The commercial vehicle market could have come out of the doldrums, says FRANK BEETON, after analysing sales in the third quarter of 2010.
After the Soccer World Cup (SWC) 2010 had played out its final drama on 11 July, South Africa faced the challenge of returning to a more normal tempo of life following four weeks of frenetic action on and off the pitches. In this context, the performance of the truck market during the third quarter of 2010 assumed enormous importance in providing clues to the levels that could be expected in the aftermath of this very significant event, and establishing a base for moving into the future.
Business disruption would still have been present for most of July, as foreign visitors made their way home, and the logistics structures that had been put in place to support the World Cup were dismantled, but market levels from August onwards gave important pointers to the status quo, and road ahead.
It must be said that the market in the immediate run-up to the SWC kick-off in mid-June had behaved with surprising decorum. There was no evidence of panic buying, and only moderate segmental shifts in favour of the distribution vehicles that were the main freight support group to the event.
Predictably, bus and coach volumes had risen steeply to support SWC team and spectator transportation, the Gautrain feeder service, and some BRT-related activity in the major cities. The calmness in the market during the first half of the year softened expectations of a post-SWC dip, and as things turned out, this did not occur. Even bus sales, which were logically expected to decline after the SWC-related deliveries were completed, did not disappear completely.
In comparison with the preceding quarter, very pleasing margins of growth were recorded by both the HCV and XHCV segments, while MCV volumes were off by almost 9%, and bus sales halved, for reasons already explained. The volume performances of several major suppliers to the MCV segment have been quite erratic over the past nine months, suggesting that product availability issues were not limited only to Nissan Diesel/UD undergoing a disruptive product change earlier in the year, but also impacted on supplies from other manufacturers as well.
Looking at the bigger picture, the addition of the 5,8% margin of quarter-on-quarter market growth evident at the end of September to the 9,1% year-on-year improvement evident at the end of the first half of 2010 is firmly indicative of a better outlook for 2010 compared with the somewhat dismal full year’s result achieved in 2009.
The most significant trend evident in this analysis is the return of the XHCV segment to prime position in the overall market, indicating that the level of fixed investment related activity in the local economy may be running higher in the post-SWC 2010 environment, than some analysts had dared to expect. This follows a three-year contest for supremacy between the extra-heavies and the MCV grouping.
It now remains to be seen if the premium segment will return to the path leading to market domination that it was following before the emergence of numerous world financial woes in 2008. The reduced market share of the MCV segment, mirrored by a strong HCV performance, may also suggest some buyer migration up the payload scale. It is significant that the HCV segment has leapt clear of its traditional position adjacent to the 20% penetration line, for the first time since a tentative and short-lived foray above that level in 2009. This is despite rational expectations that HCV sales would enter a period of consolidation following the World Cup. This development, coupled with the generally improved performance of the more expensive units in the HCV and XHCV segments, however, provides firm evidence of a normalisation in the country’s business asset financing environment, which had been a major causal factor in 2009’s depressed market outcome.
Finally, we have the fully expected fall-off in bus penetration from the position near to 10% of the overall market that it has occupied for the past year, for reasons explained earlier.
With barely two month’s worth of “normality” now a matter of record, it is, perhaps, too early to read huge doses of significance into segmentation trends that have emerged at this time. There can be no doubt preparations for SWC 2010 exerted an influence on this market for a considerable period before the event took place, and that it will take some time for the normal cycle of fleet replacement, replenishment and expansion to be resumed.
Some theories have already been advanced to explain the short-term shifts in macro segment performance, but more time needs to pass before these can be fully evaluated. The end of the year may be a more appropriate time for a more complete analysis to be attempted.
Further analysis of the application trends within the MCV segment has revealed that the previously narrowing gap between historically dominant freight carriers and integral vans, has been arrested recently, and seems to be stabilising. It should also be noted that Iveco has reported sales in the MCV bus sub-segment during the most recent quarter, joining regular contributors Tata and Isuzu. This should help to reduce the level of statistical distortion caused by the widespread practice of converting vans into buses in the aftermarket.
Chart 1 illustrates the relative market performance and ranking of each participating manufacturer in the quarter just completed, as compared to the returns for the immediately equivalent preceding period.
Readers should please note some recent changes to the groupings of manufacturers contained in this section of the report. The rule employed is that if a manufacturer/group sells more than one brand through its distribution channels, then all sales for those brands will be consolidated in the result for the manufacturer/group. Thus, Mercedes-Benz includes Freightliner and Fuso, Toyota/Hino contains both brands, MAN includes Volkswagen (Constellation) trucks and Volksbus passenger units but not VW commercial vans (listed separately), GMSA includes Isuzu and Opel, Volvo Trucks includes Mack and Renault, and Super Group has now become Powerstar and distributes only Bei Ben products. Babcock/DAF trucks and VDL buses/coaches are now listed independently.
