There is no shortage of stuff kicking around just below the surface of the global truck industry at the moment. The European end of the business has something of a track record in returning from the August break and undergoing seismic shifts during September, so now seems like not a bad time to give the future some thought.
These are opinions - predictions as to what is likely - in our view - to happen over the next few months. Now, given that we have riled one or two for proffering opinions in the past, let us make this suggestion here and now: for those who don't like this approach, go and read something else. We do not represent the following as fact, but as views. No more, no less.
These are opinions - predictions as to what is likely - in our view - to happen over the next few months. Now, given that we have riled one or two for proffering opinions in the past, let us make this suggestion here and now: for those who don't like this approach, go and read something else. We do not represent the following as fact, but as views. No more, no less.
There are three specific drivers that we believe are set to shape the
structure of the (Global) truck business over the next five years.
1) Within the Triad, too many trucks are still being built. Installed capacity does not reflect current or likely future demand, and, as we have argued previously, anyone who tries to form an argument for a return to the level of truck sales witnessed prior to the 2007 / 2009 downturn in Europe and North America is guilty of a gross act of self delusion. The customer base is consolidating, and the middle ground is being squeezed. Despite signs of life in both markets, it is almost inconceivable that the next market peak will be anywhere near that witnessed previously.
2) Any vestige of emotion has now left the transport industry. Or, if it hasn't, it will be soon. The notion of the truck operator as an individual possessed of veins through which diesel courses is fast becoming a quaint matter of historical detail. Transport used to be almost a lifestyle profession; this can no longer be said to be the case. None of us are involved within this industry - as practitioners, investors, manufacturers or spouters of invective - because we promised our grandmothers we'd do so. We're in it for the money. At this point, we'd better pause for the hollow laughter to subside.
3) People want more for less. Trucks are merely a component part of a supply chain, and represent a cost to be saved as opposed to an opportunity to be maximized. Today's European truck is 38 per cent more productive than one from 15 years ago, and yet costs, in real terms, rather less. The writing on the wall here is very clear; the truck is becoming a lowered cost, commodity product. That which surrounds it - service, network, financing offers and the like - still offers something by way of a competitive landscape, but the actual, physical product itself is merely a lump of metal with wheels attached. A high tech lump of metal we grant you, but a lump nevertheless.
With these three drivers in mind, what can we deduce about the likely direction of the supply side of the truck industry over the next few months and years? The easiest way of making sense of things is on a supplier-by- supplier approach, and, for the sake of fairness, we'll question the orthodoxies on a biggest first basis.
Daimler Trucks.
Uncomfortable in its current guise, we predict that Daimler Trucks will have offed Fuso, and invited an investor into DTNA within 24 months. Fuso will continue to provide Daimler with what it needs - namely a commodity freight moving product for EMEA / Asia - but the relationship here will be one of general global importer rather than manufacturer. Daimler gets to retain control over assembly quality, and will continue to offer its customer base a retail product. It will, however, outsource a vast swathe of fixed costs. MTFBC products show no sign of scaling with Daimler's other products, and so off they go. To whom? We reckon MTFBC becomes some form of a bargaining chip, as Daimler looks to salvage some toehold within the nascent Indian market; effectively, MTFBC becomes a dowry payment for access to an existing Indian OEM, with whom Daimler partners up in a manner reminiscent of Volvo and Eicher.
DTNA is a trickier one to call, but, on balance, the scale argument has been and gone here. DDC will remain - we have no doubt - as a wholly owned Daimler company, but there seems to be the potential for at least a partial divestment of DTNA. We like Penske and Hino here, and whilst RP's relationship is with the sales side of Hino's North American operation, we do wonder if there might be some room for discussion. Daimler continues to draw revenue from a less than 100 per cent owned NA operation, maybe gets an opportunity to introduce the Hino MD product into the DTNA network yet retains a captive customer for DDC. Fixed costs are reduced, platform benefits are optimized and profit thus maximized. We'd assume.
AB Volvo.
