Market focus – first quarter: encouraging beginnings
While the results for the first quarter of 2010 have been encouraging, and should provide a firm platform for market growth until at least the middle of the year, FRANK BEETON believes the situation beyond July remains extremely difficult to predict.
This commentary reflects the state of the South African truck market for all commercial vehicles with gross vehicle mass (GVM) ratings above 3 500 kg, as reported to the National Association of Automobile Manufacturers of South Africa (Naamsa). In line with the current reporting regime of that organisation, the market has been divided into the following segments:
MCV – medium commercial vehicles, GVM 3 501 to 8 500 kg
HCV – heavy commercial vehicles, GVM 8 501 to 16 500 kg
XHCV – extra heavy commercial vehicles, GVM 16 501 kg and above
Buses – passenger vehicles, GVM 8 501 kg and above.
The review period for this commentary is the first quarter of 2010: January to March, 2010, inclusive.
These reviews are presented on a quarterly timescale, in order to reduce the impact of short-term market distortions which are often created by specific bulk-buy deliveries, the launch of new products, and/or the run-out of obsolete product ranges.
TRUCK MARKET RESULTS
Following a disappointing year in 2009, when sales volumes returned to levels last seen in 2003/4, the truck market has shown significant signs of recovery during the first quarter of 2010. In comparison with the final quarter of 2009, the January-March 2010 period returned total volume growth of 15.6%, with substantial gains across all four constituent segments. This quarterly performance was slightly compromised by a relatively weak start in January, when the supply pipeline was depleted by an uncharacteristically strong December 2009 outcome, and was further restricted by the abbreviated number of working days available in the first business month of the New Year. Upward momentum only commenced in February, accelerating further in March – with that monthly market volume being higher than any equivalent total recorded during the preceding fifteen months. It was also notable that, at the end of March 2010, the rolling 12-month total for this market was showing absolute numeric growth for the first time since April 2008.
Some of this momentum can probably be ascribed to the delayed fulfilment of vehicle acquisition plans that were frustrated during 2009 by intending purchasers’ inability to secure asset financing. There is a general perception abroad, however, that the financing environment has improved, and this has been supported by press statements made by management in the vehicle supply industry. It has also been noted that Wesbank, in particular, has been establishing new business partnerships in the truck industry, signalling that it is moving aggressively into the heavy vehicle financing arena. This will be welcome news for operators seeking to balance the capacity of their fleets ahead of the increased business tempo anticipated before the 2010 FIFA World Cup tournament starts in June.
During the first quarter of 2010, the premium XHCV segment has returned to a market leadership position. Recently, influences at work in the market had resulted in completely irrational “mirror image” relative movements between XHCVs and the entry level MCV segment through 2009. This pattern defies rational explanation, as MCV and XHCV vehicles are not competitive with each other. Typically, MCV-class vans and trucks are used in urban areas servicing consumer and service sector demands that require carrying capacities of up to four tons. By comparison, XHCVs are used at the extreme upper end of the distribution sector, for hauling upwards of thirty tons of freight on the country’s line-haul routes, or lugging extremely heavy rocks or earth around quarries or construction sites.
A more compelling reason for the apparent “competition” for market leadership between these two categories lies in their respective price positions. Over the past year, the volume-weighted average unit price of MCV trucks and vans was some R275 000 per unit, whereas the equivalent position for XHCV trucks was slightly more than R1 million per unit. In a situation where financing of fleet acquisitions was extremely challenging, it follows that an MCV purchase would have been considerably less difficult to fund than an extra-heavy unit. It is also significant that MCV’s are often bought in single-ton deals, whereas fleet purchases of 50 or more XHCVs are not uncommon.
It will also be noted that the cruiserweight HCV macro segment, consisting of the larger 4×2 units with nominal payload capacities from 5 to 9 t, has recently dropped somewhat below its long-sustained 20% market penetration level. The previously described financing scenario may have pulled some purchases from this area down into the upper reaches of the MCV segment, and it was also notable that the integral panel van component of that group gained segment share during 2009. HCV models are mainly used for the distribution of fast moving consumer goods, and thus will have an important role to play in supporting Soccer World Cup 2010.
