Market focus – Fourth quarter 2009 ends on higher note

Market focus – fourth quarter 2009 ends on higher note

Against the background of a difficult calendar year ending in an unexpectedly strong fourth quarter with total sales volumes only 6.8% less than those recorded in the July-September period, FRANK BEETON examines the highs and lows of the commercial vehicle market during 2009.

This commentary reflects the state of the market for commercial vehicles with GVM ratings above 3 500 kg, as reported to the National Association of Automobile Manufacturers of South Africa (NAAMSA). In line with the Association’s current reporting regime, the market has been divided into the following macro 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 is the fourth quarter of 2009 (October to December 2009 inclusive) and the 2009 calendar year.

Reviews are presented on a quarterly timescale to reduce the impact of short-term market distortions often created by specific bulk-buy deliveries, the launch of new products and/or the run-out of obsolete product ranges.

South Africa’s market for commercial vehicles over 3 500 kg GVM ended the 2009 calendar year with sales volumes totalling 18 934 units; 45.4% lower than recorded the previous year. Sales volumes were last at this level circa 2003/4.

Neither vehicle manufacturers nor after-sales support service providers and parts suppliers had anticipated a downturn of such magnitude. In a consensus forecast conducted by FOCUS on Transport and Logistics magazine in a phone-around of supply industry decision-makers towards the end of 2008, sales volumes for 2009 were expected to be just less than 28 500 units. In light of former Finance Minister Trevor Manuel’s last budget speech confirming plans for a R787 billion roll-out for infrastructure development, with R50.9 billion earmarked for specific transport-related expenditure, stakeholders questioned predictions of an 18% reduction in the the previous year’s level of 34 659 unit sales, the second best ever recorded.

However, as the first half of the year unfolded it soon became clear that the impact on commercial vehicle sales of an increasingly stringent asset financing environment had become a more significant factor in determining market size and composition than either the global financial meltdown or South Africa’s macro-economic environment. While the industry’s supply-side reported ongoing demand for vehicles, general frustration was expressed that finance approval for credit applications had fallen as low as 20%. As a result, despite progressive reductions in domestic interest rates since December 2008, the market rapidly re-sized to reflect monthly sales volumes regularly running at less than half the levels they had sustained only a year previously. Local business confidence was at a low ebb.

As the year moved through its mid-point, it brought with it the first encouraging signs that the severely restrictive asset financing environment was beginning to ease.
Two interventions were responsible for this. One was a direct intervention by some vehicle manufacturers in the financing arena, the benefits of which are clearly visible in the evaluation of their individual performances in the body of this review. The other was the emergence of a slightly more accommodating stance on the part of the banking sector towards vehicle financing in general. There was also evidence of substantial sales incentive-isation in truck advertising – confirming the presence of healthy inventories at assembly plants and points of sale – while some banks resumed advertising their facilities in the transport specialist press. These changes undoubtedly contributed to an unexpectedly strong fourth quarter market, when total sales volumes were only 6.8% less than those recorded in the July-September period.

Against this background it has been difficult to make sense of segmentation trends, particularly because of the impact of short-term distortions from individual deals in an emaciated selling environment. Anecdotal evidence suggests that the financial strength of individual fleet operators was perhaps the most important single factor in determining their ability to purchase,  while the unavailability of finance excluded many usually credit-worthy smaller operators from the market. Under these circumstances, segmentation trends should be treated with due caution in the development of future strategies.

Not surprisingly, segments within the truck market behaved uncharacteristically during 2009. One example of this is that the entry-level MCV grouping and the premium payload XHCV category regularly exchanged positions as market leaders. This may well be because the considerably less expensive MCV models were easier to finance in the 2009 environment. It may also explain why XHCV vehicles lost their competitive edge, so it will be interesting to observe if they regain their position as market leader once a more normal financing environment has been re-established.

The cruiser weight HCV segment – consisting of the larger 4×2 units with nominal payload capacities of 5 to 9 tons – also fell slightly below its recent, consistently-held position at 20% or more of the total market. A difficult financing environment may have pulled some purchases from this segment down into the upper reaches of the MCV segment, where sales of the integral panel van strengthened during 2009. These vans are used extensively in the distribution trade  and could act as surrogates for van-bodied, low-end HCV trucks; particularly because they do not require body-builder intervention before being put to work.

