THE established “triad OEMs” (manufacturers in the United States, Europe, and Japan) have pursued emerging markets to compensate for the lack of growth in domestic markets. And according to Jurgen Reers, managing partner of North America for Roland Berger Strategy Consultants, they will even more aggressively pursue them in the next five years.
In “The Global Commercial Vehicle Industry 2020 — A Strategic Assessment,” Reers said that the triad OEMs received 70% of their revenue from the home region and 30% from abroad in 2008, but it will be a 50-50 split by 2010. That's because significant growth is expected over the next five years in China (8.25%), India (7.58%), Russia, and Brazil (both 3.9%).
He said OEMs in those emerging markets will also increase their global presence through partnerships. In 2008, they received 88% of their revenue from the home region and 12% from abroad. But by 2020, it will be 74% and 26% respectively.
As standards across developed and emerging markets converge, so will technologies and product offerings. Standardization of components and modules will become a global strategic focus — especially at the platform level. For example, the standardization level for engines in 2008 was 32% global, but in 2020, it will be 60%.
Reers said that the commercial vehicle industry needs to prepare itself effectively for the challenges ahead, including:
Assessing the role of the global industry to determine which markets and segments to play.
Developing a partnership strategy and determining the optimal partnership structure.
Designing and implementing efficient platform architecture to minimize complexity.
Realigning the organizational model to enhance global coordination.
Redesigning a cost structure and key processes to enhance business flexibility.
“I think there are opportunities with the trends we have seen for both the vehicle manufacturers and component suppliers to bring technology to growth markets and create business opportunities,” he said. “It will drive the business model and the competitiveness and greatness of developed markets. It's a big opportunity.”
He said that numerous factors are forcing structural shifts as the industry becomes even more globalized: increased sensitivity to the total cost of ownership; convergence of market trends; interchangeability of trucks; emergence of lower-cost concepts; emerging OEMs' need for access to the latest technology; rising global fuel prices and raw material prices; stricter environmental regulations; and slowing economic growth in developed markets.
He said Roland Berger conducted a global study in 2009 involving 50 interviews with senior executives. It showed that sales of commercial vehicles over six tons were down 46% in the European Union, 65% in Central and Eastern Europe, 35% in the US, 50% in Japan, and 22% in South America. Only Asia showed an increase — and that was a meager 3%.
As a result, commercial vehicle supplier revenue and profitability declined significantly.
“I think the crisis has reached bottom, but there are financial limitations that will persist for several years,” he said. “The cyclical sales downturn, coupled with the financial crisis, has driven the CV supplier industry into severe distress.”
Truck sales are down 30% to 60% and supplier revenues are down 30% to 50%, while debt spreads increased by over 400% and equity decreased by 65%, dramatically reducing financial headroom and credit facilities.
Fortunately, the impact from the crisis and the natural down cycle of the CV industry seems to be stabilizing for the triad markets. He said US sales of commercial vehicles over six tons (which were down 35% in 2009) should experience an 18% increase in 2010, and even bigger increases in 2011 and 2012. Europe, which was down 50% in 2009, should be up 8% this year, while Japan, down 50% in 2009, should be up 46%.
He said that forecasts show that healthy long-term growth in CVs is expected for the BRIC (Brazil, Russia, India, China), with China significantly ahead.