The global truck manufacturing industry is undergoing substantial change. As is the case with the automotive industry in general, pressures of globalisation, intensifying competition and the need to reduce cost bases are all driving the industry in the direction of further consolidation. For the truck industry in particular, this is nothing new. The past few decades have seen a steady increase in the industry's level of concentration. It is a long-standing trend being driven by the economic fundamentals of truck manufacturing. It is an industry driven by the need to achieve scale economies on high capital costs.

Convergence in the industry set to accelerate

While the industry has a history shaped by differing regional standards-in terms of operating environments and truck manufacturing requirements-those still significant differences are diminishing. This is perhaps most notable in the emergence of multi-regionally based truck manufacturers eager to exploit synergies and cut costs, principally in truck design and component purchasing costs. The example of RVI and its US subsidiary, Mack, offers an illustrative case. European and US operating environments have traditionally been seen as very different, with very different trucks marketed in the respective markets. Nevertheless, RVI has recognised the inherent business sense in moving the company towards greater standardisation in its products. The changes will centre around moving trucks towards common platforms for the next-generation products, in order to facilitate larger volume parts procurement and lower costs. RVI executives believe that customer requirements are converging and that different regulations and traditions are not the barrier to commonisation they are sometimes held up to be. They believe, for example, that in spite of different cab designs, common doors and dashboards could still fit. Chassis components are another area being closely looked at. Some RVI trucks already use Mack engines. The fruits of the joint development or "convergence" strategy could be evident by 2004 or 2005.

The growing significance of South America-in truck market and production terms-is helping the European manufacturers to increase their volume with trucks that are increasingly state-of-the-art and consistent with the product lines offered in Europe. The short-term disruption to demand there should not detract from its long-term attractiveness to the European truck-makers and the region's acceptability to "Europeanisation" from a truck market standpoint.

More corporate collaboration too

Collaborations between separate companies can also be expected to increase, driven by the same economic fundamentals. Thus, Renault is on course to launch a replacement for the medium-duty Midliner Truck range this year involving co-operation with Daf; the cab will also be used by Daf in its 45 replacement and is based on a version of the Premium cab range. The collaboration is not just between the OEMs. Key system supplier --especially engines and transmissions-are acquiring a more pivotal role as the development costs involved in meeting ever-tighter engine emission requirements continue to rise. At the same time, the competitive conditions in the market place are driving the manufacturers to eke out additional productivity gains through the drivetrain. This is partly market driven-truck customers are increasingly interested in the lowest-cost solutions, expressed in tonne-km. Examples of this include Navistar's collaboration with Siemens on a new range of more efficient engines. Navistar and Siemens will work together to develop and manufacture proprietary "next-generation" diesel fuel injectors incorporating digital valve technology. The venture is planned to bring new digital valve technology to the market between 2000 and 2001. This technology involves a high-speed capability to control fuel injection more precisely and improve performance. It will also help Navistar to meet reduced diesel emissions standards in advance of the 2004 compliance deadline. Increasingly and as part of efforts to reduce fuel consumption, rear axles, gearboxes and retarders are electronically connected to the engine. As electronic management spreads to include brakes, suspension and cruise control, the position of the integrated truckmaker is boosted. A "clever" powertrain can give 10-15% fuel savings for the operator and is the focus of intense development work.

Lower levels of vertical integration in manufacturing

This type of co-operation between truck-makers and suppliers raises questions about the extent to which the truck manufacturers will be moving towards the "American model" and reducing their level of vertical integration over time. Certainly, prevailing cost pressures suggest that this trend can also be expected to accelerate as truck manufacturers look to effectively contract out elements of the manufacturing process. Paradoxically, the larger truck-makers have been making moves to strengthen their downstream add and move towards becoming broader-based "transport providers". For some years now, the truck-makers have expanded their truck financing operations. In recent years a number of manufacturers-most notably Mercedes-Benz (with "Charterway" in the UK)-have decided to set up contract hire/leasing company subsidiary. In the UK, RVI has now set up a dedicated contract hire subsidiary. The development looks set to gather momentum with truck manufacturers effectively developing wider roles as freight transportation facilitators. The truck-makers are moving towards developing their distribution and service networks to become suppliers of vehicle management products. In many markets, truck manufacturers are seeking to get control of distribution and are buying out third-party distributors.

Further evidence of the larger groups' desire to move downstream and not up was provided by the move of Mercedes-Benz to offer trucks ready-bodies in the UK. Mercedes-Benz has announced plans to offer a "one-stop shop" facility to give customers a complete bodybuilding service on all rigid-bodied 7.5 to 18-tonne Atego trucks. The operation takes the form of a joint venture with bodybuilder Boalloy. Mercedes-Benz customers will be able to order from the dealer a range of body options to be fitted at the Mercedes-Benz commercial vehicle preparation centre by Boalloy engineers.