How many brands does a truck manufacturer need? We don't know, but surely it can't be as many as Volvo now owns. Biggest in Europe, second biggest globally, and still not making money, AB Volvo seems to be proof positive that the scale argument needs to be approached with some suspicion.
On the bright side, AB Volvo has extricated itself from the CNHTC mess. This may give it a route into Dongfeng in China, which, we assume, was the game plan behind the rushed acquisition of Nissan Diesel a while back. If Volvo has DF, does it need NDM? The latter provides a commodity product for Europe, and, under the UD brand, some useful business in Australia, South Africa and NAFTA, but this is still business that could go to either VE or Dongfeng with appropriate oversight from Gothenburg. It is still a brand too many. As, it must be said, is Renault Trucks. Mack would seem to be safe so long as the Volvo brand fails to live up to expectations in North America, but, even here, we see the almost continual duplication of marketing and network costs. Something has to give, and we'd reckon the order of retreat will be Renault (following the likely placement of Renault SA's stake in AB Volvo) followed by Nissan Diesel - quite where this one goes we know not. In North America, we'd assume that Mack will become the vocational side of the VTNA business, Volvo the over the road brand, and that fingers will remain tightly crossed.
It isn't quite over for Renault though. Whilst it may not be possessed of a future in terms of making trucks, it is pretty good at making cabs. And, for Europe, this will become a key issue during the lead in to Euro VI.
Paccar.
Euro VI begins to look awkward here, but first, some footnotes. Paccar is a very successful company when it sticks to what it does best. For all the grand talk of vertical integration and global scale, it has done rather nicely out of functioning primarily as an assembler of trucks on a regional basis. It makes sure that the nuts are done up good and tight, and that the buyer gets what they want. But, when it treads outside of its comfort zone, Paccar gets into a muddle.
We reckon that the Paccar business mantra consists of four pillars of wisdom:
1) When in a cyclical business, eschew debt.
2) If it makes sense to do something in a downturn, it makes sense to do it all the time.
3) Fixed costs are to be minimized...
4) ...and all costs should be seen as variable in the long run.
If these are truths universally acknowledged, then the Paccar powertrain business looks tenuous at best. DAF registered 44162 vehicles above 16 tonnes during 2008. It aims to launch the 13-litre MX engine in North America as a 2010 compliant unit, but quite how large the market will be for a 13 litre engine as of 2010 remains to be seen. It is difficult to know what the tipping point is for scale in terms of engine build, but we reckon that Paccar will fall short.
One of the more interesting rumours currently doing the rounds is some form of contra-deal between Fiat and Paccar, in which the former - through Fiat Powertrain - takes on the manufacture of the MX for both Europe and North America, whilst DAF gets to put its products on some Southern European forecourts vacated by Iveco's HD business. This would seem to offer a win-win situation for both sides, and, as FPT ploughs the same furrow as Daimler's Powersystems operation of a decade or so ago, such a move would be most welcome in Turin. Additional - or simply some - sales in Southern Europe wouldn't hurt DAF either.
But there remains the Euro VI issue to deal with. This will be a horror story for all concerned, and, unlike engine development, it is a regional issue. In blunt terms, everyone is faced with the prospect of sticking a larger, harder to cool engine inside a truck the dimensions of which - four metres high by 16.5 metres long - are pretty clearly laid out across most of Europe. This is going to involve a lot of head scratching, a probable redesign from the ground upwards, and, most importantly, a flood of R&D money. The more Euro VI cabs you can sell, the lower the unit R&D cost, and so Paccar will, we assume, be looking to defray those costs with a deal. It already takes the Renault MD cab for its LD range; will be see a Volvo group-cabbed, FPT-powered DAF by 2013? Paccar has previous here; its existing XF cab comes courtesy of Cabtech - a JV between DAF and Pegasso, and, its medium duty engines are built by Cummins. Go back to the early '90's and it stuck a Cummins 14 litre engine in its HD range too. A strategy similar to that laid out here would cut Paccar's costs by an order of magnitude in the run up to Euro VI, and could result in a 15 or 16 litre EPA 10 compliant engine c/o FPT. Both of these results might be regarded as very positive indeed.
