KPMG - Competing in The Global Truck Industry 2011 PDF

KPMG INTERNATIONAL
Competing in the
Global Truck Industry
Emerging Markets Spotlight
Challenges and future winning strategies
September 2011
kpmg.com
ii | Competing in the Global Truck Industry Emerging Markets Spotlight
Acknowledgements
We would like to express our special thanks to the Institut fr Automobilwirtschaft
(Institute for Automotive Research) under the lead of Prof. Dr. Willi Diez for its
longstanding cooperation and valuable contribution to this study.
Prof. Dr. Willi Diez

Director
Institut fr Automobilwirtschaft (IfA)
[Institute for Automotive Research]
willi.diez@ifa-info.de
www.ifa-info.de
We would also like to thank deeply the following senior executives who
participated in in-depth interviews to provide further insight:
(Listed alphabetically by organization name)
Shen Yang
Senior Director of Strategy and Development
Beiqi Foton Motor Co., Ltd. (China)
Andreas Renschler
Member of the Board and Head of Daimler Trucks Division
Daimler AG (Germany)
Ashot Aroutunyan
Director of Marketing and Advertising
KAMAZ OAO (Russia)
Prof. Dr.-Ing. Heinz Junker
Chairman of the Management Board
MAHLE Group (Germany)
Dee Kapur
President of the Truck Group
Navistar International Corporation (USA)
Jack Allen
President of the North American Truck Group
George Kapitelli
Vice President
SAIC GM Wuling Automobile Co., Ltd. (SGMW) (China)
Ravi Pisharody
President (Commercial Vehicle Business Unit)
Tata Motors Ltd. (India)
2011 KPMG International Cooperative (KPMG International), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
Competing in the Global Truck Industry Emerging Markets Spotlight | iii
Editorial
Commercial vehicle sales are spurred
on by economic growth going in hand
with the rising demand for the transport
of goods. Of course, this is common
knowledge but just perfectly describes
the ups and downs in the truck industry
over the last couple of years.
When we published our first KPMG
Truck Study in 2006 (The European
Commercial Vehicle Industry in the
Age of Globalization) we certainly
expected a rapid increase of commercial
vehicles sales in the worlds emerging
economies. But what we have seen
until today, especially in China and India,
surpassed all prospects: In terms of
units sold we are already talking about
Chinese manufacturers taking the global
lead in certain segments and this by
almost only offering their trucks in their
home market. This impressively shows
the enormous strength and significance
of the emerging markets for the future
of the global truck industry.
Of course there are still considerable
differences between the Triad (North
America excl. Mexico, Western
Europe and Japan) and emerging truck
market spheres in terms of customer
requirements, the importance of
total cost of ownership and addedvalue services. But knowing that
the developments in recent years
by far exceeded the most optimistic

expectations how can we foresee the
potentials and importance of issues
arising in five or ten years time?
One thing is for sure: the markets will
converge not today, but early enough
to start thinking about which winning
strategies could guide the way to a
profitable and sustainable global truck
business model for tomorrow.
With this study KPMG hopes to make a
stimulating contribution to the dialogue
within the industry to address the
forthcoming challenges with winning
strategies for a better competitive
positioning in the race for leadership in
the global truck market place.
Enjoy the read!
Dieter Becker
Global Head of Automotive
Definitions
FOR ALL INFORMATION CONTAINED IN THIS REPORT PLEASE NOTE:

Gross vehicle weight (GVW)
is the maximum allowable
total weight of a fully loaded
commercial vehicle. This
includes the actual vehicle
weight as well as passengers,
cargo and fuel.
Light commercial vehicles
(LCV) are goods and carriage
vehicles with a gross vehicle
weight (GVW) that varies
from one region to another. In
order to ensure international
comparability, all LCVs referred
to in this report have a GVW
below 6 tons (t).
Heavy commercial vehicles

(HCV) are commercial vehicles
carrying goods with a gross
vehicle weight (GVW) greater
than 6 tons (t).
The Next 11 countries refers to

Egypt, Bangladesh, Indonesia,
Iran, Mexico, Nigeria, Pakistan,
Philippines, South Korea, Turkey,
and Vietnam.
A Full-Line Manufacturer
(FLM) is a truck manufacturer
producing and selling
commercial vehicles in both the
LCV and the HCV segment.
All vehicle registration/

production data provided in
this report is sourced from
IHS Automotive (IHS Inc.)
and is derived from official
national data sources as of
March 2011.
The Triad markets are the

mature vehicle markets of
North America (excluding
Mexico), Western Europe
and Japan.
Contents
AcknowledgementsII
EditorialIII
Executive Summary
Developments in the global commercial vehicle market
Challenges for commercial vehicle manufacturers
2.1
Demand shift to growth regions
2.2
Continuous market cyclicality
9
14

2.3
Suitable business models and brand
strategies
17
2.4
Overcoming the environmental challenge
19
2.5
Pressure on total cost of ownership
21
Winning strategies for a successful future
22

3.1
Regionalized technology and
product management
23
3.2
Realization of economies of scale
24
3.3
Flexible capacity management
24
3.4
Multi-branding
25
3.5
Green fleet
26
3.6
Expansion of the value chain
30
Focus on emerging truck markets
4.1
4.2 India
48
4.3
Russia
58
Prospects of convergence between emerging

and mature markets
68

4.4

China
36
Insight: Passenger and commercial vehicle business

why they are different and what they can learn
from each other
37
72
2 | Competing in the Global Truck Industry Emerging Markets Spotlight
Executive Summary
Competing in the Global Truck Industry Emerging Markets Spotlight | 3
The world market share of Western Europe and North America will continue to
decline relative to sharply rising demand in the emerging markets.
Market
Development
The worldwide distribution of power in the commercial vehicle market has shifted
since 2006. Asian manufacturers have secured a stronger position at the expense
of Triad truck makers.
With the formation of a large commercial vehicle group under VWs roof (MAN,
Scania, VW CV) more consolidation in the Triad is very unlikely. India and Russia have
already reached a considerable level while in China consolidation is far from over.
Global Truck makers have to be aware of the growth trends in the emerging
markets, and at the same time stay alert to the continuous market cyclicality in
the mature markets.
Challenges
& Winning
Strategies
Emerging markets are also prone to market cycles in the commercial vehicle
market, but unlike in the Triad, the overall growth trend is upwards.
Global truck OEMs have to evolve regionally adjusted business models and brand
strategies in order to respond to differences in terms of market peculiarities,
customer preferences and brand recognition.
Complying with environmental standards and requirements will entail costly
technologies, which truck operators may be unwilling to pay the price.
Over the long term Full-Line Manufacturers, represented in all truck segments,
will have better chances to compete on a global level.
Accessing any one of the emerging markets will require a highly-specific markettailored strategy.
Over the medium to long term, it is likely that the TCO model in emerging
markets will develop along similar lines to mature markets.
Emerging
Markets
Spotlight
The intervals for the introduction of environmental restrictions are increasingly

shortening in the emerging markets, although there still is a time lag compared to
leading Triad markets.
From 2006 to 2010 the domestic production of China and India constantly
exceeded the domestic sales volumes. Russia in contrast had to rely on a
significant portion of foreign truck supply.
A complete convergence of the emerging with the mature markets cannot be
expected within a typical planning horizon of 10 to15 years. Nevertheless, in
China and Russia there exists more potential for convergence than in India.
While passenger and commercial vehicles have been designed for completely
different customer domains, there are several areas for the exchange of know-how.
The passenger car business can transfer know-how from Western truck makers
regarding multi-branding approaches in emerging markets.
Car Business
vs.
Truck Business
As the car market is not immune to market cyclicality either, OEMs can benefit
from flexible capacity management best practices already implemented in the
truck business.
With the declining importance of vehicle ownership within the passenger car
market, service and TCO-oriented business models from the truck business can
be a major benefit for car OEMs.
The main opportunities for the truck OEMs to gain knowledge from the car
OEMs are the realization of scales and synergies via platform strategies and the
adoption or co-development of environmental friendly drive trains.
Developments in the global

commercial vehicle market
The global commercial vehicle market is growing, particularly
in emerging markets
Cost saving programs

enabled Western
manufacturers to gain
profits even with reduced
sales volume.
Due to the rapid economic recovery, in

2010 most commercial vehicle markets
revived from the sales decrease
they suffered in 2008 and 2009.
Nevertheless, commercial vehicle
sales still remain below their pre-crisis
volume in most markets. Although,
the enormous sales reductions have
resulted in some painful lessons,
extensive cost saving programs
allow a majority of manufacturers to
achieve respectable profits. However,
particularly OEMs from the established
markets continue to face a number of
challenges to maintain or grow their
market position in their home markets.
These include increasingly stringent
regulations, rising gas prices and largely
saturated markets.
Market share losses of the saturated

markets contrast with strong market
share gains in the emerging markets.
In particular, China sharply increased its
global market share in 2009 by about
10 percent to 28 percent, replacing the
US as the largest commercial vehicle
market, due largely to governmental
support initiatives. By 2010, Chinese
global market share had already grown
to 30 percent. India enjoyed similar
although less spectacular growth. Asia
is now by far the largest region for
commercial vehicle sales, accounting
for nearly one in two commercial
vehicles sold worldwide.
On the other hand, economic growth

in emerging markets continues to offer
great potential, with the associated
rise in consumer demand predicted
to have a positive medium and longterm impact. Industry experts also
expect that the legal framework and
commodity prices will continue to play a
minor role for the time being.
The world market share of

Western Europe and North
America will continue to
decline relative to sharply
rising demand in emerging
markets.
The balance of power in the global

commercial vehicle market has changed
decisively over the past five years. In
2006, Western Europe accounted for
about 10 percent of all commercial
vehicle sales worldwide. In 2010, the
figure had fallen to around 7 percent.
The fall was even greater in North
America, where the share of worldwide
commercial vehicle registrations fell
from about 50 percent in 2006 to around
32 percent in 2010.
Development of the commercial vehicle market (across all segments)*

25,976
1,062
24,235
22,729
22,694
21,934
759
928
933
2,268
865
837
1,048
1,185
2,383
642
20,351
1,462
864
1,001
18,642
833
952
1,645
781
1,548
2,012
1,870
1,655
763
541
1,276
1,166
2,137
8,725
1,505
8,093
From a truly global

perspective, the truck
market is a growth market
rising up to 33 million
units by 2015 if current
trends continue.
7,369
10,650
10,265
7,974
6,266
10,737
10,991
2010
2011f
11,700
8,401
6,395
2006
Asia
6,975
7,098
2007
2008
North America
2009
West Europe
South America
Source: IHS Automotive, KPMG International

*Light commercial vehicles up to six tons + heavy commercial vehicles over six tons
2012f
East Europe
RoW
f = forecasted
by 2015 if current trends continue.

In addition to the BRIC countries,
the so called Next 11 states, such
as Indonesia, South Korea, Vietnam
and the Philippines, will contribute
significantly to this growth as well.
Positive economic developments will

ensure further market growth over the
coming years, including a fundamental
rebalancing of the global market. The
truck market is expected to grow by
around 14 percent between 2010
and 2012, rising up to 33 million units
The BRIC and Next 11

states will spur market
demand in the future.
Sales ranking of manufacturers of heavy commercial vehicles (GVW > 6 tons)

The worldwide distribution of power within the commercial vehicle industry has shifted since 2006. Asian manufacturers have secured
a stronger position at the expense of manufacturers from the Triad, such as Daimler, Volvo Trucks and Paccar, which previously
dominated the heavy duty market.
Sales Ranking
2006
2
3
2008
2009
2010
n1
DONGFENG
n2
DAIMLER AG
n3
FAW
n4 PACCAR
CNHTC 2
n5
TATA MOTORS
n6 NAVISTAR
VOLVO TRUCKS
n7
TORCH
n8
BAIC 3
n9 FORD
MAN
n10 TOYOTA
1
2007
First Automotive Works

China National Heavy Duty Truck Corp.
Beijing Automotive Industry Corp.
ASHOK LEYLAND
Emerging markets manufacturer
Challenges for commercial

vehicle manufacturers
Global truck manufacturers are faced with a number of challenges. They have to be
aware of the growth trends in emerging markets, and at the same time stay alert
to the continuous market cyclicality in the Triad. A consistent worldwide business
model will not be sufficient. Regional needs have to be reflected, and innovations
will be needed to address technological challenges and the rising importance of
total cost of ownership (TCO).
Global truck manufacturers face a number of challenges

Truck OEMs have to be aware of the
growth trends. One thing is for sure:
regional adaptability will determine
global success.
Demand shift to
growth regions
Rising importance of total cost of
ownership. However, the reduction
of TCO from the manufacturers
side is not easy.
Costly innovations will be needed

to address technological challenges,
which truck operators may be
unwilling to pay the price.
Pressure
on total
cost of
ownership
Overcoming the
environmental
challenge
Truck OEMs have to stay alert

to the continuous market
cyclicality in the Triad and in
the emerging markets.
Continuous
market
cyclicality
Suitable business
models and brand
strategies
Truck OEMs have to find suitable

business models and brand
strategies to compete globally.
Source: KPMG International
2.1 Demand shift to growth regions

Shifts in demand and consolidation will reshape the global
commercial vehicle industry
In terms of sales volume,
manufacturers from
China and India have
already surpassed most
of their mature market
competitors.
Already in todays market, a considerable proportion of trucks are sold by

manufacturers from emerging markets, such as Dongfeng Motor, FAW and CNHTC
(all China) and Tata Motors (India). Of course, these companies sell most of their
vehicles in their respective home markets. Nevertheless, even Daimler Trucks,
for years the biggest seller in the heavy duty vehicle segment, was outperformed
in 2010 for the first time by the Chinese Dongfeng Group. This underlines the
dynamics of the emerging markets and their potential to determine the success of
commercial vehicle manufacturers with global aspirations.
International key players in heavy commercial vehicle in 2010 (GVW > 6 tons)
WORLDWIDE
Units Sold (in thousands)
Market Share Worldwide (in percent)
DONGFENG
300.1
DAIMLER TRUCKS
FAW
280.7
1
274.3
CNHTC 2
199.9
TATA MOTORS
VOLVO GLOBAL TRUCKS
194.9
3
125.8
TORCH
BAIC
113.2
4
109.4
MAN (VW)
103.8
10.3%
9.7%
9.5%
6.9%
6.7%
4.3%
3.9%
3.8%
3.6%
ASHOK LEYLAND
80.0
2.8%
PACCAR
79.1
2.7%
TOYOTA
77.4
2.7%
NAVISTAR
76.6
2.6%
ISUZU
71.5
64.8
FORD
62.8
ANHUI JIANGHUAI
IVECO (FIAT)
SCANIA (VW)
51.9
48.6
2.5%
2.2%
2.2%
1.8%
1.7%

Volvo, Renault Trucks, Mack
4
Beijing Automotive Industry Corp. (Auman, EuroV, Beiqi Foton)
1
2
3
Naturally, global market dominance does not arise from sales volume alone it
remains to be seen, if emerging players will be able to compete on a global scale in
terms of quality, reliability and brand reputation any time soon. Daimler Trucks, for
instance, will most probably regain its leading position in the heavy trucks sector
within two years through its intensified activities in China and India. Nevertheless,
global sales figures indicate that well-known manufacturers from saturated
markets, such as Volvo and MAN/VW, will sell fewer vehicles than Chinese and
Indian manufacturers in the future. Even if one treats MAN and Scania as one group,
it would still lag behind the new Asian commercial vehicle giants.
Development of the world market share by market clusters

1
11%
7%
20%
World
Market Share
2006
62%
11%
8%
World
43%
Market Share
2012f
38%
TRIAD
BRIC
N-11
RoW
North America (excl. Mexico), Western Europe, Japan

Brazil, Russia, India, China
Next -11 (No data available for Nigeria, Bangladesh)
4
RoW = Rest of World
f = forecasted
2
3
2011 KPMG International Cooperative (KPMG International), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved
reserved..
Consolidation has almost come to an end in mature markets

Mature commercial vehicle markets in Western Europe and North America have largely
consolidated, particularly in medium and heavy trucks, with six, respectively five,
manufacturers sharing more than 90 percent of the market. With the formation of a
large commercial vehicle group (MAN, Scania, VW Nutzfahrzeuge) under the leadership
of the VW Group, more consolidation is unlikely, especially given antitrust laws.
While India and Russia have already reached a considerable level of consolidation,
it is far from over in China. The top five manufacturers in China Dongfeng, FAW,
CNHTC, Torch and Beijing Automotive command almost 70 percent of truck sales,
but several small and mid-sized manufacturers continue to compete against each
other. The number of regional providers (and those focusing on particular segments)
could be replaced by a smaller number of global cross-segment manufacturers.
This ongoing pressure for global consolidation is illustrated by numerous cooperation
agreements in the industry. These range from specific technical collaborations (such
as Mahindra and Navistar)1 to capital integration (such as Daimler & KAMAZ)2, often
a preliminary stage for mergers. It cannot be ruled out that players from emerging
markets will become pivotal to this consolidation process as well.
Overview of Chinese commercial vehicle manufacturer groups

LCV (< 6t)
HCV (> 6t)
24 companies
Anhui Ankai
Anhui Jianghuai
Chengdu Dayun Sichuan
Highway Machinery
Chengdu Wangpai
CNHTC
Fujian Xinfuda
Guangzhou Bus
Hanyang Auto
Henan Shaolin
Hualing
Hunan Axle Works
Nanjing Chunlan/Xugong
Norinco
North Benz
Shandong Wuzheng
Shitong Special Vehicle
Torch
Zhejiang Youngman
Brilliance-Jinbei
Changan
Chery
Dongan Heibao
Feidie Auto
Fujian Auto
Great Wall
Guangzhou Auto
Guilin Bus
Guizhou Yuantong Aeronautic Auto
Hebei Changzheng
Hebei Zhongxing
Hubei Sanhuan
Hubei Sanjiang
Hunan Zoomlion Axle Works
Jianghuai
Jiangling
Jiangxi Fire Engine
Liaoning Lingyuan Auto
Shaanxi Automotive
Shandong Auto
Shandong Kaima
Shandong Tangjun Ouling Auto
Sichuan Yinhale Machinery
18 companies
FULL-LINE (LCV + HCV)
16 companies
BAIC
Chengdu Xindadi
China First Tractor
Dongfeng
FAW
Fujian Longma
Jinggong Zhenjiang
King Long
Lifan Group
Nanjing Automotive
SAIC
Shandong Huayuan Kama
Shuguang Group
Sichuan Nanjun
Yaxing
Zhengzhou Yutong Coach
Bold = more than 50.000 units sold in 2010
Joint venture (51:49) Mahindra Navistar Engines produces diesel engines for medium and heavy commercial trucks and buses
in India
Daimler Trucks had bought a 10 percent stake in KAMAZ in 2008, bought another 1 percent in June 2011
Leading players in key regions and markets in 2010 (GVW > 6 tons)
WEST EUROPE
Units Sold
(in thousands)
Market Share
(in percent)
46.7
DAIMLER TRUCKS
3
42.2
VOLVO GLOBAL TRUCKS
31.3
MAN
23.3%
21.0%
15.6%
PACCAR
27.5
13.7%
IVECO (FIAT)
26.0
13.0%
SCANIA (VW)
10.2%
20.5
NORTH AMERICA
Units Sold
(in thousands)
Market Share
(in percent)
DAIMLER TRUCKS
73.5
27.4%
NAVISTAR
72.2
26.9%
PACCAR
15.8%
42.6
FORD
12.4%
33.4
VOLVO GLOBAL TRUCKS
8.5%
22.8
SOUTH AMERICA
Units Sold
(in thousands)
Market Share
(in percent)
DAIMLER TRUCKS
70.9
60.2
MAN
31.3
FORD
26.1%
22.1%
11.5%
IVECO (FIAT)
20.6
7.6%
VOLVO GLOBAL TRUCKS3
19.7
7.3%
EAST EUROPE (incl. Russia)

Units Sold
(in thousands)
Market Share
(in percent)
28.9
KAMAZ
23.9
GAZ GROUP
3
VOLVO GLOBAL TRUCKS
25.4%
20.9%
8.5
7.5%
MAZ
7.7
6.8%
MAN
7.6
6.6%
CHINA
Units Sold
(in thousands)
Market Share
(in percent)
299
DONGFENG
FAW1
273
CNHTC2
200
TORCH
4
BAIC
20.6%
18.8%
13.7%
113
7.8%
109
7.5%
INDIA
Units Sold
(in thousands)
Market Share
(in percent)
189
TATA MOTORS
80
ASHOK LEYLAND
59.3%
25.0%
EICHER MOTORS
28
8.9%
SWARAJ MAZDA
2.2%
ASIA MOTOR WORKS
1.9%

Volvo, Renault Trucks, Mack
4
Beijing Automotive Industry Corp.
(Auman, EuroV, Beiqi Foton)
2
3
2.2 Continuous market cyclicality

Market cyclicality dominates the commercial vehicle
business also in emerging markets
The commercial vehicle business will continue to be strongly cyclical, especially in
the mature markets of the Triad, where swings of between 15 and 25 percent are
considered normal.
Dependency on overall
economic development:
Commercial vehicle
sales usually trail behind
changes in GDP.
Time lag illustrated

using the example of
the US market for light
commercial vehicles (LCV)
This cyclicality is caused by a dependency on overall economic development.