The recent substantial upturn in the bus segment market share – which is now approaching levels only visited once before in the past ten years – is a clear reflection of the recent attention that has been given to South Africa’s woefully inadequate public passenger transport infrastructure. Deliveries of vehicles required for supporting the World Cup, in both urban and intercity applications, are now well under way and can be expected to continue during the first half of 2010.
See Chart 1, which illustrates the relative market performance and ranking of each participating manufacturer in the quarter just completed, as compared to returns for the immediately equivalent preceding period.
Readers should please note some changes to the groupings of manufacturers contained in this section of the report. The rule employed is 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 trucks, but not VW commercial vans (listed separately); GMSA includes Isuzu and Opel; Volvo Trucks includes Mack and Renault; and Super Group has now become PowerStar and distributes only Bei Ben products. DAF trucks and VDL buses/coaches are now listed independently.
The Mercedes-Benz SA Group continues to hold prime position, with improved volumes and market share compared to the final quarter of 2009. Volume growth of 32.7% resulted in a market penetration improvement of more than four percentage points, with the group having accounted for just less than a third of the total market. All three brands – Mercedes-Benz, Freightliner and Mitsubishi Fuso – returned improved individual market share percentages in terms of this comparison, while the group led the MCV, XHCV and bus segment rankings overall. Bus sales, in particular, were extremely strong, thanks to deliveries of SWC 2010 units to the PRASA division of Transnet.
Hino/Toyota regained its customary second position in the market during the first quarter of 2010, despite some product availability challenges at the beginning of the period. A quarter-on-quarter volume improvement of 9.5% was recorded, which, in the higher total market volume environment, resulted in a slightly reduced share of 12.1%.
Nissan Diesel (NDSA), soon to be renamed UD Trucks South Africa, experienced a somewhat turbulent first quarter. Running counter to the overall market trend, total sales volumes were off 8.6% compared to the last quarter of 2009, which pulled market share down by nearly 2.75 percentage points; and demoted NDSA from the runners-up position achieved during the previous quarter to its more customary third place ranking in the January-March period. However, this manufacturer dominated the HCV segment in the most recent quarter, picking up considerable momentum in the XHCV grouping. Most of the momentum lost could be traced back to the MCV segment, where rapidly diminishing volumes through the January-March period are surely indicative of an upcoming product event.
Following an extremely disappointing showing through 2009, Tata experienced a considerable turnaround in the first quarter of 2010. With a reported sales volume nearly double that recorded in the October-December timeframe, and spread across all three goods vehicle macro segments, Tata’s market share increased from 3.4 to 5.7%, with a market ranking improvement of 3 positions, ending the most recent quarter in sixth place. This improvement suggests a considerable easing in the financing environment for the smaller fleet and driver/operators who make up the traditional support base for Tata in the SA market.
This most recent quarter sees the first grouping of Volkswagen truck and bus sales within the MAN family, although VW’s Crafter van range is still reported independently (see previous page). Overall group volume performance (adjusted to include equivalent VW volumes in the previous quarter) improved by 14.2%, with a slight reduction in market share to 8.1% for the most recent review period. Bus sales were the main culprit for this loss, while XHCV volumes were considerably improved on their fourth quarter 2009 level. MAN’s traditional bus segment leadership position was usurped by Mercedes-Benz during this quarter, and may remain under threat for some time as large-volume SWC- and Gautrain-related orders are delivered through 2010.
Although the recent launch of Isuzu’s new F-Series came too late to affect first quarter results, fourth-placed GMSA’s market performance improved to the extent of a 19% increase in unit volume, and a 0.3 percentage points increase in market share to reach just below 10% penetration for the quarter. Following in the successful footsteps of the N-Series, the new product has consolidated the “family” feel of the Isuzu range, and promises to enhance future market performance, with innovative crew cab and all-wheel-drive models included in the lineup.
Volvo Trucks occupied seventh position in the quarter under review, having achieved a 56% improvement in quarter-on-quarter sales volume, an almost 1.2 percentage points increase in market share, and a three-positions elevation in market ranking. Although Volvo reported no bus sales during this quarter, it can be expected to make a return to this category later in the year when the first BRT units are delivered for operation in Port Elizabeth.
Following an extremely strong showing in 2009 – supported by aggressive promotion and use of in-house financing facilities, and deliveries of BRT buses for Johannesburg’s Rea Vaya system – Scania came off the boil somewhat in the first quarter of 2010, losing 27% in volume, nearly two percentage points of market share, and two market ranking positions.
