KPMG Truck Report 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 für 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 für 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
Navistar International Corporation (USA)
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 by far exceeded the most optimistic
on by economic growth going in hand expectations – how can we foresee the
with the rising demand for the transport potentials and importance of issues
of goods. Of course, this is common arising in five or ten years’ time?
knowledge – but just perfectly describes
One thing is for sure: the markets will
the ups and downs in the truck industry
converge – not today, but early enough
over the last couple of years.
to start thinking about which winning
When we published our first KPMG strategies could guide the way to a
Truck Study in 2006 (“The European profitable and sustainable global truck
Commercial Vehicle Industry in the business model for tomorrow.
Age of Globalization”) we certainly
With this study KPMG hopes to make a
expected a rapid increase of commercial
stimulating contribution to the dialogue
vehicles sales in the world’s emerging
within the industry to address the
economies. But what we have seen
forthcoming challenges with winning
until today, especially in China and India,
strategies for a better competitive
surpassed all prospects: In terms of
positioning in the race for leadership in
units sold we are already talking about
the global truck market place.
Chinese manufacturers taking the global
lead in certain segments – and this by Enjoy the read!
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 added-
value services. But knowing that Dieter Becker
the developments in recent years Global Head of Automotive
Definitions
FOR ALL INFORMATION CONTAINED IN THIS REPORT PLEASE NOTE:
Gross vehicle weight (GVW) Heavy commercial vehicles The Next 11 countries refers to
is the maximum allowable (HCV) are commercial vehicles Egypt, Bangladesh, Indonesia,
total weight of a fully loaded carrying goods with a gross Iran, Mexico, Nigeria, Pakistan,
commercial vehicle. This vehicle weight (GVW) greater Philippines, South Korea, Turkey,
includes the actual vehicle than 6 tons (t). and Vietnam.
weight as well as passengers,
A Full-Line Manufacturer All vehicle registration/
cargo and fuel.
(FLM) is a truck manufacturer production data provided in
Light commercial vehicles producing and selling this report is sourced from
(LCV) are goods and carriage commercial vehicles in both the IHS Automotive (IHS Inc.)
vehicles with a gross vehicle LCV and the HCV segment. and is derived from official
weight (GVW) that varies national data sources as of
The Triad markets are the
from one region to another. In March 2011.
mature vehicle markets of
order to ensure international
North America (excluding
comparability, all LCVs referred
Mexico), Western Europe
to in this report have a GVW
and Japan.
below 6 tons (t).
Contents
AcknowledgementsII
EditorialIII
Executive Summary 2
1 Developments in the global commercial vehicle market 4
2 Challenges for commercial vehicle manufacturers 8
2.1 Demand shift to growth regions 9

2.2 Continuous market cyclicality 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
3 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
4 Focus on emerging truck markets 36
4.1 China 37
4.2 India 48
4.3 Russia 58
4.4 Prospects of convergence between emerging
and mature markets 68
Insight: Passenger and commercial vehicle business –
why they are different and what they can learn
from each other 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.
• The worldwide distribution of power in the commercial vehicle market has shifted
Market since 2006. Asian manufacturers have secured a stronger position at the expense
Development of Triad truck makers.
• With the formation of a large commercial vehicle group under VW’s 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.
• Emerging markets are also prone to market cycles in the commercial vehicle
market, but unlike in the Triad, the overall growth trend is upwards.
Challenges
• Global truck OEMs have to evolve regionally adjusted business models and brand
& Winning strategies in order to respond to differences in terms of market peculiarities,
Strategies 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 market-
tailored 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.
• The intervals for the introduction of environmental restrictions are increasingly
Emerging shortening in the emerging markets, although there still is a time lag compared to
Markets leading Triad markets.
Spotlight • 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.
• As the car market is not immune to market cyclicality either, OEMs can benefit
Car Business from flexible capacity management best practices already implemented in the
vs. truck business.
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.
1 Developments in the global

commercial vehicle market
The global commercial vehicle market is growing, particularly

in emerging markets
Due to the rapid economic recovery, in Market share losses of the saturated
Cost saving programs 2010 most commercial vehicle markets markets contrast with strong market
enabled Western revived from the sales decrease share gains in the emerging markets.
they suffered in 2008 and 2009. In particular, China sharply increased its
manufacturers to gain Nevertheless, commercial vehicle global market share in 2009 by about
profits even with reduced sales still remain below their pre-crisis 10 percent to 28 percent, replacing the
sales volume. volume in most markets. Although, US as the largest commercial vehicle
the enormous sales reductions have market, due largely to governmental
resulted in some painful lessons, support initiatives. By 2010, Chinese
extensive cost saving programs global market share had already grown
allow a majority of manufacturers to to 30 percent. India enjoyed similar
achieve respectable profits. However, although less spectacular growth. Asia
particularly OEMs from the established is now by far the largest region for
markets continue to face a number of commercial vehicle sales, accounting
challenges to maintain or grow their for nearly one in two commercial
market position in their home markets. vehicles sold worldwide.
These include increasingly stringent
regulations, rising gas prices and largely
saturated markets.
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 long-
term impact. Industry experts also
expect that the legal framework and
commodity prices will continue to play a
minor role for the time being.
The balance of power in the global
commercial vehicle market has changed
decisively over the past five years. In
The world market share of 2006, Western Europe accounted for
Western Europe and North about 10 percent of all commercial
America will continue to vehicle sales worldwide. In 2010, the
figure had fallen to around 7 percent.
decline relative to sharply The fall was even greater in North
rising demand in emerging America, where the share of worldwide
markets. 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
833
952
22,694 22,729 1,645
781
21,934
837 865
759 642 1,548
1,048 2,012
20,351
928 1,462
1,185 1,870
933 864
18,642
1,001 1,655
2,383 763
2,268
1,276
541
1,166
2,137 8,725
1,505
8,093
7,369 From a truly global
perspective, the truck
market is a growth market –
10,265
10,650 6,266 rising up to 33 million
7,974 units by 2015 if current
trends continue.
11,700
10,737 10,991
8,401
6,975 7,098
6,395
2006 2007 2008 2009 2010 2011f 2012f
Asia North America West Europe South America East Europe RoW
Source: IHS Automotive, KPMG International

*Light commercial vehicles up to six tons + heavy commercial vehicles over six tons f = forecasted
Positive economic developments will by 2015 if current trends continue.

ensure further market growth over the In addition to the BRIC countries, The BRIC and Next 11
coming years, including a fundamental the so called “Next 11” states, such states will spur market
rebalancing of the global market. The as Indonesia, South Korea, Vietnam
demand in the future.
truck market is expected to grow by and the Philippines, will contribute
around 14 percent between 2010 significantly to this growth as well.
and 2012, rising up to 33 million units
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.
2006 2007 2008 2009 2010
n°1 DONGFENG
n°2 DAIMLER AG
1
n°3 FAW
n°4 PACCAR CNHTC 2
n°5 TATA MOTORS

Sales Ranking
n°6 NAVISTAR VOLVO TRUCKS
n°7 TORCH
n°8 BAIC 3
n°9 FORD MAN
n°10 TOYOTA ASHOK LEYLAND
1
First Automotive Works
2
China National Heavy Duty Truck Corp. Emerging markets manufacturer
3
Beijing Automotive Industry Corp.
2 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 Truck OEMs have to stay alert
ownership. However, the reduction to the continuous market
of TCO from the manufacturer’s cyclicality in the Triad – and in
side is not easy. the emerging markets.
Pressure
on total Continuous
cost of market
ownership cyclicality
Costly innovations will be needed Overcoming the Suitable business

to address technological challenges, environmental models and brand Truck OEMs have to find suitable
which truck operators may be challenge strategies business models and brand
unwilling to pay the price. 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, Already in today’s market, a considerable proportion of trucks are sold by
manufacturers from manufacturers from emerging markets, such as Dongfeng Motor, FAW and CNHTC
China and India have (all China) and Tata Motors (India). Of course, these companies sell most of their
vehicles in their respective home markets. Nevertheless, even Daimler Trucks,
already surpassed most
for years the biggest seller in the heavy duty vehicle segment, was outperformed
of their mature market in 2010 for the first time by the Chinese Dongfeng Group. This underlines the
competitors. 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 10.3%
DAIMLER TRUCKS 280.7 9.7%
1
FAW 274.3 9.5%
CNHTC 2 199.9 6.9%
TATA MOTORS 194.9 6.7%
3
VOLVO GLOBAL TRUCKS 125.8 4.3%
TORCH 113.2 3.9%
4
BAIC 109.4 3.8%
MAN (VW) 103.8 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 2.5%
FORD 64.8 2.2%
ANHUI JIANGHUAI 62.8 2.2%
IVECO (FIAT) 51.9 1.8%
SCANIA (VW) 48.6 1.7%
1
2
China National Heavy Duty Truck Corp.
3
Volvo, Renault Trucks, Mack
4
Beijing Automotive Industry Corp. (Auman, EuroV, Beiqi Foton)
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
TRIAD
11% 11%
7% 8% 2
BRIC
World World
43%
Market Share Market Share
20% N-11
3
2006 62% 2012f
38% 4
RoW
1
North America (excl. Mexico), Western Europe, Japan
2
Brazil, Russia, India, China
3
Next -11 (No data available for Nigeria, Bangladesh)
4
RoW = Rest of World
f = forecasted
© 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) FULL-LINE (LCV + HCV)

