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Where angels fear to tread...
Page 48
Page 49
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If truck manufacturers were glad to see the back of 2008, they certainly won't like what's coming this year, especially in connection with the previously booming markets in Central Europe.
Words: Oliver Dixon It might not ..__ seem like it now, but 2008 proved
to be quite a year. Record demand and lead times at the beginning followed by a double-digit fall in registrations towards the end.
First, the numbers. The total European market for vehicles over 16 tonnes (namely the EU27 + EFTA) fell by 2.2% year-on-year, with 305,027 trucks registered, against 312,679 during 2007 The EI515 market (countries that were EU members before 2002) saw numbers remain almost constant, with 260,473 trucks registered during the period, which was up 0.2% on 2007.
EFTA, consisting of Switzerland, Norway and the 'banking basketcase' Iceland, put on 6.7%, with 8,738 registrations versus 8,188 during 2007. All of which brings us neatly to Central Europe, or, in EU-parlance, the 02 and 07 accession nations.
In October last year. Paccar chief executive Mark Pigott pointed to Central Europe as being a bulwark against a declining established Western European market. "Western Europe," he said, 'will slow down because of the zero to 1% GDP growth.
"But some of that will be offset by the newly invigorated Central European market (CEM)." This is now unlikely and despite recently announcing Paccar's 70th consecutive year of net profit, Pigott may be regretting his choice of words regarding the CEM.
In 2008, Central European truck registrations in the +16-tonne category tumbled by 15.3%, resulting in 44,554 units against 52,619 in 2007 The Eastern European economic miracle, recently driven by huge levels of investment, and accompanied by millions of cubic metres of hot air as excited CV executives posited a vision of seemingly limitless growth, now appears to have ended. So what happens next?
Smatter order books
Ignoring the terminally optimistic, this year promises to be a stinker. Indeed, while the OEMs are understandably reluctant to commit themselves to firm numbers, 03 2008 order intakes point to a significant decline.
Scania saw its order book fall by 30%, while at AB Volvo, chief executive Leif Johan.sson is equally downbeat, "We're heading towards the sharpest downturn I've ever seen in Europe," he told market analysts. "We have customers that aren't sure they'll be able to get credit We will have to adjust to whatever comes our way"
AB Volvo sister subsidiary Renault goes further. Speaking to the French financial daily Les Echos, communications director Bernard Lancelot says that -[customer] cashflow could become critical" over the coming months. Renault has cut production by 60%.
Meanwhile, if the OEMs are guarding their forecasts, it's worth seeking some guidance from elsewhere. Many other organisations, industry watchers and banks are adopting an equally pessimistic stance. Clearly, the mood has changed. Last autumn, some forecasters were still suggesting 2009 would be a positive year. By mid-January, a research note from Citi suggested the EU15 + EFTA region would fall by 39.6% this year, while the 0_325 + EFTA region would see a similar reduction. Somewhere between -40% to -50% seems to be the accepted figure.
Similar to any market, the truck one is cyclical, and so seeks to correct itself from time to time. So, by these estimates, a 40% reduction will put the EU15 market back on a level not seen since 1994. Only it's no longer the EU15. it's the E1327: and the accepted view has been that demand in Central Europe will provide a positive boost to the overall European market.
While this is undoubtedly true, the real value of the Central Europe market merits a re-evaluation. Of the three European market segments under analysis, it was the only one to post negative figures in 2008.
There are three possible explanations for this It could be that Central Europe is ahead of Western Europe in terms of the economic cycle, and so entered the downturn before everyone else. But this seems improbable. Poland's GDP rose by 5% last year, yet demand for trucks in the largest single Central European market dropped by 13.2%.
Perhaps truck buyers in the region have suffered from long lead times, and so registrations fell because there were no trucks to register. But long lead times didn't stop Western Europe from posting positive figures in 2008, and delivery delays became a thing of the past in 04 2008. If you'd wanted a truck, you could have had one.
The only sensible interpretation is that the one-time opportunity presented by the CEM has now peaked.
The major regional fleet replacement has happened, and has now ended. In short, the major growth spurt is over. And if we assume a normal replacement cycle of about 30%, then we can argue with some confidence that the CEM is unlikely to see demand anywhere near what was witnessed in 2007 (52,619 units). When the market does turn up again, normal demand still looks unlikely to breach 25,000 units per year at best.
Supply difficulties
So, if we take out the excess demand from Western Europe created by the recent main growth drivers of Euro-4 and Euro-5, you get to an adjusted demand of about 220.000 units per year, in a good year. Add to this the 25,000 units for Central Europe. and you arrive at a likely market of 250,000 units a year.
In 2007, the truck market peaked at 320,867 units, which suggests there's an excess proven capacity of 70,000 units in Europe.The combined volumes of Renault and Volvo alone in Europe during 2007 ran to 74,000 units, meaning the market could lose a big-name player and we'd hardly have noticed any supply difficulties.
Meanwhile, the one thing we can say about this year is that there will be a lot of change. No one can predict that all of today's OEMs will still be about in, say, three years' Lime. "The writing is on the wall in large letters," says HSBC analyst Colin Gibson. "The imperative of size is getting greater and the pace of industry consolidation is accelerating. Three global players are nearly in position for this brave new world: Daimler, Volvo and, debatablv, Paccar. For everyone else. it's a game of eat or be eaten: We have too many trucks for not enough buyers, which means someone will have to go. I wonder who it will be. •