Truck market consolidates
The days of diminishing commercial vehicle sales may just be over! The second quarter of 2010 reflected an encouraging consolidation of the recovery in commercial vehicle sales seen during the preceding three-month period. FRANK BEETON lifts the lid on companies that have gained and lost market share during this period – and also examines the reasons why.
The total market grew by 4% in the second quarter of 2010 (April to June versus January to March this year). This was despite an environment characterised by a considerable amount of uncertainty regarding the sustainability of global economic recovery, some softening of local business confidence levels, and less optimistic expectations of foreign visitor attendance at the 2010 Soccer World Cup (SWC) than those previously entertained.
However, it was noticeable that this growth was underpinned by increased absolute sales volumes of distribution-sector MCV and HCV units, while activity in the fixed investment-focused XHCV segment declined by 2.5%.
This pattern suggests that local business was mainly focused, during this period, on securing the ultimately successful delivery of the soccer event through the appropriate deployment of assets, and, with the infrastructure projects finishing on time, there was less activity in the construction and civil engineering-related side of the market during the most recent quarter. There was remarkably little evidence of “panic buying” of trucks and vans in the run-up to SWC 2010, with the traditional market leaders cornering most of the available business (see the “Manufacturer Performance” section contained in the body of this report).
It is appropriate at this point to briefly compare the market performance for the first half of 2010, to the equivalent first six months of 2009. The January to June 2010 result reflects an increase of 9.1% in year-on-year total volume, but closer examination of the performance of the individual segments has revealed some interesting trend shifts. While the MCV comparison reveals a decline of 1.9%, and HCV sales fell by a more substantial 3.2%, volumes in the XHCV segment rose by 19%, and Bus sales improved by just less than 79%. This impressive latter result is built on the considerable number of buses and coaches that have been delivered to the Passenger Rail Agency of South Africa (PRASA), Autopax and the Gautrain operation in recent months.
The substantially improved XHCV performance is particularly significant, and reflects a more supportive financing environment for these vehicles – often costing more than R1 million each – than the credit restrictions that severely limited their sales potential in 2009.
In this most recent review, we have noted that the wildly fluctuating contest for market leadership between the entry-level MCV and premium XHCV segments has continued unabated into the first half of 2010. As we have pointed out in previous reviews, there is no rational explanation for this “mirror image” phenomenon, beyond the obvious issues of price and credit availability. Typically, MCV-class vans and trucks are used in urban areas supporting consumer and service sector demands that require carrying capacities from one-and-a-half to four tons. XHCVs, on the other hand, are used at the extreme upper end of the distribution sector, for hauling upwards of 30 t of freight on the country’s line haul routes, or lugging extremely heavy rocks or earth around quarries or construction sites. In the SWC-related 2010 scenario, it was to be expected that distribution type vehicles would enjoy increased popularity in the immediate run-up to the event, and this has been reflected in the segmentation presented here.
Remarkably, the cruiserweight HCV segment, consisting of the larger 4×2 units with nominal payload capacities from five to nine tons, continues to cling to its long-running 20% market penetration level. During the first half of 2010, these vehicles, the mainstay of the distribution sector, would have enjoyed increased attention, but the long-term stability of this segment’s market share should be of immense interest to market planners in the truck supply industry.
The reasons for the recent improvement in the performance of the bus segment, to equal the highest levels of market penetration seen before, require further clarification. Full-size bus deliveries have run at consistently high levels since the third quarter of 2009, and the recent acceleration in this segment has been mainly driven by the delivery of coaches to support SWC 2010 movements, and the rolling out of Bus Rapid Transit (BRT) infrastructure in Pretoria, Johannesburg, Port Elizabeth and Cape Town. It should be noted, however, that the 32 Hyundai coaches imported from Korea for team coach duty were not reported as sales to Naamsa and, consequently, are not reflected in these statistics.
Looking more closely at the entry-level MCV segment, the most important internal trend has been the long-term narrowing of the gap between historically dominant freight carriers and increasingly popular integral vans. It is interesting, however, to note that this trend has been arrested, and partially reversed, during the first half of 2010. This may reflect greater demand during this period for van-bodied chassis/cab units suitable for the short trips between the SWC venues and designated distribution centres, rather than the higher performance European-origin integral units.
