iffiraarm1778 L ° by George Malcolm
Page 64
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Profitability and the price war
THE LORRY price war has been going on in Britain for some time. Its impact has been felt particularly by the British manufacturers because of the strength of the pound sterling and its affect on pricing. This has benefited the importers who in any event have been aiming to boost their market share even if they lose money in the short term.
Daimler-Benz seems to be getting the greatest blame for doing this but other manufacturers seem just as guilty and its not always easy to say how much the carping is due to the success of Daimler-Benz.
Some vehicle manufacturers have stood aside as far as they possibly could from the price war to keep margins at reasonable levels. They have, however, paid for "better-thanmight-have-been" financial results in lower registrations; ERF being just one example. Others have pushed up their registrations by providing operators with all kinds of services from breakdown facilities and.credit cards to cost analyses, warranties and service incentives, all of which cost money and erode profit margins.
Those that have really carved up prices are undoubtedly causing damage. One of the industry's leaders had some hard words to say about this practice recently. Aart van der Padt, president of Daf, recently commented in Eindhoven that the "unparalleled price war" between European truck manufacturers was responsible for his company's losses last year of f6-7m. He said that Daf had been compelled to compete with manufacturers who had discounted prices to unprofitable levels.
It seems to me that he was, in fact, condemning his own company for just this practice. However, although deliveries
were slightly down on the previous year through a fall-off in military vehicle orders, the company apparently also successfully implemented an internal cost-cutting campaign and reduced its stocks of finished vehicles. How then did it still lose money except by reducing its own margins on vehicles sold?
It would be interesting to know if Daf's UK subsidiary made any kind of real profit because it pushed up its registrations markedly from 1,829 in 1982 to 2,371 in 1983.
It would be interesting, too, to see how lveco (UK) saw a 23.5 per cent increase in vehicle registrations in 1983 — and is looking to a similar increase in 1984 — managed to make the profits it appears to have done in 1983.
Alan Fox, Chief Executive of Ivaco (UK) in a recent statement said: "Our prediction that 1983 would be better than 1982 proved well founded and, in fact, early indications are that our financial operating profit for the year will be somewhat better than the E2m forecast early in October."
A few deductions have to be made to that figure before arriving at the after tax and "after everything else" results, so how much this comment was just a confidence booster is unclear. Certainly lveco as a whole is not doing too well; production fell to 92,000 in 1983 and sales to 96,000. Sales revenue at Fiat's industrial division, which includes lveco, fell by 10 per cent in 1983.
The heavy losses last year at MAN are not a happy background for VAG in Britain. However, it is making a very strong bid to gain a greater share of the market and Renault Vehicules lndustriale looks resigned to making losses for a year or two yet, having indicated that it doesn't expect to break even before 1985.
Daimler-Benz would appear to be the only company in Europe that is not too unhappy about its performance, although the results of the Swedish companies, Saab-Scania and Volvo, indicate steady growth.
The ripples of the fortunes of the major manufacturers cause large waves to buffet both the component manufacturers and the trade. And there the situation couldn't be more gloomy, it has to be said. "The worst year on record for business failures in the motor industry" is how Dun and Bradstreet, the business information company, describes 1983.
During the year, liquidations in the industry were 1,615, an increase of 8 per cent over 1982, and represented 13 per cent of total liquidations in England and Wales.
More than 44 per cent of the liquidations were recorded in
London and the South-east. A further 14.4 per cent occurred in the North-west and 11.4 per cent in the North-east.
Bankruptcies among firms, partnerships and individuals in 1983 were 786, an increase of 9.3 per cent over 1982 and 11.5 per cent of the total bankruptcies in England and Wales. The motor industry figures include commercial vehicle dealers, equipment suppliers and some hauliers, according to Dun and Bradstreet, so it's not good news for the industry.
Dun and Bradstreet put its own interpretation on the ,situation. Commenting on the statistics, John Dawson, public affairs director of Dun and Bradstreet, says: "Although 1983 was a record year for company liquidations, the 12 per cent increase over 1982 must be seen in the context of last year's increase over 1981 of 35 per cent, demonstrating that the rate of business failures is slowing down.
"However the rate of bankruptcies among individuals, firms and partnerships appears to be increasing dramatically with a 25 per cent increase over 1982 compared with last year's increase over 1981 of 9 per cent.
"While we are beginning to see an improving business environment, it is still essential that managers pay very close attention to basing business decisions on reliable data about customers and suppliers alike. Business people in general should ensure that their customers pay them in accordance with their own terms of trade."
There is no doubt at all thai the severe price-cutting war in the commercial vehicle sector has been a major factor in thE failure of some commercial vehicle dealers. So Art van de Padt was right in what he said It's not a happy situation, but th signs are, that at least in the UK 1984 will bring a useful increasE in heavy vehicle registrations with, we hope, everyone gettini some profit out of it all.
COMMERCIAL MOTOR wie February 4, 1