What does 2012 hold?
Last year ended on a controversial note, with Mercedes-Benz SA (MBSA) not reporting its figures. However, in typical TRANSPORT MANAGER’S HANDBOOK fashion, CHARLEEN CLARKE still asked the captains of industry for their comments on the 2011 year and predictions for the year forward.
I really hope that Mercedes-Benz does start reporting its figures again, but I don’t hold out much hope that issue will be resolved in the near future. According to the National Association of Automobile Manufacturers of South Africa (Naamsa), the move follows a global directive by Daimler AG to discontinue participation in the South African automotive industry’s domestic new vehicle and export sales reporting “for the time being”.
Naamsa says the directive is precautionary and “is related to the European Union Competition Commission investigation into alleged anti-competitive practices by various European truck manufacturers”. As is common knowledge, the European Union Competition Commission has already dished out astronomical fines for so-called “anti-competitive practices”. Personally, I cannot see how reporting to Naamsa could possibly be construed as anti-competitive. Having said that, we all know Germans are, by nature, conservative and sticklers for rules. So I would imagine the decision by Daimler AG won’t be reversed in the very near future; they will mull it over long and hard before announcing any changes.
Hopefully I am wrong; the local company certainly seems determined to resolve the issue soon. “MBSA is in the process of investigating a possible solution that would enable the re-establishment of the current reporting process as soon as possible. We are actively engaging with Naamsa to find such a solution to the satisfaction of Daimler global requirements,” says Annelise van der Laan, the company’s corporate communication specialist.
I really do hope the issue IS resolved sooner rather than later. After all, it’s virtually impossible to analyse truck sales without taking into account figures provided by Mercedes-Benz SA; without the market leader’s figures, the market is as clear as mud. Having said that, life in the world of transport must go on with or without these figures – and it will. So what will happen during 2012?
To place 2012 in perspective, I need to kick off with a very brief review of 2011. (Frank Beeton will comment on the 2011 market in the February issue of FOCUS in considerably more detail.) So here goes…
NOT HALF BAD
The total commercial vehicle market for 2011 (GVM of 3 500 kg and above) amounted to 26 248 units – which was much lower than we had expected. The December sales excluded any of the brands within the Mercedes-Benz SA stable, but even taking those sales statistics out of the equation it wasn’t a shoddy year! As Dr Casper Kruger, vice-president of Hino in South Africa, comments: “The 2011 total truck, bus and van market has returned 19,2 percent growth over the 2010 year result of 22 021 units, and has exhibited a substantial swing in favour of the extra-heavy commercial vehicle (EHCV) segment, which accounted for 44,5 percent of the available sales, up from 38,6 percent last year.”
According to Kruger, this market share improvement has been mainly at the expense of the heavy passenger bus category, down from its Soccer World Cup-enhanced performance of 7,1 percent in 2010 to a more modest 3,8 percent in 2011.
“In addition, the cruiserweight heavy commercial vehicle (HCV) segment gave up exactly two percentage points of penetration from its 2010 level of 20 percent. Some of the decline can be ascribed to product supply constraints suffered by the Japanese brands dominating the HCV category, in the wake of the tsunami and earthquake events that devastated manufacturing capacity in that country during March 2011,” he says.
Kruger notes the medium commercial vehicle (MCV) sector held up well in 2011, improving its market share performance by nearly one full percentage point over its 2010 level, to end at 35,25 percent.
So what of 2012? Let’s kick off with the “babies” of the commercial vehicle market – the lights. And, given the success of the Hilux (37 874 units were retailed in 2011, giving it the distinction of being South Africa’s bestselling vehicle, bar none), we’ll start with Toyota.
Although 2011 was a testing year, Dr Johan van Zyl, president and CEO of Toyota South Africa, notes the company did reaffirm its position as South Africa’s largest vehicle brand, celebrating 32 consecutive years as market leader.
Looking at the year ahead, Van Zyl says several developments on local and international fronts will influence vehicle sales and local production.
“On local soil we are eagerly awaiting the finalisation of the Automotive Production and Development Programme (APDP) that is set to replace the current Motor Industry Development Programme (MIDP). Focusing on local production and efficiencies as opposed to export growth, the APDP will benefit further localisation of parts and components and support the development of a wider and deeper local component manufacturing industry,” says Van Zyl.
“Internationally we will keep a close watch on the development of key export markets, especially Europe. All indications are that markets in the Eurozone remain fragile and growth, if at all, will be slow. This could influence our export volumes and will put pressure on us to grow exports to other markets, such as Africa,” he explains.
These developments, as well as expectations of lower economic growth in the South African market, have led Toyota to set an overall sales target of close to the past year’s 570 000, implying the market will stabilise at current levels or slow down.
GWM is another player within the light commercial vehicle (LCV) market and it predicts the total market “won’t increase too drastically in volume”.
“But the split among manufacturers will change, depending on what they can offer the market. Here, innovative and more value-for-money deals will be of increasing importance to sway motorists towards specific models and brands,” says Tony Pinfold, chairman of GWM South Africa.