Declines in gross domestic product (GDP) lead to a fall in the transportation of
goods, and surplus trucks are temporarily decommissioned. When demand rises
again, companies reactivate these trucks before buying new ones, leading to a
time-lag between the rise in GDP and the demand for trucks. This is illustrated by
the quarterly development of GDP in the US between 2006 and 2010 and light
commercial vehicle sales for the same period.
Connection between commercial vehicle demand and GDP

Observation
Period 1
Observation
Period 2
Observation Period 1: While

GDP rose substantially in Q3
2006 going into the following
quarter, commercial vehicle
sales continued to decline as a
response to the previously fallen
GDP. Thus, a high point of the
GDP, together with a low point in
commercial vehicle sales, was
observed in the fourth quarter of
2006. Commercial vehicle sales
rose once again in the first quarter
of 2007 despite falling GDP in
that quarter.
Observation Period 2: It is also
very clearly visible from the
4th quarter of 2009 to the 2nd
quarter of 2010 that the peak of
GDP shows a time lag of two
quarters in relation to the peak of
commercial vehicle sales.
Q2/06 Q3/06 Q4/06 Q1/07 Q2/07 Q3/07 Q4/07 Q1/08 Q2/08 Q3/08 Q4/08 Q1/09 Q2/09 Q3/09 Q4/09 Q1/10 Q2/10 Q3/10 Q4/10
% Growth in Truck Sales
% Growth in GDP
Source: IHS Automotive, US Department of Commerce (2011), Institut fr Automobilwirtschaft [Institute for Automotive Research]
Emerging markets are also prone to cycles in the commercial vehicle market,
but unlike in Triad markets, the overall growth trend is upwards. Manufacturers in
emerging markets must therefore prepare for continuous growth in capacity and align
this with their strategies.
Light commercial vehicle demand

(on a basis of accumulation)
Development trends in commercial vehicle demand in China, India and Russia
AVERAGE SALES (20012009)

Russia = 296,000 units
China = 2,900,000 units
India = 333,000 units
trend
2001
2002
2003
2004
2005
2006
2007
2008
2009
Source: VDA, KPMG International
DAIMLER AG
Interview with Andreas Renschler,
Member of the Board and Head of Daimler
Trucks Division at Daimler AG (Germany)
Andreas Renschler, Head of Daimler Trucks, expects a fairly
steady recovery of the global commercial vehicle industry
after two almost catastrophic years.
Although strong cyclicality has always played a pivotal role
in the commercial vehicle industry, the 2008/2009 market
turmoil went far beyond anything we could have expected,
says Renschler.
The market is now growing again, but of course there are
regional differences, he adds.
Renschler sees the mature markets of North America
and Europe still being some way off their pre-crisis levels.
In contrast, India and Russia are showing rapid signs of
recovery, not to mention the Chinese market, where the
demand for trucks was largely unaffected by the global
economic woes.
He is convinced that the best way to gain a sense of future
market potential is to look at GDP. A growing economy
always goes hand-in-hand with increasing freight transport
volumes boosting the demand for trucks, he explains.
Winning strategies for a global player
In terms of business strategies for global truck
manufacturers, Renschler says its not all about quantitative
market development, as qualitative differences among
emerging and mature markets will remain a limiting factor
for some time.
In China or India, were talking about an average sales price

of 30,000, compared to Europe with prices from 80,000
to 100,000. As long as global markets remain as diverged
as they are today, a world truck approach is not a viable
option, he says.
In line with this, Renschler is sure that there is not the one
universally applicable concept to access foreign markets. It
always depends on the specific regulatory environment and
market specialties.
To successfully address price and cost-sensitive emerging
market customers, a multi-brand strategy is an important
aspect for Renschler.
For a full-line manufacturer like Mercedes-Benz, which
is predominantly known for its high-quality and relatively
costly premium cars, the differentiation between its various
product segments is an absolute necessity, he says.
With its Fuso brand, an important pillar for Daimlers
success in Asia, and the recently introduced BharatBenz,
especially focused on the Indian domestic market,
Renschler believes Daimler is on the right track.
In more mature markets, he sees an ongoing trend towards
a more differentiated view on the total cost of ownership for
trucks: After all, the number one purchase reason in mature
markets is the total cost per kilometer, not in contrast to
emerging markets the initial price of a truck.
Thats why Daimler increasingly pursues value added services
around the truck itself to open up further revenue potentials.
Renschler especially sees huge potential for value added
services around preventive maintenance, since Daimler has a
widely spread service network all over the world.
2.3 Suitable business models and

brand strategies
The business model of full-line multi-brand manufacturers is
growing in importance
Over the long-term, full-line manufacturers (FLM) such as Daimler, Volvo, or Tata,
represented in all truck segments with their own products, will have better chances
to compete on a global level. In contrast, specialists active solely in the heavy truck
segment will struggle to defend their status in the global market, because they
may have greater trouble realizing synergies or differentiating their products on a
global scale.
A multi-brand strategy
enables regional factors to
be taken into account.
A regionally adjusted brand strategy therefore also plays a crucial role for truck
manufacturers. Using a multi-brand strategy, manufacturers can respond to
regional differences in terms of penetration and brand recognition. For example,
the Daimler Groups BharatBenz brand, recently introduced specifically for the
Indian market, illustrates the emergence of regionally-tailored products.
Selected business models and brand strategies in the global
truck market
Markets served in CY 10
VOLVO
VW 1
GLOBAL TRUCKS1
MAN
(MAN/SCANIA/VW)
(+VW TRUCKS)
VW
(VWN/SCANIA)1
PACCAR
average=33.8
DAIMLER AG1
TATA1
0.2
ISUZU1
DONGFENG1
0.4
average= 0.6
Global
65
60
55
50
45
40
35
30
25
20
15
10
5
0
Local
0.6
BEIJING
AUTOMOTIVE1
1Full Line Manufacturer
0.8
1.0
hypothetical
Single
brand
KPMGs BPI
Brand portfolio index = [0;1]
Multi
brand
Analysis of the business

models and brand
strategies of selected
commercial vehicle
manufacturers
Vertical axis: Shows in how many
markets manufacturers were
represented in 2010 with their
respective brands and models.
Horizontal axis: The Brand Portfolio
Index (BPI) shows the respective
intensity of the manufacturers
brand strategies. The index sets
the respective number of brands in
the manufacturer portfolio against
the manufacturer with the most
individual brands in the portfolio (in
this case Daimler).
By analyzing the global market presence and brand portfolios of selected

manufacturers, we see the current commercial vehicle business split into four
dimensions:
1. Manufacturers of a few brands with global market presence
2. Multi-brand manufacturers with global market presence
3. Manufacturers of a few brands with multiregional market presence
4. Multi-brand manufacturers with multiregional market presence
It is interesting to see that global manufacturers from mature markets are

consolidating different segments under a single corporate entity. There are a number
of reasons for this:
1. A full-line multi-brand manufacturer is better able to cope with increasing
pressure to realize economies of scale at all value creation levels. In particular, the
growing price pressure from emerging markets makes it ever more important to
leverage cost cutting opportunities to stay globally competitive.
2. An FLM can better benefit from potential synergies between light and heavy
trucks, particularly in green diesel engine technology and electronic vehicle
architecture (such as assistance systems) to comply with globally rising
environmental standards.
3. Lastly, the strong growth of emerging markets will increasingly require a more
diversified global footprint, with market-tailored product, brand and pricing
strategies.
Offering a full line of trucks under several brands especially

benefits mature market OEMs
The rising Chinese Dongfeng Group and the well-established Daimler Trucks Group,
number one and two in terms of heavy duty truck sales in 2010, demonstrate two
contrasting approaches, perhaps owing to their geographic origin.
Daimler introduced or acquired various brands and sells its trucks in over 50 countries.
By catering to a full range of truck segments, Daimler can offer a greater variety
of trucks tailored to specific markets and local customer preferences without
blurring its worldwide brand reputation or value propositions. In contrast Dongfeng,
almost solely active in its Chinese home market with low-cost products, does not
differentiate its products or segments through a multi-brand approach.
Looking at these and other examples, one can assume that using a multi-branding
approach correlates with the number of markets served and therefore with the
global aspirations of the respective manufacturers. Globally active specialists like
MAN and Paccar, operating in more than 30 markets, also tend to have several
brands in their portfolio. Volkswagens plans to merge heavy commercial vehicle
specialists MAN and Scania, with its light commercial vehicle branch, clearly indicate
the increasing trend of consolidating several commercial vehicle segments and
global brands under one roof. This newly aligned VW truck group will certainly have
an important position in the global market as it will offer a full line of commercial
vehicles with several renowned brands.
Emerging players will have

to engage multi-branding
from bottom up to succeed
in more sophisticated
foreign markets.
For emerging players like Dongfeng and Tata, it remains to be seen how they will
approach globalization in the years to come. Differentiating their products in more
sophisticated foreign markets via multi-branding could be a viable option. In contrast
to the top-to-bottom approach of their mature market peers, they will have to
differentiate their products from the bottom up. Consequently, the introduction of a
premium brand could be of crucial importance, to separate their global products from
their products low-cost reputation in their home markets.
2.4 Overcoming the environmental

challenge
The Triad markets are taking a pioneering role on
environmental restrictions
Technological innovations
are constantly reducing
truck emissions.
Pollution restrictions in mature markets have risen steeply in recent years.

Manufacturers have responded by substantially cutting particle and nitrogen
oxide emissions, as well as fuel consumption and thus CO2. Measures within
the engine have included particle filters, Selective Catalytic Reduction (SCR) and
aerodynamic optimization.
Development of commercial vehicle emissions per ton-kilometer

1.2
Projection
1.0
0.8
0.6
0.4
CO2/tkm
2030
2029
2028
2027
2026
2025
2024
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
2011
2012
2010
2009
2008
2007
2006
2005
2004
2003
2001
Nox/tkm
2002
1999
2000
1998
1997
1996
0.0
1995
0.2
Particle/tkm
Source: TREMOD/VDA (2010)
Ever stricter limits will be introduced, with the Triad countries taking the lead; in
particular the United States with its EPA limits. Under EPA 10, for example, nitrogen
oxide limits were drastically reduced in the US by nearly 80 percent to 0.27 g/kWh.
EURO VI also calls for a further reduction of nitrogen oxide and particle emissions,
although a little less stringent compared to the US limits. Generally, implementing
these requirements will entail costly technologies. It remains to be seen if truck
operators will be willing to pay the price.
Environmental demands in emerging markets are tightening,

but they are not inevitable
Emission limits in emerging markets are not yet at the level of the Triad markets.
This is partly because low transport costs are vital for economic growth. Also,
there is a desire to give local manufacturers time to develop more environmentallyfriendly vehicles. Nevertheless, it is apparent that environmental demands are also
rising in emerging markets, as seen with the local equivalent of Euro IV already
introduced in China, India and Russia. Interestingly, China, India and Russia all
introduced Euro I to III at around the same time. However, Indias pace now seems
to have slowed, as the most stringent limits of Bharat Stage IV (equivalent to Euro
IV) only apply to the national capital region of Delhi and another eleven cities.
Hence, they can be easily circumvented by registering vehicles outside large cities.
In particular large
metropolitan regions,
such as Beijing and Delhi,
strongly regulate exhaust
limits rural areas are
still less affected by
governmental regulations.
The time lag between the

introduction of exhaust
limits between mature
and emerging markets
narrowed significantly.
Looking at the pace at which environmental legislation for trucks is being

introduced in emerging markets, the time lag with the West has shortened
significantly. It may be assumed, therefore, that the pace of introducing
environmental standards is linked with the rapid sales increases in those markets.
When it introduced Euro III equivalent exhaust limits in 2008, for example,
China was six years behind the EU schedule. However, the time lag between
the introduction of the next stage equivalents (Euro IV and V) narrowed to only
three years.
Logically, more stringent limits lead to a greater need for technological
sophistication - in both emerging markets and developed markets. It will be
interesting to see how domestic players from the emerging markets will approach
the challenge of increasing requirements.
2.5 Pressure on total cost of ownership

Fuel costs dominate the total cost of ownership in mature
markets in emerging markets however, it is the purchase
price that matters
The commercial vehicle business has always been characterized by an emphasis on
total cost of ownership (TCO). As an investment asset, the acquisition and operating
costs of a commercial vehicle naturally have a direct influence on the profit margins
of truck operators. The typical TCO in a mature commercial vehicle market differ
substantially from an emerging market. In the emerging markets of Asia in particular,
the acquisition price still plays a dominant role in the TCO over the lifetime of a truck.
Acquisition costs are therefore at the forefront in investment decisions, either because
the subsequent costs are comparatively low or because repairs and service are
typically performed by owner-drivers themselves.
Over the medium to long term, however, it is likely that the TCO model in emerging
markets will develop along similar lines to mature markets, particularly with regard to
rising fuel costs, as well as growing demand for service and repair. Frequently, diesel
fuel is subsidized or taxed at a substantially lower rate than gasoline in emerging
markets, but sensitivity to fuel prices will increase with rising crude oil prices. Similarly,
with the increasing technical complexity of commercial vehicles, it is likely that only
qualified specialists will be able to perform service and repairs in the future.
Fuel costs, service and

repair are becoming
increasingly important in
emerging markets.
The reduction of the TCO by commercial vehicle manufacturers is crucial since it is

virtually impossible for hauliers to pass a rising TCO on to freight prices due to the
intense competitive pressure. The largest TCO component that can be influenced in
mature markets such as Western Europe is fuel costs (30 percent). Advances in engine
technology, such as optimized diesels engines and alternative fuels, provide a number
of sales angles for manufacturers. Other possibilities on the manufacturers side
include depreciation (which can be indirectly influenced by the purchase price), service
and maintenance costs and at least in part insurance costs.
However, the reduction of TCO from the manufacturers side is not easy, as the most
influential components of TCO are to do with the regulatory environment (ecological
requirements, taxes and tolls), particularly in mature markets and increasingly in
emerging markets as well. It is likely that these external factors will continue to grow
in importance, weakening the ability of manufacturers to influence the TCO for the
benefit of their customers.
Overview of the TCO in trucks in Western Europe
30%
Tires 1%
Interest 2%
Road Tax 2%
Fuel
40-ton
Tractor Semitrailer
Combination
Repair &
Maintenance 5%
Vehicle
Insurance 6%
26%
Wages
Overhead
Depreciation
10%
18%
Source: Commercial Vehicles and CO2, ACEA/Iveco, 2011
Weve addressed
things like fuel economy,
weight, and driver
environment. Next, well
see technologies such
as collision avoidance
systems, stability
systems anything which
can reduce their [the
operators] overall costs
further.
Dee Kapur, President of the Truck Group,
Navistar International Corporation
Winning strategies for a

successful future
Commercial vehicle manufacturers with global ambitions

face considerable challenges in both emerging and mature
markets. To survive, they will have to adopt winning strategies
to respond to shifting global demand, market cyclicality,
environmental issues and the growing pressure on the total
cost of ownership (TCO). Moreover, they must tailor their
business models and brand strategies to address the specific
characteristics of different markets.
Challenges & suitable winning strategies in the global commercial vehicle industry
Regionalized technology
and product management
Multi-branding
Demand shift to
growth regions
Green eet

Green eet
Flexible capacity management

Pressure
on total
cost of
ownership
Overcoming the
environmental
challenge

Continuous
market
cyclicality
Suitable business
models and brand
strategies
Regionalized technology and

product management
Multi-branding
3.1 Regionalized technology and

product management
Global market leadership will be determined by the regional
adaptability of multinational OEMs
Vehicle concepts geared toward the demands of Western customers will make
little impression in emerging markets. Gearing vehicle designs to local customer
demands will be essential. This will mean reducing product complexity and using
local resources and suppliers.
A World Truck concept

is not promising. Different
concepts must be
developed for the mature
and emerging markets.
Regionalized technology and product management at BharatBenz

Vehicles must be adapted to the needs of the local market. In India, for example, the design must be suitable for poorly
constructed roads and overloads. For this reason, BharatBenz reduces its electronics only to the absolute essentials.
In addition, it is necessary to stabilize the axles and adapt the frame and suspension. The engine capacity has to be
adapted to low average speeds and the gear ratio to torque that triggers early. It is power, not RPMs, that counts in
order to get frequently-overloaded trucks in motion. Transmissions must be designed in a correspondingly robust
manner. The BharatBenz is pinning its hopes on the modular principle in India and integrating elements such as
frames or drive trains of various Fuso models, specifically with newly developed components, into the Modified
Indian Truck. Starting in July 2012, it will compete with local low-cost brands such as Tata, Mahindra & Mahindra
and Ashok Leyland.
Source: AutomotiveNow, Spring 2011, KPMG International
Besides low-cost technologies, mature market OEMs will need to establish

national servicing and spare parts networks to gain a foothold in strategically
important Asian markets. Entering an emerging market with local partners
(mandatory in China) therefore has numerous advantages. These include using
local know-how, brand recognition and existing service networks.
Disadvantages include internal management resistance, delays in modernizing
products and production, and inflexibility of brand positioning. Possible conflicts
arising from the parallel establishment of a companys own brand, to occupy the
premium niche, can be more difficult to resolve within a cooperation agreement.
Overlaps can arise with respect to target groups and market segments, particularly
if the local partner itself wants to become active in the premium segment.
There is no patented
solution for market
development with or
without local partners.
For global OEMs operating fully-owned subsidiaries in emerging markets,

correctly integrating regional control structures into the overall companys
strategy is vital. Since the emerging markets of China, India and Russia have many
differences, a regionally-adjusted approach is essential. In China, for instance, a
globally-operating German OEM decided to keep its Chinese affiliate as close as
possible to its parent companys CFO instead of indirectly managing it through its
Asia Pacific sales bureau.
3.2 Realization of economies of scale

Modular systems with a high percentage of non-variable
parts are necessary
As a result of market specifics and divergent customer demands, real economies
of scale in the commercial vehicle industry can only be realized at the aggregate
level. The largest leverage effect is the standardization of the drive train and the
electronics architecture, to which depending on market specification a total of
60 to 70 percent of the added value of a truck is attributable.
We definitely put a lot of effort into developing

standardized cross-segment components for our
trucks. In the end, we have to account to very specific
end user requirements across all markets and these
set very tight limits to standardization. Just take our
Wrth plant for our heavy trucks in Germany: Not even
two out of the 120,000 units we produce there every
year are identical. Of course, such a high degree
of differentiation is not necessary in the emerging
markets.
Andreas Renschler,
Member of the Board and Head of Daimler Trucks Division, Daimler AG (Germany)
As many non-variable
parts as possible, as many
individualized technologies
as necessary.
This requires the development of a modular system that makes it possible to use
the same aggregates and components in different production series true to
the principle of as many non-variable parts as possible, as many individualized
technologies as necessary. The cost-relevant aggregates and components (engine,
axles, transmissions, and electronics) are at the forefront in this regard. Only in this
way can the necessary product differentiation be presented at the customer level.
Scania is viewed as a benchmark for this kind of modular system. Daimler Trucks is
striving to increase the percentage of non-variable parts from its current level of
50 percent to 70 percent.
3.3 Flexible capacity management

