Market focus – Third quarter tentative recovery?
Following four consecutive quarters of falling volumes, the local commercial vehicle market has shown its first positive evidence of recovery during the third quarter of 2009, but is it too soon to predict recovery? FRANK BEETON reports.
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 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 for this commentary is the third quarter of 2009, i.e. July to September, 2009, 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 four consecutive quarters of falling volumes, the South African market for commercial vehicles over 3 500 kg GVM has shown its first positive evidence of recovery during the third quarter of 2009, and there are now signs that the volume levels currently being reported are consolidating a platform for future growth. However, the result for the immediate preceding quarter must be viewed against a broader background where the cumulative market total of 14 462 units recorded for the first nine months of 2009 is 47.6% below the equivalent 2008 result of
27 607 units, in a year which finally delivered 34 659 unit sales, and was the second best ever in the history of this market.
The 8% improvement in sales volumes delivered during the third quarter over its immediate predecessor was driven by a combination of a recovering XHCV segment, and early deliveries of the considerable volume of heavy passenger buses required in service ahead of the 2010 FIFA Soccer World Cup. It should be remembered that former finance minister Trevor Manuel, in his February Budget Speech, gave assurances that the government’s R787 billion infrastructure development plan, including R50.9 billion earmarked for specific transport-related expenditure, would be sustained in the face of the global financial crisis. Therefore, it can be expected that when South Africa’s recovery materialises, it will reflect a bias towards fixed investment expenditure and the heavier end of the truck market spectrum. The MCV and HCV macro segments, which are more dependent on consumer activity in the national economy, still continue to be essentially flat, reflecting the low level of momentum in that area.
As the year moved through its mid-point, there were also encouraging signs that the extremely restrictive asset financing environment on truck, bus and van sales, which had emerged during the latter part of 2008, has started to ease. This has been brought about by both the direct intervention of 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, and a slightly more accommodating stance by the financial sector towards vehicle financing in general. There has also been evidence of substantial sales incentivisation in truck advertising over past months, confirming the presence of healthy inventories at assembly plants and points of sale, while both WesBank and Standard Bank have been advertising their services in the transport specialist press. A slight recent improvement in the rate of light vehicle sales has also been identified as a positive indicator in this regard, and other aspects of a more favourable financing environment include low interest rates (now thought to be at, or near, the bottom of their present cycle), and some increased activity in the national housing market.
The market penetration performance of the MCV and XHCV segments has continued to fluctuate wildly in the market turbulence experienced over the past 12 months, and in this most recent quarter, XHCV volumes have, once again, risen to a dominant position in the market. Bearing in mind that these two categories represent the opposite extremes of the pricing spectrum, it is evident that the availability of finance has played an important role in determining a great deal of the market’s segmental composition. In sharp contrast to the volatility at the top of the market, the largely distribution-driven HCV segment has displayed remarkable consistency, maintaining a steady level around 20% penetration, while the profile of the bus category has been largely influenced by the availability of product to fulfil large fleet orders. The late announcement of certain public sector tender awards has dictated that many buses required for bus rapid transit (BRT) and SWC 2010-related duties will have to be bodied overseas, which is sure to result in further concentrations of deliveries over relatively short periods of time.
Please refer to the chart on page 35, which illustrates the relative market performance and ranking of each participating manufacturer in the quarter just completed, compared to the returns for the immediately equivalent preceding period.
Readers should please note that brands formerly represented by the Commercial Vehicle Holdings group, including International, DAF and VDL, are now shown independently, while Renault and Mack volumes have been included with Volvo sales. Please note also 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.
Perusal of the results has resulted in the identification of the following selected significant highlights:
The Mercedes-Benz group has skilfully used the availability of in-house financing facilities to consolidate its long-running term of market leadership, while improving its quarter-on-quarter market share by almost 5%, and increasing the equivalent sales volume by more than 28.5%. This performance also ensured leadership in both the entry-level MCV macro segment, and the premium payload XHCV category, as well as a considerable improvement in HCV volumes, driven by a much-improved performance by the European-sourced Atego cruiserweight range. The latest generation Mercedes-Benz Actros flagship, supported by targeted incentive advertising, was launched during the review period. The quarter-on-quarter volume improvement recorded by each of the constituent brands in the group was Mercedes-Benz 33.2%, Freightliner 34.9% and Fuso 10.3%.
The combined Hino and Toyota Dyna result in the third quarter, while retaining second place overall in the market, was disappointing, despite obvious allusions to dealer incentive activity in Hino’s print advertising. The quarter-on-quarter comparison revealed a volume reduction of 14.3% and 3.7% less market share, although leadership of the HCV macro segment was maintained. The decision to separate Toyota Dyna and Hino 300 Series in the MCV macro segment has also resulted in the loss of “badge leadership” in this category, which was a long-running point of pride to Toyota SA Trucks. Hino 700 Series XHCV sales remain disappointing when compared to other Japanese brands in this category.
GMSA’s somewhat disappointing third-quarter result was entirely underpinned by Isuzu volumes and devoid of any MCV macro segment contribution from the Opel Movano integral van. The quarter-on-quarter comparison reveals a 22% reduction in volume and 3.3% loss of market share, although fourth position in overall ranking was retained. The main culprit was a substantial drop in MCV sales, despite positive market reaction to the latest N-Series product range and substantial promotion of its availability with automated transmissions and crew cabs. A slight improvement in XHCV volumes includes some gradual momentum growth by the Gigamax flagship model.