The bus segment has continued to flourish, and is near to repeating the 10% market penetration level it last occupied in 2002. With total orders of around 800 units placed during 2009 for buses and coaches required to support the 2010 FIFA World Cup and many of these units still not delivered, the bus segment promises to sustain its level of elevated importance until mid-2010 at least.

Chart 1 (page 19) illustrates the relative market performance and ranking of each participating manufacturer during the year just completed, as compared to returns for the equivalent preceding period.

Readers should note that, for the sake of continuity, certain brands that no longer participate in the market sector under review, or have changed their local distribution arrangements, are still listed in the accompanying charts under their previous identities. These include Ford, now absent from the market above 3 500 kg GVM, and DAF/VDL which are no longer represented by the same distributor (these brands will be reported independently from 2010). Renault truck sales, reported independently in 2008, has been included in the Volvo group total starting in 2009. It should also be noted that Hino/Toyota sales include the residual Toyota-badged Dyna models in the MCV macro segment.

The 45% drop in total sales volumes during 2009 reflected substantially reduced sales across  the segment throughout the year, thereby rendering any comparison of manufacturers’ year-on-year volume performance differentials meaningless. The following analysis has, therefore, concentrated on year-on-year market share comparisons and positional shifts, with supplementary comments relating to significant performance highlights observed during the fourth quarter:

Mercedes-Benz SA
Mecedes-Benz retained its long-standing position as leader in South Africa’s truck market during 2009 with an improvement of slightly more than 1% in market share and leadership of both the MCV and XHCV macro segments. Mecedes-Benz branded products improved their year-on-year market share performance by 1.7%, while Mitsubishi Fuso trucks increased penetration by 0.54%. Freightliner’s loss of 1.2% overall market share reflected a 54% year-on-year reduction in XHCV macro segment volumes, where this marque participates exclusively. Access to in-house Mercedes-Benz financing facilities was heavily promoted throughout the year, contributing significantly to an upward trend in market share as the year rolled out.

The metamorphosis of Toyota SA Trucks was completed during 2009, and the new Hino identity proved good enough to retain second place overall in the market during 2009 with a year-on-year market share improvement of nearly 0.4%, plus outright leadership of the important HCV macro segment. Notably, however, Hino/Toyota relinquished its customary second-place market ranking to Nissan Diesel by a penetration margin of 2% during the fourth quarter. This was both a consequence of and a contributing factor towards relatively poor volumes in HCV macro segment sales over that period. Several changes in Hino’s senior management structure took place during the latter part of 2009.

Nissan Diesel
Nissan Diesel South Africa (NDSA) returned a consistent performance during the 2009 calendar year, achieving a marginally reduced market share just 0.7% worse than its 2008 result. NDSA retained third place overall, and clear leadership among Japanese manufacturers active in the premium XHCV macro segment. As mentioned above, Hino/Toyota’s customary second-place ranking in the market was usurped by NDSA during the final quarter of 2009, along with leadership of the predominantly distribution-sector-related HCV macro segment for that period. It was also notable that Nissan Diesel’s MCV models, despite their advanced age, were less seriously affected than most competitors by the 2009 downturn, with a volume sales return less than 25% below the equivalent 2008 result.

Tata’s slide down the market rankings and penetration listings continued during 2009, with a further loss of slightly more than 2.5% in year-on-year penetration, and a fall from sixth to eighth in ranking. Despite the recent introduction of a 3 year/300 000 km warranty, this loss of momentum was experienced across the entire product range. It was nevertheless significant that, during 2009, the extremely well-priced 1518 models in the HCV macro segment that had previously shown some signs of resilience also joined the slide. With this performance profile, Tata seems to be particularly vulnerable to further market share erosion as similarly positioned products from India and China enter the local market.