Volvo wins its bid for Scania, taking industrial consolidation further

Volvo finally purchased a controlling stake in Scania (subject to regulatory approval) from Investor, Scania's main shareholder, with the aim of creating a stronger company with the scale and expertise to successfully specialise in the heavy truck industry globally. The pairing carries a high degree of product and geographical overlap, but that generates exceptionally large scope for cost savings. Scania will remain a distinct unit within Volvo and it is planned that the brands and distribution networks will stay separate. The synergies are expected to lie in areas such as components purchasing, research and development as well as the warehousing and distribution of spare parts. Volvo may be interested in further acquisitions to strengthen the group still further. A North American company-eg Navistar-is possible, as is an appropriate Asian one (Volvo remains under-represented there).

There can be little doubt that further major changes in the truck-making and operating business lay ahead. Volvo's purchase of Scania simply reinforces the message that bigger can mean better. Truck manufacturing is a highly capital intensive activity for which higher volume often means higher returns. That may sound a little simplistic-and in a sense it is-but even for those manufacturers operating relatively successfully on small volumes and with a low level of vertical integration, the increasing concentration of the truck manufacturing industry poses some serious concerns.

Segmentation drift to heavies may be countered by home shopping

While there has been a discernible shift towards heavier trucks with greater productivity benefits for long haul-a long established trend in the US and Europe as road haulage has been deregulated-there are developments taking place in distribution that could counter that movement in the future. Two developments stand out and point to long-term growth potential for medium-weight (6-15 tonnes) trucks, as well as panel vans up to 3.5 tonnes GVW. One is the increasingly vocal movement for restrictions on heavy truck usage in urban areas. This is a difficult policy area with which to make firm forecasts, but it seems likely that over the next ten years there will be a gradual move towards more controls on urban truck usage. This will tend to support the development of out-of-town distribution hubs where heavy trucks deposit their loads for onward travel in lighter vehicles to the final destination. This is already happening and in Europe, an increasing emphasis on pan-European distribution and trade, along with the emergence of "mega-transporters" will support the trend.

There is also increasing speculation that home shopping is set to increase strongly, aided by the development of the Internet. Again, that would tend to support demand for medium trucks-especially up to around 12 tonnes-that would be appropriate for these types of multi-drop applications.

"Clever truck" will require regular high-tech maintenance

The increasingly technologically sophisticated truck incorporating the modular production concept, electronically managed engines and powertrains will require regular high-tech maintenance to keep its operational performance optimal. Here again, the integrated manufacturer may have some advantage because of its control of all steps in the engineering process-from research and development to assembly to repairs and maintenance. "Clever" trucks are also likely to accelerate the need to outsource maintenance: the complexity of the work increasingly demands a critical mass for the workshop that most fleets do not have. Mercedes-Benz has unveiled its Fleetboard telematics system which allows remote access to the truck's on-board computer systems and is seen as a way of improving efficiency further.

Modular production techniques are reducing costs

Truck manufacturers with internationally organised operations are attempting to make the most of modular production techniques to maximise economies of scale and achieve lowest-cost production for major component systems (cab, engines, transmission, chassis). The modularity concept has proved especially popular with Volvo and Scania-both specialist manufacturers with products grouped over 15 tonnes GVW. Scania claims that its current-generation 4-series contains 40% fewer parts than the previous-generation 3-series.

For the generalist full-line makers, modularity is a less straightforward issue because of the difficulties inherent in sharing, say, chassis development, across a very wide product range. The Mercedes-Benz Atego truck range covers the old LK and MK ranges-and a broad weight span from 6.5 tonnes GVW to 40 tonnes GVW. The Atego light range stops at 15 tonnes GVW and the range above that takes the chassis from the Actros (which starts at 18 tonnes GVW) but uses the cab and engine from the light class. That gives economies of scale and also a weight advantage (lighter cab and engine) while maintaining load capacity through the use of the heavy chassis. This type of adaptation by a full-line maker emphasises the benefits of scale economies for certain parts of the vehicle which can be spread across more than one truck range; it can be described as "modified modularity".

Global truck sales set to pick up

Analysis of the global truck market reveals that it has been on a downward path since 1995 and that the downturn steepened in 1997 and worsened still further in 1998. 1999 sees the market bottom. In 2000, the global market is subject to contrary influences. While the emerging markets are firmly in recovery phase, the European and North American markets are forecast to fall back.