24 companies 18 companies 16 companies
Brilliance-Jinbei Anhui Ankai BAIC

Changan Anhui Jianghuai Chengdu Xindadi
Chery Chengdu Dayun Sichuan China First Tractor
Dongan Heibao Highway Machinery Dongfeng
Feidie Auto Chengdu Wangpai FAW
CNHTC Fujian Longma
Fujian Auto
Fujian Xinfuda Jinggong Zhenjiang
Great Wall
Guangzhou Bus King Long
Guangzhou Auto
Lifan Group
Guilin Bus Hanyang Auto
Nanjing Automotive
Guizhou Yuantong Aeronautic Auto Henan Shaolin
SAIC
Hebei Changzheng Hualing
Shandong Huayuan Kama
Hebei Zhongxing Hunan Axle Works Shuguang Group
Hubei Sanhuan Nanjing Chunlan/Xugong Sichuan Nanjun
Hubei Sanjiang Norinco Yaxing
Hunan Zoomlion Axle Works North Benz Zhengzhou Yutong Coach
Jianghuai Shandong Wuzheng
Jiangling Shitong Special Vehicle
Jiangxi Fire Engine Torch
Liaoning Lingyuan Auto Zhejiang Youngman
Shaanxi Automotive
Shandong Auto
Shandong Kaima
Shandong Tangjun Ouling Auto
Sichuan Yinhale Machinery
Bold = more than 50.000 units sold in 2010
1
Joint venture (51:49) Mahindra Navistar Engines produces diesel engines for medium and heavy commercial trucks and buses
in India
2
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 Market Share
(in thousands) (in percent)
3
MAN 31.3 15.6%
PACCAR 27.5 13.7%
IVECO (FIAT) 26.0 13.0%
SCANIA (VW) 20.5 10.2%
NORTH AMERICA
NAVISTAR 72.2 26.9%
PACCAR 42.6 15.8%
FORD 33.4 12.4%

3
VOLVO GLOBAL TRUCKS 8.5%
22.8
SOUTH AMERICA
MAN 60.2 22.1%
FORD 31.3 11.5%
IVECO (FIAT) 20.6 7.6%
VOLVO GLOBAL TRUCKS3 19.7 7.3%
EAST EUROPE (incl. Russia)

KAMAZ 28.9 25.4%
GAZ GROUP 23.9 20.9%
3
MAZ 7.7 6.8%
MAN 7.6 6.6%
CHINA
DONGFENG 299 20.6%
FAW1 273 18.8%
CNHTC2 200 13.7%
TORCH 113 7.8%

4
BAIC 109 7.5%
INDIA
TATA MOTORS 189 59.3%
ASHOK LEYLAND 80 25.0%
EICHER MOTORS 28 8.9%
SWARAJ MAZDA 7 2.2%

1
2
China National Heavy Duty Truck Corp. ASIA MOTOR WORKS 6 1.9%
3
Volvo, Renault Trucks, Mack
4
Beijing Automotive Industry Corp.
(Auman, EuroV, Beiqi Foton)
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 This cyclicality is caused by a dependency on overall economic development.
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
Commercial vehicle
again, companies reactivate these trucks before buying new ones, leading to a
sales usually trail behind time-lag between the rise in GDP and the demand for trucks. This is illustrated by
changes in GDP. 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

Time lag illustrated
using the example of Observation Observation
the US market for light Period 1 Period 2
commercial vehicles (LCV)

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
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
GDP shows a time lag of two
quarters in relation to the peak of % Growth in Truck Sales % Growth in GDP
commercial vehicle sales.
Source: IHS Automotive, US Department of Commerce (2011), Institut für 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.
Development trends in commercial vehicle demand in China, India and Russia
AVERAGE SALES (2001−2009)

Russia = 296,000 units
China = 2,900,000 units
India = 333,000 units
Light commercial vehicle demand
trend
(on a basis of accumulation)
2001 2002 2003 2004 2005 2006 2007 2008 2009
Source: VDA, KPMG International
DAIMLER AG
Interview with Andreas Renschler,
“In China or India, we’re talking about an average sales price
Member of the Board and Head of Daimler
of €30,000, compared to Europe with prices from €80,000
Trucks Division at Daimler AG (Germany)
to €100,000. As long as global markets remain as diverged
as they are today, a ‘world truck’ approach is not a viable
Andreas Renschler, Head of Daimler Trucks, expects a fairly option,” he says.
steady recovery of the global commercial vehicle industry In line with this, Renschler is sure that “there is not the one
after two almost catastrophic years. universally applicable concept to access foreign markets. It
“Although strong cyclicality has always played a pivotal role always depends on the specific regulatory environment and
in the commercial vehicle industry, the 2008/2009 market market specialties.”
turmoil went far beyond anything we could have expected,” To successfully address price and cost-sensitive emerging
says Renschler. market customers, a multi-brand strategy is an important
“The market is now growing again, but of course there are aspect for Renschler.
regional differences,” he adds. “For a full-line manufacturer like Mercedes-Benz, which
Renschler sees the mature markets of North America is predominantly known for its high-quality and relatively
and Europe still being some way off their pre-crisis levels. costly premium cars, the differentiation between its various
In contrast, India and Russia are showing rapid signs of product segments is an absolute necessity,” he says.
recovery, not to mention the Chinese market, where the With its Fuso brand, an important pillar for Daimler’s
demand for trucks was largely unaffected by the global success in Asia, and the recently introduced BharatBenz,
economic woes. especially focused on the Indian domestic market,
He is convinced that the best way to gain a sense of future Renschler believes Daimler is on the right track.
market potential is to look at GDP. “A growing economy In more mature markets, he sees an ongoing trend towards
always goes hand-in-hand with increasing freight transport a more differentiated view on the total cost of ownership for
volumes – boosting the demand for trucks,” he explains. trucks: “After all, the number one purchase reason in mature
Winning strategies for a global player markets is the total cost per kilometer, not – in contrast to
emerging markets – the initial price of a truck.”
In terms of business strategies for global truck
manufacturers, Renschler says it’s not all about quantitative That’s why Daimler increasingly pursues value added services
market development, as qualitative differences among around the truck itself to open up further revenue potentials.
emerging and mature markets will remain a limiting factor Renschler especially sees huge potential for value added
for some time. 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 A multi-brand strategy
to compete on a global level. In contrast, specialists active solely in the heavy truck
enables regional factors to
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 be taken into account.
global scale.
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 Group’s 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 Analysis of the business
models and brand
Global
1 VOLVO 2
strategies of selected
65 VW 1
60
MAN GLOBAL TRUCKS1
(MAN/SCANIA/VW)
commercial vehicle
(+VW TRUCKS)
55 manufacturers
Markets served in CY 10
50 VW
45 (VWN/SCANIA)1 Vertical axis: Shows in how many
DAIMLER AG1
40 markets manufacturers were
35 average=33.8 PACCAR
represented in 2010 with their
30 3 4
25 DONGFENG1 ISUZU1 respective brands and models.
20
15
Horizontal axis: The Brand Portfolio
average= 0.6
10 BEIJING Index (BPI) shows the respective

