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Business

Truckmakers accelerate into emerging markets

While the market for trucks has turned positive, the battle lines for future competition have been drawn. Fuel efficient trucks could save money and meet emissions standards, but the real prize is in emerging markets.

Trucks leave a harbor with freight loads in South Korea

Truck manufacturers want to expand in emerging markets

As the pace of the global economy speeds up, so too are sales of the trucks businesses rely on to transport goods overland.

In Germany alone, domestic truck sales in December 2010 spiked 37 percent compared to the same month in 2009.

Throughout the entire year, market volume rose 17 percent, according to a study recently released by the German Association of the Automotive Industry (VDA).

The number of heavy vehicles exported increased 53 percent.

Truck builder MAN announced Friday that it sold a record number of trucks in Brazil during 2010.

On Tuesday Daimler said it had invested 271 million euros in Japanese subsidiary Fuso. Daimler wants Fuso to specialize in smaller delivery trucks and hybrid engines to gain a foothold in developing Asian economies.

Opportunities and obstacles

German truck builders see a lot of opportunity to expand their export activities. But they also face a specific set of challenges.

To succeed in Western markets, they invest in technical innovations to make their vehicles more appealing and comply with the European Union's emissions requirements. But to gain market share in emerging markets, they need to keep costs down.

Fuso concept of a future truck

Daimler wants to harness technologies developed by Japanese company Fuso

According to the VDA, the longest-established markets for trucks have been in Europe, North America and Japan. But China has since become the world's most important truck market, with Brazil and India also growing rapidly.

"German manufacturers are offering commercial vehicles to their customers with fuel-efficient and low-pollutant engines. In the emerging markets, technical standards and requirements aren't at the same level, but they'll develop with time," Matthias Wissmann, president of the VDA, said in a statement provided to Deutsche Welle. "Of course, initially one wants to deliver what those markets need immediately, but the demands are continuously developing."

Partnerships and local production

Truck manufacturers from Western countries face increasing opposition from their counterparts in emerging economies, like China's FAW or Dongfeng, or India's Tata Motors. Analysts say it is therefore important that European companies enter partnerships with local companies and manufacture locally.

MAN, for instance, bought its Brazilian plant from Volkswagen in 2009 to establish its own production capacity in South America. It also maintains a 25 percent share in Hong Kong-based Sinotruk and has partners in India.

According to Dominique Nadelhofer, a spokesperson for MAN, gaining a foothold in emerging markets is crucial.

MAN logo

MAN has been enjoying rapid growth in Brazil

"We need to be present there with products comparable in price to the local competition," he told Deutsche Welle. "That means a high percentage of local production is needed."

"We're seeing growth in Europe now… During the past two years, when Europe was very weak, several emerging markets remained very strong. Brazil, for example, only suffered a short slump, and China barely noticed the crisis.”

Fuel efficiency to reduce costs

Nadelhofer added that while trucks need to be produced and sold for less money to gain acceptance in emerging markets, they should still be fuel efficient.

"A customer who buys a truck is buying it to earn money, so operational costs like fuel are very important," he said. "I believe the preconditions are similar anywhere – all of our customers in Europe and emerging countries need to be able to make profit from their trucks."

While emissions regulations largely drive market developments in the EU, the United States and Japan, the rising price of fuel is acting as a type of automatic incentive promoting efficiency in emerging markets.

Nadelhofer added that although most developing countries use the same system of emissions requirements as the EU, they are still at lower and less-stringent phases of the multi-stage plan.

Growth in partnerships

A group of trucks block the German/Belgian border

Trucking companies only make money when their vehicles are on the road

According to Romed Kelp, a commercial vehicles market expert partnered with Oliver Wyman, the market for European trucks is a niche in countries like China, Indonesia and India. Companies usually only buy them if they have a reason to make the investment.

That's why partnerships with local companies are "the method which has taken hold in recent years," according to Kelp.

"The number of partnerships, and the speed at which they crop up, shows that emerging markets are important," Kelp said. "These developing countries make up a large part of the world market and if manufacturers want to participate in them, they need to offer the right products."

When competing in Europe, truck manufacturers aim to maintain an efficient customer support network to minimize idle times caused by breakdowns.

"A trucking company is only making money when the truck is used," he said.

Author: Gerhard Schneibel
Editor: Sam Edmonds

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