Flexibility is necessary to master market cyclicality
Market cyclicality occurs in both mature and emerging markets. To manage the up
and downs, OEMs have to be flexible. Manufacturers in mature markets already
have established processes and measures to increase flexibility. Nevertheless,
especially for the capital-intensive manufacturing industry, market cyclicality
still presents huge challenges for only internally-focused strategies like flexible
employment relationships, variability of fixed costs or fractal factory concepts.
In order to achieve additional flexibility, it is necessary to look outside the company

itself. Inter-company cooperation, strategic alliances, flexible networks or virtual
organizations can all help companies to become more flexible. The in- and
outsourcing of various processes can provide access to the resources, information
and skills of external partners. This in turn, may help a company react more quickly
to market changes, rather than relying on internal resources alone. A virtual
organization, for example, has the advantage that although it is perceived as one
company, it actually comprises a group of companies. Similar concepts like virtual
factories also offer opportunities to build flexible networks that can cope with
varying production volumes.
Partnering with external

parties can increase
flexibility.
However, few of these concepts will work in the emerging markets. OEMs
therefore need to implement processes that have previously been successful in
the mature markets. Current growth rates in emerging markets mean there is little
urgency for OEMs to implement comprehensive strategies, but growth cannot
keep up its extraordinary pace forever. Also, manufacturers should not neglect
the supply chain, helping all parties to be more aware of demand changes and to
react appropriately. In addition, for both markets, manufacturers need to be able
to accurately forecast and comprehensively analyze market trends and
demand changes.
3.4 Multi-branding
In global competition, the brand offers regional
differentiation potential
Above all, different business models will be needed to handle mature and
developing commercial vehicle markets. The business model for commercial vehicle
manufacturers in Triad markets is based on a product-service bundle with technically
high-quality, high-value vehicles, as well as complementary services (such as spare
parts logistics, financial services and fleet management). The USP (unique sales
proposition) is ultimately a minimization of the TCO, while simultaneously ensuring
reliable readiness of the vehicles for use. In contrast, a successful business model
for emerging markets must place the low-cost truck at the forefront. At the same
time, the subsequent costs must be kept low through ease of repair.
In this context, brands emphasize different points in the commercial sector than
the consumer sector, but they should not be neglected. This applies primarily to
the trust function of the brand, namely the respective customer promise that the
brand makes. There are many arguments in favor of pursuing a multi-brand strategy
in the commercial vehicle sector. However, it must be remembered that brand
attributes for commercial vehicles are heavily focused on rational values such as
quality, reliability and economic benefit, rather than more emotional messages
typical of consumer brands. The use of multiple brands makes it possible to address
regional peculiarities through different brands.
Two full-line manufacturers that operate worldwide, Daimler Trucks and Volvo Trucks,
are active in European markets with traditional premium brands characterized
by high customer and environmental demands. In the North American market,
conversely, the two companies use traditional US brands. Gaps in the brand
portfolios are supplemented by European premium brands. In turn, the growing
Latin American market is handled using brands from the European region. In Asian
markets, known and new local brands are used, or activities are carried out through
joint ventures with local manufacturers.
BUSINESS MODELS
Triad: Product-service
bundle with technically
and qualitatively high-value
vehicles.
Emerging markets:
Low-cost trucks with low
follow-up costs.
The brands of global

manufacturers vary in
Europe, North America,
India and China.
Comparison of the brand portfolios of Daimler Trucks and Volvo Trucks

Europe
Daimler
Heavy
Duty
Mercedes-Benz
Actros
Zetros
Unimog
North America
Volvo
Daimler
Volvo
FH-model
FM(X)-model
Freightliner
Cascadia
Century Class ST
Columbia
Coronado
Classic (XL)
FLD
Renault
Magnum
Premium
Kerax
Western Star
Stratosphere
4900
6900
LowMax
Volvo
Mack
Titan
Pinnacle
Granite
Volvo
VN-model
VHD-model
South America
Daimler
MercedesBenz
Actros
Linha
Tradicional
Volvo
Asia
Daimler
Volvo
FH-model
FM(X)-model
Mitsubishi
Fuso
FP/FV
Renault
Premium
Kerax
Beiqi Foton
Motor Co. (CN)
JV with Foton
Auman
Nissan Diesel
UD
MercedesBenz
Actros
BharatBenz (I)
Volvo
Volvo
FM-model
Renault
Premium
Kerax
Nissan Diesel
(J)
Condor
Quon
Jinan Huawo
Truck Co. (CN)
JV with CNHTC
VECV Ltd. (I)
JV with Eicher
Middle
Duty
Light
Duty
Mercedes-Benz
Axor
Econic
Mercedes-Benz
Atego
Mitsubishi Fuso
Canter
Volvo
FL-model
FE-model
Freightliner
Business Class
M2
Renault
Midlum
Access
Mitsubishi Fuso
FK/FM
Renault
Mascott
Maxity
Master
Trafic
Mitsubishi Fuso
FE/FG
Mack
Terrapro
MercedesBenz
Axor
Volvo
VM-model
Renault
Midlum
Mitsubishi
Fuso
FK/FM
Nissan Diesel
(J)
Condor
BharatBenz (I)
Renault
Midlum
Beiqi Foton
Motor Co. (CN)
JV with Foton
Auman
MercedesBenz
Atego
Accelo
Mitsubishi
Fuso
Canter
FE/FG
Beiqi Foton
Motor Co. (CN)
JV with Foton
Aumark
Ollin
Lovol
Forland
VECV Ltd. (I)

JV with Eicher
Nissan Diesel
(J)
Condor
Renault
Maxity
Master
VECV Ltd. (I)
JV with Eicher
J = Japan, CN = China, I = India, JV = Joint Venture

Source: IHS Automotive, Institut fr Automobilwirtschaft [Institute for Automotive Research]
The prerequisite to successful multi-branding is systematic brand control, balancing

additional costs with additional revenues. To be successful, different OEM brands
cannot become competitors. If there are excessive overlaps regarding customer
segments and markets, the brand portfolio may need to be adjusted.
3.5 Green fleet

The optimization of diesel engines offers the best long-term
cost-benefit ratio
The road map of engine concepts shows that diesel engines will be the number
one propulsion system for trucks in the long term (approx. 15 years). Even further
consumption reductions will be achieved, for example, by cutting emissions or by
more efficient exhaust treatment systems, such as selective catalytic reduction
(SCR). Established American and European manufacturers in particular have a
competitive advantage in this area, because of decades of diesel technology knowhow. The truck renewal potential in the medium and heavy-duty truck sector is
particularly weak, as current alternative technologies do not offer convincing benefits
for cost-sensitive truck operators.
In the medium and heavy-duty truck segment, simply

optimizing conventional diesel engines can still deliver
efficiency gains of five to eight percent.
Prof. Dr.-Ing. Heinz Junker,
Chairman of the Management Board, MAHLE Group
Road map of engine concepts: Status quo and potential
Increasing environmental benefits through fuel savings and emission reduction
Already available in
serial production
Short-term
(approx. 5 years)
Mid-term
(approx. 10 years)
The optimization of
diesel engines offers
the best long-term
cost-benefit ratio for
commercial vehicles
Savings up to 8% can be
achieved; a substitution
with alternative drive
systems is most likely
in the light commercial
vehicle segment
Micro-hybrids
Automatic start-stop
and brake energy
recuperation systems
are available today and
already used in light to
medium commercial
vehicles
Savings up to 20% can

be achieved; significant
advantages in urban stopand-go traffic
Gas engines
(LPG/LNG)
Natural gas engines

already reached
maturity, but offer
lower efficiency gains
compared to optimized
diesel engines
Savings up to 25% can

be achieved, further
reduction potential
through bio gas; but low
market penetration
Low potential for

long-distance traffic,
but favorable for shortdistance urban transport
Several OEMs already

offer mild-hybrids in the
light commercial vehicle
segment (e.g. Daimler)
Savings up to 20%,
prototypes in operation
in the medium and heavy
truck segments
Further technical
improvements and cost
reductions will allow
competitive positioning
in inner city traffic
Small series production

in the light and medium
commercial vehicle
segments; savings up to
30% (40% with plug-in
solutions)
First prototypes in
operation in the class
above 12 tons
Plug-in hybrids will most

probably not be used in
long-distance and heavy
duty transport
Comprehensively
deployable in all vehicle
classes
In the mid-term bio

diesel will be the most
important biogenic
alternative fuel
Sustainable second
generation bio fuels still
in development
Demonstration vehicles
and small series
production in the light
commercial vehicle
segment
Emission saving potential

between 30% and
100% depending on the
underlying energy mix
First prototypes in
operation in the medium
duty segment, use of
electric engines not
foreseeable in the heavy
duty segment yet
Several prototypes
already in operation, until
2030 reasonable market
share possible in the
light commercial vehicle
segment
Reduction potential up
to 100% provided that
hydrogen is produced
from renewable energy
Optimized/downsized
internal combustion
engines
Mild-hybrids
Full-hybrids
Alternative fuels
(biomass-to-liquid,
methanol, ethanol, bio
fuels)
Electric engines
Depending on the
production process,
alternative fuels
already offer up to
40% greenhouse gas
reduction potential
Hydrogen/
fuel cells
Comprehensively
deployable in all vehicle
classes
Long-term
(approx. 15 years)
In particular in the
heavy duty segment no
alternative to internal
combustion engines
evident
Source: Shell, VDA et al., Institut fr Automobilwirtschaft [Institute for Automotive Research]
Despite the advantages of optimized diesel engines, concepts like micro-hybrids

are already being introduced across many vehicle classes as the first expansion
stage of electrically-supported engines. They have already been offered, for ten
years in some cases, by leading market providers, including in the heavy class.
Micro-hybrid technologies usually encompass an automatic start-stop system
and mechanisms for recuperation (brake energy recovery). By their nature, these
systems are particularly suitable for vehicles in frequent stop-and-go traffic (such as
delivery and municipal vehicles) and can lead to fuel savings of up to 20 percent.
Natural and liquified petroleum gas engines are already in use as sophisticated
alternative engines, primarily in vans and light trucks. Due to their lower energy
density and smaller range, however, this technology is rarely used in long-distance
and heavy-duty traffic.
Initial prototypes of
full-hybrid systems are
being tested in classes
over 12 tons.
More heavily hybridized engines (mild/full) are infrequently used in commercial

vehicles. Daimler offers three trucks (the Mercedes-Benz Atego, the Freightliner
Business Class M2 and the FUSO Canter) that are equipped with a parallel hybrid
system (mild-hybrid). This makes it possible to operate the diesel engine alone or
with the support of an electric engine. The electric engine automatically switches
on, depending on the driving situation. Such systems help substantially reduce
consumption. A full-hybrid system promises even stronger savings, enabling
a vehicle to be propelled for a certain stretch of distance purely electrically.
The first prototypes for this technology are being tested by commercial vehicle
manufacturers including in classes over 12 tons.
Alternative fuels today are already reducing greenhouse gases. Depending on the
manufacturing process, up to 40 percent of environmentally-harmful gases can be
avoided. Alternative fuel systems are suitable for all vehicle classes. In the case of
biofuels, however, their negative impact on rainforests and their reduction of land
for food production is a disadvantage. More sustainable second-generation biofuels
are only in the laboratory phase and might offset some of these disadvantages in
the longer-term.
The willingness to pay a

price for eco-innovations is
much lower for commercial
vehicles than passenger
cars.
The trolley truck
combines the concept of
individual traffic with that
of an electric bus.
Only chargeable batteries or hydrogen/fuel cell drives offer the potential for 100
percent reduction in consumption and emissions. The reduction potential depends
on the electricity mix in a given area or, as the case may be, the manner of hydrogen
production. Despite these first prototypes, development and deployment costs
remain high. Broad deployment of these technologies should not be expected in the
short-term.
In the commercial vehicle segment in particular, there is a special focus on the
economic efficiency of an alternative engine concept. Buyers are less willing to pay
a price for eco-innovations in commercial vehicles than passenger cars. Therefore,
commercial vehicle manufacturers must seek new ways to substantially reduce
costs for hybrid systems, either by developing co-operation agreements, or by
increasing their acceptance among customers.
Electrification offers additional potential for reducing fuel consumption and
emissions. One idea for electrifying heavy trucks is the concept of the trolley
truck, for which the industry is currently conducting feasibility studies. Trucks
would be equipped with a two-rod electricity collector (similar to an electric bus)
and draw the electricity needed from a two-pole direct-current line stretched above
the road.
The truck would be able to drive purely electrically on the freeway, charge the onboard batteries if needed, and after leaving the freeway, drive for a certain range on
electricity before the conventional diesel engine takes over. If up to 12 percent in
CO2 could be saved in the case of the hybrid engine, the amount could be 20 to 50
percent in the case of the trolley truck, depending on the electricity mix on which
the electricity generation is based.
MAHLE
Interview with Prof. Dr.-Ing. Heinz Junker,
Chairman of the Management Board at
MAHLE Group
Environmental challenges for suppliers within a global commercial vehicle industry

When it comes to power trains, emerging and mature markets are already converging, according to Professor Heinz
Junker, chairman of the MAHLE Group, one of the 30 largest companies worldwide in the automotive supply industry.
The convergence is mainly driven by worldwide efforts to implement the latest environmental regulations, says Junker.
However, he acknowledges that the regulatory environment and customer requirements in emerging markets will still
diverge significantly for some years to come. For example, although China is closing the gap, there is a time-lag of
some years in adopting European vehicle standards.
Global suppliers therefore need to be able to adapt to differences between market spheres and respond to regional
or country-specific requirements. Junker says that even between emerging markets significant differences can be
observed: In China, for instance, domestic truck manufacturers are increasingly demanding Western state-of-the-art
technologies. In India, on the other hand, the focus is still firmly on low-cost components.
Alternative drive train technologies for trucks are particularly relevant for an engine specialist like MAHLE, he says. He
adds, though, that the main focus for hybridization for the foreseeable future will be light commercial vehicles operating
in urban stop-and-go traffic areas.
3.6 Expansion of the value chain

Additional services are booming, with growing potential also
in emerging markets
Downstream services can
substantially contribute to
increased revenues.
Stronger service offerings have been used in recent decades to add value for OEMs
downstream from production and distribution. There are already commercial vehicle
manufacturers earning up to a fifth of their sales revenue from services and this
share may double by 2030. In light of sustained price pressures, the importance of
downstream activities will further increase in the commercial vehicle business.
Global
Added-value services in the commercial vehicle industry
Eco-/driver safety trainings

Fleet
management
Cross-border-financing
Buy-back-obligation
Damage management
Regionalization
Financing
Insurance
Tire replacement
Toll management
Project
management
Maintenance contract
Leasing
Special equipment
Telematics
services
Local
Maintenance & repair
Truck,
superstructure
and retrofitting
Owner-Driver
Used truck
trade-in
Breakdown
service
Warranty
Contract hire/
short-term
rental
Company size
Serial-/special
fittings
Large fleet
Source: Institut fr Automobilwirtschaft [Institute for Automotive Research]
3.6.1 After-sales market

The after-sales market, with its sub-segments of spare parts and accessories,
service and repair, as well as vehicle bodies and retrofitting, represents serious
earnings potential for truck manufacturers. This is due to the rising complexity of
trucks, as well as technology upgrades to comply with stricter emissions standards
and retrofits to meet new safety requirements. In the commercial vehicle market in
particular, prompt spare parts supply is of great importance. With a strong market
presence, OEMs can achieve a competitive advantage and increase customer
loyalty by ensuring low vehicle downtimes. This, of course, has long been standard
practice for commercial vehicle manufacturers.
Exterior and structural

parts (e.g. tires) dominate
the after-sales market.
The medium- and heavy-duty after-sales market is led by exterior and structural
components like tires, windows, mirrors, bumpers, truck roof, side fairings and
trailer doors. In mature markets, these usually account for up to half of total
after-sales revenue. Taking revenue potential into account, tires are exchanged
most frequently, while all other parts in this category are probably only replaced
after accidents.
Another huge truck after-sales market category (around one-third of a mature

market) is mechanical parts, including engine, chassis, powertrain and suspension
parts. Nevertheless, long service lives for many of these components limit
their revenue potential. Lastly, electrical and electronic parts have increased in
importance over the last couple of years, as the electrical content of a typical truck
has risen. This is mostly due to stronger emissions controls in mature markets and
in several metropolitan areas of the emerging markets.3
Truck OEMs could further leverage the serious after-sales potential of captive online
platforms to promote their services and parts. According to a 2010 automotive
online aftermarket study carried out by Google in cooperation with Compete,
only a small proportion (one percent) of spare parts are ordered directly from the
manufacturer, whether online or offline. The majority of the business is conducted
by after-sales retailers, accounting for 44 percent of offline and 52 percent
online orders. This certainly offers serious space for OEMs to grow their
after-sales business.
OEMs can tap new

revenue sources via online
after-sales platforms.
Although the rate of online parts purchasing and direct shipment is increasing, four
out of five customers are still buying automotive parts in person at a traditional
store. Nevertheless, according to the studys quantitative research, providing
better information on specifications can enable OEMs to win new business, as the
average online to offline purchase conversion rate for automotive parts can be as
high as 85 percent for several components (e.g. batteries, brake parts).
Preferences of after-sales parts purchasers

Purchased Parts Online
Aftermarket automotive
retailer website
Purchased Parts Offline
52%
44%
19%
Online independent seller
Aftermarket automotive
retailer
Local independent
automotive shop
19%
17%
Retailer
Online retailer website 10%

7%
Dealership website
5%
Direct from manufacturer website 3%
Dealership
6% Oil change service shop

1% Direct from manufacturer
Source: The 2010 Automotive Aftermarket Study, Google & Compete
Medium- & Heavy-Duty Truck Aftermarket, Freedonia Market Research
3.6.2 Financial services

Whereas vehicles including commercial vehicles were predominantly purchased
for cash decades ago, the majority of todays vehicles are financed or leased in
mature markets. It is more important than ever for companies to ensure their
liquidity. Therefore, financing alternatives such as credit or leasing can be used both
as a sales tool and to ensure additional income.
In a mature market such as Germany, only 13 percent of newly sold trucks are paid
for in cash. New trucks are financed or leased at more or less equal share of 42 and
45 percent, respectively.
Penetration rates of financing for commercial vehicles in Germany
New vehicles
43%
21%
Auto
36%
42%
45%
Truck
13%
Used vehicles
51%
2%
Auto
47%
23%
10%
Truck
67%
0
10
Financing form
20
30
Financing
40
50
Leasing
60
70
80
Cash Purchase
Source: puls Marktforschung (2010)
In the used truck market,

two-thirds of vehicles are
purchased for cash.
A different picture emerges for used vehicles. In this area, two-thirds of commercial
vehicles are purchased for cash; only ten percent of vehicles are leased, and
23 percent of trucks are financed. It is apparent that the rate of financed used
passenger cars is substantially higher than the one of used trucks. This opens up
opportunities even in a saturated market like Germany to generate qualitative
growth, and thus additional earning potential, by means of used commercial
vehicle financing.
Truck manufacturers offering financial services compete with banks, insurance
companies and providers from other service sectors. Although the majority
(62 percent) of lease contracts are concluded through OEM captive finance
providers, non-captive providers still have the upper hand with close to 51 percent
in the case of financing. A comparison with the passenger car percentages shows
that the captives have a much stronger positioning in this area, with close to
70 percent. In the vehicle financing sector in particular, commercial manufacturers
can tap into additional potential with attractive financing packages.
Market shares of captive financing companies for commercial vehicles

in Germany
69%
31%
Financing
Auto
49%
Leasing
Truck
Truck
51%
62%
10
20
30
38%
40
50
Captive
60
70
80
90
100
Non Captive
Source: puls Marktforschung (2010)
In the emerging markets, on the other hand, there is a great need to catch up
with respect to financial services. In China, for instance, vehicle financing for
both corporate and private customers is quite a new concept. Around 90 percent
of all vehicles purchased in China are paid for in cash; financing accounts for the
remaining 10 percent, as vehicle leasing is almost non-existent. Of course, this is
largely because of cultural issues, but also due to the low level of awareness and
consumer education regarding financing the Chinese government did not allow
non state-owned companies to offer vehicle financing until 2004. In India, the
local Mahindra & Mahindra Group already offers financial services, but their focus,
beyond simple vehicle financing, is on life insurance contracts, financing business
equipment or rural house construction.
Financial services are

almost non-existent in
the emerging markets
although today efforts are
intensifying.
Financial services do not only bear additional earning potential for local
manufacturers. Manufacturers from mature markets entering such growth markets
could leverage their existing know-how as a distinct competitive advantage.
However, appropriate structures must first be established by both local and foreign
commercial vehicle manufacturers. Recent examples show intensified efforts by
established OEMs to cater to the rising demand for financial services. For instance,
Volvo Trucks started to operate a financial services arm in India in November 2010.
With its Indian partner, Sri Equipment Finance Pvt Limited, a leading infrastructure
and construction equipment financing company, Volvo Financial Services India
leverages its partners market expertise to offer a wide range of financial programs
for its commercial trucks. Likewise, Daimler recently announced that it will be
establishing a subsidiary of Daimler Financial Services in India.
3.6.3 Contract hire/short-term rental