Iveco
Like Paccar, Iveco is very good at what it does best - namely light and medium duty trucks. This is grossly unfair; it is victim of long memories in the truck industry, and the disaster that was the EuroTech of the early '90's has left an indelible mark on the company's reputation. Ironically, just when Iveco started to get things right, the market for its products seems to have disappeared. Will we see a HD Iveco at Euro VI - the balance of probabilities says no.
What we will see is a revitalized L and MD business here. The Daily van will, we believe, take the North American van market by storm, and the possibility must also exist for Iveco to compete within the NA MD segment too. HD seems to be rather meaningless for Iveco now, and we suspect that the cost-benefit of competing at Euro VI is a very close call. Iveco is now very much at the mercy of the Fiat Group's decision-making process, and we suspect that the line will be drawn at 18 tonnes. Quite how the Indian, Latin American and Chinese HD operations play out remains to be seen, but in Europe at any rate, we'd place Iveco out of the HD market post Euro VI.
Scania
Volume and Euro VI looms large on the horizon for Scania, but at least there can be little doubt about who will be in charge. VW will, in time, own but one European OEM, and it's going to be Swedish rather than German.
If it isn't broke, don't try and fix it would seem to be the best adage here. If Scania is allowed to get on with what it has shown itself quite capable of doing rather well - building trucks, usually rather profitably - then VW's ownership shouldn't prove to be too huge a problem. However, if Wolfsburg's Department of Good Ideas gets itself too involved, then all bets would have to be off.
Scania questions current wisdom by remaining a conservative, regional and vertically integrated OEM. If we buy the scale argument, then Scania shouldn't exist. But, if we don't subscribe, then maybe it has a lot going for it. A lot of money will need to be spent pre Euro VI, but VW has deep-ish pockets - though whether this will remain post Porsche remains to be seen - and should pay up like an indulgent uncle. One of the key flash points we see in Sodertalje is that of management succession; quite what happens when Östling hands in his gate pass remains to be seen, but, this aside, and assuming that VW doesn't meddle too much, we can't see too much to grumble about here.
MAN
We've been waiting for it to happen, and now it seems only a matter of time. As remarked previously, MAN looks set to end up with a new major shareholder, and it's going to be from the East. CNHTC looks a shoe-in for VW's stake in MAN as the great Scania-MAN-VWCV saga begins to unravel.
We're in pretty much virgin territory here; CNHTC's reputation within the truck industry is far from unsullied, but we can see some positives for Munich. The one bright spot within the European market is the retail commodity truck sector - vid Canter - and, if anyone can knock out a passable product for this marketplace, it's probably going to be the Chinese with some German QC oversight.
MAN has well-documented troubles at present, and, to these we can add Euro VI costs. CNHTC has deep pockets, and if it adopts a long view towards MAN, then the relationship may yet prove to be a positive one. But, we must reiterate, China National's reputation proceeds it; if this deal goes the way that we suspect it will, then - at least initially - pessimism will be the order of the day.
Navistar
We've said all we need to say about Navistar in previous postings. Nothing has happened and nothing seems likely to happen to change our views, and, the closer we get to 1st January 2010, the more hardened our pessimism becomes. Nothing more need be said here.
That's your lot for today. Tomorrow, we'll carry on.
1) Within the Triad, too many trucks are still being built. Installed capacity does not reflect current or likely future demand, and, as we have argued previously, anyone who tries to form an argument for a return to the level of truck sales witnessed prior to the 2007 / 2009 downturn in Europe and North America is guilty of a gross act of self delusion. The customer base is consolidating, and the middle ground is being squeezed. Despite signs of life in both markets, it is almost inconceivable that the next market peak will be anywhere near that witnessed previously.
2) Any vestige of emotion has now left the transport industry. Or, if it hasn't, it will be soon. The notion of the truck operator as an individual possessed of veins through which diesel courses is fast becoming a quaint matter of historical detail. Transport used to be almost a lifestyle profession; this can no longer be said to be the case. None of us are involved within this industry - as practitioners, investors, manufacturers or spouters of invective - because we promised our grandmothers we'd do so. We're in it for the money. At this point, we'd better pause for the hollow laughter to subside.