Despite a considerably improved performance with Daily vans during the quarter just passed, Iveco slipped to the tune of more than 21% in reported volume sales compared to its last quarter 2009 result, losing 1.3 percentage points of market share to end in 11th position: three places below its previous ranking. The primary reason for this loss of momentum was the apparent drying up of Irisbus/Dubigeon bus deliveries to the Putco organisation.
• Navistar International recorded substantial volume growth, the gain of just more than 20% increasing market share to 2.8%, and providing a one position improvement in market ranking to finish in tenth spot. With the first tangible evidence of the roll-out of the NC2 global alliance with Caterpillar having recently emerged in Australia, the local market eagerly awaits developments.
• PowerStar (formerly Super Group Industrial Products) gained 37.5% in volume, and 0.2% in market share, while retaining 12th position among market participants. PowerStar has gained financial support from principals in China, and now deals exclusively in Bei Ben products in South Africa.
• The formerly co-listed DAF and VDL brands fared less well, with the former being slightly off in market share, and one position down at fourteenth in the rankings, while VDL failed to report any bus or coach deliveries during the quarter under review.
Several vehicle manufacturers compete in the MCV macro segment of this market only, with European-sourced integral van-derived products. Of these, Peugeot (13th position) and Fiat (15th position) recorded improved quarter-on-quarter market shares, while Volkswagen Commercials (eighth position) and Nissan (sixteenth position) gave up some market penetration.
Readers should please note that sales volumes of several commercial vehicle brands, including FAW, Warrior (Dong Feng), Hyundai and Ashok Leyland, are not reported to NAAMSA, and are, therefore, excluded from this report.
GENERAL MARKET COMMENTS
While the results for the first quarter of 2010 have been encouraging, and should provide a firm platform for market growth until at least the middle of the year, the situation beyond July is extremely difficult to predict. The current debate over the quantum of foreign World Cup visitors, and its final outcome, will play an important role in determining the local business mood in that period; and there is considerable risk that a “mirror-image” decline could take place later this year, when under-utilised – and possibly sub-optimal, newly-purchased delivery goods vehicles and coaches – find their way, prematurely, into the second-hand market. If this occurs, it is likely to inhibit new commercial vehicle sales through the second half of 2010.
The situation during the run up to the World Cup period also contains some potential risks. It is quite likely that some panic short-term fleet supplementation will be necessary, resulting in extreme short-term market volatility. This could also put pressure on the availability of the preferred product choices of some very large fleets, and provide alternative suppliers with a bonanza if they happen to have stock available. In the bus arena, while there are a number of new urban transportation initiatives – including Bus Rapid Transit systems – in the process of being rolled out, Government still does not appear to be in sufficient control of the minibus taxi industry to enable these to materialise at the desired rate. This segment is still, unfortunately, subject to a great deal of political influence and, consequently, also exposed to extreme volatility.
Thankfully, some sanity seems to have returned to the earlier dispute between enforcement authorities and line-haul operators over the legal road transport of high cube containers out of South African ports; and action has been taken by central government to avoid unilateral actions by individual provinces to stop the flow of goods. However, it remains critical that this matter be formally resolved sooner rather than later, and that similar potentially crippling issues – including highly illogical half-baked proposals for reductions in permissible axle loadings on selected roads – are not allowed to impact negatively on the national economy in the future.
Looking further ahead, it is noteworthy that some R400 billion in capital projects is still planned by the country’s public and private sectors in the 2011-2018 timeframe. This level of fixed investment activity should maintain impetus in truck sales, particularly in the XHCV macro segment. In a recent informal survey conducted by FOCUS magazine
among supply industry representatives, forecasts for the 2010 calendar year truck market averaged some 20 500 units: 8.5% higher than the 2009 result of 18 934 units. Superficially, this appears to be a conservative projection, possibly reflecting a reduced level of risk appetite following 2009. However, it must be noted that any reduction in confidence is likely to be reflected in manufacturer and dealer stocking levels and, in turn, the volume of possible sales in the market. Anecdotal evidence and industry statements suggest an improved asset financing environment in 2010, notwithstanding any further intervention by vehicle manufacturers themselves; which must be seen as a positive indicator as the year rolls out.