“For GWM, as for many other players in the industry, 2011 was a good, solid year. We look back on a steady growth across all our vehicle ranges, not least of which were pick-up and SUV sales,” he reports.
Pinfold says it seems the SA Reserve Bank’s decision to keep the repo rate at 5,5 percent had a positive impact, leading to a rise in consumer spending. “We look forward to the same steady rise in vehicle sales this year,” he comments.
General Motors South Africa is another successful player within the LCV market. In December 2011, for instance, the new third generation Chevrolet Utility clocked up a whopping 1 617 sales, for 12,6 percent of light commercial sales for the month. “This extended GM’s leadership in this segment to 81 months in succession,” says Malcolm Gauld, General Motors South Africa’s vice-president – sales and marketing. The 1 051 sales for the Isuzu KB placed it second in the one-ton pick-up segment.
Gauld is hedging his bets when it comes to a prediction for 2012. “Looking ahead, we anticipate overall sales volumes will grow in 2012. But, as a result of global economic pressures, there may be a slowdown in the rate of growth versus 2011,” he warns.
Craig Uren, chief operating officer of Isuzu Truck (South Africa), is also wary of making specific predictions. “The signs and demand at the start of 2012 look promising, and the start of the new year reminded me a lot of the beginning of 2011. Last year was full of potential at the start; it really got off to a flying start!”
But then the tsunami struck Japan on March 11. All the Japanese vehicle manufacturers were affected by those events, and later by the flooding in Thailand, which impacted on the ability of component makers in that country to supply many of the world’s vehicle manufacturers – mainly those located in Japan.
Uren is hoping for a tsunami and natural disaster-free 2012. But he says the big question for 2012 is the effect of the Eurozone debt crisis on South Africa, as well as the “very fluctuating fortunes of the rand”.
“So the outlook is two-sided. If South Africa gets through 2012 with only a small margin of drama resulting from global forces, 2012 could be good. We’re all hoping for a market of around 28 000 units. If not, it will be a period of challenges again, where we all have to work hard to sustain momentum in our business into 2013,” he notes.
Uren believes it is going to be interesting to see how increased financial pressures on transport operators impact on the consumer. “The costs in terms of toll fees; greater wear and tear due to road conditions; additional infrastructural costs of overheads driven by electricity, rates, and other services; fuel prices and now pressure on vehicle costs will potentially become a more significant factor in driving unnecessary inflation in commodity prices,” he warns.
Uren stresses Isuzu Trucks is working hard to mitigate those overall pressures.
“I would like our company and products to have a real impact and achieve success in this regard,” he says.
Hino also took pain after the tsunami. But now Kruger is considerably more optimistic, particularly as the stock situation improves, with Hino production again running at full capacity in Japan. “At this very early stage in 2012, the short-term outlook for the truck market in the year ahead remains positive, given that product availability has been a constraining influence on reported volumes during the latter months of 2011,” he says.
“Current levels of demand are expected to prevail through the first quarter of 2012, but the picture beyond that will depend largely on the unfolding of overseas events, and the measure of success achieved by local government and business in addressing the challenges posed by foreign exchange currency fluctuation, volatile international oil prices and varying commodity demand levels among South Africa’s international trading partners. The local supply industry will need to exhibit considerable management flexibility and agility to ensure that the critical balance between supply and demand is achieved,” he adds.
Like Kruger, Danie de Beer, general manager – commercial vehicles at Hyundai, is hoping stock shortages following the tsunami in Japan will be a thing of the past this year. “Last year was a tough year for all Japanese manufacturers but they will bounce back – as they always do. At Hyundai Commercial we had no major disappointments in 2011 and we will strive to continue growing our market share in the MCV market in 2012,” he says.
“But I am certain we can still expect the year-on-year growth to continue,” he believes. De Beer says the MCV market as a whole grew by roughly 18 percent in 2011 versus 2010. “As at end September 2011, panel van sales had grown by approximately 20,4 percent, freight carriers by 17 percent and small buses by about 50 percent,” he comments.
De Beer hopes the MCV market will grow by “a minimum of 10 percent in 2012”. “Although no one is sure how the worldwide economy will impact on us,” he notes.
On the other hand, Kobus van Zyl, vice-president responsible for sales and marketing of commercial vehicles at MBSA, is hoping for an improvement in bus sales. “With regard to public transport and bus sales, MBSA is counting on the government’s commitment to execute its long-term public transport strategy and is looking forward to contributing to establishing South Africa as a world leader in efficient and user-friendly mobility and public transport solutions. MBSA, with the broadest portfolio of products of any commercial vehicle manufacturer, is uniquely positioned to drive and benefit from this development, which will contribute to South Africa’s success as a whole,” he says.
The good news is that Nicholas de Canha, CEO of Imperial Fleet Management and marketing director of Imperial Daihatsu, believes the truck market will outperform the general market. “The very high levels (35 000 units) of 2006/7 led to overcapacity in the broad logistics industry. But now those units will be reaching the end of their terms and some replacements should come through to the new market. Used values are also improving in this segment, which is another reason to expect stronger new vehicle sales. Corporate South Africa is sitting on large cash reserves (R470 billion, according to Nedbank) and we expect some of that to lead to investment growth, which will also propel this segment,” he maintains.