AUTOMOTIVE1
5 TATA1 intensity of the manufacturers’
0 1Full Line Manufacturer
brand strategies. The index sets
Local
0.2 0.4 0.6 0.8 1.0
the respective number of brands in
the manufacturer portfolio against
hypothetical
the manufacturer with the most
Single KPMG’s BPI Multi individual brands in the portfolio (in
brand Brand portfolio index = [0;1] brand
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. Volkswagen’s 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 For emerging players like Dongfeng and Tata, it remains to be seen how they will
to engage multi-branding 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
from bottom up to succeed to the top-to-bottom approach of their mature market peers, they will have to
in more sophisticated differentiate their products from the bottom up. Consequently, the introduction of a
foreign markets. premium brand could be of crucial importance, to separate their global products from
their product’s low-cost reputation in their home markets.
2.4 Overcoming the environmental

challenge
The Triad markets are taking a pioneering role on
environmental restrictions
Pollution restrictions in mature markets have risen steeply in recent years. Technological innovations
Manufacturers have responded by substantially cutting particle and nitrogen are constantly reducing
oxide emissions, as well as fuel consumption and thus CO2. Measures within truck emissions.
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
0.2
0.0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
CO2/tkm Nox/tkm 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, In particular large
there is a desire to give local manufacturers time to develop more environmentally- metropolitan regions,
friendly vehicles. Nevertheless, it is apparent that environmental demands are also
such as Beijing and Delhi,
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 strongly regulate exhaust
introduced Euro I to III at around the same time. However, India’s pace now seems limits – rural areas are
to have slowed, as the most stringent limits of Bharat Stage IV (equivalent to Euro still less affected by
IV) only apply to the national capital region of Delhi and another eleven cities. governmental regulations.
Hence, they can be easily circumvented by registering vehicles outside large cities.
Looking at the pace at which environmental legislation for trucks is being

The time lag between the introduced in emerging markets, the time lag with the West has shortened
introduction of exhaust significantly. It may be assumed, therefore, that the pace of introducing
limits between mature environmental standards is linked with the rapid sales increases in those markets.
When it introduced Euro III equivalent exhaust limits in 2008, for example,
and emerging markets China was six years behind the EU schedule. However, the time lag between
narrowed significantly. 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 Fuel costs, service and
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
repair are becoming
markets, but sensitivity to fuel prices will increase with rising crude oil prices. Similarly, increasingly important in
with the increasing technical complexity of commercial vehicles, it is likely that only emerging markets.
qualified specialists will be able to perform service and repairs in the future.
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 manufacturer’s 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 manufacturer’s 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.
We’ve addressed
Overview of the TCO in trucks in Western Europe
things like fuel economy,
weight, and driver
30%
environment. Next, we’ll
see technologies such
Tires 1%
Fuel as collision avoidance
Interest 2% 40-ton
Tractor – Semitrailer 26%
Wages systems, stability
Road Tax 2% Combination
Overhead systems – anything which
Repair &
Maintenance 5% Depreciation can reduce their [the
Vehicle
Insurance 6% 10% operator’s] overall costs
18%
further.
Dee Kapur, President of the Truck Group,
Source: Commercial Vehicles and CO2, ACEA/Iveco, 2011 Navistar International Corporation
3 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
• Realization of economies of scale
• Multi-branding
Demand shift to
growth regions
• Green ﬂeet • Flexible capacity management

• Expansion of the value chain • Expansion of the value chain
Pressure
on total Continuous
cost of market
ownership cyclicality
• Regionalized technology and

Overcoming the Suitable business product management
• Realization of economies of scale environmental models and brand • Multi-branding
challenge strategies
• Green ﬂeet • Expansion of the value chain
3.1 Regionalized technology and

product management
Global market leadership will be determined by the regional A “World Truck” concept
adaptability of multinational OEMs is not promising. Different
Vehicle concepts geared toward the demands of Western customers will make concepts must be
little impression in emerging markets. Gearing vehicle designs to local customer developed for the mature
demands will be essential. This will mean reducing product complexity and using and emerging markets.
local resources and suppliers.
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 There is no patented
important Asian markets. Entering an emerging market with local partners solution for market
(mandatory in China) therefore has numerous advantages. These include using development with or
local know-how, brand recognition and existing service networks.
without local partners.
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 company’s 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.
For global OEMs operating fully-owned subsidiaries in emerging markets,
correctly integrating regional control structures into the overall company’s
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 company’s 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
Wörth 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)
This requires the development of a modular system that makes it possible to use
As many non-variable the same aggregates and components in different production series – true to
the principle of “as many non-variable parts as possible, as many individualized
parts as possible, as many technologies as necessary.” The cost-relevant aggregates and components (engine,
individualized technologies axles, transmissions, and electronics) are at the forefront in this regard. Only in this
as necessary. 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 Partnering with external
organizations can all help companies to become more flexible. The in- and parties can increase
outsourcing of various processes can provide access to the resources, information
flexibility.
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.
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 BUSINESS MODELS
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 Triad: Product-service
parts logistics, financial services and fleet management). The USP (unique sales bundle with technically
proposition) is ultimately a minimization of the TCO, while simultaneously ensuring and qualitatively high-value
reliable readiness of the vehicles for use. In contrast, a successful business model vehicles.
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. Emerging markets:
In this context, brands emphasize different points in the commercial sector than Low-cost trucks with low
the consumer sector, but they should not be neglected. This applies primarily to follow-up costs.
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 The brands of global
by high customer and environmental demands. In the North American market, manufacturers vary in
conversely, the two companies use traditional US brands. Gaps in the brand
portfolios are supplemented by European premium brands. In turn, the growing
Europe, North America,
Latin American market is handled using brands from the European region. In Asian India and China.
markets, known and new local brands are used, or activities are carried out through
joint ventures with local manufacturers.
Comparison of the brand portfolios of Daimler Trucks and Volvo Trucks

Europe North America South America Asia
Daimler Volvo Daimler Volvo Daimler Volvo Daimler Volvo
Heavy Mercedes-Benz Volvo Freightliner Mack Mercedes- Volvo Mitsubishi Volvo
• Actros • FH-model • Cascadia • Titan Benz • FH-model Fuso FM-model
Duty • Zetros • FM(X)-model • Century Class ST • Pinnacle • Actros • FM(X)-model • FP/FV
• Unimog • Columbia • Granite • Linha Renault
Renault • Coronado Tradicional Renault Beiqi Foton Premium
• Magnum • Classic (XL) Volvo • Premium Motor Co. (CN) Kerax
• Premium • FLD • VN-model • Kerax JV with Foton
• Kerax • VHD-model • Auman Nissan Diesel
Western Star (J)
• Stratosphere Nissan Diesel Mercedes- Condor
• 4900 • UD Benz Quon
• 6900 • Actros
• LowMax Jinan Huawo
BharatBenz (I) Truck Co. (CN)
JV with CNHTC
VECV Ltd. (I)

JV with Eicher
Middle Mercedes-Benz Volvo Freightliner Mack Mercedes- Volvo Mitsubishi Nissan Diesel
• Axor • FL-model • Business Class • Terrapro Benz • VM-model Fuso (J)
Duty • Econic • FE-model M2 • Axor FK/FM • Condor
Renault
Renault Mitsubishi Fuso • Midlum BharatBenz (I) Renault
• Midlum • FK/FM • Midlum
• Access Beiqi Foton
Motor Co. (CN) VECV Ltd. (I)
JV with Foton JV with Eicher
• Auman
Light Mercedes-Benz Renault Mitsubishi Fuso Mercedes- Mitsubishi Nissan Diesel

• Atego • Mascott • FE/FG Benz Fuso (J)
Duty • Maxity • Atego • Canter • Condor
Mitsubishi Fuso • Master • Accelo • FE/FG
• Canter • Trafic Renault
Beiqi Foton • Maxity
Motor Co. (CN) • Master
JV with Foton
• Aumark VECV Ltd. (I)
• Ollin JV with Eicher
• Lovol
• Forland
J = Japan, CN = China, I = India, JV = Joint Venture

