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Summary
Another recession, another meltdown for the poor relation of the
capital goods sector. Will the truck industry ever grow up? We
predict lower volume growth (hurting emerging markets most) but
better industry returns (benefiting developed markets most) in the
next cycle than in the last. The cause of this asymmetry is the slowly
accelerating pace of industry consolidation…
Prologue: Sisyphus Rocks
“He kept on thrusting the rock uphill toward the brink but just as it teetered, set to topple over, time and
again the immense weight of the thing would wheel it back and the ruthless boulder would bound and
tumble down to the plain again…” Odysseus on seeing Sisyphus in Hades; Homer The Odyssey
This report is a sequel to our September 2005 report on the global commercial-vehicle industry, Sisyphus
Rocks: The Global Heavy Truck Industry 2005-08. In that report we drew three main conclusions.
We argued global truck volume growth would decline from its peak in 2004 and that there was
a significant risk of accelerating price pressure which might generate a hard landing for sector
earnings. This prediction panned out well: global truck volumes have failed to match the growth
seen in 2004 (31%) at any time since. Pricing pressure was for a long time held at bay in all but the
used truck market but we expect will be a significant factor in Europe in both Q4 2008 and H1 2009,
given the urgency with which OEMs are implementing inventory management.
We argued the emissions cycle would increasingly distort market growth rates while not yet
being sufficiently harmonised to facilitate scale economies for global players. Half right.
Actually, outside North America, emissions regulations have had only a modest effect on volume
growth. Nonetheless, they have imposed spiralling costs on OEMs and powertrain specialists
(resulting in at least one high-profile market exit) without any significant scale economies or raisedbarrier-
to-entry benefits in return.
We argued the truck industry was still grappling with an over-focus on volume growth, that it
was some way off any kind of ‘new paradigm’ and that it had a lot of work to do to break out of
its historical boom and bust cycle. That prediction looked wildly contrarian as of mid 2007, by
which time the aggregate market capitalisation of the OEMs profiled in the report had more than
doubled. But since the industry’s valuation peaked in July 2007 it has become increasingly obvious
that it is still characterised by boom and bust. Right now, it’s clearly bust – but therein lies the
potential attraction to the investor…
Sisyphus Unhappy
Mary: “It’s a metaphor for life, Leo. It’s famous. ‘One must imagine Sisyphus happy’.”
Leo: “Bull****. He’s miserable.” Harry Birchmayer, Party Girl
The start of our new medium-term outlook period (2009-13 ) finds us in the teeth of a sharp downturn for
the global truck industry after several years of good volume growth. Nonetheless, we believe that by the
time we get to the latter part of the period (2011-13) the dust will be settling and some evolutionary
developments will have become visible in the global truck industry landscape.
Demand cycle
Average annual volume growth in the coming cycle is unlikely to match that seen in the last cycle
(11% globally; 3% in developed markets, 22% in emerging markets)
The primary reason for this is that growth rates in emerging markets are likely to normalise to some degree
from the elevated levels seen in the last cycle. It seems counter-intuitive, for example, to expect a re-run of
the growth the Chinese market saw in the early part of this decade (a 50% CAGR in the five years 2000 to
2004). We project average annual volume growth in the coming cycle of 5% to 10% globally; 0 to 5% in
developed markets and 10% to 15% in emerging markets. This presents little challenge for developed
markets, where volume growth has been modest and capacity expansion likewise. But it may present greater
challenges for emerging markets, where capacity expansion has been significant.
Emissions cycle
Emissions control finally becomes a game-changer
Truckmakers have for years been living with the implications of the gradual worldwide tightening of
emissions norms: steadily rising R&D expenditure and occasional wild distortions of demand as hauliers
try to stay one step ahead of the regulations. But now we are approaching the endgame. When Europe
adopts the Euro 6 norm (due 2013/14), emissions regulation in all major developed markets will be
aligned and the synergies available to vertically integrated vendors with a global footprint should increase
materially: Daimler and Volvo shareholders take heart. And the growing imperative of scale is already
effecting big changes in industry structure: see Caterpillar’s 2008 market exit and MAN’s M&A moves.
Although targeted carbon regulation may in the future affect truckmakers, we conclude it is unlikely to do
so significantly in the coming cycle, when the legislative landscape will on the contrary remain
dominated by the Clean Air Act endgame.
Supply cycle
Consolidation in developed markets contrasts with expansion in emerging markets
The demand cycle (sharp global downturn) and the emissions cycle (big is beautiful) are now combining
to effect significant changes on the supply cycle: Caterpillar’s 2008 market exit and MAN’s M&A
ambitions are a direct result. They may also affect the long-term commitment of Navistar in the US and
Iveco in Europe to the on-highway heavy-truck market. We might conceivably go from 10 major
developed market suppliers at the start of this downturn (Caterpillar, Cummins, Daimler, Hino, Iveco,
MAN, Navistar, Paccar, Scania, Volvo) to six at the start of the next (Cummins, Daimler, Hino,
MAN/Volkswagen, Paccar, Volvo). This would represent significant supply-side consolidation and
suggest that any pricing weakness in 2009 will be cyclical (not structural) in nature.
Industry Overview 9
Demand cycle 10
Emissions cycle 17
Supply cycle 21
Vendor Profiles 27
Ashok Leyland 28
Daimler 33
Hino Motors 43
MAN AG 50
Paccar 56
Scania 63
Tata Motors 70
Volvo 75
Disclosure appendix 85
Disclaimer 88
Contents
292503.pdf
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