KPMG INTERNATIONAL Competing in the Global Truck Industry Emerging Markets Spotlight Challenges and future winning strategies September 2011 kpmg.com ii | Competing in the Global Truck Industry – Emerging Markets Spotlight Acknowledgements We would like to express our special thanks to the Institut für Automobilwirtschaft (Institute for Automotive Research) under the lead of Prof. Dr. Willi Diez for its longstanding cooperation and valuable contribution to this study. Prof. Dr. Willi Diez Director Institut für Automobilwirtschaft (IfA) [Institute for Automotive Research] [email protected] www.ifa-info.de We would also like to thank deeply the following senior executives who participated in in-depth interviews to provide further insight: (Listed alphabetically by organization name) Shen Yang Senior Director of Strategy and Development Beiqi Foton Motor Co., Ltd. (China) Andreas Renschler Member of the Board and Head of Daimler Trucks Division Daimler AG (Germany) Ashot Aroutunyan Director of Marketing and Advertising KAMAZ OAO (Russia) Prof. Dr.-Ing. Heinz Junker Chairman of the Management Board MAHLE Group (Germany) Dee Kapur President of the Truck Group Navistar International Corporation (USA) Jack Allen President of the North American Truck Group Navistar International Corporation (USA) George Kapitelli Vice President SAIC GM Wuling Automobile Co., Ltd. (SGMW) (China) Ravi Pisharody President (Commercial Vehicle Business Unit) Tata Motors Ltd. (India) © 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved. Competing in the Global Truck Industry – Emerging Markets Spotlight | iii Editorial Commercial vehicle sales are spurred by far exceeded the most optimistic on by economic growth going in hand expectations – how can we foresee the with the rising demand for the transport potentials and importance of issues of goods. Of course, this is common arising in five or ten years’ time? knowledge – but just perfectly describes One thing is for sure: the markets will the ups and downs in the truck industry converge – not today, but early enough over the last couple of years. to start thinking about which winning When we published our first KPMG strategies could guide the way to a Truck Study in 2006 (“The European profitable and sustainable global truck Commercial Vehicle Industry in the business model for tomorrow. Age of Globalization”) we certainly With this study KPMG hopes to make a expected a rapid increase of commercial stimulating contribution to the dialogue vehicles sales in the world’s emerging within the industry to address the economies. But what we have seen forthcoming challenges with winning until today, especially in China and India, strategies for a better competitive surpassed all prospects: In terms of positioning in the race for leadership in units sold we are already talking about the global truck market place. Chinese manufacturers taking the global lead in certain segments – and this by Enjoy the read! almost only offering their trucks in their home market. This impressively shows the enormous strength and significance of the emerging markets for the future of the global truck industry. Of course there are still considerable differences between the Triad (North America excl. Mexico, Western Europe and Japan) and emerging truck market spheres in terms of customer requirements, the importance of total cost of ownership and added- value services. But knowing that Dieter Becker the developments in recent years Global Head of Automotive © 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved. Definitions FOR ALL INFORMATION CONTAINED IN THIS REPORT PLEASE NOTE: Gross vehicle weight (GVW) Heavy commercial vehicles The Next 11 countries refers to is the maximum allowable (HCV) are commercial vehicles Egypt, Bangladesh, Indonesia, total weight of a fully loaded carrying goods with a gross Iran, Mexico, Nigeria, Pakistan, commercial vehicle. This vehicle weight (GVW) greater Philippines, South Korea, Turkey, includes the actual vehicle than 6 tons (t). and Vietnam. weight as well as passengers, A Full-Line Manufacturer All vehicle registration/ cargo and fuel. (FLM) is a truck manufacturer production data provided in Light commercial vehicles producing and selling this report is sourced from (LCV) are goods and carriage commercial vehicles in both the IHS Automotive (IHS Inc.) vehicles with a gross vehicle LCV and the HCV segment. and is derived from official weight (GVW) that varies national data sources as of The Triad markets are the from one region to another. In March 2011. mature vehicle markets of order to ensure international North America (excluding comparability, all LCVs referred Mexico), Western Europe to in this report have a GVW and Japan. below 6 tons (t). © 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved. Contents Acknowledgements II Editorial III Executive Summary 2 1 Developments in the global commercial vehicle market 4 2 Challenges for commercial vehicle manufacturers 8 2.1 Demand shift to growth regions 9 2.2 Continuous market cyclicality 14 2.3 Suitable business models and brand strategies 17 2.4 Overcoming the environmental challenge 19 2.5 Pressure on total cost of ownership 21 3 Winning strategies for a successful future 22 3.1 Regionalized technology and product management 23 3.2 Realization of economies of scale 24 3.3 Flexible capacity management 24 3.4 Multi-branding 25 3.5 Green fleet 26 3.6 Expansion of the value chain 30 4 Focus on emerging truck markets 36 4.1 China 37 4.2 India 48 4.3 Russia 58 4.4 Prospects of convergence between emerging and mature markets 68 Insight: Passenger and commercial vehicle business – why they are different and what they can learn from each other 72 © 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved. 2 | Competing in the Global Truck Industry – Emerging Markets Spotlight Executive Summary © 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved. Competing in the Global Truck Industry – Emerging Markets Spotlight | 3 • The world market share of Western Europe and North America will continue to decline relative to sharply rising demand in the emerging markets. • The worldwide distribution of power in the commercial vehicle market has shifted Market since 2006. Asian manufacturers have secured a stronger position at the expense Development of Triad truck makers. • With the formation of a large commercial vehicle group under VW’s roof (MAN, Scania, VW CV) more consolidation in the Triad is very unlikely. India and Russia have already reached a considerable level while in China consolidation is far from over. • Global Truck makers have to be aware of the growth trends in the emerging markets, and at the same time stay alert to the continuous market cyclicality in the mature markets. • Emerging markets are also prone to market cycles in the commercial vehicle market, but unlike in the Triad, the overall growth trend is upwards. Challenges • Global truck OEMs have to evolve regionally adjusted business models and brand & Winning strategies in order to respond to differences in terms of market peculiarities, Strategies customer preferences and brand recognition. • Complying with environmental standards and requirements will entail costly technologies, which truck operators may be unwilling to pay the price. • Over the long term Full-Line Manufacturers, represented in all truck segments, will have better chances to compete on a global level. • Accessing any one of the emerging markets will require a highly-specific market- tailored strategy. • Over the medium to long term, it is likely that the TCO model in emerging markets will develop along similar lines to mature markets. • The intervals for the introduction of environmental restrictions are increasingly Emerging shortening in the emerging markets, although there still is a time lag compared to Markets leading Triad markets. Spotlight • From 2006 to 2010 the domestic production of China and India constantly exceeded the domestic sales volumes. Russia in contrast had to rely on a significant portion of foreign truck supply. • A complete convergence of the emerging with the mature markets cannot be expected within a typical planning horizon of 10 to15 years. Nevertheless, in China and Russia there exists more potential for convergence than in India. • While passenger and commercial vehicles have been designed for completely different customer domains, there are several areas for the exchange of know-how. • The passenger car business can transfer know-how from Western truck makers regarding multi-branding approaches in emerging markets. • As the car market is not immune to market cyclicality