The 2010 Global Commercial Vehicle Outlook
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The global commercial vehicle industry weathered an unprecedented decline in global volume in 2009. And while North American original equipment manufacturers (OEMs) are recovering and production is expected to return to strong levels in the next two to three years, significant challenges remain. These companies face fierce competition from low-cost commercial vehicle manufacturers based in emerging markets and, if current growth and cost trends continue, North American OEMs could lose competitive access to half of the global market by 2014. To remain relevant, these companies must act now to realign their product types and dramatically improve their cost structures.
THE ROAD TO RECOVERY
Though always cyclical, 2009 was a singularly difficult year. Global production declined a record 29%, with particularly steep declines in Western Europe and North America (figure 1).
But conditions are improving. 2010 is expected to bring the beginning of a recovery that should restore volume to 2008 levels within the next two to three years. In 2010, class-8 truck production is expected to increase by 25% to approximately 150,000 units in North America while in Western Europe, heavy truck deliveries are expected to increase by more than 15%.
GROWING COMPETITION
However, this expected recovery does not necessarily mean that North American OEMs will be able to keep pace with their emerging-market-based competition. Already, the BRIC (Brazil, Russia, India, China) countries account for 66% of global commercial-truck production, with China alone contributing 49% of that. In 2009, as global volume plummeted, China’s commercial vehicle production volume increased by 22%. Together, the BRIC countries are on track to account for 44% of the 1.8-million-unit global industry growth expected by 2014. And over the next four years, China, India and Russia together are expected to boost their output by some 50%, due to the strength of domestic economies and demand from other emerging markets in Southeast Asia, Africa, the Middle East and Central America. BRIC exports to other emerging markets alone are increasing at a breathtaking 49% compound annual growth rate.
SHIFTING DEMAND
Demand in emerging markets is not only increasing, it’s also changing. What has traditionally been considered “low-tech” demand is evolving into a so-called “middle segment” of more sophisticated trucks. But North American OEMs are not well-positioned to exploit this increasing and evolving demand (figure 2). Product types are misaligned, local partners are lacking, and costs, especially, are far too high.
STRATEGIES FOR SUCCESS
North American OEMs must focus on gaining a foothold in this emerging “middle segment,” in which the cost of vehicles is still 40-50% less than the average North American-made truck. Yet European competitors have gained first-mover advantage by establishing partnerships with low-cost indigenous companies, leaving only a few “unmarried” joint-venture partners left in China, India and Russia. As a result, North American OEMs should focus intensively on lowering costs significantly—by up to 50%.
To compete in the current environment, North American OEMs should focus not only on cost but also on the value provided to the consumer. These companies will need to deliver more economic value to the consumer in terms of total lifecycle costs (purchase price as well as cost of maintenance and operations) and any incremental value (such as performance), particularly when compared to Chinese-made and Indianmade vehicles. North American OEMs should invest in producing simpler designs for commercial vehicle components so they can develop low-cost products better customized to the needs of the emerging markets while also achieving the significant cost reductions required to remain competitive. The alternative, for the North American OEM, is to cede half of the global market to the competition, and jeopardize the long-term future of the company.
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