Source: IHS Automotive, Institut für 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 know-
how. 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
Already available in Short-term Mid-term Long-term

serial production (approx. 5 years) (approx. 10 years) (approx. 15 years)
The optimization of Savings up to 8% can be Comprehensively In particular in the

diesel engines offers achieved; a substitution deployable in all vehicle heavy duty segment no
Optimized/downsized
the best long-term with alternative drive classes alternative to internal
internal combustion
cost-benefit ratio for systems is most likely combustion engines
engines
Increasing environmental benefits through fuel savings and emission reduction
commercial vehicles in the light commercial evident

vehicle segment
Automatic start-stop Savings up to 20% can
and brake energy be achieved; significant
recuperation systems advantages in urban stop-
Micro-hybrids are available today and and-go traffic
already used in light to
medium commercial
vehicles
Natural gas engines Savings up to 25% can Low potential for
already reached be achieved, further long-distance traffic,
Gas engines maturity, but offer reduction potential but favorable for short-
(LPG/LNG) lower efficiency gains through bio gas; but low distance urban transport
compared to optimized market penetration
diesel engines
Several OEMs already Savings up to 20%, Further technical
offer mild-hybrids in the prototypes in operation improvements and cost
Mild-hybrids light commercial vehicle in the medium and heavy reductions will allow
segment (e.g. Daimler) truck segments competitive positioning
in inner city traffic
Small series production First prototypes in Plug-in hybrids will most
in the light and medium operation in the class probably not be used in
commercial vehicle above 12 tons long-distance and heavy
Full-hybrids
segments; savings up to duty transport
30% (40% with plug-in
solutions)
Depending on the Comprehensively In the mid-term bio Sustainable second
Alternative fuels production process, deployable in all vehicle diesel will be the most generation bio fuels still
(biomass-to-liquid, alternative fuels classes important biogenic in development
methanol, ethanol, bio already offer up to alternative fuel
fuels) 40% greenhouse gas
reduction potential
Demonstration vehicles Emission saving potential First prototypes in
and small series between 30% and operation in the medium
production in the light 100% depending on the duty segment, use of
Electric engines
commercial vehicle underlying energy mix electric engines not
segment foreseeable in the heavy
duty segment yet
Several prototypes Reduction potential up
already in operation, until to 100% provided that
Hydrogen/ 2030 reasonable market hydrogen is produced
fuel cells share possible in the from renewable energy
light commercial vehicle
segment
Source: Shell, VDA et al., Institut für 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.
More heavily hybridized engines (mild/full) are infrequently used in commercial
Initial prototypes of vehicles. Daimler offers three trucks (the Mercedes-Benz Atego, the Freightliner
full-hybrid systems are 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
being tested in classes
with the support of an electric engine. The electric engine automatically switches
over 12 tons. 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.
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.
The willingness to pay a
price for eco-innovations is 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
much lower for commercial a price for eco-innovations in commercial vehicles than passenger cars. Therefore,
vehicles than passenger commercial vehicle manufacturers must seek new ways to substantially reduce
cars. 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
The “trolley truck” emissions. One idea for electrifying heavy trucks is the concept of the “trolley
combines the concept of 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)
individual traffic with that
and draw the electricity needed from a two-pole direct-current line stretched above
of an electric bus. the road.
The truck would be able to drive purely electrically on the freeway, charge the on-
board 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
Stronger service offerings have been used in recent decades to add value for OEMs
Downstream services can downstream from production and distribution. There are already commercial vehicle
substantially contribute to 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
increased revenues.
downstream activities will further increase in the commercial vehicle business.
Added-value services in the commercial vehicle industry

Global
Eco-/driver safety trainings

Fleet
Cross-border-financing management
Buy-back-obligation
Financing Damage management

Regionalization
Project
Insurance Tire replacement management
Toll management Maintenance contract
Leasing Telematics
Special equipment
services
Maintenance & repair
Warranty
Used truck
trade-in
Truck, Serial-/special
superstructure fittings
Contract hire/
and retrofitting Breakdown
short-term
Local
service
rental
Owner-Driver Company size Large fleet
Source: Institut für 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.
The medium- and heavy-duty after-sales market is led by exterior and structural
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
parts (e.g. tires) dominate
after-sales revenue. Taking revenue potential into account, tires are exchanged
the after-sales market. 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 OEMs can tap new
online aftermarket study carried out by Google in cooperation with Compete,
revenue sources via online
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 after-sales platforms.
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.
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 study’s 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 Purchased Parts Offline
Aftermarket automotive Aftermarket automotive

52% 44%
retailer website retailer
Local independent
19%
automotive shop
Online independent seller 19%
17% Retailer
Online retailer website 10%

7% Dealership
Dealership website 5% 6% Oil change service shop

Direct from manufacturer website 3% 1% Direct from manufacturer
Source: The 2010 Automotive Aftermarket Study, Google & Compete
3
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 today’s 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
43%
Auto 21%
New vehicles
36%
42%
Truck 45%
13%
51%
Used vehicles
Auto 2%
47%
23%
Truck 10%
67%
0 10 20 30 40 50 60 70 80
Financing form Financing Leasing Cash Purchase

Source: puls Marktforschung (2010)
A different picture emerges for used vehicles. In this area, two-thirds of commercial
In the used truck market, vehicles are purchased for cash; only ten percent of vehicles are leased, and
two-thirds of vehicles are 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
purchased for cash.
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
Auto 69% 31%

Financing
Truck 49% 51%

Leasing
Truck 62% 38%
0 10 20 30 40 50 60 70 80 90 100
Captive 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 Financial services are
both corporate and private customers is quite a new concept. Around 90 percent almost non-existent in
of all vehicles purchased in China are paid for in cash; financing accounts for the
the emerging markets –
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 although today efforts are
consumer education regarding financing – the Chinese government did not allow intensifying.
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 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 partner’s 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

Innovative mobility solutions in the form of contract hire/short-term rental are also
Mobility solutions will playing an increasingly important role. For example, commercial vehicle providers
become increasingly in Europe and the US offer individually structured mobility packages for commercial
vehicle operators. For instance, Mercedes Benz CharterWay, the international
popular in the commercial commercial vehicle financial services, contract hire and fleet management arm of
vehicle market. Daimler AG, combines leasing or financing arrangements with a variety of added-
value 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.
Many commercial vehicle OEMs already operate professional online commercial
The used vehicle trade in vehicle exchange platforms, in which customers can search for suitable vehicles
the commercial vehicle worldwide according to price classes, vehicle age and kilometer reading, as
sector has developed as an well as body and payload. For some manufacturers, the business involving used
commercial vehicles is operated – similarly to the passenger car business – under a
attractive business model. 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.
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
FMS in developing markets infrastructure improves, customer expectations rise and more sophisticated
IT networks develop. Today, one of the first global players engaging in fleet
trail behind due to lower
management services in the emerging markets is General Motors. GM introduced
technology level and road its “Onstar” in-vehicle security, communications, and diagnostics system for its
density. 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.
4 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 INDIA RUSSIA
Role of domestic manufacturers in the
MARKET commercial vehicle market
STRUCTURE &
DEVELOPMENT Impact of market cyclicality on domestic truck
market sales and production
Degree of market consolidation

COMPETITIVE
ENVIRONMENT Competitive abilities of domestic vs. foreign truck
manufacturers
Customer demand for more sophisticated
commercial vehicles
Influence of Total Cost of Ownership on truck
MARKET customer’s purchase decision
CHARACTERISTICS Demand for added-value services (e.g. car
maintenance, repair services)
Importance of fleet management solutions
and telematics services
Interest of global OEMs entering the domestic
GLOBALIZATION market
STRATEGIES Competitive abilities of emerging OEMs to
succeed on the global truck market
Key: no impact very low/weak low/weak high/strong very high/strong
China | 37
4.1 China
4.1.1 Market structure & development Domestic vs. foreign sales

and production
China’s commercial vehicle market achieves consistently high
growth with less sophisticated trucks 2.1%
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 Sales
2010
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. 97.9%
The Chinese market has experienced consistently high growth in recent years. Domestic
The strong growth of the overall economy in the last decade acted as the primary Foreign
engine. In particular, the market for light commercial vehicles was not negatively 1.8%
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 government’s 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 Production
2010
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 98.2%
Domestic
and other emerging markets such as India and Russia. Even then, the market
Foreign
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 Light commercial vehicles
Interestingly, China’s domestic production volumes consistently exceeded dominate the Chinese
commercial vehicle sales between 2006-2010. Forecasts show that this will remain truck market and are
the case for the next few years, too. Furthermore, current export volumes of posting steady growth.
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.
Sales and production in the Chinese commercial vehicle market (2006 – 2011) (in thousands)
Sales vs. GDP growth Production vs. GDP growth

8,000 16% 8,000 16%
7,000 6,816 6,934 14% 7,000 6,921 6,933 14%
1,452 1,381 1,460 1,374

6,000 12% 6,000 12%
5,296 5,444
5,000 988 10% 5,000 1,033 10%
4,000 3,707 8% 4,000 3,763 8%