Please refer to Chart 1, which illustrates the relative market performance and ranking of each participating manufacturer in the quarter just completed, as compared to the 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 (Constellation) trucks and Volksbus passenger units but not VW commercial vans (listed separately), 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.
Perennial market leader Mercedes-Benz SA suffered slight volume and market share reverses during the second quarter. Total sales were down by just more than 5%, while the Group gave up nearly three percentage points of market penetration, to finish with just more than 30% combined share. Despite this decline, MBSA headed up the MCV, XHCV and bus segment rankings during the review period, with deliveries of SWC-related coaches considerably enhancing its result in the latter category. Of the individual brands, Fuso fared best with a 12.7% increase in quarter-on-quarter volume, gaining half a percentage point to reach 6.5% market share, while Freightliner conceded more than 23% in volume, tracking the generally weaker performance of the XHCV segment where its sales are exclusively reported. All three brands offered potential buyers a travel incentive to this year’s Brazilian Grand Prix, while Fuso continued to advertise the availability of in-house financing.
Hino/Toyota strongly consolidated its hold on its customary second position during the April-June period, achieving spectacular improvements in both volume and penetration performances. Total sales jumped nearly 30% in the quarter-on-quarter comparison, eclipsing the 9.5% improvement recorded in the first quarter. Second quarter market share stood at slightly more than 15%, reflecting an improvement of nearly three full percentage points over the January to March result. Notably, Hino products headed up the HCV segment rankings in a quarter when this category of distribution trucks performed notably well. This highly creditable outcome was achieved without any overtly incremental product or sales incentive activity.
Another spectacular performance recorded during the second quarter was that of Isuzu Truck South Africa. Although the quarter-on-quarter gains in volume (almost 26%) and penetration (2.1%) were largely due to a stellar performance by the N-Series products in the MCV segment (27% up on the first quarter result), the highly successful launch of the HCV segment F- Series at the end of the first quarter clearly created increased visibility for the brand through the review period, and facilitated an across-the-board improvement of considerable magnitude. The excellent overall performance resulted in Isuzu Truck moving past UD/Nissan Diesel into third place during this quarter, a task made considerably easier by the latter brand’s shortage of MCV product through much of the first half of 2010.
UD Trucks South Africa, in the process of changing from its previous Nissan Diesel identity, recorded an almost identical sales volume in the second quarter to that chalked up three months earlier. This resulted in 0.4 percentage points reduced share in a larger total market, but also a loss of one position in ranking to place fourth behind the substantially improved Isuzu performance. As predicted in our last review, UD launched its replacement MCV line-up during the second quarter, and this emerged as an evolution of the previous, and highly successful, Cabstar series powered by a new Euro 2-compliant six-cylinder diesel engine. UD’s performance in the MCV segment showed some recovery as a result, but still ended some way off the 200-unit quarterly average recorded in 2009.
The MAN Group’s performance in the second quarter was disappointing, with a quarter-on-quarter volume loss of 9.3%, and slightly more than one percentage point reduction in market share, although fifth position overall in the rankings was retained. Both MAN and Volkswagen-branded trucks recorded reduced sales volumes, while aggregated bus sales improved by 23%, although MAN has some ground to make up before it can regain its long-held position as leader of this segment. The considerable sales opportunity that exists for the VW Constellation range in the HCV segment has not yet been fully exploited, and this issue can be expected to receive considerable attention in the Group’s future marketing strategy.
Volvo Trucks maintained its upward momentum during the second quarter, registering a third more sales than in the previous review period, and gaining 1.3% in market penetration, and one position in ranking, to finish in sixth position overall. While sales of XHCV category trucks remained consistent, the added momentum was provided by the delivery of BRT buses ahead of SWC 2010 for operation in Port Elizabeth and Cape Town. In this review, Renault Truck sales, amounting to 23 units for the quarter, have been included in the Volvo returns.
The high-profile launch of Scania’s R-Series of premium haulers, recently crowned “International Truck of the Year”, had a clear influence on the marque’s second-quarter market performance. Volumes were up by no less than 76%, resulting in two-and-a-quarter percentage points increase in market share, and two positions improvement in market ranking, with Scania ending the second quarter in seventh position overall. Bus deliveries maintained their upward momentum, but it was the 85.6% improvement in XHCV category truck deliveries that provided the main thrust to this excellent result.
