Truckmakers get the ‘low’ down on foreign competition

LAS VEGAS – Coming to a dealer near you: A "low cost" commercial truck that could be as much as 25 percent less than what you’re paying now.

That truck– more than likely sporting an Asian nameplate, but virtually integrated by several multinational suppliers – is going to be a reality in North America; and sooner than you’d think, say Sandeep Kar and Ryan Carmichael of Frost & Sullivan.

The pair of Torontonians were in Las Vegas for Heavy Duty Dialogue 2011 on Monday to tell truckmakers and suppliers about the new level of competition (as well as opportunity) that they face in just a few short years.

In a new study based in part on interviews with over 100 key OEM and supplier executives from all over the world, Kar and Carmichael map out the short-term future of the global commercial vehicles market; and specifically how the winds of "low cost" movements in emerging markets are blowing to the U.S. and Canada.

The pair of analysts liken the current tectonic shifts felt in the truck manufacturing industry to what the automotive market experienced in the late ’70s and ’80s when foreign manufacturers entering the North American market took a foothold, and eventually rivaled and surpassed domestic OEMs in marketshare.

"The North American trucking industry faces some of the same challenges," says Carmichael, "but there are opportunities under the cloak of those threats."

So-called BRIC (Brazil, Russia, India, China) companies have taken the lead in building low cost trucks for emerging global markets – either on their own or as part as joint ventures with familiar European heavyweights – but they have no intention of stopping there, says Kar.

"Do not write-off these trucks as something from another part of the world," says Kar. "These companies are sitting on piles of cash …and they will not be content as just entering the (North American) market. They are very aggressive and expect to take part of the market."

The one-ton Tata Ace certainly doesn’t move
into markets most of you recognize,
but some of its bigger cousins might so some day

It’s not a matter of ‘if,’ says Kar, but ‘when.’

"Some OEMs we talked to said they are just waiting for the (North American) market to recover and reach critical mass before revealing their strategies."

He says it’s no coincidence that more than a few BRIC players have set up facilities in South America and Mexico. "To test the waters for that market yes," he explains, but also to act as a production and staging ground for North American expansion.

Some numbers in the F&S study:

Overall, by 2016 there will be 21 or more distinct global medium- and heavy-duty platforms introduced by OEMs through various joint ventures involving U.S., European, Chinese, Indian and Japanese companies, among others.

Globally, there were 1.8 million "low cost" trucks built for global markets up to 2009. That’s expected to almost double by 2016.

In North America, there were about 49,000 of these trucks as of last year. The Frost & Sullivan study projects a jump to 140,000 units in the next five years.

Kar and Carmichael stress that these low cost vehicles won’t penetrate every North American trucking sector anytime soon.

Long-haul, because of the particular specifications it demands will be immune for the foreseeable future, but there are many vocations like urban delivery and short-haul daycabs where "low cost trucks are very favorable," says Kar.

The study, titled Strategic Analysis of the Global Low Cost Truck Market, indicates that truck buyers could save between 19 and 30 percent by considering these models.

A typical foreign low cost truck ranges between $4,000 to $20,000 for light duty (India’s Tata Motors makes the one-ton Ace, which retails for an astounding $5,000); $15,000 to $40,000 for a medium-duty (where there’s the greatest growth potential); and as low as $30,000 to $70,000 for heavy commercial vehicles.

The research states that these manufacturers can cut as much as 8 percent of the costs in powertrains, 3- to 5 percent in the chassis, and as much as 4 percent in cab design and amenities.

But while these trucks may be "decontented," and in some cases have higher operating costs and lower life cycles, Kar thinks the quality gap is closing quickly. "In the last 10 years, we’ve seen a lot of progress in Chinese and Indian (trucks) that by the time they enter the North American market they’ll be even better, which will augment their reliability."

Plus, the actual nationality of many of these trucks – especially the sorts of models that could eventually enjoy market penetration on this side of the pond — is certainly debatable.

Discussing a certain Iveco-designed, Cummins-powered truck by Tata Motors (rumored, by the way, to be considering a Canadian location for North American production), Kar half-kidded: "Arguably, the only thing Indian about the truck is the nameplate."

It’s true that foreign low cost trucks face steep challenges here, namely distribution, customer support and regulatory hurdles such as emissions standards.

But the two analysts don’t consider these roadblocks to be insurmountable.

Chinese and Indian emissions regulations are scheduled to match Euro 5 and EPA 2010 rules in about five years while at the same time global emission rules become more harmonized.

And while the added costs of compliance will cut into foreign vehicles’ huge competitive advantage, a Chinese or Indian heavy truck will still be about $10,000 to $25,000 cheaper than current comparable models, Kar insists.

That, he adds, creates enormous opportunities for North American and European OEMs to share in these solutions since they’ve already achieved them.

Above all, though, American OEMs aren’t going to stand by and let foreign players dominate the emerging "low cost" movement in North America.

If this market does emerge here soon, they’ll certainly attempt to satisfy it — either through joint ventures or individually – with their own design cost-cutting strategies.

What likely emerges, then, is a two-tired industry, according to the Frost & Sullivan study — split between spacious and technological long-haul "premium" trucks and lower-power, bare-boned short-haul trucks with a significant cost advantage.

Customers used to something in between, though, might be disappointed with their options in the future.