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ANALYSIS: TRUCKS MARKET & TRUCKMAKERS' * The truck industry: A long haul
Truckmakers are suffering, but their future is not entirely bleak
London,UK -The Economist -Feb 12, 2009: -- If the car business is in meltdown, things are only marginally better for truck manufacturers. The results just posted by the two Swedish giants of the industry, Volvo and Scania, painted a picture of collapsing orders with little respite in sight. When Daimler, the world’s biggest truckmaker, and MAN, the fourth-largest, report next week, they are expected to confirm that the industry is facing one of the worst busts in its history... It was not supposed to be like this. Just 18 months ago the collective valuation of the world’s big truckmakers reached an all-time high, having doubled in less than two years. Some within the industry even suggested that it had achieved a “new paradigm” of stable, long-term growth, in sharp contrast to the violent cyclical swings of the past. The theory was that booming emerging markets, such as eastern Europe, South America, the Middle East and North Africa, would compensate for fluctuations in mature markets. A more disciplined approach to supply and pricing was also thought to have helped, and the convergence of regional emissions regulations over the next few years would, it was said, at last allow the biggest producers to realise scale economies that had previously eluded them... Unfortunately, as so often when people start talking about new paradigms, a collision with the unexpected was lurking round the next corner. In the last quarter of 2008 Scania saw truck orders decline by 84% year-on-year in western Europe and actually go negative (as orders were cancelled) in emerging markets... Volvo, which reported an 82% drop in orders in the same period, seems to have reacted more swiftly than its peers by slashing production as soon as it saw the downturn in Europe, the most savage in more than 20 years. Others have since taken similar action: MAN will shut down production for 70 days during the first half of this year in anticipation of a market contraction of more than 30%. But the industry is now locked in a downward spiral of falling earnings and increasingly bloated inventories that threatens to weaken pricing for some time to come... Finally, a further bout of consolidation will begin when liquidity eases. The first mover is expected to be Porsche, which now controls Volkswagen, which, in turn, is the largest shareholder in both Scania and MAN. Last month MAN completed the purchase of VW’s Brazilian truck business, and MAN’s chief executive, Hakan Samuelsson, is still keen to join forces with his former employer, Scania, having failed in a hostile bid in 2006. Smaller firms, such as Navistar in America and Fiat’s Iveco, could find themselves as targets... Truckmakers are unlikely to see a return to the heady expansion they enjoyed for a few years until 2007. HSBC reckons that the industry will be back to solid (if not sensational) growth by 2011, but that the ranks of big, developed-world truck firms will have been culled from ten in 2008, when Caterpillar pulled out, to just six: Cummins, Daimler, Hino, MAN, Paccar and Volvo.
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