Globalization – How Will It Reshape the Truck Industry? Scania, Paccar, BMC, MAZ, Agrale, Hyundai, Eicher. Thank You Roman Mathyssek Senior Truck Analyst E-mail: [email protected]

Globalization – How Will It Reshape the Truck Industry?

Roman Mathyssek

Senior Truck Analyst

Copyright © 2007 Global Insight, Inc.2007 GLOBAL AUTOMOTIVE CONFERENCE 2

• Introduction

• Background and Status Quo

• Boom Markets – Do you Get What You See?

• Cost Advantages of Emerging Market Players

• Consolidation – Driven by Globalization?

• World Truck – Just a Dream?

• Conclusion

Presentation Outline


• Truck Industry became ever more ‘global’ in the last decades, mostly driven by search for profit potential

• Various developments in Truck Industry—most are related and influenced by globalization

– Take a closer look at this broad topic

– Look at individual aspects of the “umbrella term”Globalization

Truck Industry Globalisation – Introduction


Globalization – Much More than Entering Emerging Markets

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Asia (excl. JPN)

• Globalization increasingly is a two-way process – now emerging market players are actively involved

• Market growth should not be the only criteria for expansion

• Country risk and competition – potential threats


Truck Segments and their Development

• Which type of market segments can be distinguished?

– Top End: life-cycle cost, reliability, efficiency, comfort, safety –low price sensitivity

– Advanced: efficiency, reliability, comfort – moderate price sensitivity

– Budget: low cost, robustness – high price sensitivity

• Many possible new markets/regions to enter, decision contingent upon many factors

• Globalization triggers a long-term convergence of truck standards – hence truck segments

• Match between market demand and product features vital prerequisite for commercial success


Global Status Quo – Segments and Regions

E. Europe S. AmericaAsia (excl.

JPN/Oc’nia)W. Europe NAFTA

Japan, S. Afr, Oc’nia

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Market Growth As Such – A Little Deceptive

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INDIA

• Great market growth in the future – just don’t think it is still an industry secret!

• Boom markets – manufacturers fail to contrast market growth vs. number of new entrants

• Too many players entering – detrimental effect for pricing

• Individual corporate targets not met

0120240360480600

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CHINAHDT

MDT

HDT

MDT


India: Significant Increase in Players 2006-2012

ASHOK

EICHER

SW MZD

TATA

VOLVO

2006:238.4k

ASHOK

EICHER

SW MZD

TATA

VOLVO

FRC / MAN

M&M

SCANIA

M-B

IVECO

2012:300.8k

• Example of India – number of players outweighs the market growth

• Directionally, price segments are converging, less differentiation potential

• Implication: new players “buy” into the market – price pressure reduces profitability of all manufacturers


Skip Large Emerging Markets—an Option?

• Major emerging markets are tempting by their sheer volume

– Manufacturers should factor in a large number of new entrants and more aggressive incumbents

– Plan market share realistically

– Don’t overestimate demand for high-tech trucks

• What about smaller emerging markets?

– Volume less impressive, but still strong growth

– Key advantage: substantially less competition

– Higher pricing power – more profit per unit


EE & LA

Expansion of Emerging Market Players – Low Costs Are Their Biggest Asset

• Expansion plans are fuelled by using costs advantages to competein new markets

• Low costs – major asset

• Product quality – still a long way to go, but good enough for many markets!

TRIAD

EM-Asia

• Indicative Direct LabourCost Comparison:

– 1/5 to 1/6 in EM-Asia!

– 1/2 to 1/3 in EE & LA!


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Emerging Market Players Can Expand Actively

WE, US & JPN

WE OEMsWE & JPN

OEMsWE & JPN

OEMs

E. Europe S. AmericaAsia (excl.

JPN/Oc’nia)W. Europe NAFTA

Japan, S. Afr, Oc’nia

WE OEMsWE & JPN

OEMs

U.S. & JPN

OEMs

EE & WE

OEMs

IND & CHN

OEMs


Expansion of Emerging Market Players –A Hurdle to Take

• Expanding into new markets – limitations to which trucks can be shipped

• Local assembly requirement can add substantially to the total truck costs – valid for Non-TRIAD countries


Evolution of M&A vs. Alliances: Welcome to the Global Phase

0

4

8

12

16

1970 - '75 1976 - '80 1981 - '85 1986 - '90 1991 - '95 1996 - '00 2001 - '05 2006 >>>

M&A

Alliances

Future

?

Phase 1 (national) Phase 2 (regional) Phase 3 (continental) Phase 4 (global)

• Many players• Good strategic fit

• Conquer newmarkets

• Emergence of concept…little

initial benefits

• Reg. champions• Global reach to

iron out volatility(EU & U.S.)

• Advantages increaseas M&A complexity

becomes obvious

• M&A wave • Capitalization value

increase, but flawsbecome obvious

• Legislative issues• Fewer candidates

• Potential betweenTriad&Emerging Mkt

• Flexibility and cost

• Advantages oftenoutweigh vs. M&A

• Modularity concept accepted as way-to-go

> Alliances formed

M&

A

?