Of great concern to the truck industry is the scale of the demand crash in -recession-hit Japan and emerging Asia. The key issue will be whether a serious restructuring and realignment of the Japanese truck industry will result, to cope, in part, with these changes. As things stand, growth and profitability are words rarely associated with the future of the Japanese truck manufacturers, and with the industry awash with talks of co-operation and consolidation, the Japanese truck industry has often found itself at the centre of these discussions. Recovery to sales in Japan is off a low base. Low domestic demand is compounded by poor sales in the main export markets of the Asia-Pacific region.

In western Europe, the main concerns for the market surround the replacement cycle downturn widely anticipated for 2000 after unusually strong sales in 1999. Forecasts of slowing sales in 1999 were confounded by stronger than expected economic growth and a much-relaxed monetary policy across the region. Certainly, past experience suggests that the fluctuations in demand in Europe can be very strong; at this stage we are taking a cautious line on the scale of the decline-in part a reflection of the co-ordinated loosening of monetary policy that has already taken place. Similar considerations govern the US outlook: the truck sales decline that is forecast is driven primarily by the replacement cycle, with the economic forecast presenting a significant downside risk element. As 1999 has progressed, the competitive element to the US market has increased.

Table 1

World truck sales by region and country, 1995-2005a

(units unless otherwise indicated)