Mobility solutions will
become increasingly
popular in the commercial
vehicle market.
Innovative mobility solutions in the form of contract hire/short-term rental are also
playing an increasingly important role. For example, commercial vehicle providers
in Europe and the US offer individually structured mobility packages for commercial
vehicle operators. For instance, Mercedes Benz CharterWay, the international
commercial vehicle financial services, contract hire and fleet management arm of
Daimler AG, combines leasing or financing arrangements with a variety of addedvalue services in a single package based payment. CharterWay was founded in 1992
and has offered contract hire and rental services for commercial vehicles since 1998.
Essentially, such packages occur in three variants: Firstly, commercial vehicles can
be offered for short- to medium-term rental. This enables road hauliers to flexibly
increase their transport capacities for peak periods on an ad hoc basis, without
capital commitment or risk. In a more service-oriented approach, hauliers can
furthermore combine a needs-based bundle of services, sometimes including
maintenance and repair services. If necessary, this can include a replacement
vehicle by the service provider. In a third variant, such a short- to medium-term
mobility package can be expanded to a full-service contract including fuel cards,
insurance and fleet monitoring.
3.6.4 Used vehicle trade

Just like the used passenger car business, which is in many cases professionally
operated by car manufacturers, the used commercial vehicle market opens up
further revenue potentials for truck OEMs.
The used vehicle trade in

the commercial vehicle
sector has developed as an
attractive business model.
Many commercial vehicle OEMs already operate professional online commercial

vehicle exchange platforms, in which customers can search for suitable vehicles
worldwide according to price classes, vehicle age and kilometer reading, as
well as body and payload. For some manufacturers, the business involving used
commercial vehicles is operated similarly to the passenger car business under a
special used vehicle brand with a comprehensive concept.
3.6.5 Fleet management solutions and telematics

services
With fleet management solutions (FMS) and telematics services, large vehicle
fleets can be better controlled with respect to the economic efficiency and
optimization of logistical, informational and organizational processes. Technological
advances in communication and information technology are favoring the further
development of FMS because they have lowered the costs of implementing
systems, providing real-time control and information. To benefit from fleet
management services, network infrastructure has to be implemented on
a wide scale.
FMS in developing markets

trail behind due to lower
technology level and road
density.
In emerging markets many of these new services cannot be offered on a large

enough scale due to bad network coverage. Besides the lack of efficient IT
systems, the sheer size of China, India and Russia limits the implementation of
professional fleet management services. However, demand will increase as road
infrastructure improves, customer expectations rise and more sophisticated
IT networks develop. Today, one of the first global players engaging in fleet
management services in the emerging markets is General Motors. GM introduced
its Onstar in-vehicle security, communications, and diagnostics system for its
passenger vehicles in China, and will most probably expand its services to the
commercial vehicle domain.
The service portfolios of the various manufacturers generally include the following:
Services relating to vehicle management include, for example, deployment
analyses with driving style evaluation, trip recording, service plans and
condition inspections.
Reporting tools which offer the possibility of clearly laying out the extensive
telematics data for the addressee (management, vehicle fleet manager
or drivers).
Service management, including sending online data from the vehicle to the
service shop, for planning service schedules.
Transport management, such as tour planning and monitoring, shipment
tracking, order management, navigation, barcode scanners or digital signatures.
Other tools support, for example, commercial vehicle operators in complying
with legal requirements, such as logging drivers work and driving hours, or
temperature monitoring for cold goods.
In addition, some companies also offer training for vehicle fleet managers,
administrators and drivers.
In particular, sharply rising total costs of ownership are expected to boost demand
for these services in the years to come. Fleet management solutions, for instance,
offer vast opportunities to increase fleet fuel economy through telematics and
vehicle management (e.g. avoiding traffic congestion, efficient tour planning). In
addition, companies can use telematics to enhance driver productivity or maximize
cargo space by efficiently allocating fleet vehicles. To counteract rising repair and
maintenance costs, vehicle diagnostics and preventive maintenance tools can
also avoid engine and other core component failures, which can lead to significant
downtime and profit losses.
Focus on emerging
truck markets
All emerging markets are distinct
Although commercial vehicle markets in Russia, India and China are all growing,
there are key differences. All three emerging markets have distinct characteristics
which make them unique. Just to mention a few, China distinguishes itself through
its sharply fragmented company environment; the Indian market, on the other
hand, is largely consolidated among three very dominant local manufacturers. The
Russian market, meanwhile, is fairly Europeanized due to its relative proximity to
the European market.
Accessing any one of these markets will therefore require a highly-specific and
market-tailored strategy. In the course of this chapter all markets will be analyzed
according to the following key market elements:
market structure & development
competitive environment
market characteristics
globalization strategies.
Characteristics of different market elements in the emerging truck markets

EMERGING MARKETS
CHINA
MARKET
STRUCTURE &
DEVELOPMENT
COMPETITIVE
ENVIRONMENT
INDIA
RUSSIA
Role of domestic manufacturers in the

commercial vehicle market
Impact of market cyclicality on domestic truck
market sales and production
Degree of market consolidation
Competitive abilities of domestic vs. foreign truck
manufacturers
Customer demand for more sophisticated
commercial vehicles
MARKET
CHARACTERISTICS
Influence of Total Cost of Ownership on truck

customers purchase decision
Demand for added-value services (e.g. car
maintenance, repair services)
Importance of fleet management solutions
and telematics services
GLOBALIZATION
STRATEGIES
Key:
no impact
Interest of global OEMs entering the domestic

market
Competitive abilities of emerging OEMs to
succeed on the global truck market
very low/weak
low/weak
high/strong
very high/strong
China | 37
4.1 China
4.1.1 Market structure & development
Chinas commercial vehicle market achieves consistently high
growth with less sophisticated trucks
China the largest commercial vehicle market in the world since 2009 is
still characterized by trucks with a relatively low level of technical maturity. It is
dominated by a few large state-owned and some very small local manufacturers,
accounting for around 98 percent of both domestic sales and production, with
very slow consolidation. Until today the opportunities for global foreign truck
manufacturers were mostly in a few highly-specialized niches, because competing
with domestic manufacturers in the low-cost segment remains challenging.
Technical standards and prices are still relatively low, since low transport costs are
one of the most important drivers of the Chinese economy.
The Chinese market has experienced consistently high growth in recent years.
The strong growth of the overall economy in the last decade acted as the primary
engine. In particular, the market for light commercial vehicles was not negatively
affected by the worldwide financial and economic crisis or by the slight decline of
GDP in 2008/2009. Instead, it posted an outright increase from around 2.9 million
units to around 4.3 million units almost a 50 percent increase within 12 months.
Of course, the governments stimulus package for the truck industry helped maintain
growth during these years of crisis. Overall, new registrations of light commercial
vehicles have approximately doubled within three years (2007 to 2010). The demand
for light and cost-effective commercial vehicles for inner city delivery traffic and
public transport should be another catalyst for continued growth in this segment.
Although there was a slight decline in 2008, Chinese sales of heavy trucks (over 6
tons) suffered only slightly from the global downturn compared to the Triad markets
and other emerging markets such as India and Russia. Even then, the market
recovered briskly. In 2010 commercial vehicles sales passed the one million mark
for the first time, thanks not least to the booming Chinese construction sector.
Since 2006 the domestic truck production has constantly

exceeded the domestic sales volume
Interestingly, Chinas domestic production volumes consistently exceeded
commercial vehicle sales between 2006-2010. Forecasts show that this will remain
the case for the next few years, too. Furthermore, current export volumes of
domestic Chinese manufacturers are negligible. Dongfeng, for instance, exported
as few as 2,000 of the 300,000 heavy trucks it produced in 2010. It is clear that any
further increase in production capacity could actually lead to overcapacity if current
growth patterns cannot be maintained.
Domestic vs. foreign sales

and production
2.1%
Sales
2010
97.9%
Domestic
Foreign
1.8%
Production
2010
98.2%
Domestic
Foreign
Light commercial vehicles

dominate the Chinese
truck market and are
posting steady growth.
Sales and production in the Chinese commercial vehicle market (2006 2011) (in thousands)
Sales vs. GDP growth
Production vs. GDP growth
8,000
7,000
6,816
6,934
6,000
1,452
1,381
16%
8,000
14%
7,000
12%
6,000
16%
988
4,000
3,000
3,510
2,991
831
3,707
820
611
4,307
5,364
10%
5,000
8%
4,000
6%
3,000
5,553
2,000
4%
2,381
2,679
LCV (< 6t)
2008
HCV (> 6t)
2009
1,374
3,534
3,006
2010
GDP growth (real)
2011f
2%
1,000
0%
12%
8%
3,763
857
834
14%
10%
1,033
6%
605
4,411
5,460
5,559
4%
2,401
0
2007
1,460
2,000
2,887
1,000
2006
6,933
5,444
5,296
5,000
6,921
2,701
2,906
2%
0%
2006
LCV (< 6t)
2007
2008
HCV (> 6t)
2009
2010
2011f
GDP growth (real)
Source: IHS Automotive, Deutsche Bank Research, KPMG International
4.1.2 Competitive Environment

State-owned manufacturers
clearly lead the Chinese
commercial vehicle
market.
State-owned manufacturers are in intense competition with

one another
The largest commercial vehicle group in the Chinese market is the state-owned
Changan Automobile Group. Interestingly, in contrast to its competitors, Changan
is only active in the market for light commercial vehicles. It is closely followed by
the full-line manufacturer Shanghai Automotive Industry Corporation (SAIC). Both
sold more than one million commercial vehicles in 2010. The Dongfeng Motor
Corporation, Beijing Automotive Industry Corporation (BAIC) and First Automobile
Works (FAW) sold over half a million vehicles in the same year.
Brilliance China Automotive, Anhui Jianghuai and Jiangling Motors are also among
the top 10, but only represented in the market for light commercial vehicles. On the
other hand, the China National Heavy Duty Truck Company (CNHTC) and the Torch
Automotive Group, whose heavy trucks are distributed under the name Shaanxi
Automotive, specialize in heavy trucks.
China | 39
The growth rates of most of these manufacturers (15 to 60 percent in the last year
alone) are extremely high compared to worldwide growth levels. In particular,
CNHTC and Torch saw sales increase by more than 70 percent in 2010. Even the
larger commercial vehicle groups were able to impressively increase their sales
between 2009 to 2010, with growth rates generally exceeding 10 percent.
In terms of branding strategies, the leading Chinese full-line manufacturers SAIC,
BAIC and FAW increasingly rely on separate brands for each segment they serve.
Accordingly, the Beijing Automotive Industry Corporation is present with Auman
and EuroV in the heavy segment, while it serves the light segment with its Foton
brand. In contrast, companies solely active in one commercial vehicle segment
such as Torch, CNHTC (both HCV) or Jianghuai and Jiangling (both LCV) do not have
multiple brands in their portfolios.
Market share and market growth of the 10 largest commercial vehicle groups*
20%
SAIC 1,2,3
1.187
18%
1
2
3
4
5
CHANGAN 2,3,4
1.191
16%
Market Share CY 2010
14%
BAIC 1,2,3
728
Full-line manufacturer
Multi-brand manufacturer
Domestic manufacturer
LCV manufacturer
HCV manufacturer
DONGFENG 1,3
905
12%
10%
FAW 1,2,3
531
8%
BRILLIANCE-JINBEI 3,4
263
6%
4%
JIANGHUAI 3,4
195
2%
CNHTC 3,5
200
JIANGLING 3,4
124
TORCH 3,5
113
0%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Growth CY09 vs. CY10

* Light commercial vehicles up to six tons + heavy commercial vehicles over six tons
Bubble size = sales volume CY10 (in thousands)

CY = calendar year
The market for light commercial vehicles is particularly strong

The market for commercial vehicles weighing less than six tons is dominated by
four brands with a combined market share of close to 60 percent. With its Wuling
brand, SGMW (Shanghai General Motors Wuling), a joint enterprise of General
Motors and the SAIC Group, is the undisputed market leader, with a market share
of over 20 percent. This is largely attributable to its minibuses and mini-pickups.
Its largest competitor, Changan, holds a 17 percent market share. A further
20 percent of the market is split among a number of other manufacturers with
relatively small market shares.
Top 10: New light commercial vehicle sales by brands (in thousands)
Brand (Group)
2006
2007
2008
2009
2010
Wuling (SGMW/SAIC/GM)
420
520
610
1,005
1,150
Changan
344
363
383
705
899
Dongfeng
200
245
301
427
605
Foton (BAIC)
302
335
343
500
562
Jinbei (Brilliance-Jinbei)
113
138
146
169
263
Jianghuai
111
125
117
148
195
Hafei (Changan)
166
164
145
211
193
FAW
132
126
142
195
190
Jiangling
59
64
66
79
124
Yuejin (Nanjing Automotive)
51
45
41
55
107
YoY increase
YoY decrease
Source: IHS Automotive
Dongfeng and FAW are competing head-to-head for market

dominance in heavy commercial vehicles
In heavy commercial vehicles, the two state-owned manufacturers, Dongfeng
Motor (market share of around 21 percent) and FAW (market share around
19 percent), are the market leaders.
Growth in this sector has been strong, particularly in 2010. Two other competing
makes, CNHTC and Auman, have made particular progress in recent years. CNHTC
nearly quadrupled its unit sales between 2006 and 2010. Similarly, Auman, a medium
and heavy truck brand belonging to Beiqi Foton Motor (which in turn belongs to
BAIC), increased its unit sales by approximately threefold over the same period.
Top 10: New heavy commercial vehicle sales by brands (in thousands)
Brand (Group)
2006
2007
2008
2009
2010
Dongfeng
145
180
175
193
299
FAW
130
164
157
181
273
CNHTC
54
85
96
116
200
Shaanxi Automotive (Torch)
43
68
55
62
113
Auman (Foton/BAIC)
36
63
60
85
104
Anhui Jianghuai
27
33
29
48
62
North Benz
10
15
23
26
46
Sichuan Nanjun
17
20
26
35
Chongqing Hongyan (SAIC)
18
24
22
20
33
King Long
10
13
15
22
31
YoY increase
YoY decrease
China | 41
BEIQI FOTON
Interview with Shen Yang,
Senior Director of Strategy and Development at
Beiqi Foton Motor Co., Ltd. (China)
Chinese brands will be successful
The Chinese auto industry will reach maturity over the
coming decades, according to Shen Yang, senior director of
strategy and development at Beiqi Foton Motor Company.
Moreover, he believes the affordability of locally-produced
trucks will keep the domestic market healthy. In the
commercial sector, buyers are interested in value for
money, and generally Chinese brands cost one-third to
one-half as much as foreign makes, says Shen.
Foreign truck manufacturers, he notes, are hindered with
larger R&D and manufacturing expenses, as well as rigid
cost structures. Because of these higher costs, I dont
think foreign OEMs will be able to take much market share
from domestic manufacturers, says Shen.
The commercial market is where Shen sees Foton
continuing to prosper. We have a very powerful brand
in commercial vehicles, he says. But that doesnt
necessarily translate to passenger vehicles, where we lack
a recognized image.
Shen remains skeptical about the prospects of further
government aid to strengthen the position of domestic
manufacturers. Market demand will continue to drive
the industry and value-for-money will continue to drive
market demand.
Chinese trucks are designed to cope with overload

capability, allowing businesses to transport more goods
per journey than regulations allow which has a positive
economic impact for the customer. Its this understanding
of local needs that give domestic OEMs an advantage over
foreign developers.
Emissions levels will become increasingly relevant
because of their link to vehicle efficiency and fuel economy,
but Shen sees no prospects for hybrid power train systems
in the truck sector. Safety features will also continue to
occupy a low place on the priority list, mirroring their
minimal influence in the passenger vehicle sector.
Shen is optimistic about Fotons ability to penetrate
foreign markets. Last year, the company unveiled its
5+3+1 strategy: localize manufacturing in 5 fast-growing
countries - India, Brazil, Mexico, Russia, and Thailand;
launch business in 3 developed regions - Europe, North
America, and Japan; with the 1 symbolizing a plan to crack
the domestic passenger vehicle market by the middle of
the decade.
In terms of financial and technical capability, Shen believes
Foton is more than ready to embark on these ambitious
plans. Foton entered Mexico years ago by partnering with a
local distributor. This contrasts with similar failed attempts
by rival manufacturers. Certain manufacturers are shortsighted, says Shen. Entering a new market successfully
is a long term strategy. You must make calculations not for
one year, but for five or ten years. Companies can only do
this if they are able to combine an entrepreneurial spirit
with serious commitment.
4.1.3 Market characteristics

CUSTOMER
REQUIREMENTS
Main challenge for foreign manufacturers is the Chinese

customers low-cost focus
The Chinese market is characterized by less sophisticated vehicle technology
and compared to Western standards considerably lower customer expectations.
Chinese customer demands for commercial vehicles focus mainly on functionality
and purchase costs. Quality and safety standards are of little importance compared
to Western Europe, for instance. Nevertheless, a slow shift towards appreciating
total cost of ownership is looming, since not even China can avoid the global rise in
fuel costs and wages.
For cost and benefit reasons, the demand for alternative fuel technologies in China
is still relatively low. Only larger metropolitan areas such as Beijing or Shanghai
provide tax subsidies for purchasing environmentally-friendly commercial vehicles.
One specific customer demand that has to be considered, however, is the tendency
of Chinese commercial vehicle operators to drastically overload their trucks. Foreign
commercial vehicle manufacturers must therefore take into account that their
vehicles will have to bear a higher payload than originally intended.
TOTAL COST OF
OWNERSHIP
The initial purchase price is still prioritized over the lifecycle

costs of a truck
Until now, investment decisions of Chinese truck buyers have been only marginally
influenced by the follow-up costs of truck purchases. For a long time, operating
costs such as fuel, insurance, maintenance and wages had almost no impact on the
economic decisions of Chinese truck owners.
The government generally

follows a cautious
approach to keep fuel
prices low level in favor of
domestic consumers, but
it will have to raise fuel
prices to contain inflation.
ADDED-VALUE
SERVICES
However, experts predict this will change in the future, as additional costs for trucks
increase due to the enormous growth of the Chinese industry itself. For instance,
recent demands for wage hikes are unlikely to be a short term phenomenon, and
wages are likely to rise more rapidly in the years to come. According to the National
Bureau of Statistics of China, the average wage of employed people has already
experienced a compound annual growth rate of almost 15 percent in the first
decade of this millennium. In metropolitan areas like Beijing or Shanghai, wages are
almost twice as high as the national average.
With this and state-set diesel prices at a record high due to rising global oil prices,
truck operators profits are consistently shrinking. Considering the total lifetime
costs of a truck will therefore become more important for Chinese truck buyers.
Chinese truck customers will increasingly demand

an extensive service network as the road infrastructure
is rapidly developing
In terms of traffic in tons per kilometer, road freight transport has seen enormous
growth over the last 10 years, mostly because the Chinese government has
been strongly committed to road construction. Between 2000 and 2010 the
length of national highways grew by an impressive 2.5 million kilometers. The
current four million kilometers is therefore certain to expand further. By 2020,
the expressways primarily for inner- and inter-city traffic will also grow from
55,000 km to 85,000 km. Additionally, the Chinese government recently eliminated
tolls for secondary highways. These and similar developments will help to achieve
continuously strong growth in the road transport of goods.
In contrast, the share of freight transport by rail declined dramatically over the last
decade. In 2000, the transport of goods via train accounted for as much as
70 percent of total freight traffic. By 2010 it had dropped to less than 40 percent. In
absolute terms, rail freight still grew by more than one billion tons per km, but it was
overshadowed by the phenomenal growth in road freight, which exploded from
China | 43
Freight traffic in China