A’l

lce

s


TRIAD OEMs – Limited Domestic Growth

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JapanN. America W. Europe

• R&D Capability• Financially Potent

• Scale Seeking OEMs &Component Utilization

OEM Features:


Emerging Market OEMs – High Growth Potential

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Asia (excl. JPN)E. Europe

• Understanding of Local

Markets & Sales Network

• Strong Demand for Efficient

Heavy Trucks• Less Consolidation Barriers

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S. America

OEM Features:


Selected Truck Production Volume –Impact of Potential Global M&A Activity

DAIMLER

VOLVO

VW

MAN-IVECO

CNHTCBEIJING FOTON

HYUNDAI

SAIC

MAN

SCANIA

NAVISTAR

IVECO

HINO

ISUZU

PACCAR

DONGFENG

FAW

TATA

ASHOK-LEY

MAN-SCANIA

MAN-NAVISTAR

MAN-VW-SCANIA

PACCAR-IVECO

VOLVO DONGFENGIVECO TATA

FAW NAVISTAR

0

50

100

150

200

0 50 100 150 200 250 300

Geographic diversity essential to achieve earning smoothingMEDIUM

(6-15t)

HEAVY

(>15t)

OEM


Global Consolidation Matrix – Some Combinations

AshokLeyland

DongFeng

Shaaxi/Torch

Ural AZCNHTC


“World Truck” – A Lovechild Between Globalization and Synergies?

• Commercial viability of a standardized truck across regions?

– Benefit: higher scale, lower costs

– Benefit: substantial profitability boost

– Risk: are markets/regions homogenous enough?

– Risk: meet in the middle – too many compromises

• Potential candidates?

MB AXOR

VW Constellation

Hino 700


• Harmonization of Global Standards• Broader Global Potential of Modular Components

…With Still Some Obstacles Ahead

• Captive Truck Design

• Diverse Technical Level • Powertrain Internally Sourced

• Diverse Emission Norms

• Modular Truck Design• EPA Emission Norms

• Captive Parts are Increasing (DAI, VOL,NAV, PAC)

NAFTA

• EU, U.S., Asian Trucks,�� Local Adaptation Limited

• Legislative Forces followmostly European Standards

• In-house Modular Design• High Captive Share• Powertrain Internally Sourced

• Euro Emission Norms

Europe

Asia R.o.W.

• Notable local differences – “World Truck” commercial success doubtful

• Standardization of powertrain components more appropriate

• Powertrain major cost driver – hence also significant savings potential


“World Truck” – Maybe Later……“World Components” – a Whole Different Story

• “World Truck” at best works as “Regional Truck”

• “World Components” are currently developed

– Better adaptability to local differences

– Powertrain components are cost drivers – high savings potential

– Unproblematic integration into locally adapted truck

Top-End Segment Budget Segment


Cost Decomposition of Major Components

Engine/Electronics

Component % Truck Costs Savings Potential

Transmission/Retarder

Axles/BrakeSystem

TotalPowertrain

OtherComponents (i.e. Cabins)

• Substantial saving: legislative& market requirements higher

• Develop “modular engine”

• Standardization• Cross brand sharing• Non-captive/make-or-buy?

• Standardization• Cross brand/function sharing

• Huge savings potential by modularization and sharingof components

• Cabin & Exterior: Productdifferentiation factor, cost savings limited!

14%

11%

63%

37%

38%


Atego, Axor, Actros shipped as CKD to S-Afr for local Assy

Canter production in Taiwan

MB800 and otherTrucks shipped as kitsto local assemblies

Canter production in PRT, TRK

Atego, Axor, Actros shipped As S/CKD to Middle East for local assembly (GER)

GER and TRK made Axor Interchangeable

Truck componentssupplied to MEXAssembly plants

Axor & Ategocomponents,betweenBRA and TRK

Daimler Truck Group – Global Truck Production

Example of Daimler: Strong Global Connection on Trucks …


Daimler Truck Group – Global Engine Production

BR500, OM457 shipped from GER to S-AFR for truck assembly

Fuso engine to PRTTRK production

MBE4000 engine,from BRA

All engines forlocal assembly plantsin Asia Pacific

All engines for localAssembly plants inAsia Pacific, lighter engines also from ARG

Fuso engineto Taiwanese assembly

Engine Production

OM457 shared between GER,BRA, TRK,sourced from BRA

MBE4000 engine,from GER

… and on the Engine Side. Connectivity within companies will increase, leveraging local advantages


Conclusion

• Globalization is still at an early stage in the Truck Industry

• To be considered ‘global’, we expect more than a presence in overseas markets – seeking industrial ties is necessary

• Four Different Attitudes – Four Different Clusters:

– Successful Global Players: “We are almost Global!”

• Daimler, Volvo

– Actively Globalizing: “We want to be Global!”

• Iveco, VW, MAN, Hino, Isuzu, Navistar

– Emerging Market Expanders: “Hey! We can also be Global!”

• Tata, Ashok, Kamaz, FAW, CNHTC, Weichai

– Fiercely Focussed: “Global? No Thanks!”

• Scania, Paccar, BMC, MAZ, Agrale, Hyundai, Eicher

Thank You

Roman Mathyssek

Senior Truck Analyst

E-mail: [email protected]

Documents

Globalization – How Will It Reshape the Truck Industry? Scania, Paccar, BMC, MAZ, Agrale, Hyundai, Eicher. Thank You Roman Mathyssek Senior Truck Analyst E-mail: [email protected]