 Series line-up at JIMS to include new 6×4 and 8×4 freight carrier models, and Euro-4 engines. It also added a 26-tonne GVM 6×2 freight carrier model to its mid-range 500 Series, and introduced a new Busmark-bodied midibus built on a Hino 300 Series chassis.

MAN Group

MAN’s South African operation, which also distributes and supports Volkswagen’s Brazilian-sourced Constellation trucks and Volksbus passenger models, was placed fifth in the 2013 market rankings – the same position it had occupied one year earlier. However, a 3,4 percent reduction in total sales volume resulted in a loss of slightly more than one full percentage point in market share in the year-on-year comparison, with the group finishing 2013 at the 6,7 percent penetration level.

MAN’s long-standing leadership of the bus segment was retained, and the group has recently announced the receipt of substantial new orders for its passenger products. However, both constituent brands suffered a loss of overall market share in 2013, with MAN finishing at 5,7 percent (6,2 percent in 2012) and VW at one percent (1,5 percent in the previous year).

The MAN Group operated out of its impressive stand-alone facility at JIMS, exhibiting a wide range of MAN and VW trucks and buses, including new TGS 6×6 and 8×4 models.

Tata

Tata’s 2013 full-year performance differed very little from its profile of one year earlier, with a 7,4 percent improvement in sales volume being neutralised, in terms of penetration, by market growth. Full-year market share fell slightly from 5,5 percent to 5,3 percent, although sixth position was retained in the overall rankings.

Tata’s JIMS exhibits included several models from the Prima “world truck family” and the new Ultra MCV, which is due to enter the local market during 2014.

Scania

Scania returned a substantially improved performance in 2013 when compared to its 2012 outcome, gaining an impressive 22,1 percent in sales volume, and half a percentage point in market share, to end the year at the 5,3 percent penetration level. This resulted in the retention of seventh position in the overall market rankings.

Scania’s 2013 JIMS exhibits included the latest flagship Streamline range of premium haulers, the Megatron G380 8×4 mining tipper, and the Touring coach range.

Iveco

Recent announcements, including the setting up of an assembly joint venture in Rosslyn, have suggested a rejuvenation of Iveco’s South African operation. The results achieved in 2013 indicated that a positive direction had already materialised, with sales up by 23 percent over the brand’s 2012 outcome. This generated a market share improvement of 0,4 percent, although the 2012 market ranking position of eighth was retained.

Iveco returned to JIMS in 2013 with a most impressive stand and display. Products on show included the latest Stralis Hi-Way, Trakker Hi-Land and Hi-Track, Euro-3 Eurocargo, Daily and 180E front-engined bus models. It has been suggested that a number of additional new products are also destined for the local market.

Powerstar

Having achieved an increase of 7,9 percent in 2013 sales volume over its 2012 result, Powerstar’s market penetration level was maintained at around 1,7 percent, although this Chinese manufacturer’s ranking improved from 11th to tenth position.

Powerstar’s JIMS exhibits included the construction-specific VX range and the newly-introduced V3 2646 long-haul tractor.

AMH/AAD

A muted result in the final quarter of 2013 caused the Korean-sourced Hyundai HD series of light trucks to lose 0,2 percentage points of market share in comparison with the brand’s 2012 outcome of 1,6 percent. This may have been caused by restricted product availability out of South Korea, where motor industry strikes had taken place earlier in the year. However, owing to market dynamic shifts, AMH/AAD improved its market ranking from 12th to 11th in the same comparison.

FAW

Chinese manufacturer FAW commenced sales reporting to Naamsa at the beginning of 2013, and consequently appears in this annual report for the first time. This has precluded any analysis of past performance, despite FAW’s physical presence in the local market for two decades. At the end of 2013 however, FAW occupied 12th position in the market rankings, with a share of 1,1 percent.

With its new Coega assembly plant now complete, FAW used JIMS for building brand identity, and made a strong statement of intent and commitment with the comprehensive range of products, including the J6 linehaul model, on display.

JMC

JMC was the other Chinese manufacturer to join the Naamsa reporting community during 2013, and currently reports only in the MCV segment. The lack of corresponding 2012 data does not allow for any comment on relative performance, but it can be reported that the brand achieved 0,7 percent overall market share at the end of 2013, and occupied 13th position in the market rankings.

NC² – International Trucks

At the end of the third quarter, we commented on the fact that, during September, this manufacturer had recorded a zero sales return. No further sales were registered for the entire final quarter of the year, and this has resulted in a drop of more than 64 percent in year-on-year sales volume – a reduction in market share from 2,1 percent in 2012, to 0,7 percent in 2013, and demotion from tenth to 15th position in the market rankings.

We are still no wiser as to the future of International trucks in South Africa, and anxiously await some announcement regarding future plans of a marque that has been present in South Africa for around 90 years.

Babcock/DAF

An improved 2013 performance by the local distributor of DAF trucks was underpinned by a 33,7 percent year-on-year increase in units delivered, from 86 to 115 units. This resulted in a market share improvement of 0,1 percent, elevating the 2013 level to 0,4 percent.

Babcock’s stand at the 2013 JIMS contained both products and services on offer to the local market, and it was announced that a 120-unit order had recently been received from Reinhardt Transport.

VDL

Bus chassis specialist, VDL, exhibited a basically unchanged product portfolio at JIMS and, despite a 42 percent reduction in sales volume, from 33 units in 2012 to just 19 units in 2013, the manufacturer remains resolutely committed to the local market. Overall market share during 2013 was less than one full percentage point, and VDL’s ranking fell from 16th to 19th in the year-on-year comparison.

European van manufacturers

Four vehicle manufacturers have competed only in the MCV segment of this market, with European-sourced integral van-derived products during 2013. These are Volkswagen Commercials, Peugeot, Citroën and Fiat. During 2013, the first three of these achieved improvements in overall market share, by margins of 0,3, 0,01 and 0,3 percentage points respectively.

Citroën registered a remarkable volume increase from only 11 units throughout 2012, to 115 units in 2013, owing to more effective exploitation of the local market for midibuses during the final quarter. Among these brands, only Fiat suffered a reverse in the year-on-year comparison, losing 0,1 percentage point of market share, and being demoted from 14th to 16th position in the market. VW, Peugeot and Citroën occupied ninth, 14th and 17th positions in the market rankings, respectively.

Non-reporting manufacturers

Readers should note that local sales volumes of several commercial vehicle brands, including Dong Feng, Yutong, Foton and Ashok Leyland, are not yet reported to Naamsa. They are therefore, excluded from the comments and data contained in this report.

GENERAL MARKET COMMENTS:

The steady growth in monthly market volumes during the course of 2013, and the strong December result, which was a full 25 percent better than the equivalent 2012 outcome, suggests that there is still considerable momentum in commercial vehicle sales activity.

It was noted that the Naamsa consensus forecast, as published with the December sales report, suggested overall truck market growth of only 3,4 percent in 2014, which is considerably less than the 11,1 percent margin recorded in 2013 over 2012. If this outcome is to materialise, there will have to be a considerable slowing down in demand after the first few months of the this year, and if the recent scenario of rand weakness persists, vehicle and parts prices are likely to come under pressure going forward.

However, there is no present indication of impending economic collapse and the financing environment, with interest rates still at 40-year lows, remains positive. The commercial vehicle industry can, therefore, view prospects for 2014 with some confidence.