Traffic in million tons km
2000
2004
2005
2006
2007
2008
2009
2010
612,940
784,090
869,320
975,425
1,135,469
3,286,819
3,718,882
4,300,543
30.7%
28.8%
29.5%
30.7%
32.2%
56.6%
59.5%
60.7%
1,377,050
1,928,880
2,072,600
2,195,441
2,379,700
2,510,628
2,523,917
2,764,413
Total share
69.0%
70.9%
70.3%
69.0%
67.5%
43.2%
40.3%
39.0%
Transport of Goods by Air
5,027
7,180
7,890
9,428
11,639
11,960
12,623
17,660
1,995,017
2,720,150
2,949,810
3,180,294
3,526,808
5,809,407
6,255,422
7,082,616
Transport of Goods by Road

Total share
Transport of Goods by Railway
Total Traffic
YoY increase
YoY decrease
Source: BRICS Joint Statistical Publication 2011, National Bureau of Statistics of China
612 million tons per km to more than four billion in 2010. Although Chinas 12th
Five-Year Plan details an extension of the nationwide railway operational mileage
to roughly 120,000 kilometers, a Chinese commercial vehicle market expert
believes that rail will most likely only be a serious alternative for medium and heavy
commercial vehicles on the densely populated east coast:
In terms of commercial vehicle segments,

the rail network, especially on the east
coast, is a viable alternative to medium and
heavy trucks. But LCVs predominantly used
to serve rural areas with smaller goods will
not be affected too much.
George Kapitelli, Vice President, SAIC GM Wuling Automobile Co., Ltd. (SGMW) (China)
In the end, improving roads will ultimately lead to longer freight transport distances.
An extensive network of servicing stations for repairs and maintenance will
therefore become increasingly important for the success of commercial vehicle
manufacturers in China.
Fleet management services are largely restricted to

metropolitan areas and business hubs such as Beijing
and Shanghai
An extensive servicing
network will be a critical
success factor for truck
manufacturers in China.
FLEET MANAGEMENT
Since the 2008 Olympic Games and the World Expo in 2010, commercial vehicle
customers in international business hubs like Beijing and Shanghai have become
increasingly interested in fleet management services and GPS-enabled network
logistics systems. Rural areas are unlikely to see much growth in this respect,
because the critical mass of commercial vehicles needed to operate profitably will
not be reached in the foreseeable future.
Over recent years, since the majority of their global clients have investments in
China, an increasing number of international players have begun offering fleet
management solutions in China. One of the biggest auto-leasing companies in
Europe, ALD Automotive, is already operating a Shanghai-based joint venture with
Chinas leading steelmaker, Baosteel Group. The venture is aiming for a fleet of
10,000 vehicles by 2014.4
SocGen, Baosteel forms China auto-leasing venture, Reuters, 2009
4.1.4 Globalization strategies

MARKET ENTRY STRATEGIES
FOR GLOBAL OEMs
Market entry for global manufacturers is only possible through

highly regulated joint ventures
Market entry for foreign commercial vehicle manufacturers is substantially more
difficult than in the passenger car sector, where prestigious Western brands can
achieve a significant price premium over domestic vehicles. Foreign OEMs are
limited to two joint ventures in the passenger and commercial vehicle sector in
China, with a maximum of a 50 percent share in a joint venture. The joint venture
must involve the establishment of a research and development institution in the
country for a minimum of 500 million Yuan. The 50 percent share can be increased
if a production site is constructed in China for a minimum of two billion Yuan.
However, if the joint venture operates more than one brand and 30 sales offices,
the Chinese joint venture partner remains the controlling partner. Interestingly, joint
ventures are not required for companies solely focusing on exports. For setting up a
purely export-oriented venture on Chinese soil, foreign companies only need obtain
a State Council approval.
In the domestic truck market, the Chinese government is not expected to
strengthen current barriers to entry, since local manufacturers already dominate the
market. Nevertheless, the tariff-based barriers to entry are substantially higher than
in India or Russia.
The commercial vehicle business in China is clearly

dominated by local manufacturers, so its not like they
need additional support.
George Kapitelli, Vice President, SAIC GM Wuling Automobile Co., Ltd. (SGMW) (China)
The Chinese government is attempting to increase

local content
Market entrants must
comply with the rigorous
requirements of the
Chinese regulatory
environment.
A company must comply with rigid local content provisions to operate in China.
A maximum of 60 percent of the key parts of a vehicle produced in China can be
imported; the remainder must be procured from local suppliers. If the foreign
portion exceeds 60 percent, a customs duty is imposed at the rate for imported
parts, substantially higher than the rate for motor vehicle parts.
After joining the WTO, the Chinese government reduced import customs duties on
vehicles from 80 percent in 2001 to 25 percent by 2006 (motor vehicle parts:
10 percent), and all import quotas were abolished in 2005. In addition, every company
registered as a foreign vehicle producer automatically receives an import license.
Western commercial vehicle manufacturers are investing

heavily in joint ventures
Volvo, Daimler, MAN and

GM maintain commercial
vehicle joint ventures in
China.
A large number of commercial vehicle manufacturers in China have formed joint

ventures. In 2000, for example, Volvo formed a joint venture with China National
Heavy Duty Truck Corporation (CNHTC), producing trucks under the name of Jinan
Huawo Truck Corporation. Daimler agreed to enter into a joint venture with BAICs
subsidiary Beiqi Foton in 2008.
In 2009, German-based MAN invested in the Chinese state-owned enterprise
Sinotruk. MAN holds an equity interest of 25 percent plus one share in the CNHTC
Group affiliate, a manufacturer of heavy trucks in China. The two partners will jointly
China | 45
develop a new truck series based on MAN technology. Sinotruk will distribute the
trucks in China, while MAN will receive the exclusive distribution rights for export.
GM has operated in the commercial vehicle sector since 2002. The joint venture
with Chinese partners Shanghai Automotive Industry Corporation (SAIC) and
Liuzhou Wuling Motors is called SGMW (SAIC General Motors Wuling). Whereas
Daimler, MAN and Volvo are focused on medium to heavy commercial vehicles,
SGMW has focused with great success on light commercial vehicles, such as small
vans and buses. With the exception of SGMW, which is a market leader in light
commercial vehicles, none of the foreign OEMs joint enterprises have been able
to develop a significant market position to date. In fact, few co-operation efforts will
lead to significant output, as long as Chinese customers remain unwilling to pay a
substantial price premium for a Chinese truck equipped with a Western engine.
It is not only Western manufacturers who are showing an increased interest in
producing commercial vehicles in China. The South Korean Hyundai Motor Group
recently announced its plan to create a 50:50 commercial vehicle joint venture with
Sichuan Nanjun, a Chinese company which produces mainly trucks, buses and auto
parts. The joint venture, Sichuan Hyundai Motor Company, is aiming for an annual
production capacity of 160,000 commercial vehicles (150,000 trucks and 10,000
buses) by 2013.
Foreign manufacturers only fill the market niche for

highly-specialized trucks but competing in the low-cost
segment will ultimately determine future success
In the heavy truck segment, Chinese manufacturers are unable to fully meet
customer demands. Therefore, foreign OEMs identify considerable potential
in specialized areas, such as the transport of hazardous goods or construction,
where reliability and stability are crucial. Conversely, in the low-cost segment, it is
extremely difficult for Western brands to compete on price, even with established
non-Chinese manufacturers such as Hino (a Toyota brand) from Japan. These
manufacturers already have a well-developed market position and their products
serve a premium segment at substantially lower prices. A premium segment at
Western levels will probably develop in major Chinese metropolitan centers with
large professional fleet operators, and in the light commercial vehicle segment.
Western manufacturers
must cut costs and offer
substantially cheaper
trucks to succeed in
the Chinese low-cost
segment.
Buyers are interested in value for money, and

generally Chinese brands cost one-third to one-half as
much as foreign makes. A Mercedes-Benz Actros, for
example, can be three-times as expensive as a Foton
Auman truck. From a total cost of ownership point of
view, there is no reason for ordinary Chinese customers
to buy a Western truck.
Shen Yang, Senior Director of Strategy and Development, Beiqi Foton Motor Co., Ltd. (China)
GLOBALIZATION EFFORTS
BY EMERGING OEMs
Chinese commercial vehicle manufacturers plan to expand

their export activities
Chinese manufacturers have shown relatively little interest in exports, largely
because domestic demand has exceeded production for many years. Recently,
however, several companies have set their sights on world markets. Until 2015 it
is predicted that one in every five trucks manufactured in China is made for export.
Based on todays production volumes, this would mean an overwhelming export
volume of more than 1 million units per year by then.
Preferred export regions

include Brazil, Mexico,
India, Russia, Southeast
Asia and African countries.
Earlier attempts by Chinese manufacturers to act alone in foreign markets have

met with little success, even within similarly developing markets. Preferred export
nations currently include Brazil, India, Mexico and Russia, as well as Southeast Asia
and several countries in Africa. Exported unit figures remain extremely low. For
example, Beiqi Foton sold only around 10,000 units in South America (Columbia,
Peru), North Africa (Egypt), the Middle East and neighboring Asian countries in 2010.
Establishing service networks and adapting to differing national needs have so far
proved insurmountable hurdles. In addition to partnerships with established players,
Chinese OEMs must rely on extremely competitive prices, because they cannot yet
compete in terms of modern diesel technology, safety and quality standards.
Firstly, we will try to compete on price in foreign

markets. In a second step, we also intend to improve
our service quality. Compared to quality or safety
improvements, for instance, better service can be
implemented quite quickly at relatively low cost but
with very high value for customers.
Shen Yang, Senior Director of Strategy and Development, Beiqi Foton Motor Co., Ltd. (China)
It could take one

or two cycles for
them to compete
fully, but we should
not underestimate
them [Chinese OEMs]
in any way.
Dee Kapur, President of the Truck Group,
Chinese truck manufacturer First Automobile Works (FAW) attempt to crack the
Mexican market is a prominent example of a less successful globalization attempt.
In 2007, FAW signed a joint venture with Mexican Grupo Salinas, initially to import
Chinese trucks. Later, the construction of the joint ventures own plant in Southern
Mexico was planned, which would also have served Latin America. Mexicos
membership of NAFTA would also have eased entry into the US market.
However, the joint venture faltered because the demands on foreign OEMs
(investment in a factory of at least $100m, with an output of at least 50,000 vehicles
annually) were unrealistic given an expected sales volume of only 5,000 units.
Conversely, FAWs Chinese competitor, Foton, launched an investment in Mexico
in mid-2010 and announced the construction of a factory with a volume of at least
50,000 units. The primary plan is to produce light commercial vehicles for the local,
US and South American market. For Foton, this project triggers a broad globalization
program including planned plants in Brazil, India, Thailand and Russia with the
goal of becoming the worlds largest commercial vehicle manufacturer by 2020.
As a next step, Foton recently signed a memorandum of understanding to build an
assembly plant in Maharashtra, India. The company plans to build trucks, buses,
pickups, SUVs and minivans.5
Chinese commercial vehicle maker plans India plant, Automotive News China, 2011
China | 47
SGMW
Interview with George Kapitelli,
Vice President at SAIC GM
Wuling Automobile Co., Ltd.
(SGMW) (China)
Successful strategies for

entering foreign markets
The Chinese truck industry is at a
turning point, driven by growing
domestic affluence, the rise of
environmental issues, and foreign
partnerships. Thats the view of SGMW
vice president George Kapitelli.
As the countrys economy continues
to grow, more Chinese truck
manufacturers are exploring foreign
markets. Recognizing the potential
of these expanding horizons, the
Chinese government is supporting
consolidation, encouraging firms
to develop economies of scale,
generate synergies and grow their
capabilities.
Commenting on his companys
partnership with General Motors,
Kapitelli says the benefits of the joint
venture (JV) have been significant.
When the JV was formed in 2002,
SGMW was a small Mini Commercial
Vehicle (MCV) manufacturer and
predominately a regional player
selling close to 150,000 units with
a market share of 18.8 percent. If you
look at 2010, the MCV share was at
40 percent and sales exceeded 1.2 million

vehicles. Thats significant growth.
The JV structure added value in
terms of technology, management
strategy, staff development and
operational processes. Kapitelli says
tactical JVs can also ease access into
foreign markets for domestic Chinese
manufacturers.
Under GMs widely-recognized
Chevrolet banner, SGMW has already
begun distributing its vehicles to new
markets such as South America, North
Africa, and the Middle East. Kapitelli
believes Chinese manufacturers will
become significant global players within
10 to 15 years, emulating their Korean
and Japanese counterparts in the
1970s and 1980s.
Attractiveness of the
passenger car market for
a light commercial vehicle
producer
The low cost of locally-manufactured
commercial vehicles means the
domestic industry can still hold its own
against foreign imports, accounting for
more than 90 percent of the market. In
contrast, private passenger vehicles in
China are being increasingly squeezed
by international rivals, with local
manufacturers only claiming one-third
of sales.
On the environmental side, Kapitelli

says the government is dedicated to
raising the emissions standards of
Chinese vehicles to match Western
levels. At the same time, Chinese
consumers are becoming more
environmentally aware, and now
have greater expectations of auto
manufacturers.
The demand for greener vehicles
was further boosted in 2010 with the
introduction of a new grant for buyers
of fuel-efficient vehicles, which can
reduce the net purchase price by 510
percent for a low-end passenger car.
The passenger vehicle market is one
SGMW plans to target aggressively.
Its forthcoming Baojun 630 sedan is
set to complement the companys
current Lechi mini-car, and additional
releases are expected across the
passenger car range.
Kapitelli believes SGMWs experience
in the commercial market has set
a solid foundation to exploit the
passenger sector. He expects shared
knowledge, in terms of production
skills and sales strategies will help
stimulate both sides of the business.
A trend towards diversification of
this kind is already emerging. Chery,
for example, hit the headlines when
it launched a series of minivans and
pickups under the Karry brand.
4.2 India

and production
The Indian truck market, dominated by local manufacturers,

is still developing its product offerings from a technology
standpoint
9.2%
As in China, low-cost trucks dominate the Indian market. However, India has
been subject to slightly stronger fluctuations in terms of commercial vehicle
development. One peculiarity of the Indian market structure is the high percentage
of light trucks, which visibly dominate the streetscapes of major Indian cities.
Sales
2010
90.8%
Domestic
Foreign
8.0%
Production
2010
92.0%
Domestic
Foreign
Five Indian manufacturers

share 90 percent of the
Indian truck market.
The Indian market is already largely consolidated, with a 90 percent market

share split between only a few local manufacturers. This results in an extremely
small selection of potential cooperation partners for Western manufacturers.
Nevertheless, foreign manufacturers produce just under 10 percent of the
commercial vehicles on Indian soil.
As in China, the Indian segment for heavy trucks was more heavily affected by
the financial crisis than light commercial vehicles, with declines posted in 2008
and 2009 on both the sales and production side. Since this decline, during which
GDP growth fell to around six percent, Indias economy has rallied, with economic
growth of about nine percent. Recovery in the construction and agricultural sectors
has further increased the demand for heavy trucks. Since the service sector also
posted a particularly strong growth, due to an increasingly organized retail sector
and higher spending, the demand for light commercial vehicles rose to an all-time
high in 2010.
From 2007 to 2010, the market in India for medium and heavy trucks increased by
more than 15 percent, with light commercial vehicles up 57 percent. Bus demand
has also soared as the most popular means of transportation in large inner
cities, as opposed to the train and subway connections for Chinas metropolitan
commuters.
Looking at recent sales and production volumes, India is as prone to overcapacity
as China. In fact, Indias commercial vehicle production exceeded domestic sales
between 20062010 and is expected to continue to do so between 20112012.
Sales and production in the Indian commercial vehicle market (2006 2011) (in thousands)

12% 1,400
1,400
1,173
1,200
800
600
641
267
704
273
669
225
728
374
2006
LCV (< 6t)
431
445
526
2007
2008
2009
HCV (> 6t)
318
383
8%
6%
676
2010
GDP growth (real)
790
2011f
4%
1,073
1,000
800
202
400
200
10% 1,200
994
1,000
1,264
600
700
283
786
295
714
247
200
0%
844
491
467
538
2006
2007
2008
2009
LCV (< 6t)
HCV (> 6t)
6%
203
416
10%
8%
341
741
400
2%
419
12%
732
4%
2%
2010
2011f
0%
GDP growth (real)
India | 49
4.2.2 Competitive environment

Tata Motors tops the market for both light and heavy
commercial vehicles
With a market share of nearly 50 percent, Tata Motors underscored its top position
in 2010 as the largest provider and market leader across all commercial vehicle
segments. Tata sold over 12.000 units more in the light truck segment than the
Mahindra & Mahindra Group and more than three times as many trucks over 6 tons
as its closest heavy duty segment competitor, Ashok Leyland.
Tata gained renown in Europe after its acquisition of Jaguar and Land Rover in 2008,
as well as the production of the ultra-low-cost Tata Nano car. Apart from Tata Motors
and Mahindra, the substantially smaller manufacturer groups Eicher Motors (market
share: ~4 percent) and Force Motors (market share: ~3 percent) also offer both light
and heavy commercial vehicles domestically.
Tata Motors is trailed

by some distance by
Mahindra in the LCV
segment and Ashok
Leyland in the HCV
segment.
60%
1
2
3
4
5
TATA MOTORS1,3
472,709
50%
40%
MAHINDRA &
MAHINDRA1,3
271,878
30%
20%
10%
ASHOK
LEYLAND3,5
79,696
TOYOTA1,2
51,324
GM1,2
18,449
PIAGGIO4
9,553
-10%
LCV manufacturer
HCV manufacturer
10%
SWARAJ
MAZDA3,5
7,142
30%
50%
FORCE
MOTORS1,3
29,970
EICHER
MOTORS1,3
35,464
70%
ASIA
MOTOR
WORKS3,5
6,074
90%
110%
130%

*Light commercial vehicles up to six tons + heavy commercial vehicles over six tons
Bubble size = sales volume CY10

CY = calender year
Heavy duty specialist Ashok Leyland will also be able to cover the light commercial
segment by the end of this year. The Chennai-based OEM agreed to build its first
light commercial vehicle, the Ashok Leyland DOST, in a 50:50 joint venture with the
Japanese Nissan Motor Company. The start of production in Ashok Leylands Hosur
manufacturing plant is planned for the second quarter of FY 2011-2012.6
Only three foreign

manufacturers (Toyota,
GM and Piaggio) are in the
top 10 in India.
Although the Indian market is largely locally dominated, unlike China there are
at least a few foreign manufacturers, such as Toyota, GM and Piaggio, which
have been able to claim a place among the countrys ten largest commercial
vehicle manufacturers.7Since the Indian market opened up in the early 1990s,
the most successful foreign manufacturer has been Toyota. The Japanese global
market leader has already achieved third place in the market for light commercial
vehicles (including MPVs); however, in the market for heavy trucks, Toyota is only
represented in extremely small unit quantities with its Hino brand.
Growth rates are high among almost all manufacturers from 2009 to 2010, with
some well in excess of 20 percent. With a percentage growth of nearly 90 percent,
Ashok Leyland, specializing in heavy-load vehicles, made the largest jump. Only
the European Piaggio Group, a manufacturer of predominantly three-wheeled light
commercial vehicles, faced a decline, falling five percent after a relatively successful
market entry in 2007. Despite the continuing low-cost focus, this can be blamed
on a slight sophistication of the commercial vehicle market in India which should
continue over the next few years.
Few commercial vehicle manufacturers in India follow

multi-brand strategies
Because of the low-level of development within the Indian market, local truck
manufacturers avoid using different brand names. Compared to China, where
several leading manufacturers have already introduced multiple brands, even fullline manufacturers Tata, Eicher and Force Motors, despite their activities in both
market segments, choose not to differentiate their products in terms of brand
strategy. Only Toyota is represented in the heavy truck segment with its own global
brand, Hino. With the introduction of its own Indian brand, BharatBenz, Daimler
is treading a new path in this market and plans to significantly increase its market
share with its localized brand.
Top 10: New light commercial vehicle sales by brands

Brand (Group)
2006
2007
2008
2009
2010
Tata Motors
164,024
181,567
205,497
220,243
284,049
Mahindra & Mahindra
121,179
151,078
141,969
215,414
271,631
Toyota
40,184
46,527
44,069
42,003
51,304
Force Motors
11,058
10,950
15,118
14,100
23,949
Chevrolet (GM)
21,297
21,866
15,617
13,321
18,449
2,575
9,599
10,008
9,553
Piaggio
Eicher Motors
6,860
6,219
4,032
4,696
7,243
Maruti (Suzuki)
3,443
3,037
6,102
4,867
5,697
Premier
3,093
Sonalika
4,425
7,195
2,888
1,398
707
YoY increase
YoY decrease
6
7
Ashok Leyland-Nissan JV unveil first LCV model, BharatAutos.com, 2011

Please note: Indian LCV sales figures in this report also include Medium Passenger Vehicles (MPVs), General Motors and
Toyota largely sell MPVs in India, which are primarily passenger vehicles, but can also be used for commercial purposes and
are therefore included
India | 51
Top10: New heavy commercial vehicle sales by brands

Brand (Group)
Tata Motors
2006
2007
2008
2009
2010
164,873
165,892
134,158
128,101
188,660
Ashok Leyland
72,874
72,924
61,512
42,529
79,696
Eicher Motors
18,036
21,870
16,082
16,903
28,221
Swaraj Mazda
10,315
10,951
8,189
4,954
7,142
Asia Motor Works
1,959
3,319
6,074
Force Motors
4,268
6,021
Volvo Trucks
858
1,031
1,270
1,444
1,663
Mahindra & Mahindra
247
Mercedes-Benz (Daimler)
205
230
165
Scania (VW)
135
112
165
YoY increase
YoY decrease
The Indian market will continue to show strong growth in the

coming years
Two factors assure rising demand for commercial vehicles and, in particular, for
heavy trucks in India. The construction sector will continue to experience dynamic
growth, and the road network will be substantially improved. Already, the Indian
government has introduced a state program for upgrading and building roads and
strengthening harbor connections. National highways, which comprise only about
2 percent of the road network but carry 40 percent of the traffic, will be particularly
important. By connecting more rural areas to the road network, the need for
commercial vehicles outside large metropolitan areas will rise.
A booming construction
sector and large-scale
infrastructure programs
promise great growth
potential.