Tata’s participation in the South African market continues to follow a somewhat erratic route. After an improved showing in the first quarter, the April to June period saw the Indian manufacturer drop back by more than 12% in volume, and give up nearly one percentage point of market share. This resulted in a ranking of eighth, two places off its previous position. Tata has announced that it will be commencing the assembly of light and medium trucks in South Africa, presumably in the Rosslyn plant it acquired some time ago.
Navistar International also experienced a decline during the second quarter, with volumes down by 12.25% and nearly half a percentage point less market share, although the American manufacturer held on to tenth position overall in market ranking. Efforts to bolster the local distribution network have been ongoing, and announcements regarding corporate restructuring, with possible links to the global co-operative venture with Caterpillar, are expected later in the year.
Iveco did not derive any obvious benefit from SWC preparations and the accompanying larger market of 2010’s second quarter, with a quarter-on-quarter volume reduction of nearly 30%, and a market share reduction of 0.9 percentage points, although 11th position overall was retained. Iveco bus sales, a feature of the 2009 market reviews, have remained stubbornly absent during the first half of 2010.
This company retained the 12th ranking position it had occupied in the first quarter, but relinquished nearly a quarter of the volume reported in the January to March period, together with 0.3 percentage points of market share. The process of consolidating the local Powerstar operation under the ownership of Chinese principal Norinco Motors was almost complete at the end of the second quarter, and it is expected that the existing facilities, including the head office in Jet Park, and the assembly operation in Pietermaritzburg, will continue as before.
The formerly co-listed DAF and VDL brands continued to operate at a fairly low key in the second quarter, with the former reporting just four unit sales in the XHCV segment, and the latter recording the delivery of six bus chassis.
Several vehicle manufacturers compete in the MCV segment of this market only with European-sourced integral van-derived products. All of these, including Volkswagen Commercials (ninth position), Peugeot (13th position), Fiat (14th position) and Nissan (16th position) recorded reduced sales volumes and lower market shares during the second quarter of 2010, when compared to their performance in the preceding quarter.
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 the comments and data contained in this report. It was noted that Hyundai was offering a R20 000 incentive on its MCV category trucks during the review period.
GENERAL MARKET COMMENTS
With the first six months of 2010 now formally recorded in history, it still remains an extremely challenging task to predict the final outcome of the market this year for trucks, buses and vans in South Africa.
The situation is considerably clouded by the existence of several hundred brand new luxury coaches in the country, for which there are no immediately obvious prospects for use, and this raises the spectre of “mirror-image” collapses in some highly specialised market segments during the second half of the year. A similar situation may also apply as under-utilised delivery goods vehicles find their way into the second-hand market, or are used to displace older vehicles that, in the normal course of events, would have required replacement by new purchases at some future date.
Taking a longer view, it is gratifying to record that some R400 billion in capital projects are still planned by the country’s public and private sectors in the 2011 to 2018 timeframe. This level of fixed investment activity should help maintain impetus in truck sales, particularly in the XHCV segment. Additional buses will also be needed to complete the Gautrain feeder network, and to equip extended BRT operations as these are rolled out.
However, there still seems to be a worrying lack of common sense on the part of government when it contemplates transport-related matters. Recently, we have read of proposals to regauge South Africa’s entire railway network, in order to improve its competitiveness, and to attract traffic away from the private sector-preferred road transport mode.
This type of unwarranted change, potentially involving huge expense, merely serves to disguise the real reason for rail’s lack of competitiveness, which relates to inefficiency and the lack of a business culture, not to mention a militant labour force that continuously demands more compensation, without offering any productivity trade-off.
In the bus arena, while there are a number of new urban transportation initiatives in the process of being rolled out, including BRT systems, questions must be asked about the government’s ability, or political will, to control the minibus taxi industry, which periodically raises objections to the BRT principle, and inevitably follows up with disruptive action. There is a drastic need for more pragmatic planning for the country’s transport networks and systems, so that a rational “mix” of modes can be attained, with the attendant benefits of lower costs, reduced road congestion and support for economic growth.