Erwin Stolze, marketing manager and dealer development at Powerstar, is also optimistic. “We expect the commercial vehicle market to show five to 10 percent growth this year,” he says.
According to Stolze, the construction and mining segments showed considerable growth in 2011. Those are the biggest segments in which Powerstar competes. “We expect a similar scenario in 2012. We will also introduce the V3 in the long-haul market. This is the most competitive sector of the commercial vehicle market, but it’s also extremely large,” he comments.
Powerstar’s exports increased during 2011. “We will continue our focus on exports during 2012 – especially within the SADC countries,” says Stolze.
Also on the subject of extra heavies, Sally Rutter, general manager sales and marketing at NC2 Trucks Southern Africa, notes 2011 was an outstanding year for the EHCV market in South Africa. “Notwithstanding outside circumstances beyond our control we are confidently looking forward to a buoyant market in 2012.”
But she doesn’t anticipate growth. “Whilst the EHCV market showed excellent growth in 2011, a small decrease is expected in this market in 2012,” Rutter predicts.
She’s considerably more optimistic when it comes to the company’s individual fortunes. “The 2011 calendar year was extremely good for International, with sales in the vicinity of 900 units in the EHCV sector. International anticipates increasing sales by 15 to 20 percent in 2012. We will also introduce an exciting new model range,” she says.
EXCHANGE RATE WOES
A key concern throughout the industry concerns the exchange rate. As Isuzu Truck’s Uren notes: “Lots of speculation will continue on this front for some time and the current pressures on exchange rates and resultant pressures on local costs could still have a negative impact on the overall market for the year.”
Johan Richards, CEO of UD Trucks Southern Africa, says of its impact on exports, “It seems the market has finally made a positive turn on a year-on-year basis. If the Eurozone debt crises remain stable we foresee a very good year in the African export countries after a sluggish 2011. The export market is also having a good time of late, as the rand weakened against the US dollar.”
Richards says local manufacturers that export into Africa (UD Trucks, for instance) will be very excited if the rand strengthens to around “the more ideal R8,30 level”.
Of course, a weak rand has obvious exports benefits, as Warren Marques, managing director of Paramount Trailers, notes. “We are cautiously optimistic about 2012 and what it holds for the industry. We will continue to monitor the economic situation in Europe, how it develops and the impact it will have on our local economy. The weakening rand will continue to allow for our expansion into Africa, ensuring growth into new markets, customisation of trailers and providing new tailor-made solutions,” he says.
But it’s clear a weak rand is not good news for the local market. “Looking forward to 2012, UD Trucks is anticipating a total commercial vehicle market of 29 000 units. We also foresee a number of possible price increases on trucks in January 2012, as a result of the adverse effect of exchange rates on the local market,” Richards warns.
Imperial Fleet Management’s De Canha also alludes to price increases this year. “The total market for 2011 was 570 000 units, and the first half of 2012 will most likely be flat versus 2011 due to the price increases that will come through as a result of the poor exchange rate,” he maintains.
De Canha says the second half will most likely show some growth – but bank approvals remain a concern. “Although single bank approval rates are now near 40 percent, the entry segment is still seeing approval rates of 20 percent or less and this is the most price-sensitive and growth-orientated segment in our economy,” he notes.
Hyundai’s De Beer agrees. “The exchange rate will put pressure on manufacturers to adjust pricing this year,” he says.
Bruce Dickson, deputy CEO of MAN Truck & Bus SA, is also worried about exchange rates. “The biggest obstacle facing MAN and other players in the industry is the instability of the exchange rate, which could make or break sales for the coming year. I see this as a challenge, because it impacts directly on the total cost of ownership which, in turn, has an effect on the cost of living,” he notes.
Dickson points out the global economic situation could also pose a threat to the company, as it influences the rate of exchange. “Our products come from Germany and Brazil, and so we have the effect of both the US dollar and the euro to contend with,” he states.
In fact, he believes the weak rand could possibly delay the purchase of heavy commercial vehicles by fleet owners. “However, favourable interest rates have helped ease lending conditions within the industry, allowing for fleet renewal and expansion,” Dickson says.
So the exchange rate is a real concern. What else should we worry about this year? UD Trucks’ Richards believes the market will be more competitive this year. “This is due to greater product parity in the market,” he says.
We will also see an even greater product offering up for grabs this year. JAC Motors, for instance, has returned to the market with a vengeance. In fact, it aims to become one of the world’s top manufacturers in the LCV sector.
The company wants to sell 1,6 million vehicles a year – of which 20 percent will be in overseas markets.
“Due to its emerging economy, BRICS membership and potential to unlock the rest of the African continent, JAC Motors sees South Africa as a key strategic market in the coming years. These figures equate to 1 700 vehicles exported to South Africa per year,” a company spokesman confirms. That includes 500 so-called “light trucks”, 1 000 pick-ups and 200 multi-vans.