Stricter emission standards will lead to a slight increase
in technological sophistication
CUSTOMER
REQUIREMENTS
Just like in China and Russia, technological demands in India will slowly rise
to meet a tightening of environmental legislation. However, in contrast to its
emerging markets peers Indias plans to restrict emissions are not as advanced,
while China and Russia plan to implement nationwide Euro V equivalent norms
until 2012 and 2014 respectively. Despite the introduction of Euro IV equivalent
measures in the National Capital Region of Delhi and other 11 metropolitan areas,
India has not announced any further nationwide measures above Bharat Stage
III (Euro III) until today (see p. 20). To keep up with technically more experienced
foreign manufacturers, local manufacturers will increasingly have to offer vehicles
compliant with Euro IV-equivalent emissions limits - at least in the National Capital
Region and other metropolitan areas like Chennai, Mumbai and Kolkata. This slightly
increasing regulatory stringency will slowly but steady force the technological
development of Indian manufacturers.
In 2010, we saw many cities moving from Euro III to

Euro IV and the rest of the country going from Euro II
to Euro III. Emissions standards are an area where we
clearly have to advance and be better prepared.
Ravi Pisharody, President (Commercial Vehicle Business Unit), Tata Motors Ltd. (India)
Market leader Tata is already experimenting with a series of hybrid buses in Delhi
and Mumbai. Without considerable subsidies from the Indian government, however,
such field tests as in the Western markets will not initially find wider acceptance.
TOTAL COST OF
OWNERSHIP
Although India is clearly a low-cost truck market, some

customer segments already think about follow-up costs
Indian customers are gradually coming into contact with technologically more
sophisticated products from foreign OEMs. A shift in customer demand towards
greater quality, safety and reliability therefore seems likely in certain segments
over the coming years. The main drivers for increased sophistication are large fleet
operators and state-owned bus companies, which already expect a higher level of
reliability and quality at a reasonable lifecycle cost.
Additionally, economic indicators show previously neglected aspects of TCO for
Indian customers, such as fuel cost, will gain in importance over the coming years:
Fuel price is a highly political issue in India. Fuel reforms enacted in June 2010
linking petrol prices in India to the market were controversially discussed. By freeing
up petrol prices, the government hiked the cost of other fuels such as diesel,
primarily used for commercial vehicles. For instance, from 2000 to 2010, the price
for one liter of diesel in Indias capital Delhi soared by almost 170 percent.
ADDED-VALUE
SERVICES
Poor road conditions in India make robust, easy-to-fix

trucks essential
Indias road network density with 0.79 km of highway per square kilometer of
land is much greater than Chinas (0.42) or Russias (0.04).8 Although most
highways are narrow and congested with poor surface quality, roads have
always been the dominant mode of transport in India, accounting for around
60% of the total freight transport volume. Just like in China, freight traffic by air
is almost negligible.
Freight traffic in India

2004
2005
2006
2007
2008
2009
2010
646,000
658,900
766,200
820,217
873,736
929,689
1,016,151
61.1%
61.5%
61.3%
60.9%
60.5%
60.1%
60.1%
411,300
411,800
483,400
526,488
570,686
616,962
673,195
Total share
38.9%
38.4%
38.7%
39.1%
39.5%
39.9%
39.8%
547
548
580
769
871
860
1,076
1,057,847
1,071,248
1,250,180
1,347,474
1,445,293
1,547,511
1,690,422

Total share

Total Traffic
YoY increase
YoY decrease
Source: Datamonitor, Freight Transport in India, 2011
BRICS Joint Statistical Publication 2011, National Bureau of Statistics of China
India | 53
Due to the long-standing history of poor quality roads and low customer
expectations, Indian trucks are technically unsophisticated and are mainly operated
by owner-drivers who typically take care of their trucks maintenance and repair
themselves. Value-added services around truck repair and maintenance are
therefore of low priority. However, the increasing awareness of TCO could push
reliability and maintenance costs more into focus.
High share of owner-drivers narrows the potential for fleet

management solutions in India
FLEET
MANAGEMENT
Because of Indian fleet ownership patterns, the truck market has been highly
fragmented. According to the Indian Foundation of Transport Research and Training
(IFTRT), 80 percent of truck operators are small, owning less than 10 trucks.
Among these small operators, a large number of owner-drivers transport goods
with a single truck. Unusually, the Indian transport industry is mostly organized by
transport middlemen or goods booking agents. Those companies are largely nonfleet owning in nature, and hire truck capacity from the smaller truck operators or
owner-drivers.
Economic fleet management services require a critical mass of operated trucks, so
offering these services in India is reasonably challenging. Because of the ownership
patterns described above, wide-scale fleet management solutions are unlikely in
India. Only 10 percent of Indian truck operators own a fleet greater than 25 trucks,
and only 1-2 percent own between 200-1,000 trucks.9 Furthermore, high operating
costs, and a poor communication infrastructure outside metropolitan areas,
restricts fleet management opportunities.
Nevertheless, Indian market leader Tata Motors has launched a commercial fleet
management system called TRAKit for their range of commercial vehicles. TRAKit
is a low-cost solution tailored to Indian truck market conditions and fleet ownership
patterns, with which vehicle and fleet operators can stay connected to their
vehicles, while they are in transit.
The market in India is still quite

fragmented, but in the medium and heavy
commercial vehicles sector there are more
fleets emerging, and these larger customers
will become the important ones.
Indian Foundation of Transport Research and Training (IFTRT), 2010

FOR GLOBAL OEMs
Constantly declining state regulation is making India

increasingly attractive for global manufacturers
With the conversion from a planned to a market economy, India has been
gradually reducing protectionist measures since the early 1990s. The automobile
industry has completely opened up to foreign investments. Import regulations and
customs duties no longer constitute a true barrier for CKD and CBU10 production.
Simple import regulations,

low customs duties and the
absence of local content
regulations substantially
ease market entry for
foreign manufacturers.
GLOBALIZATION EFFORTS BY
EMERGING OEMs
Daimler is one international commercial vehicle manufacturer making a market entry

into India. The company terminated its previous joint venture with Indian manufacturer
Hero. Instead, Daimler has formed a subsidiary, Daimler India Commercial Vehicles,
and recently announced its own brand for the Indian market BharatBenz. Volvo Trucks
is taking a different path. Under its VE Commercial Vehicles joint venture with Eicher
Motors in 2008, Volvos heavy-class trucks will be offered in India in addition to trucks
and buses already provided by Eicher.
The decades of isolation of the Indian market, which led to local manufacturers
establishing a well-structured dealer and service network, presents a challenge for
foreign manufacturers. New brands must compete with household names such as
Tata, Mahindra, Ashok Leyland, Eicher and Force. Manufacturers entering the country
must first of all familiarize themselves with the complex rules and state structures.
The globalization activities of Indian manufacturers have

been modest to date
The fast-growing local market offers minimal incentive for Indian OEMs to turn their
attentions overseas. Their focus is now on developing individual niche products that
might generate a certain level of demand in foreign markets. Southeast Asia
has been the focus of all export activities to date. In recent years, however, there has
been a growing trend of Indian manufacturers attempting to expand further afield.
This has been spearheaded by the two market leaders, Tata Motors and Mahindra &
Mahindra, who are focusing on markets which have trends in common with India.
With the acquisition of

Daewoo, Tata is also
attempting to establish
itself on the global market.
Nevertheless, Tata Motors is already the fourth-largest heavy duty truck

manufacturer in the world today. The company operates in Europe, Southeast
Asia, the Middle East, South America and Africa. However, Tata Motors employs
differing strategies for each. In the European automobile sector, it operates almost
exclusively through its two premium brands, Jaguar and Land Rover, which it
acquired in 2008. The focus throughout the rest of the world is on commercial
vehicles. Tata Motors already maintains joint ventures on the African continent
(Kenya, Senegal and South Africa), and also in Russia and Ukraine. In addition to
India and China, the focus in Asia is on South Korea (the commercial vehicle arm of
Daewoo was acquired in 2005), Thailand and Bangladesh.
Consequently, the Tata brand has increased its global recognition in recent years
via a series of successful business activities. Conversely, globalization attempts by
other Indian manufacturers have failed, mainly due to the small product portfolio
and lack of financing.
It will take quite some time before brands

from Asia will reach the technology standards
and especially the quality image to have a
breakthrough in Western markets.
10
CKD completely knocked down; CBU completely built up
India | 55
TATA MOTORS
Interview with Ravi Pisharody,
President (Commercial Vehicle Business Unit) at Tata
Motors Ltd. (India)
A promising outlook for the Indian truck market
Ravi Pisharody, president (commercial vehicle business
unit) of Tata Motors Ltd, is predicting an exciting year for
the truck business globally in 2011, particularly in India.
The industry in India has already witnessed 25 percent
growth in 2010, and this trend is expected to continue over
the next four to five years, in the region of 15 to 20 percent
annually.
trickle of foreign OEMs, such as Daimler Trucks, investing

in India. Indian government policies are fairly open,
says Pisharody. Were going to see a lot of global players
coming between 2011 and 2013.
He believes Indian manufacturers have had ample warning
about this influx of foreign rivals, and in many cases local
firms are already developing, manufacturing and marketing
products closer to global specifications.
Strong customer links in India, sometimes stretching back
generations, will help protect domestic firms ultimately
motivating them to raise their standards further.
Similarly hopeful estimates were being made in 2008,

just before the global recession hit. However, the rate of
recovery in the Indian truck market has surprised many
observers, and the upward trajectory is expected to be
maintained.
A unique factor in India is the preoccupation with low

price, he says. However, customers are becoming more
educated about the total cost of ownership things like
reliability and repair costs. This sort of thinking will shape
the future.
Pisharody says this is good news for other large developing

markets. Brazil, Latin America and China are following
similar patterns, and competition in these markets will be
tough, he says. In contrast, recovery in Europe and North
America is slower and might take another two or three
years to come back fully.
In a world still recovering from economic collapse,

Pisharody expects this cost-conscious concept will enable
more Indian producers to get a foothold in global markets.
Tata is positioning itself to capitalize on this growth. It plans

to keep its truck range as diverse as possible, using its high
profile in the domestic market to further stimulate sales. It
has also invested heavily in the passenger vehicle side of
its business.
In India, Pisharody expects few government interventions
to safeguard domestic manufacturers, such as trade
barriers or import regulations. This is despite a constant
Already Tata is expanding overseas, with operations in

the Middle East and Africa, among others. Latin America
presents another opportunity and Pisharody believes
there are significant synergies with the companys current
product range.
But the overseas expansion of Indian OEMs is expected to
be slow and steady, rather than a stampede. If you look
at Europe, not even American brands sell many vehicles
there, so itll be some time yet before brands from Asia
acquire the technology and image to enter those markets
strongly, he says.
Insight
Trucks in
As mentioned in previous chapters, Africa plays an interesting
role in the expansion strategies of truck OEMs from emerging
markets like China and India. Largely because the market
environment and customer preferences are similar to their
respective home markets, these OEMs are trying to enter the
African continent, either to produce vehicles for the market
itself, or to establish a hub for further expansion into regions
such as Europe.
Market structure &
development
After a period of growth, the African
truck market faced strong declines
in 2008 and 2009, like the rest of the
world. For instance, South Africa, the
continents largest truck market, was hit
by a decline of over 40 percent between
2007 and 2009. Since 2010, the African
truck industry is recovering from the
crisis and besides being extensively
covered by mature market OEMs
increasingly becoming a promising
testing ground for emerging OEMs from
China and India. Besides South Africa,
Northern African states such as Egypt,
Morocco, Tunisia and Algeria are offering
interesting opportunities for OEMs to
leverage a low-cost base for production,
bolstering their global commercial
vehicle sales.
Market characteristics
Political and historical conflicts continue
to influence the development of many
African countries. Therefore, the African
continent is only partially developed. In
vast parts of the continent, the economy
and the road infrastructure are very
rudimentary. Even in South Africa,
which can be considered the most
developed country, road infrastructure is
still scarce.
In Africa, truck manufacturers generally
sell their trucks and aftermarket parts
to independent local distribution
networks or single dealers. However,
trucks are essentially custom products,
with dealers commonly ordering to
end-user specifications. Typical African
end-users are small fleet and ownerdriver operators; they are relatively price
sensitive and always seeking ways to
Africa
cut costs under the continents tough
economic conditions. The resulting price
competition within the African truck
market places increasing pressure on
European and American manufacturers,
because Chinese, Indian and Russian
manufacturers can sell their trucks at
much lower prices.
On the other side African truck
customers still have a preference for
reliable and long lasting used trucks.
Used trucks are of special importance
because small and medium sized
companies traditionally replace their old
truck fleets with secondhand vehicles.
This offers greater potential for Western
OEMs, which enjoy a better reputation
among African customers compared to
their emerging markets competitors.
Reliable used trucks from Europe stand
a good chance of spending another
lifecycle on African roads.
Market entry strategies

Many Western OEMs entered the
African continent at the end of the last
century. Consequently, global OEMs
from the Triad markets account for the
main share of trucks sold. For instance,
to directly cater to the continents
truck markets, Volvo Trucks operates
plants in Morocco, Tunisia, and South
Africa. Daimler Trucks is also engaged
in South Africa, where it operates
plants for complete truck assembly,

manufacturing truck components, as
well producing chassis for MercedesBenz busses. Interestingly, the global
German supplier ZF Friedrichshafen
formed a joint venture with the SNVI
(Socit Nationale des Vhicules
Industriels) in Algeria in 2004. Since
then, the company ZF Algrie has
leveraged the low-cost base in the North
African country and produces vehicle
transmissions for commercial vehicles.
Chinese and Indian manufacturers
increasingly aim to expand their exports
to Africa. The main features of their
trucks (such as the ability to handle
heavy road conditions and overload)
fit African demands extremely well.
Besides selling trucks in the region,
emerging OEMs also see Africa as an
ideal testing ground for the expansion
of their global production footprint. Tata
Motors, for example, not only sells its
trucks in eleven African countries, but
has also operated a bus body assembly
plant in South Africa since September
2010, and plans to start producing small
and medium sized trucks in the country
for 2011. Another example is Chinas
Beiqi Foton, which recently began
constructing a North Africa production
base in Kenya. Assembly is planned to
start in 2012, with an annual production
capacity of about 10,000 units.
4.3 Russia
Russias commercial vehicle market is heavily influenced by
Europe but still largely defined by low technical standards
Due to its geographical proximity, the Russian market more closely resembles the
European models than Indian and Chinese models. In general, this means there
should be greater opportunities for premium trucks. Although technically-simple
trucks continue to dominate, in 2010 close to 30 percent of domestic truck demand
was attributable to foreign providers. The heavy political influence, however, means
local manufacturers still account for over 80 percent of domestic truck production.
The reluctance of foreign manufacturers to produce vehicles in Russia means that,
traditionally, Russia is the only one of the three emerging countries in this report
to meet its excess demand with imported Western trucks and is not likely to face
serious overcapacity any time soon.

and production
28.2%
Sales
2010
71.8%
Domestic
Foreign
16.2%
Production
2010
In 3 years imported trucks will most

probably make up 4050 percent of the
Russian truck market. Premium trucks will
primarily come from Europe, while the lowcost segment will be dominated by Chinese
manufacturers.
Ashot Aroutunyan, Director of Marketing and Advertising, KAMAZ OAO (Russia)
83.8%
Domestic
Foreign
The Russian commercial vehicle market suffered dramatic

losses due to the global downturn
As a result of the financial and economic crisis, the Russian market suffered
more than other emerging commercial vehicle markets. Before the crisis, the
market for light commercial vehicles was growing. By 2008 this growth was
slowing, and in 2009 the market totally collapsed, losing more than 50 percent
of its pre-2008 volume.
Sales were growing again by 2010, but even with growth rates of around
28 percent, the market for light commercial vehicles is still far from its
pre-crisis level.
Around 30 percent of
internal demand is
attributable to foreign
manufacturers.
The market for heavy commercial vehicles suffered a similar fall. Pre-crisis, the
market increased by 50 percent between 2006 and 2008, profiting from the boom
in the construction sector and rising domestic consumption. From 2009, however,
the market contracted by around 70 percent within 12 months. Although growth
is returning, the market for medium and heavy trucks over six tons is expected to
take longer to recover than the LCV market.
Russia | 59
Sales and production in the Russian commercial vehicle market (20062011)


450
389
400
350
300
382
150
103
290
155
221
160
229
239
227
114
77
176
111
LCV (< 6t)
2007
2008
HCV (> 6t)
4%
2009
0%
-4%
144
2006
8%
-2%
49
50
0
8%
2%
200
100
10%
6%
332
250
150
10% 450
2010
GDP growth (real)
2011f
400
300
250
6%
344
350
305
111
87
4%
301
255
108
200
194
150
68
-6% 100
-8%
50
-10%
217
233
0%
109
43
125
146
LCV (< 6t)
2007
2008
HCV (> 6t)
2009
2010
2011f
-6%
-8%
76
2006
-2%
-4%
119
193
2%
-10%
GDP growth (real)
4.3.2 Competitive environment

Local commercial vehicle manufacturers dominate
the Russian market, despite many established market
participants from Triad countries
The three largest providers of trucks in Russia, measured by unit quantities, are all
local. The leader is the Gorkovsky Avtomobilny Zavod (GAZ) Group, which is active in
both light and heavy commercial vehicles. Despite losing more than half its market
volume between 2007 and 2009, GAZ is the clear market leader, with a market
share of more than 40 percent. With over 90,000 units, GAZ sold about three times
as many vehicles as its two largest Russian competitors in 2010.
The two main competitors are KAMAZ (HCV) and UAZ (LCV), each of which
specializes in one market segment. Together, they account for an additional
25 percent of the overall market. UAZ (Ulyanovsky Avtomobilny Zavod) is a
subsidiary of Automobil-Holding Sollers (formerly SewerstalAwto), while KAMAZ is
majority-controlled by a state-owned conglomerate. German group Daimler AG also
holds an 11 percent equity interest.
The rest of the market comprises manufacturers from Europe, the US and Asia.
One exception is the MAZ Group, from Minsk in Belorussia, which has been
manufacturing heavy trucks jointly with the German MAN Group since 1997.
GAZ, KAMAZ and UAZ

dominate the Russian
market with a combined
share of 67 percent.
60%
1
2
3
4
5
50%
40%
GAZ GROUP1,2,3
94,264
30%
20%
KAMAZ3,5
28,259
UAZ3,4
25,801
FIAT GROUP1,2
15,101
VW GROUP1,2
8,244
10%
FORD1,2
5,150
-40%
LCV manufacturer
HCV manufacturer
-20%
HYUNDAI1,2
5,727
PSA2,4
8,143
MAZ5
7,158
MITSUBISHI4
3,700
0%
20%
40%
60%
80%
100%
120%