Nissan Diesel’s third-quarter performance was also slightly disappointing, although less negative than that of its Japanese compatriots, Hino and GMSA/Isuzu. The quarter-on-quarter comparison reveals an 8.6% loss of volume and 2% less market share, while third position was retained in overall market ranking. Nissan Diesel launched additional Quon-series XHCV products in this quarter, and these UD 330 truck mixer and freight carrier models are clearly intended to consolidate NDSA’s long-running dominant position among Japanese-sourced products in the XHCV macro segment.
Volkswagen was another manufacturer to suffer a reversal in fortunes during the third quarter, but this was primarily due to a reduction in Crafter volumes in the MCV macro segment and not an obvious consequence of the publicly announced future absorption of the Constellation and Volksbus product ranges into MAN’s local assembly and distribution operations. Overall, volumes were down by 12.7%, and market share by 0.85%, while the sales of HCV and XHCV Constellation models actually showed a quarter-on-quarter improvement.
MAN retained fifth position ranking in the market during the third quarter, despite giving up 1.5% in the quarter-on-quarter volume comparison and slightly more than half a percentage point of market share. This quarter was also significant in that MAN was displaced from its traditional position at the top of the bus sales rankings by Iveco, although this situation is likely to fluctuate, as various large bus orders are delivered ahead of the 2010 FIFA Soccer World Cup.
Tata enjoyed a significantly more successful third quarter than its achievement in the preceding three-month period. However, despite a volume improvement of 41%, and gaining more than 1% in market share, no promotion from the previous quarter’s eighth market ranking was possible. The improvement was largely driven by a substantial increase in MCV volumes, while Tata’s XHCV macro segment sales remain severely depressed. It was noted that Tata also reported one passenger bus in the over 8.5 t GVM category during this quarter, and this manufacturer has moved to address concerns over the serviceability of its products by introducing a three-year/300 000 km warranty.
The gradual resolution of issues surrounding representation and the distribution of its products resulted in Navistar International Trucks SA (NITSA) more than doubling its second quarter volume result during the July-September period, with a gain of 1.3% in market share, and an elevation of one position in market rankings, to finish 11th. At this stage, NITSA remains entirely focused on the premium XHCV macro segment, and was able to positively contribute to that category’s 22.6% quarter-on-quarter growth performance.
Scania enjoyed a hugely successful third quarter, gaining 88% in volume, nearly two-and-a-half percentage points in market share, and three market ranking positions to occupy sixth place at the end of the July-September period. Scania was another manufacturer to actively promote in-house financing, and this had a clearly beneficial effect on its XHCV sales performance, which almost doubled in the comparison with the second-quarter outcome. Scania’s bus sales performance was considerably enhanced by the delivery of BRT units for the Johannesburg Rea Vaya system during the review period.
Another manufacturer to benefit from exceptional bus deliveries during the third quarter was Iveco, recording sales of 135 Irisbus-based units to PUTCO, and taking leadership of the bus macro segment during the review period. This elevated Iveco’s overall volume performance to more than double that of the preceding quarter, with accompanying improvements in market share (2.3%) and ranking (from 11th to seventh position). The bus sales were accompanied by substantially improved Daily sales in the MCV macro segment, and an improved performance for Stralis and Trakker models in the XHCV category.
Of the remaining manufacturers, Volvo, Super Group and VDL recorded improvements in volume relative to their second-quarter 2009 performances, while van makers Peugeot and Nissan lost ground. (Volvo sales also included the Renault range, which was substantially re-launched in the South African market during this quarter.) Important announcements regarding the ownership of Super Group Industrial Products, and the product range it will offer on the local market, are expected shortly. DAF, once again, failed to report any sales during the third quarter of 2009.
GENERAL MARKET COMMENTS:
The most important question that must be asked when trying to determine the immediate future direction of the truck market revolves around the general propensity of business to believe that the South African economy will stage a recovery in 2010. Many signs point to renewed growth in that time frame, not least of all evidence of increased global demand for raw materials, and the September results from the Kagiso Purchasing Managers Index, which show a radical improvement in sentiment in the local manufacturing sector, with expectations of positive growth in 2010. The greatest danger facing the commercial vehicle supply industry lies in a tendency for buyers to “wait for 2010”, when it is quite possible that lack of inventory and eroding supporting infrastructure capacity may lead to operators having to accept whatever they can get, and increases the likelihood of “ghost orders”, where buyers place “firm” commitments with a number of suppliers, most of which then evaporate when delivery is finally executed. The present level of activity in the market, at just more than 50% of 2008 levels, still threatens the livelihoods of dealers and the staff that operate them. Similar pressures are being felt by bodybuilders and companies supplying specialised equipment to the industry, and this could play havoc with purchases of trucks as the true magnitude of the SWC 2010 event starts to become evident, and a measure of “panic buying” sets in.
A strong case exists for suppliers and users to urgently get together and ensure that the vehicles required for the predicted business upturn are procured in a planned and rational manner. The financing environment is currently stable, with a strong rand helping to discourage the likelihood of vehicle price increases, good stock availability and favourable interest rates. However, it is quite likely that many operators will adopt a “wait-and-see” approach, waiting for firm evidence of an upturn before putting pen to purchase or leasing contracts. Thus, prospects for a true market recovery in the rest of 2009 remain slim. Hopes for a final market total in the region of 20 000 units will be largely dependent on exceptionally strong October and November results, as the limitations of December, with its reduced number of working days, are well known. The most likely outcome will be a final volume of around 19 000 units, maintaining a similar sales rate to that achieved in the first nine months of the year. Bus deliveries do have the potential to boost these numbers, with more than 800 units currently on firm order for BRT and SWC 2010-related duties, but the most likely scenario is that the bulk of these units will only be delivered in the first half of 2010.