Truck Market Focus – 1st Quarter 2009

Current economic conditions are squeezing the truck market tighter than predicted. The result in the first quarter of 2009 has been a surprising mix of good and bad. FRANK BEETON reports

This review reflects the state of the South African truck market for all commercial vehicles with GVM ratings above 3 500 kg as reported to the National Association of Automobile Manufacturers of South Africa (NAAMSA).

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 is the first quarter of 2009 (January to March inclusive): These 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.

TRUCK MARKET RESULTS

The truck market ended the first quarter of 2009 with total sales volumes 25.9% lower than those recorded in the final quarter of 2008. The cumulative total of 5 223 units sold by the end of March was the lowest absolute result for the first three months of any calendar year since 2004. These results were extremely disappointing and clearly reflect the difficult circumstances under which South Africa’s business community is operating. It is notable that even the sharply declining momentum experienced during the latter part of 2008 has not been sustained.

The premium XHCV segment – which experienced its best ever annual sales total as recently as 2008 – has been particularly hard hit, coming in 36.3% below the level achieved in the final quarter of that year. Despite the focus recently on the impending implementation of bus rapid transport (BRT) projects around the country, bus delivery volumes were also sharply reduced over the past three months.

SEGMENTATION DYNAMICS

The recent trend of XHCV segment market leadership was reversed during the first quarter of 2009. Entry-level MCVs regained prime position with 41.3% penetration as the period unfolded. This development was unexpected given the recent emphasis on activities supporting fixed capital investment and the consequent demand for maximum payload line-haul and construction vehicles.

MCV sales strength, conversely, would normally be associated with increased consumption expenditure. It is suspected, though, that at least some of the underlying momentum behind this segment hierarchy reshuffling may come from banks’ reluctance to underwrite the purchase of big ticket items by anyone other than blue chip companies.

The remarkably consistent HCV segment – made up of the larger 4×2 units normally used for distribution duties with nominal payload capacities from 5 to 9 t – tenaciously clung to the 20% market share level it has occupied for the past three years, even showing an inclination to move slightly above this position.

The bus segment, on the other hand, continued to exhibit volatility, dropping well below its recent elevated levels to its previous position just above 4% penetration during the first quarter of 2009. However, it is believed that this decline was less a result of lack of demand, and more because of the late orders for BRT units and coaches required to expand public transport capacity ahead of the Confederations Cup and World Cup soccer tournaments. Despite the recent closure of an important local bodybuilding concern, bus deliveries are expected to regain momentum as the year unfolds.

MANUFACTURER PERFORMANCE

Chart 1 compares the relative market performance and ranking of each participating manufacturer in the year just completed to the returns for the immediately preceding equivalent period. Brands formerly represented by the Commercial Vehicle Holdings group – which include Navistar International, DAF and VDL – are now shown independently, while Renault sales have been incorporated into Volvo volumes.

The results highlighted the following:

Mercedes-Benz SA

The longstanding market leader retained its traditional position at the head of the volume and penetration standings with 1.7% improvement in overall market share to reach 24.8%. The Mercedes-Benz SA (MBSA) Group also headed the MCV and XHCV segments in the first quarter of 2009. Of the individual brands making up the group, Fuso products recorded a significantly improved market share up from 3.6% in the final quarter of 2008 to 5.2% in the past quarter. Mercedes- Benz branded trucks and buses also improved (from 14.9 to 16.1%) in the quarter on- quarter comparison, while Freightliner fell back from 4.6 to 3.5%.

Hino

The Toyota truck brand continued to occupy second position overall with a quarter-on quarter improvement of 1.2% in market share. Once again, the Dyna family was the most successful range of chassis/cab units in the MCV macro-segment, while also recording the highest number of sales for any single badge in this category. Having concluded the re-branding of Toyota’s South African truck operation to Hino, the Dyna range will henceforth carry “Hino 300 Series” badging in South Africa. Hino’s improved performance in the first quarter’s extremely challenging market circumstances hints at broad market endorsement of the strategy.

GMSA/Isuzu

General Motors enjoyed a highly satisfactory initial quarter, holding volumes remarkably steady in a sharply reduced overall market, while gaining 1.8 percentage points in market share and one position in ranking at the expense of Nissan Diesel. This third place performance was due entirely to Isuzu products – which also achieved leadership of the HCV macro segment – while no Opel vans were sold during the first quarter. The result reflects the South African market’s strong endorsement of the policy raising Isuzu’s local profile, and acceptance of the recently introduced N-Series and Gigamax products.