* Light commercial vehicles up to six tons + heavy commercial vehicles over six tons
The European OEMs

VW, Fiat, and PSA posted
strong sales growth in
Russia in 2010.
Bubble size = sales volume CY10

CY = calendar year
Among the foreign manufacturers, the Fiat Group (market share: ~7 percent) and
the VW Group (market share: ~4 percent) have the best foundations for further
growth, with their modern trucks comparing well with Russian providers. The
fastest growing European provider in Russia in 2010 was the French PSA Group.
Showing growth of over 100 percent, unit sales more than doubled.
The only loser in the top ten is the American Ford Group, which has lost over half
its market volume since 2008. However, Ford has recently signed an agreement
with the Russian Sollers automobile group for the joint production and marketing of
automobiles and light commercial vehicles, so in the medium term Ford should be
able to turn around this decline.
Light commercial vehicles are dominated by local

manufacturers, but foreign OEMs are encroaching
Even in the pre-crisis years of 2006 to 2007, market leader GAZ posted a substantial
decline in new registrations. Foreign brands such as Fiat, Peugeot and Volkswagen
profited from this, gaining sales at the expense of GAZ. Fiat, in particular, achieved
Russia | 61
excellent growth and increased its commercial vehicles unit sales from 63 LCVs
to more than 13,000 in 2010, half as many as UAZ, the second-largest Russian
provider. The PSA Group is likewise developing successfully, primarily via the
Peugeot brand. Unit sales of French commercial vehicles have increased despite
the crisis. Volkswagen and Mitsubishi, conversely, both suffered substantial losses
in terms of unit sales as a result of the crisis, but were already showing growth
trends again by 2010.
Increases at Fiat, Peugeot,

and Volkswagen are
coming at the expense of
local industry leader GAZ.
These developments clearly indicate that customer demand was already shifting
towards more technically and environmentally advanced foreign vehicles, even before
the crisis. This trend is expected to intensify further as the Russian economy recovers.
Top 10: New light commercial vehicle sales by brands

Brand (Group)
2006
2007
2008
2009
2010
GAZ
156,969
150,057
121,336
49,884
70,825
UAZ
29,909
32,269
33,272
18,459
25,801
Fiat
63
309
6,847
9,141
13,310
Peugeot (PSA)
903
1,282
2,741
3,058
6,299
2,074
3,697
8,089
4,727
5,931
VW
Ford
5,108
9,649
12,638
7,766
5,113
Mitsubishi
1,954
6,077
7,690
3,239
3,700
Mercedes-Benz (Daimler)
1,770
2,675
3,063
1,385
2,123
Citroen (PSA)
611
614
485
912
1,844
Nissan
775
2,109
3,291
1,787
1,836
YoY increase
YoY decrease
The market for heavy trucks must overcome enormous sales

declines by all manufacturers
Market leader KAMAZ had to withstand a unit sales decline of over 40 percent in
2009. In contrast to GAZ in the light commercial vehicle segment, however, KAMAZ
did not sacrifice unit sales to foreign rivals. KAMAZ and the GAZ Group, with its two
brands GAZ and Ural, continue to dominate the local market for heavy trucks, with
a combined market share of almost 70 percent. With two exceptions, Isuzu and
Zil, domestic as well as foreign players benefited from the recovery of the Russian
construction economy in 2010. Nevertheless, all market participants are still far from
their pre-crisis sales volumes.
Three foreign brands in particular Hyundai, MAN and Volvo suffered dramatic
declines in sales volumes between 2008 to 2009, after having achieved respectable
market positions pre-2008. The most startling example is Munich-based truck
manufacturer MAN, whose sales in Russia dropped from 9,000 units in 2008 to just
347 the following year.
With the upturn of the Russian economy, foreign manufacturers in the heavy duty
sector, with their more modern product portfolios, are expected to gain market
share and put local manufacturers under increasing pressure. However, a complete
recovery to pre-crisis levels is not expected earlier than 2012.
MANs sales plummeted

from 9,000 units in 2008
to 347 in 2009.
Top 10: New heavy commercial vehicle sales by brands

Brand (Group)
2006
2007
2008
2009
2010
KAMAZ
32,327
39,206
39,309
22,966
28,259
GAZ
26,787
27,743
24,484
6,473
11,957
9,704
15,731
15,164
6,855
11,162
11,807
10,805
12,249
3,251
7,158
Hyundai
3,073
4,847
5,481
550
4,050
MAN
1,549
4,313
9,242
347
2,721
Scania (VW)
2,754
5,078
3,787
185
2,302
59
2,132
10,025
3,871
1,838
Ural (GAZ)
MAZ
Isuzu
Volvo Trucks
2,691
4,629
7,009
449
1,826
Zil
7,127
10,272
5,163
2,448
1,259
YoY increase
YoY decrease

Replacing commercial vehicle inventories will strengthen
the position of foreign manufacturers with more
sophisticated products
CUSTOMER
REQUIREMENTS
With nascent growth in the Russian economy, there is greater potential for
foreign manufacturers to conquer a larger market share. The demand for more
sophisticated foreign trucks in particular will grow, because long distance freight
transporters and those in the construction business need highly reliable and
capable trucks.
Two reasons suggest this: Firstly, these industries are recovering the fastest
following the collapse of the Russian economy. Secondly, the transport of goods
by road is increasingly attractive, compared with expensive air transport, limited
shipping possibilities and an already strained rail network.
Freight traffic in Russia

Total share
Total share
Total Traffic
2000
2004
2005
2006
2007
2008
2009
2010
152,735
182,141
193,597
198,766
205,849
216,276
180,136
199,341
9.8%
9.1%
9.4%
9.2%
8.9%
9.4%
8.7%
9.0%
1,373,178
1,801,601
1,858,093
1,950,830
2,090,337
2,116,240
1,865,305
2,011,308
88.1%
90.2%
90.2%
90.3%
90.5%
92.0%
90.2%
90.8%
2,515
3,003
2,830
2,927
3,424
3,692
3,558
4,711
1,557,834
1,998,201
2,059,689
2,159,606
2,310,037
2,300,068
2,068,204
2,215,360
YoY increase
YoY decrease
Source: Federal State Statistics Service of the Russian Federation
Russia | 63
Ultimately, however, the primary driver of the Russian commercial vehicle

market will continue to be the political system. For example, emission standards
are scheduled to be gradually tightened to Euro IV and later Euro V, leading to
a greater focus on green issues. With stricter environmental standards foreign
manufacturers will benefit as a result of their technological advantages over Russian
manufacturers.
Purchase price is the number one criteria because total

lifecycle costs will remain low
TOTAL COST OF
OWNERSHIP
In a mature market, the cost of fuel makes up a huge part of the total operating cost
of a truck (e.g. 30 percent in Western Europe). In Russia, fuel prices are not directly
controlled by the government but rather by state-owned oil companies, which
occupy a monopoly position in many Russian regions. According to the Federal
State Statistics Service of the Russian Federation (ROSSTAT), diesel prices have
risen by ten times since 1998. Therefore, they will increasingly impact the decisionmaking of truck operators and owners. Other follow-up costs such as commercial
vehicle taxes, tolls or insurance fees, do not greatly influence the purchase decision
of Russian truck manufacturers.
According to the ROSSTAT, the monthly salaries of people working in the
transportation industry in Russia rose at a compound annual growth rate of
29 percent from 1995 to 2009. But coming from a very low base, this also increased
affluence plays a minor role, and still leaves the initial purchase price as the main
criteria for truck operators in Russia.
Service demand will only slightly increase over coming years

The Russian truck market is primarily characterized by low technical standards.
Most owners take care of their own maintenance needs. However, the increasing
demand for high quality trucks, as well as the ongoing exchange of existing trucks,
will lead to a greater need for professional services. Russian industry specialists
believe an extensive service network, along with innovative distribution models,
could substantially increase the demand for new and used commercial vehicles
from abroad.
For example, Volvo already offers comprehensive service contracts in Russia,
including all service and repair work, making it far easier for owners to calculate
service and maintenance costs.
ADDED-VALUE
SERVICES
Establishing a service
network and distribution
chain will probably be one
of the primary challenges
for foreign OEMs.
However, given the sheer size of Russia, establishing a service network and
distribution chain will be one of the primary challenges for foreign OEMs.
Co-operating with local partners is therefore the most promising option.
It sounds like a banality, but Russia is an enormously

huge country. How can we establish a nearly
comprehensive service network at a reasonable cost?
At this point, a joint approach with KAMAZ generates
real benefits and advantages.
Andreas Renschler, Member of the Board and Head of Daimler Trucks Division, Daimler AG (Germany)
FLEET MANAGEMENT
Fleet management services are low on management

agendas
The number of forwarding companies in Russia is officially not known. The
association of Russian forwarding companies, Assoziazija Ekspeditorow Rossii
(AER), assumes that approximately 1,500 to 2,000 companies are active in the
market. In Soviet times, all trade and transit of goods was conducted via three
governmental contractors, Sojuswneschtrans, Sojustransit and Techwneschtrans.
Nowadays, these strict structures have dissolved and the number of forwarding
companies is increasing, and will continue to rise in the years to come.
Nevertheless, fleet management is still a big challenge in Russia. Covering an
area of more than 17 million square kilometers, Russia is the biggest country in
the world. It is almost twice the size of China and more than five times bigger
than India. Fleet management services require an extensive road, information and
telecommunication network. Owing to the very low road density with less than
0.04 kilometer of public roads per square kilometer of land, fleet management
services are on the agenda of neither fleet operators nor fleet management
providers.
Road density derived from territory size (sq. km) and length of
highway networks (km)
18000
0.9
17,098
16000
0.8
14000
0.7
12000
0.6
9,600
10000
8000
6000
0.4
0.3
233
3,984
4000
2000
0
0.5
8,515
647
Russia 2
Territory ('000 sq. km)
1,736
Brazil 3
3,287
125
China 1
Highways ('000 km)
2,600
146
India 3
0.2
0.1
0.0
Road density
1 Data
from 2010
roads in operation (2009)
Data from 2008
2 Public
3
Source: BRICS Joint Statistical Publication 2011, National Bureau of Statistics of China
Russia | 65
KAMAZ
Interview with Ashot Aroutunyan,
Director of Marketing and Advertising at KAMAZ
OAO (Russia)
Succeeding in the Russian market is

difficult without global partners
Ashot Aroutunyan, director of marketing and advertising
at Russias leading heavy truck manufacturer KAMAZ,
expects the market to recover to its 2008 level by 2013 at
latest, possibly even earlier.
Looking at the first two months of 2011, I am optimistic
that 2012 is definitely possible, he says.
With the economic crisis, Aroutunyan says the structure
of clients and industries served changed dramatically for
KAMAZ. In the construction industry, for example, demand
dropped considerably and he does not expect it to recover
for another two years. In contrast, demand for agricultural
vehicles has already returned to its 2008 level. The same is
true for the oil industry, where the market recovered rapidly.
Another driver for KAMAZ is the commercial transport
sector. Although 2009 was still very tough, this area is
gaining significant strength due to the demand for longhaul and flatbed trucks, says Aroutunyan. There are 1.5m
trucks in Russia, but state records show that only 750,000
of these are actually in operation. Moreover, 600,000
out of those 1.5m Russian trucks are older than 20 years.
This clearly has a significant impact on low efficiency
levels, high breakdown rates and environmental pollution.
Aroutunyan also emphasizes, that the Russian commercial
vehicle fleet is due for renewal. Accordingly, the Russian
government is currently developing a dedicated program

aiming to achieve substantial truck modernization.
The most significant obstacle to achieving this
modernization is the low capacity of Russian
manufacturers, although he is sure that, the capacity
deficit of Russian manufacturers can be compensated by
foreign manufacturers, mostly from Europe and China, but
supporting foreign producers is certainly not the Russian
governments intention.
KAMAZ engages in partnerships for automotive
components manufacturing with leading suppliers like ZF
and Cummins. It also partners with global OEMs like Daimler
to manufacture complete trucks in Russia, and this is another
area of planned growth for KAMAZ. We plan to extend our
partnerships, especially in AWD trucks, special trucks and
long-haul trucks manufacturing, Aroutunyan says.
KAMAZ is planning to extend its own international market
coverage, too, to capitalize on the growth of the global truck
market. Our share in Russia is already high. It is hard to get
more thats why we should be a global company, he says.
To this end, the company has launched a joint venture
with Indian manufacturer Tatra Vectra which, according to
Aroutunyan, should enable KAMAZ to sell 10,000-15,000
trucks per year in India within five years.
Although the company has no official plans for partnerships
in the Chinese market, he estimates that KAMAZ could
also be selling about 15,000-20,000 units in China within
the next five years.

FOR GLOBAL OEMs
More emphasis will be

placed on the localization
of production in Russia.
Cooperation agreements with Russian manufacturers are

preferable to solo ventures
The Russian market is highly consolidated, with relatively few national
manufacturers. The Russian government emphasizes localization of production.
To date, no further statutory rules have been published, but a tightening of import
regulations and the granting of benefits for locally produced commercial vehicles
is expected. In recent years, the Russian government has pushed to increase
domestic value creation, particularly for the passenger car market. For example,
Decree 166 regulates the conditions for automobile manufacturers and suppliers
concerning local assembly in Russia. Currently, truck providers receive benefits if
they maintain at least one CKD production unit in Russia with a 30 percent local
content share and annual output of 25,000 vehicles.
Co-operation with local players is an appropriate way to enter the market. One
example is Daimlers deal with KAMAZ, the Russian market leader for heavy trucks.
Daimler currently holds an 11 percent stake in KAMAZ. The companies have already
formed two joint ventures with each other, in which each party holds 50 percent of
the shares.
FUSO KAMAZ Trucks Rus is responsible for the import, production and distribution
of FUSO trucks and began producing and distributing the Canter light truck in the
first quarter of 2010.
Mercedes-Benz Trucks Vostok initially began production of Actros and Axor models
of the Mercedes-Benz brand. The distribution of Mercedes-Benz trucks started on
January 1, 2010. The SKD production facilities for FUSO and Mercedes-Benz are
both in Naberezhnye Chelny, the production headquarters for KAMAZ. In exchange,
KAMAZ receives technology and distribution know-how from Daimler.
There are other approaches. For example, Volvo Trucks has been active in Russia for
more than 30 years. Initially, it imported its vehicles. In 2009, it opened an SKD truck
plant in Kaluga, where it produces trucks with independent subsidiary Volvo Trucks
Russia. Manufacturers of light trucks, such as Hyundai, Fiat and Isuzu, have also
been active in Russia with their own production or distribution operations for some
time. This perhaps explains why these have long been the most successful foreign
OEMs in Russia, in terms of market share.
GLOBALIZATION EFFORTS BY
EMERGING OEMs
Globalization of Russian commercial vehicle manufacturers

is unlikely
Russian truck brands have an international presence dating back to the times of
the Soviet Union and COMECON, but due to lack of competitiveness it is not being
further expanded.
The only provider from Russia active on a truly international scale is KAMAZ.
However, its main foreign markets (Kazakhstan and Ukraine) are former sister
states of the Soviet Union, lacking their own vehicle production.
KAMAZ is the only Russian

manufacturer active on a
truly international scale.
KAMAZ has a UAE-domiciled distribution enterprise called KAMAZ International

Trading for the Middle East and Northern African markets. Worldwide exports make
up almost one-quarter of KAMAZs production. In India, the company operates a
joint venture with the Vectra Group, called KAMAZ Vectra Motors, to distribute its
own trucks. However, only eight-wheel heavy-duty trucks are currently being sold.
The joint venture was launched in 2009. It sold an estimated 1,300 units in India
in 2010, representing a market share of about 0.4 percent. Additionally, individual
KAMAZ trucks find their way into some Central and South American countries, such
as Cuba and Venezuela, and in Southern African countries, such as Burkina Faso and
the Ivory Coast.
Russia | 67
Before KAMAZ engages in further globalization activities, it aims to strengthen its

market position in neighboring former Soviet countries and its presence in current
Middle East and Africa markets, as well as its joint venture in India. The companys
other strategic priority is to improve its labor productivity. In Europe, for instance,
employee effectiveness is three times higher. This means a MAN employee
assembles three trucks per year on average, while a KAMAZ employee assembles
only one truck in the same time.
The two other largest Russian manufacturers, GAZ and UAZ, do not undertake
any significant international activities and are not expected to do so in the
foreseeable future.
4.4 Prospects of convergence between

emerging and mature markets
There will continue to
be serious structural
differences between
Triad and emerging truck
markets.
The alignment of emerging markets with mature Triad markets is strategically

important for manufacturers everywhere. Future developments will show how
quickly existing differences can be balanced. Therefore two key questions emerge:
Can established commercial vehicle manufacturers service the growing demand
for trucks in emerging markets with their current technical concepts tailored to
the European or North American market?
Can providers from emerging markets conquer a significant market share in Triad
markets with their low-cost trucks?
The reasons for the different market focuses lie in differing customer demands, the
infrastructure, and the level of state regulation in the respective countries.
Comparison: Triad vs. emerging truck markets

TRIAD
vs.
High degree of saturation/strongly cyclical

High share of heavy trucks
Well-developed infrastructure
MARKET
INFRASTRUCTURE
Professional customers with strong

TCO orientation
EMERGING MARKETS
Cycles along growth trend

High share of medium and light trucks
Infrastructure defective, above all for
heavy trucks
Fragmented customer structure with many
owner-drivers
Consistent compliance with statutory

requirements
CUSTOMERS
Focus on low acquisition costs

Overload-bearing capacity
Driver orientation
Low logistical demands
High logistical demands

Highly consolidated markets with trend
toward full-line manufacturers
COMPETITION
Low level of vertical integration

High statutory requirements with respect
to the environment, safety and worker
protection
STATUTORY
REGULATION
Quite fragmented locally dominated markets

High level of vertical integration
Increasing statutory requirements, but
fragmented enforcement
State regulations,
customer requirements,
and infrastructure
will determine the
convergence.
Greater potential for convergence exists in China and Russia

than in India
Triad markets are united by three key factors: comprehensive statutory regulations,
high customer requirements and a well-developed infrastructure. Transposing these
factors into the Chinese, Indian and Russian markets, it is clear that, despite their
differences, there is considerable convergence potential in all three.
Russia | 69
Prospects of convergence in selected emerging markets
Statutory regulation
Customers
Infrastructure
China
India
Russia
Limit values for emissions of harmful

substances and noise
heavily rising
rising
rising
Safety standards
rising
rising
rising
Nationwide implementation
low
very low
very low
Logistical demands within the

framework of industrial division of
labor
sharply rising
rising
rising
Orientation toward acquisition costs
still high
still very high
still high
Employee recruiting
low relevance
low relevance
rising relevance
Professionalism of commercial
vehicle operations
rising
only weakly
rising
only weakly
rising
Importance of owner-drivers
still high
very high
high
Quality of road network
sharply rising
rising
rising
Road pricing
increasing
importance
continued low
importance
continued low
importance
Telematics systems
sharply rising
importance
importance
rising
importance
rising
Nevertheless, a complete convergence of the markets cannot be expected within a

typical planning horizon (10 to 15 years). Most likely three distinct market segments
are expected to evolve in emerging markets:
The low-cost segment, with technically simple and cheap trucks.
The modern domestic segment, with further developed, robust and still
extremely favorably-priced trucks.
The premium segment, with technically high-quality and high-value trucks from
European, North American and Japanese OEMs.
The segment of modern

domestic trucks will see
the strongest growth in
the medium-term.
According to estimates from the Institute for Automotive Research, market

convergence by 2020 will favor the modern domestic and premium segments in all
three emerging markets, without completely suppressing the low-cost segment.
The precise balance will most likely depend on the markets specific characteristics
as described in previous chapters.
Its proximity to Europe means that the Russian market is expected to evolve the
most in relative terms. By 2020, the market share of premium trucks is estimated
to double, while the share of modern domestic trucks will triple, leaving only a 20
percent share for low cost trucks (from 70 percent in 2010). Of course, from a global
perspective absolute sales will remain considerably lower than in India and China.
There will definitely be a rising demand for

technically more sophisticated and higher value trucks
in the emerging markets. But these European-style
trucks will only represent a market niche for quite some
time. Unified environmental standards alone will clearly
not lead to a full convergence any time soon.
Andreas Renschler, Member of the Board and Head of Daimler Trucks Division, Daimler AG (Germany)
Significant structural changes are expected in China as well, albeit not as drastic
as in Russia. Owing to the intense efforts of the Chinese government and the
increasing number of joint ventures between emerging and established OEMs,
both the modern domestic segment and the premium segment are expected to
account for a considerable share of the market by 2020.
India, on the other hand, is trailing behind. The Institute for Automotive Research
believes that market segmentation will only change slightly by 2020. With a
75 percent share, the low cost segment is still expected to dominate the Indian
market for a long time yet.
Shift of the segment structure in the emerging markets