   1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
US 388,277 358,929 376,139 427,941 508,000 448,000 406,300 395,000 414,400 428,000 446,000
Canada 28,487 20,324 26,174 31,147 35,294 30,814 27,429 26,574 28,103 31,501 34,287
Mexico 4,365 6,189 13,050 17,559 13,950 15,875 19,500 23,002 25,000 27,002 28,000
NAFTA 421,129 385,442 415,363 476,647 557,244 494,689 453,229 444,576 467,503 486,503 508,287
% change n/a -8.5 7.8 14.8 16.9 -11.2 -8.4 -1.9 5.2 4.1 4.5
Germany 71,462 65,859 68,823 82,118 85,343 81,100 72,259 77,287 80,652 82,714 83,598
UK 49,773 47,146 42,513 50,832 48,381 44,245 43,400 44,900 46,500 48,100 49,600
France 41,265 43,122 38,819 47,273 53,042 45,547 41,289 42,683 47,292 49,199 50,831
Spain 17,338 16,153 20,380 25,459 30,600 23,050 21,300 20,700 22,150 23,400 24,700
Italy 23,974 24,631 19,800 22,745 25,888 25,200 26,300 26,900 27,700 28,600 29,700
Netherlands 12,497 14,531 13,470 16,642 15,218 13,780 12,900 14,160 14,590 15,020 15,550
Belgium 8,835 8,151 9,132 10,261 11,415 9,598 8,655 8,668 9,542 9,889 10,104
Austria 5,840 5,692 6,282 7,831 9,112 7,802 7,161 6,872 7,255 7,830 8,195
Denmark 4,836 4,707 4,844 5,087 5,375 4,608 4,372 4,636 5,075 5,320 5,473
Portugal 3,249 3,338 4,077 4,722 5,213 4,464 4,321 4,900 5,300 5,450 5,500
Sweden 3,281 5,149 4,025 4,326 5,019 4,762 4,574 4,951 5,242 5,140 5,020
Norway 3,699 3,869 3,955 4,038 3,411 3,328 3,550 4,010 4,080 4,000 3,900
Finland 2,711 2,606 2,772 3,331 3,650 3,845 3,412 3,035 3,171 3,423 3,677
Ireland 2,214 2,557 2,699 3,220 3,423 3,031 2,687 2,628 2,725 2,890 3,020
Switzerland 2,803 2,778 2,513 3,220 2,985 2,700 2,970 3,090 3,150 3,130 2,990
Greece 487 523 491 542 611 543 529 555 578 601 610
Western Europe 254,264 250,812 244,595 291,648 308,686 277,603 259,679 269,975 285,002 294,706 302,468
% change n/a -1.4 -2.5 19.2 5.8 -10.1 -6.5 4.0 5.6 3.4 2.6
China 281,363 245,864 224,018 209,080 196,677 219,941 253,118 280,158 304,797 323,962 342,019
Japan 177,264 168,299 150,871 93,816 92,660 107,690 123,770 138,520 150,642 144,443 132,210
India 91,800 113,267 82,235 55,301 61,225 72,599 83,704 97,287 107,257 112,624 117,634
Indonesia 50,242 51,074 45,465 16,555 15,584 17,862 26,816 32,441 34,808 37,333 41,526
South Korea 46,479 47,332 39,977 12,099 12,718 17,404 23,749 29,564 33,020 36,482 40,114
Thailand 40,541 41,898 13,586 7,338 7,840 11,326 14,657 18,222 21,985 26,840 30,265
Australia 8,050 7,544 6,879 6,859 6,494 7,661 8,129 7,980 7,490 7,051 7,272
Philippines 3,771 5,553 5,255 2,395 2,575 3,860 4,821 5,628 6,228 6,404 6,556
Malaysia 5,968 7,731 7,421 2,222 2,204 2,483 3,426 4,370 4,932 5,645 6,115
Other 1,954 2,224 2,438 1,785 1,723 1,838 2,240 2,238 2,341 2,433 2,547
Asia-Pacific 707,432 690,785 578,145 407,449 399,700 462,665 544,429 616,408 673,501 703,216 726,258
% change n/a -2.4 -16.3 -29.5 -1.9 15.8 17.7 13.2 9.3 4.4 3.3
Russia 66,060 53,200 53,000 41,134 38,779 42,118 49,998 59,389 67,575 77,491 85,522
Poland 4,966 5,622 8,292 9,111 6,976 6,994 8,700 9,500 10,200 10,950 11,700
Romania 3,693 4,586 3,640 3,218 2,861 3,138 4,222 4,744 5,263 5,709 6,174
Czech Republic 2,020 3,095 3,031 2,689 2,547 3,296 3,564 3,924 4,433 5,000 5,532
Hungary 977 1,073 1,496 1,689 1,776 1,852 1,954 2,038 2,165 2,277 2,424
Bulgaria 1,902 1,399 1,110 1,075 1,235 1,644 2,243 2,710 3,092 3,507 3,857
Other 11,427 10,185 8,724 5,529 4,238 6,124 7,241 7,933 8,801 9,742 10,567
Eastern Europe 91,045 79,160 79,293 64,445 58,412 65,166 77,922 90,238 101,529 114,676 125,776
% change n/a -13.1 0.2 -18.7 -9.4 11.6 19.6 15.8 12.5 12.9 9.7
Brazil 57,803 40,986 52,909 49,099 37,032 43,117 48,915 52,880 56,574 60,238 61,324
Venezuela 5,787 5,453 13,596 13,020 4,660 7,640 9,550 10,800 13,900 12,750 12,625
Argentina 5,655 8,762 11,166 12,229 8,780 9,550 11,050 12,270 13,300 13,885 14,305
Colombia 7,595 6,237 5,631 6,898 6,899 7,600 8,775 8,633 9,083 9,432 9,943
Other 3,089 3,020 2,366 2,262 3,200 3,600 3,200 3,000 3,000 3,050 3,000
Uruguay 1,911 1,680 2,134 2,238 1,800 2,100 2,400 2,500 2,600 2,650 2,700
Peru 454 546 755 764 701 770 850 912 990 1,044 1,075
South America 82,294 66,684 88,557 86,510 63,072 74,377 84,740 90,995 99,447 103,049 104,972
% change n/a -19.0 32.8 -2.3 -27.1 17.9 13.9 7.4 9.3 3.6 1.9
Turkey 17,800 28,214 38,888 29,254 22,547 26,541 29,741 33,817 36,287 38,214 40,111
South Africa 7,664 8,110 7,123 6,419 5,133 5,299 5,656 6,001 6,199 6,561 7,022
Other 5,012 4,725 4,533 4,548 5,041 5,728 5,638 5,548 5,587 5,671 5,721
Others 30,476 41,049 50,544 40,221 32,721 37,568 41,035 45,366 48,073 50,446 52,854
% change n/a 34.7 23.1 -20.4 -18.6 14.8 9.2 10.6 6.0 4.9 4.8
Grand total 1,586,640 1,513,933 1,456,498 1,366,920 1,419,835 1,412,069 1,461,035 1,557,558 1,675,055 1,752,596 1,820,615
% change n/a -4.6 -3.8 -6.2 3.9 -0.5 3.5 6.6 7.5 4.6 3.9

a Figures for 1995-98 are actual; 1999 is an estimate; the remainder are forecasts.

Sources: Industry sources; EIU estimates and forecasts.

Elsewhere, the picture is dominated by underlying economic and business conditions. After a period of strong investment and market growth, South America has experienced a sharp market correction which is nevertheless failing to dampen overall enthusiasm for its longer-term market prospects. By contrast, Russia and the Commonwealth of Independent States (CIS) are still being held back by fundamental economic dislocation and uncertainty. Kamaz stands as an unhappy and grandiose tribute to the failings of the command economy, with its very survival still in real doubt.

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