3,510 3,534
2,991 820 3,006 857
3,000 831 6% 3,000 834 6%
611 605
4,307 5,364 5,553 4,411 5,460 5,559
2,000 4% 2,000 4%
2,381 2,679 2,887 2,401 2,701 2,906
1,000 2% 1,000 2%
0 0% 0 0%
2006 2007 2008 2009 2010 2011f 2006 2007 2008 2009 2010 2011f
LCV (< 6t) HCV (> 6t) GDP growth (real) LCV (< 6t) HCV (> 6t) GDP growth (real)
Source: IHS Automotive, Deutsche Bank Research, KPMG International
4.1.2 Competitive Environment

State-owned manufacturers are in intense competition with
State-owned manufacturers one another
clearly lead the Chinese
The largest commercial vehicle group in the Chinese market is the state-owned
commercial vehicle Chang’an Automobile Group. Interestingly, in contrast to its competitors, Chang’an
market. 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 1 Full-line manufacturer
2 Multi-brand manufacturer
18% CHANGAN 2,3,4 3 Domestic manufacturer
1.191 4 LCV manufacturer
5 HCV manufacturer
16%
14% BAIC 1,2,3 DONGFENG 1,3

728 905
Market Share CY 2010
12%
10%
8% FAW 1,2,3
531
6% BRILLIANCE-JINBEI 3,4
263 CNHTC 3,5
200
4%
JIANGHUAI 3,4
195 JIANGLING 3,4
2% TORCH 3,5
124 113
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)
Source: IHS Automotive, KPMG International 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, Chang’an, 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
Chang‘an 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 (Chang‘an) 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 0 17 20 26 35
Chongqing Hongyan (SAIC) 18 24 22 20 33
King Long 10 13 15 22 31

China | 41
BEIQI FOTON Chinese trucks are designed to cope with overload

Interview with Shen Yang,
capability, allowing businesses to transport more goods
Senior Director of Strategy and Development at
per journey than regulations allow – which has a positive
Beiqi Foton Motor Co., Ltd. (China)
economic impact for the customer. It’s this understanding
of local needs that give domestic OEMs an advantage over
foreign developers.
Chinese brands will be successful
Emissions levels will become increasingly relevant
The Chinese auto industry will reach maturity over the
because of their link to vehicle efficiency and fuel economy,
coming decades, according to Shen Yang, senior director of
but Shen sees no prospects for hybrid power train systems
strategy and development at Beiqi Foton Motor Company.
in the truck sector. Safety features will also continue to
Moreover, he believes the affordability of locally-produced
occupy a low place on the priority list, mirroring their
trucks will keep the domestic market healthy. “In the
minimal influence in the passenger vehicle sector.
commercial sector, buyers are interested in value for
money, and generally Chinese brands cost one-third to Shen is optimistic about Foton’s ability to penetrate
one-half as much as foreign makes,” says Shen. foreign markets. Last year, the company unveiled its
5+3+1 strategy: localize manufacturing in ‘5’ fast-growing
Foreign truck manufacturers, he notes, are hindered with
countries - India, Brazil, Mexico, Russia, and Thailand;
larger R&D and manufacturing expenses, as well as rigid
launch business in ‘3’ developed regions - Europe, North
cost structures. “Because of these higher costs, I don’t
America, and Japan; with the ‘1’ symbolizing a plan to crack
think foreign OEMs will be able to take much market share
the domestic passenger vehicle market by the middle of
from domestic manufacturers,” says Shen.
the decade.
The commercial market is where Shen sees Foton
In terms of financial and technical capability, Shen believes
continuing to prosper. “We have a very powerful brand
Foton is more than ready to embark on these ambitious
in commercial vehicles,” he says. “But that doesn’t
plans. Foton entered Mexico years ago by partnering with a
necessarily translate to passenger vehicles, where we lack
local distributor. This contrasts with similar failed attempts
a recognized image.”
by rival manufacturers. “Certain manufacturers are short-
Shen remains skeptical about the prospects of further sighted,” says Shen. “Entering a new market successfully
government aid to strengthen the position of domestic is a long term strategy. You must make calculations not for
manufacturers. Market demand will continue to drive one year, but for five or ten years. Companies can only do
the industry – and value-for-money will continue to drive this if they are able to combine an entrepreneurial spirit
market demand. with serious commitment.”
4.1.3 Market characteristics

CUSTOMER Main challenge for foreign manufacturers is the Chinese
REQUIREMENTS customer’s 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 The initial purchase price is still prioritized over the lifecycle
OWNERSHIP 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.
However, experts predict this will change in the future, as additional costs for trucks
The government generally 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
follows a cautious
wages are likely to rise more rapidly in the years to come. According to the National
approach to keep fuel Bureau of Statistics of China, the average wage of employed people has already
prices low level in favor of experienced a compound annual growth rate of almost 15 percent in the first
domestic consumers, but decade of this millennium. In metropolitan areas like Beijing or Shanghai, wages are
it will have to raise fuel almost twice as high as the national average.
prices to contain inflation. 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.
ADDED-VALUE Chinese truck customers will increasingly demand

SERVICES 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
Transport of Goods by Road 612,940 784,090 869,320 975,425 1,135,469 3,286,819 3,718,882 4,300,543
Total share 30.7% 28.8% 29.5% 30.7% 32.2% 56.6% 59.5% 60.7%
Transport of Goods by Railway 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
Total Traffic 1,995,017 2,720,150 2,949,810 3,180,294 3,526,808 5,809,407 6,255,422 7,082,616

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 China’s 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)
An extensive servicing
In the end, improving roads will ultimately lead to longer freight transport distances.
network will be a critical
An extensive network of servicing stations for repairs and maintenance will success factor for truck
therefore become increasingly important for the success of commercial vehicle manufacturers in China.
manufacturers in China.
Fleet management services are largely restricted to FLEET MANAGEMENT

metropolitan areas and business hubs such as Beijing
and Shanghai
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
China’s leading steelmaker, Baosteel Group. The venture is aiming for a fleet of
10,000 vehicles by 2014.4
4
SocGen, Baosteel forms China auto-leasing venture, Reuters, 2009
4.1.4 Globalization strategies

MARKET ENTRY STRATEGIES Market entry for global manufacturers is only possible through
FOR GLOBAL OEMs 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 it’s 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”
A company must comply with rigid local content provisions to operate in China.
Market entrants must 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
comply with the rigorous
portion exceeds 60 percent, a customs duty is imposed at the rate for imported
requirements of the parts, substantially higher than the rate for motor vehicle parts.
Chinese regulatory
After joining the WTO, the Chinese government reduced import customs duties on
environment. 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
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
Volvo, Daimler, MAN and Huawo Truck Corporation. Daimler agreed to enter into a joint venture with BAIC’s
GM maintain commercial subsidiary Beiqi Foton in 2008.
vehicle joint ventures in In 2009, German-based MAN invested in the Chinese state-owned enterprise
China. 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 OEM’s 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 Western manufacturers
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
must cut costs and offer
extremely difficult for Western brands to compete on price, even with established substantially cheaper
non-Chinese manufacturers such as Hino (a Toyota brand) from Japan. These trucks to succeed in
manufacturers already have a well-developed market position and their products the Chinese low-cost
serve a premium segment at substantially lower prices. A premium segment at segment.
Western levels will probably develop in major Chinese metropolitan centers with
large professional fleet operators, and in the light commercial vehicle 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 Chinese commercial vehicle manufacturers plan to expand