3) People want more for less. Trucks are merely a component part of a supply chain, and represent a cost to be saved as opposed to an opportunity to be maximized. Today's European truck is 38 per cent more productive than one from 15 years ago, and yet costs, in real terms, rather less. The writing on the wall here is very clear; the truck is becoming a lowered cost, commodity product. That which surrounds it - service, network, financing offers and the like - still offers something by way of a competitive landscape, but the actual, physical product itself is merely a lump of metal with wheels attached. A high tech lump of metal we grant you, but a lump nevertheless.
With these three drivers in mind, what can we deduce about the likely direction of the supply side of the truck industry over the next few months and years? The easiest way of making sense of things is on a supplier-by- supplier approach, and, for the sake of fairness, we'll question the orthodoxies on a biggest first basis.
Daimler Trucks.
Uncomfortable in its current guise, we predict that Daimler Trucks will have offed Fuso, and invited an investor into DTNA within 24 months. Fuso will continue to provide Daimler with what it needs - namely a commodity freight moving product for EMEA / Asia - but the relationship here will be one of general global importer rather than manufacturer. Daimler gets to retain control over assembly quality, and will continue to offer its customer base a retail product. It will, however, outsource a vast swathe of fixed costs. MTFBC products show no sign of scaling with Daimler's other products, and so off they go. To whom? We reckon MTFBC becomes some form of a bargaining chip, as Daimler looks to salvage some toehold within the nascent Indian market; effectively, MTFBC becomes a dowry payment for access to an existing Indian OEM, with whom Daimler partners up in a manner reminiscent of Volvo and Eicher.
DTNA is a trickier one to call, but, on balance, the scale argument has been and gone here. DDC will remain - we have no doubt - as a wholly owned Daimler company, but there seems to be the potential for at least a partial divestment of DTNA. We like Penske and Hino here, and whilst RP's relationship is with the sales side of Hino's North American operation, we do wonder if there might be some room for discussion. Daimler continues to draw revenue from a less than 100 per cent owned NA operation, maybe gets an opportunity to introduce the Hino MD product into the DTNA network yet retains a captive customer for DDC. Fixed costs are reduced, platform benefits are optimized and profit thus maximized. We'd assume.
AB Volvo.
How many brands does a truck manufacturer need? We don't know, but surely it can't be as many as Volvo now owns. Biggest in Europe, second biggest globally, and still not making money, AB Volvo seems to be proof positive that the scale argument needs to be approached with some suspicion.
On the bright side, AB Volvo has extricated itself from the CNHTC mess. This may give it a route into Dongfeng in China, which, we assume, was the game plan behind the rushed acquisition of Nissan Diesel a while back. If Volvo has DF, does it need NDM? The latter provides a commodity product for Europe, and, under the UD brand, some useful business in Australia, South Africa and NAFTA, but this is still business that could go to either VE or Dongfeng with appropriate oversight from Gothenburg. It is still a brand too many. As, it must be said, is Renault Trucks. Mack would seem to be safe so long as the Volvo brand fails to live up to expectations in North America, but, even here, we see the almost continual duplication of marketing and network costs. Something has to give, and we'd reckon the order of retreat will be Renault (following the likely placement of Renault SA's stake in AB Volvo) followed by Nissan Diesel - quite where this one goes we know not. In North America, we'd assume that Mack will become the vocational side of the VTNA business, Volvo the over the road brand, and that fingers will remain tightly crossed.
It isn't quite over for Renault though. Whilst it may not be possessed of a future in terms of making trucks, it is pretty good at making cabs. And, for Europe, this will become a key issue during the lead in to Euro VI.
Paccar.
Euro VI begins to look awkward here, but first, some footnotes. Paccar is a very successful company when it sticks to what it does best. For all the grand talk of vertical integration and global scale, it has done rather nicely out of functioning primarily as an assembler of trucks on a regional basis. It makes sure that the nuts are done up good and tight, and that the buyer gets what they want. But, when it treads outside of its comfort zone, Paccar gets into a muddle.
