In relation to the movement of goods, the beginning of the 20th century could be seen as the golden age of rail freight. The beginning of the 21st century will be seen in decades to come as the equivalent in road freight transport. In terms of serving the needs of consumers in both the industrialised and the developing markets of the world, trucks in their great variety can be seen as the key link between physical goods and the consumer. This feature has been exclusively supplied to us from SupplierBusiness.
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Key trends in the world’s freight truck industry
1. Globalisation
The motivations behind the trend toward globalisation are three-fold:
- access to economy of scale benefits in the cost base through commonality in various areas of truck manufacturing, ranging from manufacturing to research and development, and including access to common component systems through first and second tier component manufacturers;
- access to markets that are capable of sustained growth rates while being of a scale capable of sustaining the level of risk associated with some of these markets;
- strategic management of capacity on a global scale.
For many years now, truck manufacturers have been using opposing stages of the cycle in different regions to effectively hedge against low demand levels in one major region. As with any hedging mechanism, low performance in one area is positively offset by high performance in another and, in the case of the truck market, the reward for those who have managed this process successfully has been underlying financial stability, which in turn allows sustained investment in the new model cycle.
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By GlobalDataConversely, the inability to find such a hedging mechanism has, in a number of cases, led to dramatic swings in financial stability, which in turn means that the business becomes a target for others. It can be argued that over-dependence on one regional market was one of the factors behind the demise of Leyland and DAF as independent manufacturers.
The process of globalisation is manifested in a number of ways across the industry, and the industry is now in one of the most volatile periods in terms of changes in co-operation and ownership ever seen. This can be seen partly as positioning so that both truck and component manufacturing companies are able to get at globalisation benefits, and partly as the mechanism by which they are trying to do so. Inevitably, growth toward being a global player by acquisition requires a fit that provides a necessary degree of synergy toward this end – either providing areas of commonality that give access to economies of scale or bringing complementary abilities, vehicle ranges, or market share in complementary regions. The process is in many cases slower than the companies involved would like. Mack has been a 100% owned subsidiary of RVI, now part of Volvo, since 1987, but with the differing markets, product lifecycles and company cultures, it was only able to really begin exploiting the synergies between the marques in the late 1990s.
2. Vertical Integration in North America and Europe
Historically, either side of the Atlantic, truck manufacturing has developed quite differently. In North America, truck makers bought into the economies of scale offered in both cost and development by the large component manufacturers such as Rockwell (now part of ArvinMeritor), offered customers a very high degree of choice in specifying vehicles and found it increasingly difficult to differentiate their product from their rivals. Part of the motivation for this was the management philosophy prevailing in North America, which sought short-term routes to profitability and market share and led to a reluctance to examine the long-term investment needed to sustain competitive advantage. Inevitably, this gave rise to increasing price competition. This strategy worked while demand was sustained, but a downturn in the cycle left a number of truck makers in a vulnerable position and now the majority trucks made in North America are produced by subsidiaries of what started as European companies.
Conversely, the majority of European truck makers took a view that they needed to be of a size to allow the major ‘signature’ parts of their vehicles to be developed in-house. This included engines, transmissions cabs and axles, and was a recognition that competitive advantage was about performance of the overall package and differentiating this package from the competition through engineering and technology, and supporting a powerful brand. In the early 1990s, many of the European manufacturers could disguise the financial shortfalls of this strategy in the low points of the demand cycle behind car or other manufacturing ventures. However, some failed spectacularly, such as DAF. Others found that they had to buy into the economies of scale of the large component makers to survive, and effectively adopt the American approach.
3. Rationalisation and Restructuring
Both in the European and North American truck making industries, a major rationalisation has taken place in the past decade, with the smaller, weaker players in the market being swallowed up by the larger ones, and all the truck makers looking for economies of scale, globalisation and strategic fit. The motivations behind this process have been discussed above, and it is discussed in more detail for each manufacturer in later chapters.
The component makers are now seeking consolidation in a parallel development to the truck makers, both to deliver the cost savings demanded by their customers, and to maintain geographic proximity to the major truck makers. They are also engaged in a crucial battle with the truck makers for the revenue stream available from the aftermarket.
In the aftermath of the vertically integrated or buy-in strategic argument of the mid 1990s, all major truck makers now operating across multiple markets have re-thought their policy to some extent. The ‘Europeans’ have increased involvement with component makers and develop less in-house, but in managing this policy carefully avoid offering the customer so much choice that they consider the truck an amalgam of the component manufacturers’ offerings.
Truck makers involved in both the North American and the European market are trying to bring some standardisation to vehicle specification in North America to facilitate the true globalisation of product development and increase their ability to use differentiative arguments in competing for market share. In short, they are finally trying to undo the conditions that led to most of the North American truck manufacturing sector being owned by European companies.
4. Product Development Cycles
Product development cycles are critical to the success of a given truck manufacturer. New models need to be introduced at the right stage of the market cycle, so that the re-tooling investment can be recouped as quickly as possible. It is therefore important to synchronise product launches to upswings in the most crucial markets – Germany for Mercedes-Benz and MAN, Italy for Iveco, the UK and France for Volvo and the US for International and Freightliner.
Legislation is a major factor in product development timing, and with the implementation of new emissions legislation it is important to have competitive products available to meet the criteria. Similarly, changing axle configurations and weights can mean that timely development cycles can enhance profitability.
In the passenger car arena, some segments of the market have driven down the model replacement cycle to about three years and the consumer expects ever-improving cars and will punish a competitor that falls behind. The same is not true in the truck sector, because the purchaser or lessee uses different criteria to judge between competing product offerings. Today, these are mostly associated with cost of ownership and reliability in developed markets, and this means that a radically new product is rarely seen and the concept of the global product can be developed. A number of truck makers, such as MAN, make a powerful marketing argument out of the ‘organic’ development of their range with carefully considered enhancements being added to a long-serving basic design over many years. This makes the economics of truck manufacturing easier to stack up, as long as the development keeps abreast of the technology being introduced by the competition.
Extracted from a SupplierBusiness report: Global Truck Report
This SupplierBusiness report provides a detailed review of the truck industry around the world. It looks at the key strategic drivers and their effects at a global and regional level, including the prevailing economic and legislative environments. It analyses the similarities between markets and the economies of scale that can be derived from utilising them, and the need to satisfy differing requirements in different market conditions that lead to the complexity and variety of this industry. More…