With a quarter-on-quarter volume reduction of more than 16%, and in a market that grew by more than 5,75% in the third quarter, it was inevitable that the market share of perennial industry leader Mercedes-Benz SA would suffer. This share ended at just above 24%, which was 6,35% down on the second quarter result. The major culprit was reduced Bus sales, with deliveries of World Cup and the initial batch of Gautrain vehicles effectively completed in the previous quarter. However, it was notable that MBSA still retained leadership of a bus segment that had now shifted its attention back to the commuter vehicles that make up the bulk of this category in “normal” times. The group also retained leadership of the MCV and XHCV segments, but with considerably reduced absolute numbers in the entry-level category. Of the three individual brands, Freightliner fared the best with a market share reduction of only 0,05%, while Fuso and Mercedes-Benz gave up 1,78 and 4,53 percentage points respectively.
Second-placed Hino/Toyota gained 4,5% in volume terms in the quarter-on-quarter comparison, which resulted in a share decline of nearly 0,2% in the numerically larger third quarter market. The major segmentation dynamic saw combined MCV sales of Toyota Dyna and Hino 300 Series models dip slightly, while the HCV-class Hino 500s more than compensated with additional volume. XHCV category Hino 700 models are gradually gaining traction in the market, and visual evidence of this is now apparent when travelling the country’s truck routes.
The much-anticipated corporate metamorphosis of Nissan Diesel South Africa into UD Trucks Southern Africa finally transpired early in September, and the company put in a suitably spectacular quarterly sales performance to celebrate! This marque’s traditional third placed overall market ranking, which it had conceded to Isuzu during the second quarter, was reclaimed decisively, by a margin of 172 units. Delivery volumes rose in comparison to the second quarter result by more than 52%, resulting in a 4,33 percentage point improvement in market share, to reach 14,2%. This improvement was evident across all model ranges, but it was notable that the most recent quarter’s achievements also included: leadership of the HCV segment, which, in itself, performed well above par; retained leadership of the “Japanese division” of the XHCV segment; and a further recovery in MCV sales, although this was still somewhat short of the quarterly volumes regularly achieved by the previous range in 2009.
Tata’s volume performance still continues to drift away from the heady heights of 1 000-unit quarters last seen in 2007, following a brief foray, during 2006, into second position in the market. Current volumes are running at around one-quarter of that level, and in the period under review, Tata’s market share slipped to just below 4,5%, while eighth position was maintained in the rankings.
Bolstered by the launch of its new TGS-WW (Worldwide) range of premium trucks, the MAN Group returned a considerably improved performance in the third quarter, with a 28% boost in volume, and a market share improvement of slightly more than one-and-a-half percentage points, to finish at 8,6% penetration and a retained fifth overall ranking. The main impetus was provided by considerably stronger XHCV and HCV truck deliveries. However, in the group’s third quarter performance, the bus macro segment, an area it has traditionally dominated, was distinctly below historic par. Deliveries of Volkswagen-branded products have yet to show any substantial benefit from the MAN association, but it was noted that a dedicated Volksbus 17.210 OD commuter bus product, bodied at MAN’s Olifantsfontein facility, has made an appearance. This will help to differentiate this model from its local stable mates in MAN’s now well-established Lion’s Explorer range.
After proving earlier in the year that repetitive product launch activity and the accompanying increase in marketplace visibility can be beneficial to performance, Isuzu Trucks South Africa, the sole representative of General Motors in the truck market in recent quarters, came a little off the boil in the third quarter, giving up 1,7% volume in a market that grew by 5,8% quarter-on-quarter. This resulted in the loss of 0,85 percentage points of penetration, and a retreat from the hard-won third-ranking position gained in the second quarter, back into fourth position. Nevertheless, the programme of product introductions has continued, with the new FX Series of HCV/XHCV segment “crossovers” entering the market at the end of the quarter. This provides potential for future market share improvements in these categories. Isuzu’s highly rationalized range of products, which features some degree of sheet metal commonality from the smallest MCV to the new XHCV models, and includes cleverly-positioned niche variants with double cabs, AMT transmissions and all-wheel-drive, is now largely complete, and should enhance the marque’s competitive position.
Volvo Trucks continued its upward momentum during the third quarter, building on the substantial improvement registered in the previous review period. Sales volume increased by just short of a further 30%, boosting overall market share to 7,2%, and maintaining sixth position in the standings. Bus deliveries, previously enhanced by BRT vehicles, fell away, but were more than compensated by XHCV segment truck deliveries. Support to the Volvo cause was also provided by contributions from corporate siblings Renault (49 units) and Mack (three units) – the Renault result being its best quarterly score for some time and indicating improved prospects for a marque that has had a difficult history in the SA market.
The other Swedish manufacturer, Scania, enjoyed a less satisfactory third quarter, giving up 7,1% in volume, and more than 0,5% in market share, to retain seventh place in the market rankings. While XHCV truck volumes, including the recently launched R Series flagship, held steady, bus sales fell away in the post-SWC period, but some additional interest will be generated by the recent launch of the P 230 DB 4x2 freight carrier model, to compete in the upper reaches of the HCV segment. Scania’s promotional emphasis shifted from vehicle financing to the sale of used vehicles during this period.