Nissan Diesel

This manufacturer’s first quarter 2009 results were disappointing, showing nearly 40% less volume, a 2.8 percentage point reduction in market share and a ranking deterioration of one position to occupy fourth place. The loss of impetus was felt across all model ranges, although Nissan Diesel’s UD-designated multiaxled products were still the most successful Japanese-source vehicles in the premium XHCV macro segment.

Volkswagen

Volkswagen South Africa (VWSA) made a highly significant move up the market rankings during the first quarter to occupy fifth position, with a penetration improvement of 1.9%. This was reflected in the Crafter van and Volksbus product lines retaining a strong volume despite the overall downward market trend. MAN’s purchase of Volkswagen’s Brazilian truck and bus manufacturing operation was duly completed early in 2009, but any resulting implications for the local operations of both companies have not yet been announced.

MAN

In sharp contrast to the brand it has recently acquired, MAN gave up more than three percentage points in market share when compared to its final quarter 2008 result; total first quarter 2009 volumes posted were less than half of that reported in the previous quarter. As a result, MAN and VWSA traded market rankings, with the former slipping down to sixth position. MAN retained its long-running leadership of the bus macro segment during the first quarter of 2009, but with significantly reduced volume. Its position now appears to be under threat from both Iveco and VWSA.

Tata

With an improvement of three positions in market ranking during the first quarter, more than 28% improvement in sales volume and an increase of two percentage points in market share in the quarter-on-quarter comparison, seventh-placed Tata has managed to stem the recent slide evident in its performance. It is significant that Tata and Fuso products, both positioned at the value end of the pricing spectrum, enjoyed market share enhancements in the highly negative current market conditions. This, together with the slight improvement in LCV sales in March, may reflect a relative easing in the financing environment for more affordable products.

Others

Of the remaining manufacturers Nissan, Volvo (Renault included) and Peugeot recorded improvements in both market share and ranking positions relative to their final quarter 2008 performances. Scania and Fiat maintained their positions. Those losing ground included Iveco (giving up six positions and losing more than four market share percentage points in spite of substantial first quarter bus sales), International (still working to stabilise local distribution arrangements) and Super Group. There still appears to be uncertainty regarding the future of Super Group’s truck sales and assembly operations. The media has even intimated that an ownership change may soon be announced. VDL is now reporting its deliveries independently of DAF but this amounted to only one bus chassis during the quarter, while DAF failed to report any sales.

GENERAL MARKET COMMENTS

At the beginning of this year, FOCUS invited industry spokespeople to indicate their expectations for the 2009 truck market. The resulting consensus forecast averaged out at a total of just less than 28 500 units, some 18% off the final 2008 volume of 34 659 units, the second highest annual total ever recorded in the history of this market.

At the time this was thought to be a somewhat pessimistic outcome given that the business environment sketched by economists and supported by Finance Minister Trevor Manuel’s February budget, appeared positive for truck sales. However, the cumulative result up to the end of March has failed to support even this conservative industry outlook. It will take a substantial recovery over the following nine months for it to be realised.

The main risk inherent in these depressed market results lies in the potential loss of valuable assets and skills in the supply industry. Vehicle manufacturers, importers, dealers, bodybuilders and other suppliers will experience difficulty in maintaining operations at the levels built up over recent years of record sales. There can be no guarantee that trained personnel and expensive facilities, lost to the industry during the present downturn, will be recovered once more satisfactory volume levels return. There is also a level of risk for transport operators supporting events such as the Confederations Cup, Indian Premier League, Lions Rugby Tour and Soccer World Cup 2010, in that their operations may be compromised by a lack of vehicle availability or serviceability, where sales, service or parts outlets have been closed or scaled down because of the current market conditions.

Government’s plans for continued rollout of its infrastructure programmes totalling R787 billion is encouraging for at least a partial recovery in truck and bus demand, particularly at the upper end of the payload spectrum. But the mindset created by the overall economic picture could encourage operators to extend the lives of existing vehicles rather than pursuing more normal replacement policies. This will make it imperative for vehicle and equipment suppliers to consult regularly with their clients to ensure that vehicles required for fleet replacement and expansion purposes can be made available at the appropriate time.