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In the wake of the summer recess, the global truck market is once again stirring into action. Oliver

13th October 2005
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Page 28, 13th October 2005 — In the wake of the summer recess, the global truck market is once again stirring into action. Oliver
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Which of the following most accurately describes the problem?

Dixon reveals who's

doing what..

The beginning of October traditionally marks the end of silly season, and judging by the activity within the global truck market, this is as true with commercial vehicles as it does with British politics, First up, Europe — sort of. Reports from Russia suggest that Renault VI and Russian manufacturer G AZ are to establish a joint venture for the production of medium and heavy trucks, based at Nizhny Novgorod. Agreement for the new operation is expected by the end of this year, with production beginning some months afterwards.

If RVI sees there is some money to be made out of Russia, one might be tempted to view Volvo's announcement of the opening of a wholly owned service facility as an example of the glass being half-full... or half empty.

Based just to the south of St Petersburg, it represents an initial investment of SKr100m (around £75m). Volvo's Staffen Jufors has indicated that this will be the first of a few Volvo-owned sites.

This could represent one of two things. On the one hand, Volvo might well believe that there's a bob or two in the Russian market and has chosen to keep this margin for itself rather than sharing profit (and risk) with a local partner. On the other hand,maybe there isn't a local partner to be had— or not one that measures up in terms of due diligence — leaving Volvo stuck with trucks operating in Russia and not much by way of support for them.

You pays your money,and so on.

Optimistic view

We'd be inclined to go with the former view. Volvo has a decent history in Russia, and the Soviet Union of old. It has been operating in the new Russia since 1994 and in recent years the country has become increasingly important to the group. Today, there are about 20,000 Volvo trucks on Russian roads and since 2003 the company has run a factory for truck assembly in Zelenograd just outside Moscow.

This plant can build about 40 trucks a month and it's operating at full capacity Sales have increased steadily and up to the end of August this year, Volvo Trucks has delivered 715 trucks: an increase of 76% over the same period last year.

Not huge numbers maybe, but significant in the light of comments attributed to boss of Volvo's Nordic neighbour Scania. According to a briefing note issued by analysts at Swedish bank Handelsbanken, it is to the east that businesses should be looking for action.

Drawing on conversations with Leif Ostl ing, the report suggests that higher steel prices and lower labour costs will not impact fully upon the company's fortunes until next year.

That aside, long-term prospects for the truck industry seem to be good, not least because of strength in Eastern Europe, and a shift towards road freight in Western Europe. Interestingly, Latin America is reportedly seen by Ostling as more vulnerable compared with last year, which might give Scania's newly appointed Latin America chief Michel de Lambert pause for thought when he takes up his post on 1 January.

De Lambert's tenure as Iveco boss was characterised as much by its brevity as anything 1111. else, and by the sounds of it he's going to have a fight on his hands, with Iveco, M-B and VW performing strongly in Latin America.

VW's plans to invest $400m (£225m) in its Brazilian CV unit by 2007 are particularly noteworthy. According to Roberto Cortes, VW's Latin American CV boss, this investment is all about producing inexpensive and robust trucks—the firm plans to be producing 50,(XX) units a year within two years,of which 25% will be for export.

VW is aiming fora 35% share in Brazil. it currently holds 33% of the market, leading us to wonder as where the surplus vehicles will eventually end up. South Africa looks a pretty safe bet, but what of Asia?

This is where the action seems to he at present. Scania will unveil its R Series at this month's Tokyo motor show, but its bulging remains a mystery. Scanias were at last year's show, without badges, on Hino's stand, but rumours of a Hino-built 18-tonner for Scania's European business seem to have faded away.

It's possible that this relationship is on the wane — which is definitely not the case across the Sea of Japan, where a beautiful friendship appears to be blossoming between China National Heavy-Duty Truck Corporation (CNHTC), and Iran Khodro Diesel.

China teams up with Iran

According to an initial agreement struck between the two, IKD will import and buy technology for heavy truck manufacturing from CNHTC, and the Chinese company is to establish a production line for trucks inTehran. Iranian sources put the total value of the contract at about $150m (£85m) and point to the value of the increasingly Europeanised specification. An initial delivery of 400 units is expected soon.

China transferring technology elsewhere rather bucks the trend, given the increasing irascible discussions taking place with monotonous regularity between Western manufacturers and Beijing. Iran is a key market, especially given the growth potential of the central Asian states which are increasingly orienting themselves around an eco nomic growth zone centred to the South rather than the North.

This regional deal is significant because of the other, possibly reluctant, participants. IKD has a strong relationship with Mercedes-Benz, which must regard another entrant into the Iranian market with some concern. CNHTC has a deal with Volvo — the Jinan Huavo Truck Company formed in 2003. In Iran, Volvo's best friend is SAIPA; a key rival of IKD. Who is going to end up with what technology? And why should the Chinese be interested in Tehran? Think oil and gas, and a number of deals signed between the two countries.

Unravelling in India

And so to India, where the whole Ashok Leyland Iveco deal seems to be unravelling. From what we've been able to gather, the Hinduja brothers are getting ready to buy Fiat out of Ashok Leyland while Fiat India boss Paolo Castagna is off toTurin.Castagna took over from Alberto Montanan on 1 June this year, and was replaced by Giovanni De Fifippis on 1 October.

Does this mean that Fiat is out of India? No —a Memorandum of Understanding now exists between the Italian firm and Tata. Given that the former has already signed up with Ford for joint development of a new small car, it's difficult to see why there shouldn't be a CV aspect to this deal. India is a market with huge growth potential and Tata is the big kid on the block, with an increasingly powerful presence throughout the rest of Asia.

Iveco's diesel technology would be very attractive to Tata, as would its European and Latin American infrastructure.Tata already has a foothold in the European bus market via Spanish manufacturer Hispano Carrocera SA, but its CV business doesn't scare the natives much. We don't expect this to change too much too soon, but we wouldn't bet against a lot of outsourcing heading east of Turin in the medium term, with a side bet of HR merriment aplenty as the Italian unions begin to shout.

The truck business continues to evolve. The merger and acquisition rush a few years ago, when the Europeans were buying up everything in sight, may have cooled down, but the new trend is towards the emerging markets.

And increasingly, those same emerging markets are producing manufacturers seemingly capable of playing on the global playing field. The current bout of activity may not suggest mergers of equals quite yet, hut don't move too far away from this space:The emerging are beginning to look at the emerged, and things look set to get rather interesting •


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