Tough year for global manufacturers

As we approach the end of 2009, the world’s leading truck manufacturers find themselves facing a number of substantial issues. Although the final numbers are not yet in, most major truck markets have been severely depressed this year…

German transmission specialist, ZF Friedrichshafen AG, estimates a global year-on-year sales and production downturn of around 34% for commercial vehicles (CV) over 6 t gross vehicle mass (GVM) when compared to 2008. Of the major regions, hardest hit was Western Europe (64% down), followed by Japan (50% down), Eastern Europe (48% down), and, surprisingly, India at 40% below its 2008 level. The Americas were surprisingly consistent, with both North and South some 29% down on 2008, while, predictably, China fared the best with only a 5% decline. Many governments embarked on vehicle market stimulatory exercises during the year, but it was notable that these were usually aimed at bringing forward the replacement of passenger cars and LDVs, with Australia the notable exception with its AUS$2.7 billion (R18.7 billion) Small Business and General Business Tax Break package, covering new equipment purchases, including vehicles of all types, even demonstrators. Not surprisingly, the Aussie truck market has held up well and has been running at volumes marginally less than those of a year ago.

Under these conditions, it is understandable that 2009 was mainly about survival, and trying to sustain the core business while production volumes were cut back, and inventories piled up. The prospects for 2010 remain fairly muted, although there has been some recent easing up of the difficult financing conditions which have put a lid on CV sales, particularly at the heavier end of the payload spectrum, since the latter part of 2008. The United States has the imminent implementation of its EPA 2010 emissions regime to look forward to, with most manufacturers already in the market with compliant product, but the depressed 2009 market must have complicated the balancing of run-outs, and the phasing in of replacements, with minimal overlap. Europe has just completed the final Euro 5 implementation process, without the usual sales spike that these events usually generate, and is still some years away from the next incremental step in environmental legislation.

With the foregoing as background, Global Focus has put together an analysis of major issues confronting the global truck manufacturing community in 2010, and in the period immediately thereafter.

Daimler Trucks
With the launch of the third-generation Mercedes-Benz Actros, and its roll-out into global markets now behind it, world number one truck maker, Daimler, will be getting seriously busy with the development cycle of its next truck flagship. There is every likelihood that the current Actros will be the last to carry the name that has adorned the top-of-the-line Mercedes truck for the past 12 years, as the new model will have to be very different in the cab department to accommodate a European version of Daimler’s global Heavy Duty Engine Platform, with its in-line six-cylinder configuration. Whatever its future, Actros has been an iconic product in terms of establishing advanced technology as the “norm”, and as with all pioneers, its leadership role was not always fully appreciated by a demanding market. It will be very interesting to see if the policy of offering the less sophisticated Axor range continues after the launch of the Actros replacement, or if the standardised engine philosophy makes this inappropriate. Another major discussion point in Stuttgart will be the manifestation of Beijing Foton Daimler Automotive – the 50/50 joint venture (JV) with Beiqi Foton that starts to build diesel engines in 2011, and trucks a year later. Early reports on this agreement suggested that Daimler may also assist with the marketing of Foton’s Auman trucks outside China, but it will be necessary to ensure that JV products do not “leak” into those markets where Daimler wishes to remain in control of its own sales activities.

Volkswagen et al.
The big story of 2009 has been the putting together of Volkswagen’s new global family. Although still not complete, with the takeover of Porsche still being processed, and speculation rife over a possible light vehicle link with Suzuki, the main elements of the “truck department” were put in place during March 2008, when VW took a controlling interest in Scania, having already acquired nearly 30% of MAN, and earlier this year, when the sale of VW’s Brazilian truck interests to MAN was announced. So far, very little detail has emerged of how these interests are to be structured, beyond the management takeover of Volkswagen Caminhöes e Ônibus by MAN. The perception is developing that this all happened a little too quickly, and the challenge of making three highly disparate entities into a family is proving to be just that. (This was strongly denied at a recent MAN function. See pages 34-36 – Ed). There was a great deal of antagonism between MAN and Scania before VW took control of the situation, and the prospect of either being subordinate to the other in any unified structure could be problematical. There is also the question of MAN Force Trucks Pvt Limited, the 50/50 Indian joint venture (JV) with indigenous manufacturer Force Motors Limited. So far, this operation has reportedly been way off its target annual volume of 24 000 heavy trucks, and an obvious opportunity exists to bring in a more value-driven product range, like that built by VW in Brazil. This also presents a golden opportunity for a global centre of low-cost right-hand-drive truck production. Participation in China’s market will be secured through a minority MAN interest in Sinotruk, China’s largest heavy truck manufacturer.

