It ain’t a speed bump, either

By B4T Editorial Columnists

BRIC stands for Brazil-Russia-India-China, the world’s fast-growing over-sized economies. They’re an opportunity… and a threat. They can buy our American-made trucks and engines and parts, or they can sell us their own. 

Going Global
The truck industry is going the route the automobile industry did years ago: global. It’s no longer enough for the big brands—Peterbilt and Navistar and the rest—to sell to the American and Canadian market or even to the top-tier markets of the Triad (N. America, Western Europe, Pacific Rim). Now our OEMs have to sell to the world, and if the world doesn’t want what they have to sell, better come up with something it does. 

That’s the message of a new report from AlixPartners LLP, which describes itself as a global business-advisory firm with 900 employees in three continents. “North American Original Equipment Manufacturers” says the report, “are being outflanked both by OEMs based in emerging markets—which now count for 66% of global commercial truck production—as well as by European competitors, who have gained first-mover advantage through partnerships with low-cost indigenous companies.” 

Europeans Get the Jump
There was a time when the countries of Asia, Africa and South America could all be lumped together as “emerging markets” like a bin for miscellaneous parts. No more. China is the world’s second biggest economy (in case you hadn’t heard). India’s economy has now passed Russia and Canada. The buying power of the four second-tier economies is tremendous; half of all world truck sales occur in the BRIC countries.

 The truck manufacturers of the BRIC countries have grown fast. China and India have the strongest and most flexible lines. They dominate sales in their own countries and vigorously export to emerging markets elsewhere. Moreover, they are no longer content to remain “third world” manufacturers. The two largest Indian companies, Tati and AMW (Asian Motor Works) have programs in place to penetrate the Triad countries. Mumbai-based Mahindra Autoworks is in its third year of selling pickups in the United States (although, frankly, not very successfully). 

The response of American OEMs has been uneven. Daimler Trucks of North America (DTNA) exports through its Freightliner brand to Central and South America as well as Australia and New Zealand. DTNA’s Western Star trucks exports to Africa and Indonesia. Navistar at least has a joint venture with India’s Mahindra Group to manufacture heavy-duty trucks in that country. On the other hand, the two truck giants of the Western Hemisphere, Paccar’s Peterbilt and Kenworth, are strangely inactive outside of North America. 

North America Falls Behind
This is dangerous. The AlixPartners report chides American OEM’s “are not well-positioned to exploit the increasing demand in emerging markets because of a mismatch in product types, a lack of local partners and, especially, too-high costs.” 

If American OEMs don’t take advantage of the opportunity, BRIC manufacturers will, says the report. “Producers in China, India and Russia together are expected to boost their output by some 50% over the next four years due to the strength of domestic economies and demand from other emerging markets in Southeast Asia, Africa, the Middle East and Central America.” 

What then? Tai Li, an AlixPartners director, told Transport Topics that “Once China and India catch up with Western Truck technology, they will pose the threat of not only shutting out North American manufacturers from emerging markets but will become a threat to their own domestic markets.” 

The report concludes that American OEMs should not be laggard in their response to this threat. “North American companies must invest in producing simpler designs for commercial vehicle components so that they can generate the significant cost improvements – up to 50% – necessary to compete in the future.” 

The Bump Next Time
The AlixPartners report is uncomfortably brief for the looming shadows it conjures. We would be inclined to take it less seriously were it not that it echoes a copiously documented report published three years ago by Roland Berger Strategy Consultants. The Berger report is a summary of the global market for all Original Equipment Makers, American or otherwise. The two documents together make for a picture of American OEMs overly content to graze on the domestic market at a time when they should be seeking foreign pastures. 

American-made trucks are still the kings of the highway. Right now Peterblit and Kenworth and Navistar can drive around that BRIC in the road. But next year it will still be in place, only bigger. Sooner or later, a time will come when the brick turns into a boulder. We repeat, what then? 

This story was drawn from articles in Transport Topics, RolandBerger.com, Heavy Duty Manufacturers Assoc Newsletter and FleetOwner. 

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