BY EMERGING OEMs 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 today’s production volumes, this would mean an overwhelming export
volume of more than 1 million units per year by then.
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
Preferred export regions example, Beiqi Foton sold only around 10,000 units in South America (Columbia,
include Brazil, Mexico, 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
India, Russia, Southeast
proved insurmountable hurdles. In addition to partnerships with established players,
Asia and African countries. 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)
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
It could take one Chinese trucks. Later, the construction of the joint venture’s own plant in Southern
Mexico was planned, which would also have served Latin America. Mexico’s
or two cycles for membership of NAFTA would also have eased entry into the US market.
However, the joint venture faltered because the demands on foreign OEMs
them to compete (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.
fully, but we should Conversely, FAW’s Chinese competitor, Foton, launched an investment in Mexico
not underestimate 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,
them [Chinese OEMs] 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
in any way. goal of becoming the world’s largest commercial vehicle manufacturer by 2020.
As a next step, Foton recently signed a memorandum of understanding to build an
Dee Kapur, President of the Truck Group, assembly plant in Maharashtra, India. The company plans to build trucks, buses,
Navistar International Corporation (USA) pickups, SUVs and minivans.5
5
Chinese commercial vehicle maker plans India plant, Automotive News China, 2011
China | 47
SGMW
Interview with George Kapitelli,
Vice President at SAIC GM 40 percent and sales exceeded 1.2 million On the environmental side, Kapitelli
Wuling Automobile Co., Ltd. vehicles. That’s significant growth.” says the government is dedicated to
(SGMW) (China) raising the emissions standards of
The JV structure added value in
Chinese vehicles to match Western
terms of technology, management
levels. At the same time, Chinese
Successful strategies for strategy, staff development and
consumers are becoming more
operational processes. Kapitelli says
entering foreign markets tactical JVs can also ease access into
environmentally aware, and now
have greater expectations of auto
The Chinese truck industry is at a foreign markets for domestic Chinese
manufacturers.
turning point, driven by growing manufacturers.
domestic affluence, the rise of The demand for greener vehicles
Under GM’s widely-recognized
environmental issues, and foreign was further boosted in 2010 with the
Chevrolet banner, SGMW has already
partnerships. That’s the view of SGMW introduction of a new grant for buyers
begun distributing its vehicles to new
vice president George Kapitelli. of fuel-efficient vehicles, which can
markets such as South America, North
reduce the net purchase price by 5–10
As the country’s economy continues Africa, and the Middle East. Kapitelli
percent for a low-end passenger car.
to grow, more Chinese truck believes Chinese manufacturers will
manufacturers are exploring foreign become significant global players within The passenger vehicle market is one
markets. Recognizing the potential 10 to 15 years, emulating their Korean SGMW plans to target aggressively.
of these expanding horizons, the and Japanese counterparts in the Its forthcoming Baojun 630 sedan is
Chinese government is supporting 1970s and 1980s. set to complement the company’s
consolidation, encouraging firms current Lechi mini-car, and additional
to develop economies of scale, Attractiveness of the releases are expected across the
generate synergies and grow their passenger car market for passenger car range.
capabilities. a light commercial vehicle Kapitelli believes SGMW’s experience
Commenting on his company’s producer in the commercial market has set
partnership with General Motors, The low cost of locally-manufactured a solid foundation to exploit the
Kapitelli says the benefits of the joint commercial vehicles means the passenger sector. He expects shared
venture (JV) have been significant. domestic industry can still hold its own knowledge, in terms of production
against foreign imports, accounting for skills and sales strategies will help
“When the JV was formed in 2002,
more than 90 percent of the market. In stimulate both sides of the business.
SGMW was a small Mini Commercial
Vehicle (MCV) manufacturer and contrast, private passenger vehicles in A trend towards diversification of
predominately a regional player China are being increasingly squeezed this kind is already emerging. Chery,
selling close to 150,000 units with by international rivals, with local for example, hit the headlines when
a market share of 18.8 percent. If you manufacturers only claiming one-third it launched a series of minivans and
look at 2010, the MCV share was at of sales. pickups under the Karry brand.
4.2 India
Domestic vs. foreign sales 4.2.1 Market structure & development

and production
The Indian truck market, dominated by local manufacturers,
is still developing its product offerings from a technology
9.2% standpoint
As in China, low-cost trucks dominate the Indian market. However, India has
been subject to slightly stronger fluctuations in terms of commercial vehicle
Sales development. One peculiarity of the Indian market structure is the high percentage
2010 of light trucks, which visibly dominate the streetscapes of major Indian cities.
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
90.8% small selection of potential cooperation partners for Western manufacturers.
Domestic
Nevertheless, foreign manufacturers produce just under 10 percent of the
Foreign commercial vehicles on Indian soil.
8.0% 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, India’s economy has rallied, with economic
Production
2010 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
92.0% Domestic high in 2010.
Foreign 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 China’s metropolitan
Five Indian manufacturers commuters.
share 90 percent of the Looking at recent sales and production volumes, India is as prone to overcapacity
Indian truck market. as China. In fact, India’s commercial vehicle production exceeded domestic sales
between 2006–2010 and is expected to continue to do so between 2011–2012.
Sales and production in the Indian commercial vehicle market (2006 – 2011) (in thousands)

1,400 12% 1,400 12%
1,264
1,173
1,200 10% 1,200 10%
1,073
994 419
1,000 1,000
383 8% 8%
714 341
800 318 800 786
704 728 741
669 6% 700 6%
641
600 202 600 295 203
273 225 283 247
267 4% 844 4%
400 790 400
676 732
526 491 467 538
200 431 445 2% 200 416 2%
374
0 0% 0 0%
2006 2007 2008 2009 2010 2011f 2006 2007 2008 2009 2010 2011f
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 Tata Motors is trailed
segments. Tata sold over 12.000 units more in the light truck segment than the by some distance by
Mahindra & Mahindra Group and more than three times as many trucks over 6 tons
as its closest heavy duty segment competitor, Ashok Leyland.
Mahindra in the LCV
segment and Ashok
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
Leyland in the HCV
and Mahindra, the substantially smaller manufacturer groups Eicher Motors (market segment.
share: ~4 percent) and Force Motors (market share: ~3 percent) also offer both light
and heavy commercial vehicles domestically.
60%
TATA MOTORS1,3 1 Full-line manufacturer
472,709 2 Multi-brand manufacturer
3 Domestic manufacturer
4 LCV manufacturer
50% 5 HCV manufacturer
40%
MAHINDRA &
30% MAHINDRA1,3
271,878
20% ASHOK
LEYLAND3,5
79,696
TOYOTA1,2 FORCE EICHER ASIA

10% 51,324 SWARAJ MOTORS1,3 MOTORS1,3 MOTOR
MAZDA3,5 29,970 35,464 WORKS3,5
GM1,2
PIAGGIO4 7,142 6,074
18,449
9,553
-10% 10% 30% 50% 70% 90% 110% 130%

*Light commercial vehicles up to six tons + heavy commercial vehicles over six tons Bubble size = sales volume CY10
Source: IHS Automotive, KPMG International 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 Leyland’s Hosur
manufacturing plant is planned for the second quarter of FY 2011-2012.6
Although the Indian market is largely locally dominated, unlike China there are
Only three foreign at least a few foreign manufacturers, such as Toyota, GM and Piaggio, which
manufacturers (Toyota, have been able to claim a place among the country’s ten largest commercial
vehicle manufacturers.7Since the Indian market opened up in the early 1990s,
GM and Piaggio) are in the the most successful foreign manufacturer has been Toyota. The Japanese global
top 10 in India. 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 full-
line 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

Piaggio - 2,575 9,599 10,008 9,553
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

6
Ashok Leyland-Nissan JV unveil first LCV model, BharatAutos.com, 2011
7
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) 2006 2007 2008 2009 2010
Tata Motors 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

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

Stricter emission standards will lead to a slight increase CUSTOMER
in technological sophistication 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 India’s 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 Although India is clearly a low-cost truck market, some
OWNERSHIP 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 India’s capital Delhi soared by almost 170 percent.
ADDED-VALUE Poor road conditions in India make robust, easy-to-fix

SERVICES trucks essential
India’s road network density – with 0.79 km of highway per square kilometer of
land – is much greater than China’s (0.42) or Russia’s (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

Traffic in million tons km 2004 2005 2006 2007 2008 2009 2010
Transport of Goods by Road 646,000 658,900 766,200 820,217 873,736 929,689 1,016,151
Total share 61.1% 61.5% 61.3% 60.9% 60.5% 60.1% 60.1%
Transport of Goods by Railway 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%

Transport of Goods by Air 547 548 580 769 871 860 1,076
Total Traffic 1,057,847 1,071,248 1,250,180 1,347,474 1,445,293 1,547,511 1,690,422

Source: Datamonitor, Freight Transport in India, 2011
8
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 truck’s 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 FLEET

management solutions in India 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 non-
fleet 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.
9
Indian Foundation of Transport Research and Training (IFTRT), 2010

MARKET ENTRY STRATEGIES Constantly declining state regulation is making India
FOR GLOBAL OEMs 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.
Daimler is one international commercial vehicle manufacturer making a market entry
Simple import regulations, into India. The company terminated its previous joint venture with Indian manufacturer
Hero. Instead, Daimler has formed a subsidiary, Daimler India Commercial Vehicles,
low customs duties and the
and recently announced its own brand for the Indian market – BharatBenz. Volvo Trucks
absence of local content is taking a different path. Under its VE Commercial Vehicles joint venture with Eicher
regulations substantially Motors in 2008, Volvo’s heavy-class trucks will be offered in India in addition to trucks
ease market entry for and buses already provided by Eicher.
foreign manufacturers. 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.
GLOBALIZATION EFFORTS BY The globalization activities of Indian manufacturers have