Navistar/Caterpillar (NC2)
Although not quite in the same league of magnitude as the Volkswagen empire, Navistar International and Caterpillar are iconic names in their own right, and even more so from a commercial vehicle and construction viewpoint. Their decision to form a JV, subsequently named NC2 Global LLC, focused on expanded participation in selected areas of the global truck market was highly significant, and there has already been evidence of rapid moves to get this process under way. The chosen markets in Australia, Brazil, China, Russia, South Africa and Turkey are highly challenging. Australia, in particular, with its preference for American trucks at the top of the mass spectrum, represents a huge opportunity for NC2, but will demand a high level of specification and layout fine-tuning to suit entrenched Aussie preferences. The Caterpillar engine family was well accepted by the global trucking community, and the announcement of its withdrawal from general availability, after the implementation of the EPA 2010 emission rules, was not welcomed. A future NC2 premium truck, with a state-of-the-art forward-control cab, and a developed MaxxForce-badged Cat C15 engine, is a mouth-watering prospect, and getting its specification exactly right for this bouquet of markets will be a major challenge in 2010. Like their major competitors, NC2 is pursuing Asian JVs in China, with Jianghuai Automobile Company (JAC), and in India, with the already-established Mahindra International, and these will provide both challenges, and opportunities, beyond 2010.

Volvo Trucks
The Renault family’s trucking interests, headed up by Volvo AB, consist of substantial world players, including Renault Trucks, Mack, Samsung and Nissan Diesel. The linkages between these manufacturers have been kept largely below the radar, to the extent where this group’s status at the world’s second largest truck builders sometimes comes as a surprise. Every now and then, however, something emerges to remind us of the association, such as the recent announcement that Volvo’s US truck operations are to be combined with Mack Trucks, to form North American Trucks. Brands and sales operations will be kept separate, with integration taking place in less visible areas. Globally, Volvo recently retook the lead in the production truck power race, with the introduction of the 700-hp (522-kW) version of the FH16, but possibly even more significant is the announcement of a global engine family, starting with a “medium-heavy” engine, presumably to replace Volvo’s 11-l D11C and 13-l D13A power units, Mack’s MP7 and MP8 engines, Renault’s 11.1-l unit, and Nissan Diesel’s GE 13. The global engine family concept, pioneered by Daimler for use by Mercedes-Benz, Freightliner, Western Star and Mitsubishi Fuso, and now taken up by Volvo, is sure to become common practice across the world industry during the next decade as emission standards in various areas are increasingly harmonised.

Fiat Group
Fiat SpA’s major current preoccupation lies with its efforts to reorganise the light vehicle operations of Chrysler Group LLC, which it now controls. The addition of Chrysler has doubled the size of Fiat’s former volume footprint, so this priority is fully justified. In the meantime, truck specialist component Iveco continues to enjoy most of its success across continental Europe, but remains an “also ran” in challenging export markets such as Australia and South Africa, despite a recently refreshed and highly attractive model range. Much of this can be ascribed to the European production location for most of its products, which are positioned at the upper end of the pricing spectrum, and are a hard sell against the Japanese trucks that dominate the mid-payload reaches of these markets. Iveco is clearly looking to Asian connections to remedy this situation, and will be sourcing an increasing percentage of its product from Chinese partners in the not-too-distant future. Fiat’s relationship with Indian manufacturer Tata has been mainly limited, so far, to some fairly low-key distribution and component-sharing arrangements, but the emergence of Iveco power options in Tata’s new World Truck series catalogue is a sign that cooperation in the commercial vehicle sphere is set to broaden. After problematical starts with some of its truck export activities, Tata needs help in developing world-class standards of customer interaction and product support, and a closer association with Iveco, bringing together affordable product and established infrastructure may be just what the doctor ordered.