We reckon that the Paccar business mantra consists of four pillars of wisdom:
1) When in a cyclical business, eschew debt.
2) If it makes sense to do something in a downturn, it makes sense to do it all the time.
3) Fixed costs are to be minimized...
4) ...and all costs should be seen as variable in the long run.
If these are truths universally acknowledged, then the Paccar powertrain business looks tenuous at best. DAF registered 44162 vehicles above 16 tonnes during 2008. It aims to launch the 13-litre MX engine in North America as a 2010 compliant unit, but quite how large the market will be for a 13 litre engine as of 2010 remains to be seen. It is difficult to know what the tipping point is for scale in terms of engine build, but we reckon that Paccar will fall short.
One of the more interesting rumours currently doing the rounds is some form of contra-deal between Fiat and Paccar, in which the former - through Fiat Powertrain - takes on the manufacture of the MX for both Europe and North America, whilst DAF gets to put its products on some Southern European forecourts vacated by Iveco's HD business. This would seem to offer a win-win situation for both sides, and, as FPT ploughs the same furrow as Daimler's Powersystems operation of a decade or so ago, such a move would be most welcome in Turin. Additional - or simply some - sales in Southern Europe wouldn't hurt DAF either.
But there remains the Euro VI issue to deal with. This will be a horror story for all concerned, and, unlike engine development, it is a regional issue. In blunt terms, everyone is faced with the prospect of sticking a larger, harder to cool engine inside a truck the dimensions of which - four metres high by 16.5 metres long - are pretty clearly laid out across most of Europe. This is going to involve a lot of head scratching, a probable redesign from the ground upwards, and, most importantly, a flood of R&D money. The more Euro VI cabs you can sell, the lower the unit R&D cost, and so Paccar will, we assume, be looking to defray those costs with a deal. It already takes the Renault MD cab for its LD range; will be see a Volvo group-cabbed, FPT-powered DAF by 2013? Paccar has previous here; its existing XF cab comes courtesy of Cabtech - a JV between DAF and Pegasso, and, its medium duty engines are built by Cummins. Go back to the early '90's and it stuck a Cummins 14 litre engine in its HD range too. A strategy similar to that laid out here would cut Paccar's costs by an order of magnitude in the run up to Euro VI, and could result in a 15 or 16 litre EPA 10 compliant engine c/o FPT. Both of these results might be regarded as very positive indeed.
Iveco
Like Paccar, Iveco is very good at what it does best - namely light and medium duty trucks. This is grossly unfair; it is victim of long memories in the truck industry, and the disaster that was the EuroTech of the early '90's has left an indelible mark on the company's reputation. Ironically, just when Iveco started to get things right, the market for its products seems to have disappeared. Will we see a HD Iveco at Euro VI - the balance of probabilities says no.
What we will see is a revitalized L and MD business here. The Daily van will, we believe, take the North American van market by storm, and the possibility must also exist for Iveco to compete within the NA MD segment too. HD seems to be rather meaningless for Iveco now, and we suspect that the cost-benefit of competing at Euro VI is a very close call. Iveco is now very much at the mercy of the Fiat Group's decision-making process, and we suspect that the line will be drawn at 18 tonnes. Quite how the Indian, Latin American and Chinese HD operations play out remains to be seen, but in Europe at any rate, we'd place Iveco out of the HD market post Euro VI.
Scania
Volume and Euro VI looms large on the horizon for Scania, but at least there can be little doubt about who will be in charge. VW will, in time, own but one European OEM, and it's going to be Swedish rather than German.
If it isn't broke, don't try and fix it would seem to be the best adage here. If Scania is allowed to get on with what it has shown itself quite capable of doing rather well - building trucks, usually rather profitably - then VW's ownership shouldn't prove to be too huge a problem. However, if Wolfsburg's Department of Good Ideas gets itself too involved, then all bets would have to be off.