EMERGING OEMs 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.
Nevertheless, Tata Motors is already the fourth-largest heavy duty truck
With the acquisition of manufacturer in the world today. The company operates in Europe, Southeast
Asia, the Middle East, South America and Africa. However, Tata Motors employs
Daewoo, Tata is also
differing strategies for each. In the European automobile sector, it operates almost
attempting to establish exclusively through its two premium brands, Jaguar and Land Rover, which it
itself on the global market. 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) trickle of foreign OEMs, such as Daimler Trucks, investing
in India. “Indian government policies are fairly open,”
says Pisharody. “We’re going to see a lot of global players
A promising outlook for the Indian truck market coming between 2011 and 2013.”
Ravi Pisharody, president (commercial vehicle business He believes Indian manufacturers have had ample warning
unit) of Tata Motors Ltd, is predicting an exciting year for about this influx of foreign rivals, and in many cases local
the truck business globally in 2011, particularly in India. firms are already developing, manufacturing and marketing
products closer to global specifications.
The industry in India has already witnessed 25 percent
growth in 2010, and this trend is expected to continue over Strong customer links in India, sometimes stretching back
the next four to five years, in the region of 15 to 20 percent generations, will help protect domestic firms – ultimately
annually. motivating them to raise their standards further.
Similarly hopeful estimates were being made in 2008, “A unique factor in India is the preoccupation with low
just before the global recession hit. However, the rate of price,” he says. “However, customers are becoming more
recovery in the Indian truck market has surprised many educated about the total cost of ownership – things like
observers, and the upward trajectory is expected to be reliability and repair costs. This sort of thinking will shape
maintained. the future.”
Pisharody says this is good news for other large developing In a world still recovering from economic collapse,
markets. “Brazil, Latin America and China are following Pisharody expects this cost-conscious concept will enable
similar patterns, and competition in these markets will be more Indian producers to get a foothold in global markets.
tough,” he says. “In contrast, recovery in Europe and North Already Tata is expanding overseas, with operations in
America is slower and might take another two or three the Middle East and Africa, among others. Latin America
years to come back fully.” presents another opportunity and Pisharody believes
Tata is positioning itself to capitalize on this growth. It plans there are significant synergies with the company’s current
to keep its truck range as diverse as possible, using its high product range.
profile in the domestic market to further stimulate sales. It But the overseas expansion of Indian OEMs is expected to
has also invested heavily in the passenger vehicle side of be slow and steady, rather than a stampede. “If you look
its business. at Europe, not even American brands sell many vehicles
In India, Pisharody expects few government interventions there, so it’ll be some time yet before brands from Asia
to safeguard domestic manufacturers, such as trade acquire the technology and image to enter those markets
barriers or import regulations. This is despite a constant 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 & Market characteristics

development Political and historical conflicts continue
After a period of growth, the African to influence the development of many
truck market faced strong declines African countries. Therefore, the African
in 2008 and 2009, like the rest of the continent is only partially developed. In
world. For instance, South Africa, the vast parts of the continent, the economy
continent’s largest truck market, was hit and the road infrastructure are very
by a decline of over 40 percent between rudimentary. Even in South Africa,
2007 and 2009. Since 2010, the African which can be considered the most
truck industry is recovering from the developed country, road infrastructure is
crisis and – besides being extensively still scarce.
covered by mature market OEMs – In Africa, truck manufacturers generally
increasingly becoming a promising sell their trucks and aftermarket parts
testing ground for emerging OEMs from to independent local distribution
China and India. Besides South Africa, networks or single dealers. However,
Northern African states such as Egypt, trucks are essentially custom products,
Morocco, Tunisia and Algeria are offering with dealers commonly ordering to
interesting opportunities for OEMs to end-user specifications. Typical African
leverage a low-cost base for production, end-users are small fleet and owner-
bolstering their global commercial driver operators; they are relatively price
vehicle sales. sensitive and always seeking ways to
Africa
cut costs under the continent’s tough plants for complete truck assembly,
economic conditions. The resulting price manufacturing truck components, as
competition within the African truck well producing chassis for Mercedes-
market places increasing pressure on Benz busses. Interestingly, the global
European and American manufacturers, German supplier ZF Friedrichshafen
because Chinese, Indian and Russian formed a joint venture with the SNVI
manufacturers can sell their trucks at (Société Nationale des Véhicules
much lower prices. Industriels) in Algeria in 2004. Since
then, the company ZF Algérie has
On the other side African truck
leveraged the low-cost base in the North
customers still have a preference for
African country and produces vehicle
reliable and long lasting used trucks.
transmissions for commercial vehicles.
Used trucks are of special importance
because small and medium sized Chinese and Indian manufacturers
companies traditionally replace their old increasingly aim to expand their exports
truck fleets with secondhand vehicles. to Africa. The main features of their
This offers greater potential for Western trucks (such as the ability to handle
OEMs, which enjoy a better reputation heavy road conditions and overload)
among African customers compared to fit African demands extremely well.
their emerging markets’ competitors. Besides selling trucks in the region,
Reliable used trucks from Europe stand emerging OEMs also see Africa as an
a good chance of spending another ideal testing ground for the expansion
lifecycle on African roads. of their global production footprint. Tata
Motors, for example, not only sells its
Market entry strategies trucks in eleven African countries, but
Many Western OEMs entered the has also operated a bus body assembly
African continent at the end of the last plant in South Africa since September
century. Consequently, global OEMs 2010, and plans to start producing small
from the Triad markets account for the and medium sized trucks in the country
main share of trucks sold. For instance, for 2011. Another example is China’s
to directly cater to the continent’s Beiqi Foton, which recently began
truck markets, Volvo Trucks operates constructing a North Africa production
plants in Morocco, Tunisia, and South base in Kenya. Assembly is planned to
Africa. Daimler Trucks is also engaged start in 2012, with an annual production
in South Africa, where it operates capacity of about 10,000 units.
4.3 Russia
4.3.1 Market structure & development

Russia’s 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
Domestic vs. foreign sales local manufacturers still account for over 80 percent of domestic truck production.
and 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.
28.2%
Sales
2010 In 3 years imported trucks will most
71.8%
probably make up 40–50 percent of the
Domestic Russian truck market. Premium trucks will
Foreign
primarily come from Europe, while the low-
16.2%
cost segment will be dominated by Chinese
Production
manufacturers.
2010
Ashot Aroutunyan, Director of Marketing and Advertising, KAMAZ OAO (Russia)
83.8%
The Russian commercial vehicle market suffered dramatic

Domestic
losses due to the global downturn
Foreign
Source: IHS Automotive, KPMG International 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.
The market for heavy commercial vehicles suffered a similar fall. Pre-crisis, the
Around 30 percent of
market increased by 50 percent between 2006 and 2008, profiting from the boom
internal demand is in the construction sector and rising domestic consumption. From 2009, however,
attributable to foreign the market contracted by around 70 percent within 12 months. Although growth
manufacturers. 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 (2006–2011)

450 10% 450 10%
400 389 382 8% 400 8%
6% 344 6%
350 332 350
150 4% 305 301 4%
300 155 290 300
103 111
2% 255 2%
250 250 87
108
221 114 0% 0%
200 200 194 109
160 77 -2% -2%
150 150 68
229 239 227 49 -4% 233 119 -4%
217 193
100 176 -6% 100 43 -6%
144 146
125
50 -8% 50 -8%
111 76
0 -10% 0 -10%
2006 2007 2008 2009 2010 2011f 2006 2007 2008 2009 2010 2011f
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 GAZ, KAMAZ and UAZ
holds an 11 percent equity interest. dominate the Russian
The rest of the market comprises manufacturers from Europe, the US and Asia. market with a combined
One exception is the MAZ Group, from Minsk in Belorussia, which has been share of 67 percent.
manufacturing heavy trucks jointly with the German MAN Group since 1997.
60%
1 Full-line manufacturer
2 Multi-brand manufacturer
3 Domestic manufacturer
4 LCV manufacturer
50% 5 HCV manufacturer
40% GAZ GROUP1,2,3

94,264
30%
KAMAZ3,5
20% 28,259 UAZ3,4
25,801
FIAT GROUP1,2
15,101
10% VW GROUP1,2 HYUNDAI1,2 PSA2,4 MAZ5
8,244 5,727 8,143 7,158
FORD1,2
MITSUBISHI4
5,150
3,700
-40% -20% 0% 20% 40% 60% 80% 100% 120%