2
10
20
13
20
5
20
3
15
10
35
60
85
82
75
70
55
20
2010
2020
Russia
Low Cost Trucks
2010
2020
India
Modern Domestic Trucks
2010
2020
China
Premium Trucks
NAVISTAR
Interview with Dee Kapur,
President of the Truck Group and
Jack Allen,
President of the North American Truck Group at
Predicting sweeping changes to the global truck market

Although demand for trucks is expected to remain high,
new approaches will be necessary as OEMs adapt to
worldwide changes triggered by technological, economic
and regulatory shifts.
Domestically, Dee Kapur, president of Navistars Global Truck
Group, believes road haulage will still be vital for transporting
goods. Emerging markets such as China and Brazil are
expected to share the USs healthy appetite for haulage. Like
America, these are enormous, widely-populated countries
with huge scope for mass road network developments.
Transporting goods between the hinterland and the ports in
China can mean journeys of thousands of miles, says Kapur.
Thats why we could see a movement there towards the
kinds of commercial vehicles which currently ply US roads.
A similar gravitation towards heavier trucks should emerge
in India, he believes, but this might take longer because
Indias traffic levels make lower-displacement, lowerpowered engines more attractive.
The industry is fully aware of its need to continue evolving.
Jack Allen, president of Navistars North American Truck Group,
says that advancements in the commercial vehicle sector will
be driven by both legislation and consumer demand.
There is increased regulation on things like emissions

and safety regulations, which means more cost, he
says. Our customers expect us to offset these changes
through innovation. Weve addressed things like fuel
economy, weight, and driver environment. Next, well
see technologies such as collision avoidance systems,
stability systems anything which can reduce their overall
costs further.
In terms of competition with foreign OEMs, valuedriven models produced by manufacturers in emerging
economies are already threatening the dominance of
established global players. It could take one or two cycles
for them to compete fully, says Kapur, but we should not
underestimate them in any way.
As Navistar has discovered, one tactic for branching out into
emerging markets is to form local alliances, such as its own
joint venture with Indian manufacturer Mahindra & Mahindra
in 2005.
Allen, meanwhile, notes that over the past two decades, the
export market has been feast or famine, largely dictated
by the strength of local currencies. Building vehicles in local
markets should offer OEMs a lot more control.
In China, the duty on built-up commercial vehicles is about
25 percent, says Kapur. Even components have a fairly
significant tariff about 15 percent in India, for example.
In response, Navistar is stepping-up its political lobbying
for these limitations to be eased. If they are successful, the
global prospects for the commercial vehicle industry will be
even more enticing.
Insight
Passenger and commercial vehicle business why they are

different and what they can learn from each other
Traditionally, passenger vehicle businesses and commercial vehicle businesses were
designed for different markets. They have different business models and usually cater
to customer groups with differing preferences and characteristics. Nevertheless, there
are several areas where commercial and passenger vehicle manufacturers can benefit
from a mutual exchange of knowledge.
Strategic differences between passenger and commercial vehicle business

PASSENGER CAR BUSINESS
Market development from top to bottom
(brand transfer)
Global brands (at least in premium segment)
Immediate success for Western premium
vehicles in emerging markets
Market cyclicality can still be mostly absorbed
by exporting to growth regions
- Particularly in the premium segment,
while much more difficult in other
segments
vs.
REGIONALIZED
TECHNOLOGY & PRODUCT
MANAGEMENT &
MULTI-BRANDING
FLEXIBLE CAPACITY
MANAGEMENT
Services as product support

Mobility service solutions, communities and
full-service leasing gain importance for the
passenger car business
Globally uniform technologies and platforms
World Car strategy feasible (particularly in
the premium segment)
Alternative drive train technologies are of high
priority for OEMs and are heavily subsidized
by governments
EXPANSION OF THE VALUE

CHAIN
REALIZATION OF
ECONOMIES OF SCALE
COMMERCIAL VEHICLE BUSINESS

Market development from bottom to top
Localized brands
Low-cost focus hampers success for Western
premium trucks in emerging markets
Strong dependency on GDP makes CV business
extremely prone to market cyclicality (especially in
the mature markets)
Flexible capacity management is widely
implemented
Services as source of profitability and competitive
advantage
Full-service mobility solutions have long been
implemented
Regionally differentiated technological level
World Truck not feasible due to hugely varying
regional requirements
Optimization of diesel engines still offers the best
long-term cost-benefit ratio
GREEN TECHNOLOGIES
Several mass-market hybrids and EVs are

already available
The willingness of hauliers to pay a price for

eco-innovations is very low
Source: Institut fr Automobilwirtschaft [Institute for Automotive Research], KPMG International
Looking at the winning strategies revealed in this study, the passenger business
can certainly transfer know-how regarding multi-branding approaches of Western
truck OEMs in the emerging markets. Furthermore, the global passenger vehicle
market is not immune from market cyclicality either. It could therefore benefit from
adopting flexible capacity management best practices that have already proven
effective in the truck industry. Last but not least, the growing trend towards ondemand vehicle usage instead of vehicle ownership in the private automobile sector
is opening up space for substantial knowledge transfer from the truck business.
The truck business follows

B2B logic, while the car
business mainly follows
B2C rules.
Today, the commercial vehicle business generally follows the rules and logic of
the B2B market, while the passenger car business mainly focuses on private
customers (B2C). This is largely because commercial vehicles are investment
assets, while passenger cars at least for private customers are consumer and
lifestyle goods. But with the increasing move from car ownership to car usage,
a new B2B customer interface will emerge for passenger vehicles. For mobility
service and car-sharing providers, vehicles - especially fleets - will be investment
assets, where rational purchase decisions will be the norm, as they already are in
the truck business.
Interestingly, the reverse seems to be true in emerging truck markets - at least for
the time being. Here truck makers have to adapt their brand strategies and business
models to follow B2C rules and logic, as they are mainly faced with owner-drivers.
The purchase decisions of owner-drivers tend to be based more on emotions
and social categories than on commercial facts, because buying a truck can be a
lifetime investment and affiliates the owner to a certain user group or community.
However, it can be assumed that once larger fleets are more common, economic
considerations will play a larger role in the purchase decision.
Emerging truck markets

follow B2C rules, as the
majority of truck operators
are owner-drivers.
The biggest issue is the distribution side; its the

consumer market against the business-to-business
market, and thats a big leap.
Jack Allen, President of the North American Truck Group, Navistar International Corporation (USA)
Localized brand strategies offer significant growth

opportunities in emerging markets low-cost passenger
vehicle segments
LESSONS THE PASSENGER

CAR BUSINESS CAN LEARN
FROM THE TRUCK BUSINESS
With BharatBenz, Daimler Trucks introduced a localized brand for the Indian market,
which on the one hand certainly benefits from the extraordinary reputation of the
globally-known commercial vehicle brand Mercedes Benz. On the other hand,
Daimler is able to offer a lower cost vehicle in the modern domestic segment,
with regionally adjusted technology and quality standards, without blurring the
premium claim of its Mercedes Benz products. The same approach could be taken
by passenger vehicle manufacturers to generate significant growth in the low-cost
segments of China and India. Today, the success of Western car OEMs in those
countries is mainly based on offering Western standard premium vehicles to the
increasingly affluent middle class. The low-cost segment instead is mostly catered
to by domestic OEMs. To successfully settle in the low-cost segments of emerging
markets, a localized brand or JV indigenous strategy could deliver increasing
market share in the low-cost segment as well as maintaining the premium brands
integrity. Several OEMs have already taken the first steps. For example, General
Motors, Nissan and Honda recently launched low-cost brands with their domestic
partners. The German Volkswagen Group is also considering an entry-level brand
with its partner SAIC explicitly for the Chinese low-cost car market.
Passenger vehicle OEMs can learn from flexible capacity

management best practices of truck OEMs
The globalization of the automobile industry, as well as the strong demand in Asia, is
currently leading to major growth for manufacturers in the Triad markets. However,
this also increases the risk of unforeseen events affecting manufacturers. The
commercial vehicle industry has set itself up to be extremely flexible as they have
been prone to economic cyclicality. In the event of declining demand, the existing
capacities have to be rapidly adapted and unnecessary costs avoided. Daimler,
for example, succeeded during the crisis in becoming flexible enough to generate
profits, even with declining sales figures.
The passenger vehicle business can benefit from addedvalue services already implemented by the truck industry
Today, the borders between the commercial vehicle business and the passenger
car business models are constantly blurring. This is especially true with regard
to the emergence of on-demand vehicle usage patterns, replacing the vehicle
ownership that has dominated the private auto sector for decades. These newly
emerging mobility patterns are increasingly transforming the consumer good
passenger car into a mobility service investment asset. Besides financial
service providers and auto rental companies, which have already treated
passenger cars as investment assets, a rising number of so-called mobility
service providers populate the market for passenger vehicles occupying the
B2C interface. These commercially oriented service providers certainly have an
increasing interest in solutions currently offered to fleet providers or operators
in the commercial truck business. Almost 40 percent of the executives asked in
the KPMG 2011 Automotive Executive Survey stated that mobility solutions will
have considerable impact on future passenger business strategies. Particularly
in the Triad markets and the megacities of the BRIC countries, such solutions
will help overcome traffic jams and environmental pollution. Hence, already
well-established best practices from the commercial vehicle domain can be of
significant value in the passenger vehicle market as well.
Mobility solutions such

as car-sharing can learn a
lot from the commercial
vehicle sector regarding
TCO monitoring,
maintenance, service, and
fleet management.
For instance, the truck business has already found suitable solutions for the
following issues, mostly arising at the B2B interface:
Total cost of ownership considerations are becoming

increasingly important in the passenger car sector
The KPMG 2011 Executive Survey revealed that 96 percent of experts see fuel
efficiency as the primary criterion for a customers purchasing decision. The
rapid increase of gasoline prices means total cost of ownership monitoring
for passenger car owner-drivers and fleet operators is becoming increasingly
important. Vehicle taxation is another aspect of the TCO which will have a
significant impact on the follow-up costs for cars in the future. Currently, for
instance, German taxes on fuel efficiency are calculated according to the engine
size and exhaust emissions, not the actual fuel consumption of the car. This
imposes considerable costs for vehicle owners. Owner-drivers will therefore
have to monitor the TCO of their cars in order to compare the monetary benefit
of owning a car, versus car-sharing schemes or mobility service solutions.
Since mobility solutions are usually charged by kilometers driven or usage time,
customers will pay increasing attention to the total life cycle costs of their cars.
Monitoring TCO is also essential for the profit margins of fleet operators such
as mobility service providers. A vehicle with a low TCO increases the business
owners profit margin; on the other hand, high gasoline consumption has the
reverse effect. Keeping the total operating costs low has always been top of the
agenda for Western truck OEMs to attract commercial customers. The same is
true for passenger vehicle OEMs catering to mobility service providers in
the future.
Intelligent maintenance and service solutions will be a

necessity for mobility service providers
Reduction of standing time
and lifetime improvement
safes money.
The average standing time of a private passenger car in Germany is around 23

hours a day. By using car-sharing schemes or mobility solutions, this time will be
shortened significantly for fleet vehicles. Of course, this will have a negative effect
on the lifetime of a passenger car. Therefore, increasing the lifespan of a vehicle via
maintenance and service offerings will become ever-more important. Ultimately,
long service and maintenance times mean lost profits for the vehicle operator. In
this regard, the truck industrys automated service management could bring major
benefits for mobility service providers.
Fleet management and network logistics approaches can be

leveraged to guarantee full-coverage mobility solutions
To be successful as
mobility provider, an
effective management of
the fleet is necessary
Car2Go, the short-term rental concept of Daimler AG, started its first pilot project
in Ulm offering small cars on a rental basis. The rural environment in particular
posed the problem of efficiently allocating the rental vehicles. The fact that Car2Go
customers can drop off their rented cars wherever they prefer usually results in an
unfavorable misallocation of vehicles. To guarantee a high quality of service and
full-coverage, efficient fleet management determining potential travel routes is
therefore vital.
Manufacturers of commercial vehicles have already been offering services to

efficiently allocate vehicle fleets for years. They have gained extensive experience
in this area. For example, the European commercial vehicle manufacturers Daimler,
MAN, Scania, Volvo, Renault Trucks, DAF Trucks and IVECO teamed up under the
so-called FMS (fleet management connection) standard as early as 2002. The
telematics devices developed can be used independent of manufacturer and enable
cross-fleet management.
A similar system for mobility providers could lead to a far more effective allocation
of vehicles and could grant better coverage and quality of service. Such a system
would therefore encourage customers to use more on-demand mobility services in
the future.
LESSONS THE TRUCK

BUSINESS CAN LEARN
FROM THE PASSENGER CAR
BUSINESS
It is nearly impossible to imagine a future world without

standardized platforms and electric drive trains even in the
truck sector
Opportunities for knowledge transfer from the passenger car to the commercial
vehicle business can also be identified. For instance, regarding the realization of
scales and synergies and the development of environmentally friendly propulsion
systems, the passenger vehicle business offers a vast number of best practices that
could be adopted by commercial vehicle manufacturers.
In 2012, the Volkswagen Group will introduce the modular transverse matrix, which
will represent the technical foundation for over 30 group models. This cross-brand
modular strategy will enable VW to exploit new synergies and greater economies
of scale. Volkswagen expects savings of approximately 20 percent in unit costs
and one-off expenses thanks to the introduction of the modular transverse
matrix. Global truck manufacturers should also have platform strategies similar
to the ones in the passenger business on top of the management agenda to stay
globally competitive. The same is true regarding electric drive train technologies.
The technical advancements made by the passenger vehicle industry to introduce
environmental drive train technologies to the mass-market could be transferred
to the commercial vehicle domain as well. Several manufacturers producing cars
and trucks under one roof are already proving the feasibility of sharing technologies
among the passenger and the commercial vehicle domain, while integrating various
electrical concepts (hybrids as well as fuel cells) into all kinds of their vehicles.
LESSONS THE PASSENGER CAR BUSINESS CAN LEARN FROM THE TRUCK BUSINESS
REGIONALIZED
TECHNOLOGY & PRODUCT
MANAGEMENT &
MULTI-BRANDING
Low customer expectations in emerging

markets regarding technological
sophistication
Strong competition with domestic low
cost OEMs in emerging markets
Introduction of localized
brands in entry-level segments
Gain market share without
blurring premium brand
reputation
FLEXIBLE CAPACITY
MANAGEMENT
Strong market cyclicality also observable

in the car business
Worldwide impacts of regional economic
instabilities and environmental
catastrophes
Global management of
overcapacity
Solutions for unforeseen
demand collapses
EXPANSION OF THE
VALUE CHAIN
(SERVICE-ORIENTED
BUSINESS MODELS)
Rising importance of TCO

Declining importance of vehicle ownership
Passenger vehicles transform to
investment assets for B2B customers
Cater to new B2B customers

(mobility service providers)
Focus on TCO as
differentiating factor and
competitive advantage
LESSONS THE TRUCK BUSINESS CAN LEARN FROM THE PASSENGER CAR BUSINESS
Adoption of platform
strategies and modularization
without sacrificing regional
adjustments and specifications
Intense global competition

New competitors from emerging markets
High cost pressure due to low cost OEMs
from emerging markets
Adoption of alternative
propulsion technologies
Sharing R&D costs via
cross-segment technologies
Raising environmental pollution

Tightening regulatory environment
REALIZATION OF
ECONOMIES OF SCALE
GREEN
TECHNOLOGIES
kpmg.com/automotive
Contact us
Global Automotive contacts
Dieter Becker
Global Head of Automotive
T: +49 711 9060 41720
E: dieterbecker@kpmg.com
Simone Beutel
Global Executive for Automotive
KPMG in Germany
T: +49 711 9060 41724
E: sbeutel@kpmg.com
Regional Automotive contacts
ASPAC
Chang Soo Lee
Samjong KPMG in Korea
T: +82 (2) 2112 0600
E: changsoolee@kr.kpmg.com
The Americas
Gary Silberg
KPMG in the US
T: +1 312 665 1916
E: gsilberg@kpmg.com
EMA
Dieter Becker
KPMG in Germany
T: +49 711 9060 41720
E: dieterbecker@kpmg.com
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KPMG INTERNATIONAL

ii | Competing in the Global Truck Industry Emerging Markets Spotlight

Prof. Dr. Willi Diez

Competing in the Global Truck Industry Emerging Markets Spotlight | iii

by far exceeded the most optimistic

FOR ALL INFORMATION CONTAINED IN THIS REPORT PLEASE NOTE:

Heavy commercial vehicles

The Next 11 countries refers to

All vehicle registration/

The Triad markets are the

Developments in the global commercial vehicle market

Challenges for commercial vehicle manufacturers

Demand shift to growth regions

Continuous market cyclicality

Overcoming the environmental challenge

Pressure on total cost of ownership

Winning strategies for a successful future 

Realization of economies of scale 

Flexible capacity management 

Expansion of the value chain 

Focus on emerging truck markets 

Prospects of convergence between emerging

Insight: Passenger and commercial vehicle business

2 | Competing in the Global Truck Industry Emerging Markets Spotlight

Competing in the Global Truck Industry Emerging Markets Spotlight | 3

The intervals for the introduction of environmental restrictions are increasingly

4 | Competing in the Global Truck Industry Emerging Markets Spotlight

Developments in the global

Cost saving programs

Due to the rapid economic recovery, in

Market share losses of the saturated

On the other hand, economic growth

The world market share of

The balance of power in the global

Competing in the Global Truck Industry Emerging Markets Spotlight | 5

Development of the commercial vehicle market (across all segments)*

From a truly global

Source: IHS Automotive, KPMG International

6 | Competing in the Global Truck Industry Emerging Markets Spotlight

Competing in the Global Truck Industry Emerging Markets Spotlight | 7

by 2015 if current trends continue.

Positive economic developments will

The BRIC and Next 11

Sales ranking of manufacturers of heavy commercial vehicles (GVW > 6 tons)

First Automotive Works

Emerging markets manufacturer

Source: IHS Automotive, KPMG International

8 | Competing in the Global Truck Industry Emerging Markets Spotlight

Challenges for commercial

Global truck manufacturers face a number of challenges

Costly innovations will be needed

Truck OEMs have to stay alert

Truck OEMs have to find suitable

Source: KPMG International

Competing in the Global Truck Industry Emerging Markets Spotlight | 9

2.1 Demand shift to growth regions

Already in todays market, a considerable proportion of trucks are sold by

Units Sold (in thousands)

Market Share Worldwide (in percent)

First Automotive Works

Source: IHS Automotive, KPMG International

10 | Competing in the Global Truck Industry Emerging Markets Spotlight

Development of the world market share by market clusters

Developments in the global commercial vehicle market

Challenges for commercial vehicle manufacturers

Demand shift to growth regions

Continuous market cyclicality

Overcoming the environmental challenge

Pressure on total cost of ownership

Winning strategies for a successful future

Realization of economies of scale

Flexible capacity management

Expansion of the value chain

Focus on emerging truck markets

2.3 Suitable business models and

2.4 Overcoming the environmental

2.5 Pressure on total cost of ownership

3.1 Regionalized technology and