Recent developments surrounding the purchase by MAN of Volkswagen’s Brazilian truck and bus operation at the beginning of 2009 – and the progressive integration of VW’s South African HCV and bus operation into the local MAN structure – have attracted considerable attention. In this review, the MAN and VW entities are still reflected separately, but this situation may well change during 2010. For its own account, MAN suffered a small 0.5% loss of year-on-year market penetration in 2009, while retaining fifth position in the standings. Early in the year, the company’s local management went public with criticism of the banking system and its raised barriers to finance access. MAN retained its traditional leadership of the bus macro segment in 2009, seeing off strong challenges from Iveco, Mecedes-Benz and Scania.

Fourth-placed GMSA/Isuzu returned a healthy result in 2009, gaining slightly more than 1.4% of market share without any meaningful contribution from the Opel-badged vans that occasionally supplement Isuzu’s efforts in the SA market. Full value has been extracted from the new Isuzu N-series MCV models launched at the end of 2008, with their double cab and automated transmission features. Further product enhancements can be expected with the arrival of the latest F-Series HCV models early in 2010, along with possible additions to Isuzu’s currently limited XHCV line-up.

Of the other manufacturers listed in the accompanying tables, Volvo, Scania, Volkswagen and Nissan returned positive results in the year-on-year market share comparison, while Navistar International, Iveco, Fiat, Peugeot and Super Group lost some ground. Scania’s significant 1.6% gain in penetration, accompanied by a two position upward move in ranking to reach seventh at the end of 2009, followed considerable promotion of in-house financing facilities. Volvo’s slightly less impressive 0.75% penetration and one ranking position gain drew some momentum from the inclusion of Renault sales during the year. Super Group’s future has been the subject of considerable discussion, but at the time of writing no official confirmation of the arrival of a Chinese investor into the local operation had been forthcoming. Of the integral van specialists active exclusively in the MCV segment, Nissan’s early-year momentum fell away as the year progressed, although its year-on-year performance progression remained marginally positive. Peugeot settled at a 0.55% overall penetration level, which was slightly ahead of Fiat at 0.4%. Iveco’s overall performance was characterised by its descent from seventh to tenth place in the standings with current sales patterns suggesting a focus on bus business with PUTCO, possibly at the expense of its broader HCV and XHCV activities.

Readers should please note that the 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 the comments and data contained in this report.

Truck market sales volumes in South Africa during 2009 were disappointing when compared to those in a series of record and near-record years preceding it. The impact of the global financial crisis on South Africa’s business environment clearly contributed towards the extremely low level of business confidence reported by the South African Chamber of Commerce and Industry in December. In many respects, it seemed that local business activity had become paralysed during the second half of 2009, and that decision makers were waiting for concrete signs of recovery before moving in any way to restore inventories or move forward with developing their businesses.

Some recovery in the local market is expected from February 2010, when the rapidly approaching FIFA World Cup – expected to attract several hundred thousands of foreign visitors in June and July – will place considerable demands on the country’s consumer goods distribution and passenger transport infrastructures. This could spark short-term spikes in the demand for MCVs, HCVs and buses during the months to come, and supplement an expected recovery in XHCV volumes driven by the continued national emphasis on fixed investment projects up to, and beyond, the 2010 FIFA World Cup.

However, several recent events may act to sustain some of the uncertainty that prevailed in the local truck market during 2009. Government utterances on proposals to reduce truck axle mass limits, together with a lack of clarity surrounding the legal road transport of high cube containers out of South African ports, may discourage local operators from investing in expensive new equipment threatened with legislated obsolescence. The drastically reduced sales volumes in 2009 will also have dampened the risk appetite of truck manufacturers, importers and dealers. As a result, intending buyers could find themselves facing shortages of their most favoured products should they attempt last-minute acquisitions during the first half of this year.

Even allowing for the recent improvement in asset finance availability and a surprisingly positive December market result, the outlook for total commercial vehicle sales over the whole of 2010 remains difficult to predict. Some margin of market growth can be expected, but sales patterns could be erratic with the market showing a degree of volatility. The national fleet could find itself under severe pressure if the World Cup achieves the desired level of success, so the urgent need to plug identified short-term gaps in its capacity to deliver could impact positively on truck sales during the first half of 2010. During the second half of the year some operators may be left with the problem of under-utilised fleets, a scenario that could have implications for truck sales. Close liaison between users and suppliers will be imperative throughout 2010.

Manufacturer Quarterly Performance 2009 – 4th Quarter

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