Continent in crisis

This month we focus on the transport industry in Western Europe. Europe was hit hard by the global economic downturn. What are the latest trends in this market and are there signs of recovery? DAVID SHEPHERD investigates.

In May 2008 the European Automobile Manufacturers Association (ACEA) announced that there was a year-on-year dip in sales for that month in Europe, but it said this was balanced by the fact that there was an increase in year-on–year new vehicle registrations for the first five months of 2008. A catastrophic economic collapse ensued. Now, in mid-2010, there are signs that the recession and the crisis in the commercial vehicle sector is bottoming out.

The global recession prompted freight companies to put off ordering vehicles. In January 2010 the resulting contraction had persisted for 21 months, according to the ACEA. The reason this global recession had such implications for truck manufacturers was that, according to Matthias Wissmann, president of the German Association of the Automotive Industry, in Europe road freight accounts for more than 72% of the total volume of freight transport. So when there is an economic slump, the road freight industry contracts, making margins of truck manufacturers slimmer.

Wissmann said that in 2009 commercial vehicle sales fell to half their previous levels, even for major manufacturers, and for some manufacturers, sales even slipped 80%. If manufacturers thought 2010 would bring them significant relief, with growth in road freight transport in Europe, they have been disappointed. In late May Business Monitor International restricted its eurozone growth forecast to 1% year-on-year for 2010, after the estimated 4% contraction in 2009. Coming off such a low base, that is barely encouraging.

And some industry commentators don’t believe that things are going to get any better. Managing director of Astra Trucks South Africa Andrea Ceccarelli sees the European commercial vehicle market declining after the European summer holidays. “The sentiment is negative – European companies expect the worst. The market will definitely decline in Europe in 2010 – even in Eastern Europe, which has traditionally been more buoyant. The only market that will buck the trend is Germany.” Ceccarelli says governments simply don’t have money. “So there is limited public spending as a result, and companies have spent all their reserves. The construction industry, in Italy, for instance is flat,” he tells FOCUS.

Others are more optimistic. According to Wissmann, forecasters believe global economic growth for this year should be up 4%, with emerging economies seeing the most growth. Member of the board of management Daimler AG Commercial Vehicles Andreas Renschler confirms this, saying, “With economic growth comes growth in the commercial vehicle market. We can see this with the overall growth in the BRIC markets.” MAN chief executive officer Georg Pachta-Reyhofen said recently that China’s truck market didn’t collapse at all, warning that for Europe “by 2012 or 2013, we’ll be back at pre-crisis levels, although not at the record sales” of 2008. In a mid-June statement Standard & Poor’s said because demand will be flat, in their view, this will leave the industry in a position of persistent rather than temporary overcapacity, in spite of truck makers’ ongoing cost cuts that will likely improve financial results from the very weak levels of 2009.

Some manufacturers have been able to negotiate the European downturn by taking advantage of the global market. China, for instance, had 30% of the heavy vehicle segment in 2008 but now holds 40% of it. In Europe, for now, only the light commercial vehicle sector has bucked the trend of stagnating or declining sales for any length of time now. This is down to increased spending by small businesses. It was only in May 2010 that the heavy vehicle segment reported growth again, for the first time since September 2008. The recent trend of increased new registrations continued in June such that Wissmann could declare, “This clearly shows that the heavy segment has also turned the corner.” Overall there has been a slight increase in volume year-on-year from 2009. In Western Europe from January to June 835 265 commercial vehicles were registered, compared with 777 964 during the same period in 2009. But these figures are significantly weaker than those of 2008.

Wissmann confirmed the state of play in Europe, saying of 2010’s more positive global economic outlook that “this expansion will not be equally dynamic everywhere. We expect to see continued dynamic growth in the emerging economies, but a more moderate trend in Europe.” In July MAN’s Pachta-Reyhofen summed up the situation when, looking toward a brighter future, he said that “2011 is undoubtedly going to be a much better year. Still, we shouldn’t forget that more than half our market has just collapsed. It will be a while before we get back to the level of 2008 – especially in Europe.”