Toyota/Hino/Isuzu
New world number one vehicle producer, Toyota Motor Corporation, was quick off the mark to snap up shareholdings in Fuji Heavy Industries, manufacturers of Subaru vehicles (8.7%), and Isuzu Motors (5.9%) when General Motors divested its interests in these companies. Cooperation with Subaru in a new sports car and hybrid driveline technology has already emerged, but, despite some early promises of diesel engine cooperation, Isuzu has been left pretty much alone to navigate the difficult 2009 market waters under its own steam. At present, Toyota’s truck subsidiary, Hino, remains fiercely competitive with Isuzu in the domestic Japanese and key export markets, but it seems highly likely that the substantial resources commanded by these companies will be harnessed for mutual benefit fairly soon. Isuzu is the leading global manufacturer in the class of vehicles equivalent to South Africa’s medium commercial vehicle segment, while Hino recently stopped supplying very substantial volumes of Hilux pickups to its parent, who now builds them at a dedicated plant in Thailand. While it is unlikely that Isuzu and Hino will ever share common distribution networks, there is huge potential for savings in the area of component sourcing, especially now that the Japanese market has been driven by ever-tightening environmental legislation, away from its traditional preference for large naturally aspirated diesels, to a more globally marketable profile of smaller displacement, turbocharged/intercooled units. Toyota’s leadership in hybrid driveline development will also present opportunities for both companies as global interest in low-emissions commercial vehicles grows.

PACCAR
The US partners in this alliance, Kenworth and Peterbilt, have long histories as champions of the “standard” American truck, using bought-in driveline aggregates. However, in recent years, there have been increasing signs that this situation is about to change, at least in respect of engines, courtesy of their European partner, DAF Trucks NV, with its long history of diesel engine manufacture. Plans were published for the setting up of a US factory to build DAF’s 12.9-l MX and 9.2-l PR engines, which were already carrying “Paccar” nameplates in Europe. In the harsh light of the 21st century, American truckbuilders have come to realise that they need more control over their product specifications, and, perhaps more importantly, their aftermarket profitability. While the historic philosophy of rationalised components did wonders for parts availability and convenient servicing, it allowed competitors to “steal” aftermarket parts and service business with impunity, and eliminated the need for fleets to develop brand loyalty, as there was virtually no cost attached to changing suppliers. The move to “vertical integration” has been encouraged by European-owned US truckmakers, such as Freightliner and Volvo/Mack, as it fits their established global business models perfectly, and evidence of a similar move by US compatriot Navistar International, using licence-built MAN, and recently acquired Caterpillar engine designs, has reinforced this trend.  The realities of the 2009 market, however, obliged Paccar to delay the commissioning of its own US engine plant located in Columbus, Mississippi, and procure the engines it needed from Europe. However, the US plant is expected to be back on track in 2010.

Others
In addition to their involvement in the global plans of Western partners mentioned above, China’s truckmakers will be contemplating their own global strategies in 2010. Until now, their main objective has been to satisfy their rapidly growing domestic market, but the situation in 2009, when the unincentivised heavy end of this market stalled, would have served to remind them that exports must play a role in their collective futures. Recent efforts to develop state-of-the-art global products have been typified by Dong Feng’s Tianlong range, and FAW’s Jiefang J6. Anecdotal evidence suggests that foreign distributors dealing with Chinese manufacturers have been confronted with logistical difficulties, such as the need to deal with a plethora of individual and independent suppliers when trying to source spare parts. Chinese manufacturers will need to set up structures to remove this burden from their global clients, and also become more active in off-shore marketing activities, if they wish to compete with established industry leaders. Early signs have emerged that one manufacturer, Baotou North Benz, builders of the Powerstar Bei Ben truck range sold in South Africa, will be becoming more involved with the local operation assembling and selling its products, and this could be the forerunner to several other similar partnerships.

Global FOCUS is a monthly update of international news relating to the commercial vehicle industry. It is compiled exclusively for FOCUS by Frank Beeton of Econometrix.