Scania questions current wisdom by remaining a conservative, regional and vertically integrated OEM. If we buy the scale argument, then Scania shouldn't exist. But, if we don't subscribe, then maybe it has a lot going for it. A lot of money will need to be spent pre Euro VI, but VW has deep-ish pockets - though whether this will remain post Porsche remains to be seen - and should pay up like an indulgent uncle. One of the key flash points we see in Sodertalje is that of management succession; quite what happens when Östling hands in his gate pass remains to be seen, but, this aside, and assuming that VW doesn't meddle too much, we can't see too much to grumble about here.
MAN
We've been waiting for it to happen, and now it seems only a matter of time. As remarked previously, MAN looks set to end up with a new major shareholder, and it's going to be from the East. CNHTC looks a shoe-in for VW's stake in MAN as the great Scania-MAN-VWCV saga begins to unravel.
We're in pretty much virgin territory here; CNHTC's reputation within the truck industry is far from unsullied, but we can see some positives for Munich. The one bright spot within the European market is the retail commodity truck sector - vid Canter - and, if anyone can knock out a passable product for this marketplace, it's probably going to be the Chinese with some German QC oversight.
MAN has well-documented troubles at present, and, to these we can add Euro VI costs. CNHTC has deep pockets, and if it adopts a long view towards MAN, then the relationship may yet prove to be a positive one. But, we must reiterate, China National's reputation proceeds it; if this deal goes the way that we suspect it will, then - at least initially - pessimism will be the order of the day.
Navistar
We've said all we need to say about Navistar in previous postings. Nothing has happened and nothing seems likely to happen to change our views, and, the closer we get to 1st January 2010, the more hardened our pessimism becomes. Nothing more need be said here.
That's your lot for today. Tomorrow, we'll carry on.
Comments (4)
Well done Ollie. I don't think you are far off the ball here. What puzzles me is how slow North America is to change,just like the U.K. in the 70;s.I no longer show anyone copies of T&D or Commercial Motor as they will not accept European vehicles and technology are far ahead than those here.
If DTNA can sell the Sprinter here,then where are Ford with their Transit.Iveco had a presence here in the mid eighties with their lwb pannel van and some chassis/cabs, I think it was with the Fiat water cooled though not the air cooled Deutz.BUDGET rent a truck was a big customer.I can not remember if they were tied in with anyone or not.
Posted by Paul John | July 28, 2009 4:45 AM
Posted on July 28, 2009 04:45
Iveco did about everything they could wrong when they first entered the US market in the 1980s with their light truck range. They signed up car dealers who were clueless about European design light truck rather than more appropriate commercial truck dealers. Parts were hard to get and expensive. The car dealers didn't educate the customers about overloading (you can fill up the van body to the top irregardless of the "weight" of the cargo, right?). Also, it must be said that the US market sees a lot of trailer towing, which the European light trucks such as the Daily and Transit with their small engines are not designed for (Ford told me they don't sell the Transit in the US for this very reason). So all in all, the Iveco's light trucks developed a bad reputation rather quickly in the US because Iveco did not oversee the marketing of the trucks properly. In China, a market known for overloading and shoddy preventive maintenance, the trucks have done much better because 99% are all passenger van models that can't really become overloaded and never do any towing.
Posted by Kevin Scarbel | July 28, 2009 6:58 AM
Posted on July 28, 2009 06:58
Great insight into the global truck industry,you must have had a few drinks at the IAA to glean the info or genius!? You managed to forget Isuzu in your overview and they are very much a big player globally currently losing big yen back home.They have some sort of cooperation in bus buying with Hino so maybe they will come together but as bitter rivals and the Toyota conservatism who knows? I see MAN being the aggressor with Sinotruck and taking a larger share purchase as time goes on mainly to protect the TGA technology being supplied there.China has the Youngman and Shaanxi HD trucks both based on F2000 cabins so the market there will split into old and new tech and how about Iveco buying in complete HD trucks from their Beijing cousins? Keep up the great work and how bout a trip to Turkey and reports on BMC,Manas or Tatra in Czech,great beer!
Posted by Andy Coffey | July 28, 2009 8:43 PM
Posted on July 28, 2009 20:43
Give us half a chance - Part two follows shortly
Posted by Oliver Dixon
|
July 28, 2009 8:53 PM
Posted on July 28, 2009 20:53