Glass half full CM meets Volvo CEO Claes Nilsson, who
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explains why he is bucking the trend and has a positive outlook for 2013 Words: 011ie Dixon The lead-in to Euro-6 has seen European truck manufacturers adopt a number of strategies to confront a complex market. Daimler launched its Euro-6 product way ahead of deadline, while running a Euro-5 programme in tandem. Daf is sticking rigidly to Euro-5 in the nonincentivised European markets right up to the deadline, while Renault will launch a new Euro-6-only truck range in June. Iveco is approaching the January 2014 deadline with a non-EGR solution, and Volvo, having launched the new FH in September last year, is marketing both Euro-5 and -6 variants of this model along with Euro-5 variants of the outgoing — now named Classic — FH.
It's a situation Volvo CEO Claes Nilsson is comfortable with. "It's a case of different perceptions in different markets," he says. "The UK and the Nordic markets are populated by customers who seem to want to go to the new one even with Euro-5. But if you go to Poland, to eastern Europe where there are big transport markets, the desire is still to go with the Classic Euro-5. It's quite a luxury from a marketing perspective to have two models to show the customer, who can get one for price X or one for price Y."
Uptake of Euro-6 against Euro-5 is also dividing along regional, incentivised versus non-incentivised lines. "Switzerland is already a Euro-6 market," says Nilsson. "Austria has a ban on night traffic if you are not Euro-6 compliant. Germany has, until now, had an investment subsidy for Euro-6 and everyone expects some level of MAUT difference between Euro-5 and -6 but the government has still not decided on this. The German decision has been awaited for some time now but some people speculate that it will not be clear until after the election, which is causing a lot of uncertainty among the buyers. The Netherlands also has investment subsidies for Euro-6, so those are the countries where adoption rates for Euro-6 have been the fastest."
But discussions about Euro-6 soon veer away from matters of product and quickly focus on matters of market. During the first quarter of the year, before the implementation of arguably Europe's most significant emissions change, truck sales across the EU have dipped by around 15%. This shouldn't be happening Nilsson urges optimism: "We're starting to see a pre-buy even if it is not obvious in the deliveries quite yet, but the order intake levels point to increasing activity," he says. "Intake is up and so is quoting level.
"I can't put a percentage on it, but let's say both in the UK and Europe as a whole the total market for January and February is down 17%. We, the Volvo Group, still believe that the total European market for 2013 will be up 5% so we will need to recover during the rest of the year. As to the pre-buy percentage I don't even dare to guess.
"Our view is that the economic climate in Europe is still uncertain. In the fourth quarter last year, we could see an improvement in demand for Volvo trucks, especially in northern Europe, but the situation remains uncertain, particularly in southern Europe. We obviously follow the economic development with great interest, since economic growth is positively correlated to the long-term demand for trucks Capacity issues "The big fluctuations that we have been seeing through the fourth quarter of 2012 and the first quarter of 2013 have demanded that most OEMs have adapted," he says. "So if there is some level of pre-buy it might be difficult for all of us to react quickly enough."
This is a significant assertion, and Nilsson is keen to confirm his view. "There's no capacity issue today, but towards the autumn and the end of the year when everyone realises that they have to order now to guarantee Euro-5 supply, we may see some supplier issues between the Tier 1 and 2 space, depending on the size of the pre-buy. Many of us are using the same suppliers so I would not be surprised if that is a part of the constraint we might see."
Nilsson points to the seeming split between the larger fleets and the smaller fleet/owner-operator segments. "The bigger fleets and customers are already aware of what is happening and have started to plan for it," he says.
"The worry is that some of the smaller customers will not be so aware and not realise until it's too late. But I do think that we will see a capacity constraint across the industry.
"It is a complex situation for our customers who have to judge what is best for them. Those who transit Germany have to consider the MAUT, and they have to take a position on residual values; so from their perspective it's quite a complex picture."
One of the growing concerns in North America is that as replacement gets delayed on the part of the smaller fleets, so the trade equity in their existing vehicles reduces in terms of its value relative to the cost of a new vehicle. Nilsson sees this as a trend that is likely to become more apparent in Europe.
"There is a risk that the smaller and mid-sized fleets will be priced out of the market, but we have expected this process of polarisation for a long time with the medium fleets being absorbed into the larger consolidated fleets and the owner-operators being left at the other end of the spectrum," he says. "So far, we haven't seen it, but now I think we are. During the recession we had a wave of consolidation in the industry and I would not be surprised to see that continue."
Not a disaster Some commentators have pointed to a lack of a meaningful pre-buy as clear evidence of the extent to which European economic fortunes have plummeted, but Nilsson urges taking a calmer view.
"We're not in a really bad place at the moment," he asserts. "We're in a place that is softer than the 10-year average, but it's not a disaster. We are far better than we were in 2009, for example, but we are a long way away from the days of 2007 and 2008.
"I can't say what sort of GDP growth levels we need to see to return to a steady state in the truck market, but it's obvious that in addition to this question on pre-buy and GDP we also have a lot of trucks from the 07/08 peak that are starting to get old, so we have to begin to factor replacement demand back into the equation. When you combine all of this, the analysis becomes quite difficult to perform."
Nilsson sees 2013 as a year in which the European glass is half full rather than half empty, and his optimism in terms of a pre-buy is notable. However, he does point to the German MAUT as the main issue over the next month or two. "The decision about MAUT incentivisation is key to the development and definition of the EU truck market for 2013 as it impacts not just Germany but those markets around Germany," he says.
Clearly, much hinges on the decision due from Berlin very soon, but even ahead of that, Nilsson's seemingly contrarian stance sits rather at odds with the more generally held view that 2013 is turning into a year to forget for European trucks. •