In stark contrast to its performance during the second quarter, Iveco enjoyed an absolutely stellar revival in the July to September 2010 period. Deliveries and market penetration more than doubled in comparison with the preceding quarter, by margins of 130% and 2,18% respectively, resulting in an elevation of two ranking positions to ninth. This was the combined result of an important product launch (the Chinese-sourced Iveco Power Daily midibus models), a major step up in XHCV truck deliveries, a revival of bus deliveries and, possibly the final resolution of sales reporting anomalies that have been bedevilling Iveco’s published performance levels for some time.
Navistar International retained tenth position in the manufacturer rankings during the review quarter, recording an improved quarter-on-quarter volume performance that added a margin of just less than 28%, and a resulting market share improvement of half a percentage point. Promotional events included the continued rolling out of the local dealer network, and the launch of the WorkStar 6x4 bonneted truck tractor to replace the earlier 7600 model. Anticipated announcements regarding local developments related to the global co-operative joint venture with Caterpillar are still awaited.
Powerstar’s performance in the third quarter showed a 50% volume decline over the previous reporting period, resulting in a loss of 0,4% of market share, and the loss of one place in market ranking, to end in 13th position. Recent media statements made by the company suggest that the takeover of the local operation by Chinese interests has been completed, and that the Pietermaritzburg assembly plant and Jet Park head office are to be retained to market a five-model product line-up in South Africa.
During the review period, it was announced that Babcock International Group’s Africa Division had taken over the distribution of DAF trucks in South Africa. Initial models to be offered are reportedly the CF85 and XF105 6x4 truck tractors, to be followed later by the LF and CF75 series. However, no sales were reported during the third quarter, but the necessary provision has been made in the accompanying table.
No sales of VDL buses were reported during the quarter under review.
Several vehicle manufacturers compete in the MCV segment of this market only with European-sourced integral van-derived products. Of these, Volkswagen Commercials (11th position), Fiat (14th position) and Nissan (15th position) recorded reduced sales volumes and lower market shares during the third quarter of 2010, when compared to their performance in the preceding quarter. By contrast, Peugeot (12th position) enjoyed a 54% increase in sales volume, which resulted in a market share improvement of 0,22%, and an improvement of one position in market ranking.
Readers should note that sales volumes of several commercial vehicle brands, including FAW, Warrior (Dong Feng), Hyundai and Ashok Leyland, are not yet reported to NAAMSA, and are, therefore, excluded from the comments and data contained in this report.
GENERAL MARKET COMMENTS
The performance of the truck market during the quarter just ended, was particularly important in gauging market direction for the rest of 2010, and the final result that will emerge at the end of the year.
The steady volumes that were returned in June, at the end of the previous quarter, and July, despite their disrupted trading environments, were extremely encouraging, and formed a firm base for growth once businessmen shook off World Cup distractions, and got their feet back firmly under their desks.
During August, a substantial “enrichment” of the market mix was noted, when fully two-thirds of the total sales volume was generated by goods vehicles with GVM ratings above 8,5 tons. A steadily increasing XHCV monthly sales trend has been in place since April, 2010, and the individual September sales volume for this category was the highest that was recorded in 22 months.
It was also notable that this increase in premium truck sales momentum has been mainly driven by truck tractor units, which suggests that long-distance line haul transport operators are back in the market following the difficulties they faced with asset financing during the latter part of 2008 and early 2009.
Having established a robust new benchmark in August, the truck market continued to consolidate its overall position during September. Although there were some fairly significant month-on-month shifts in the volumes recorded by individual market segments, these fluctuations were clearly driven by the progress of substantial multi-unit deals through the delivery process.
The South African truck market is relatively small in numeric terms, and the type of distortion that can be generated by individual fleet purchase transactions demands that caution should be exercised when identifying and evaluating short-term trends in its segmentation profile. These deals also have the potential to influence the availability of specific models and variants in the months ahead.
The measure of stability in the bus segment has been gratifying, given the logical expectations of a post-SWC decline, and still reflects substantial demand for the commuter carriers that form the backbone of this segment in normal times.
There have also been some welcome recent signs that the often strained relationship between bus operators and the regulatory authorities is improving, allowing the industry to build on the more positive atmosphere for public passenger transport that emerged during the Soccer World Cup period.
It is worth bearing in mind that some R800 billion in capital projects are still planned by the country’s public sector in the 2011 to 2014 timeframe, and that this level of fixed investment activity should help to maintain impetus in truck sales going forward, particularly in the XHCV segment. Additional buses will also still be required to complete the Gautrain feeder network, and to equip extended BRT operations as these are rolled out.
Fortunately, much of the labour unrest that dampened spirits in the business community in the past months has now been resolved. However, the disruptive after-effects may take some time to work out, having directly impacted on vehicle assemblers through shortages of components from strike-affected suppliers. At the end of September, the total truck market was running some 12,5% above the volume it had attained at the equivalent point in 2009, and indications are now positive that this level of momentum can be sustained to year-end.
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