* Light commercial vehicles up to six tons + heavy commercial vehicles over six tons Bubble size = sales volume CY10
Source: IHS Automotive, KPMG International CY = calendar year
Among the foreign manufacturers, the Fiat Group (market share: ~7 percent) and
The European OEMs the VW Group (market share: ~4 percent) have the best foundations for further
growth, with their modern trucks comparing well with Russian providers. The
VW, Fiat, and PSA posted fastest growing European provider in Russia in 2010 was the French PSA Group.
strong sales growth in Showing growth of over 100 percent, unit sales more than doubled.
Russia in 2010.
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 Increases at Fiat, Peugeot,
provider. The PSA Group is likewise developing successfully, primarily via the and Volkswagen are
Peugeot brand. Unit sales of French commercial vehicles have increased despite
coming at the expense of
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 local industry leader GAZ.
trends again by 2010.
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
VW 2,074 3,697 8,089 4,727 5,931

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

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
MAN’s sales plummeted
sector, with their more modern product portfolios, are expected to gain market from 9,000 units in 2008
share and put local manufacturers under increasing pressure. However, a complete to 347 in 2009.
recovery to pre-crisis levels is not expected earlier than 2012.
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
Ural (GAZ) 9,704 15,731 15,164 6,855 11,162
MAZ 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
Isuzu 59 2,132 10,025 3,871 1,838
Volvo Trucks 2,691 4,629 7,009 449 1,826
Zil 7,127 10,272 5,163 2,448 1,259


CUSTOMER Replacing commercial vehicle inventories will strengthen
REQUIREMENTS the position of foreign manufacturers with more
sophisticated products
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

Traffic in million tons km 2000 2004 2005 2006 2007 2008 2009 2010
Transport of Goods by Road 152,735 182,141 193,597 198,766 205,849 216,276 180,136 199,341
Total share 9.8% 9.1% 9.4% 9.2% 8.9% 9.4% 8.7% 9.0%
Transport of Goods by Railway 1,373,178 1,801,601 1,858,093 1,950,830 2,090,337 2,116,240 1,865,305 2,011,308
Total share 88.1% 90.2% 90.2% 90.3% 90.5% 92.0% 90.2% 90.8%
Transport of Goods by Air 2,515 3,003 2,830 2,927 3,424 3,692 3,558 4,711
Total Traffic 1,557,834 1,998,201 2,059,689 2,159,606 2,310,037 2,300,068 2,068,204 2,215,360

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 TOTAL COST OF
lifecycle costs will remain low 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 decision-
making 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 ADDED-VALUE
The Russian truck market is primarily characterized by low technical standards. SERVICES
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, Establishing a service
could substantially increase the demand for new and used commercial vehicles
from abroad.
network and distribution
chain will probably be one
For example, Volvo already offers comprehensive service contracts in Russia,
of the primary challenges
including all service and repair work, making it far easier for owners to calculate
service and maintenance costs. 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 17,098 0.9
16000 0.8
14000 0.7
12000 0.6
10000 9,600 0.5

8,515
8000 0.4
6000 0.3
233
3,984
4000 3,287 0.2
2,600
146
1,736 125
2000 0.1
647
0 0.0
Russia 2 Brazil 3 China 1 India 3
Territory ('000 sq. km) Highways ('000 km) Road density
1 Data from 2010
2 Public roads in operation (2009)
3
Data from 2008
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
government is currently developing a dedicated program
OAO (Russia)
aiming to achieve substantial truck modernization.
The most significant obstacle to achieving this
Succeeding in the Russian market is modernization is the low capacity of Russian
difficult without global partners manufacturers, although he is sure that, “the capacity
deficit of Russian manufacturers can be compensated by
Ashot Aroutunyan, director of marketing and advertising foreign manufacturers, mostly from Europe and China, but
at Russia’s leading heavy truck manufacturer KAMAZ, supporting foreign producers is certainly not the Russian
expects the market to recover to its 2008 level by 2013 at government’s intention.”
latest, possibly even earlier.
KAMAZ engages in partnerships for automotive
“Looking at the first two months of 2011, I am optimistic components manufacturing with leading suppliers like ZF
that 2012 is definitely possible”, he says. and Cummins. It also partners with global OEMs like Daimler
With the economic crisis, Aroutunyan says the structure to manufacture complete trucks in Russia, and this is another
of clients and industries served changed dramatically for area of planned growth for KAMAZ. “We plan to extend our
KAMAZ. In the construction industry, for example, demand partnerships, especially in AWD trucks, special trucks and
dropped considerably and he does not expect it to recover long-haul trucks manufacturing,” Aroutunyan says.
for another two years. In contrast, demand for agricultural KAMAZ is planning to extend its own international market
vehicles has already returned to its 2008 level. The same is coverage, too, to capitalize on the growth of the global truck
true for the oil industry, where the market recovered rapidly. market. ”Our share in Russia is already high. It is hard to get
Another driver for KAMAZ is the commercial transport more – that’s why we should be a global company,” he says.
sector. “Although 2009 was still very tough, this area is To this end, the company has launched a joint venture
gaining significant strength due to the demand for long- with Indian manufacturer Tatra Vectra which, according to
haul and flatbed trucks,” says Aroutunyan. There are 1.5m Aroutunyan, should enable KAMAZ to sell 10,000-15,000
trucks in Russia, but state records show that only 750,000 trucks per year in India within five years.
of these are actually in operation. Moreover, 600,000
out of those 1.5m Russian trucks are older than 20 years. Although the company has no official plans for partnerships
This clearly has a significant impact on low efficiency in the Chinese market, he estimates that KAMAZ could
levels, high breakdown rates and environmental pollution. also be selling about 15,000-20,000 units in China within
Aroutunyan also emphasizes, that the Russian commercial the next five years.
vehicle fleet is due for renewal. Accordingly, the Russian

MARKET ENTRY STRATEGIES Cooperation agreements with Russian manufacturers are
FOR GLOBAL OEMs 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
More emphasis will be domestic value creation, particularly for the passenger car market. For example,
Decree 166 regulates the conditions for automobile manufacturers and suppliers
placed on the localization concerning local assembly in Russia. Currently, truck providers receive benefits if
of production in Russia. 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 Daimler’s 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 Globalization of Russian commercial vehicle manufacturers

EMERGING OEMs 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 has a UAE-domiciled distribution enterprise called KAMAZ International
Trading for the Middle East and Northern African markets. Worldwide exports make
KAMAZ is the only Russian
up almost one-quarter of KAMAZ’s production. In India, the company operates a
manufacturer active on a joint venture with the Vectra Group, called KAMAZ Vectra Motors, to distribute its
truly international scale. 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 company’s
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
The alignment of emerging markets with mature Triad markets is strategically
There will continue to important for manufacturers everywhere. Future developments will show how
be serious structural quickly existing differences can be balanced. Therefore two key questions emerge:
differences between • Can established commercial vehicle manufacturers service the growing demand
Triad and emerging truck for trucks in emerging markets with their current technical concepts tailored to
the European or North American market?
markets.
• 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. EMERGING MARKETS
 High degree of saturation/strongly cyclical  Cycles along growth trend

MARKET
 High share of heavy trucks  High share of medium and light trucks
 Infrastructure defective, above all for

 Well-developed infrastructure INFRASTRUCTURE
heavy trucks
 Professional customers with strong

 Fragmented customer structure with many
TCO orientation
owner-drivers
 Consistent compliance with statutory
CUSTOMERS  Focus on low acquisition costs
requirements
 Overload-bearing capacity
 Driver orientation
 Low logistical demands
 High logistical demands
 Highly consolidated markets with trend

 Quite fragmented locally dominated markets
toward full-line manufacturers COMPETITION
 High level of vertical integration
 Low level of vertical integration
 High statutory requirements with respect

STATUTORY  Increasing statutory requirements, but
to the environment, safety and worker
REGULATION fragmented enforcement
protection
Greater potential for convergence exists in China and Russia

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

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

framework of industrial division of sharply rising rising rising
labor
Orientation toward acquisition costs still high still very high still high
Customers
Employee recruiting low relevance low relevance rising relevance
Professionalism of commercial only weakly only weakly

rising
vehicle operations rising rising
Importance of owner-drivers still high very high high
Quality of road network sharply rising rising rising
increasing continued low continued low

Road pricing
Infrastructure importance importance importance
sharply rising importance importance

Telematics systems
importance rising 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.
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 market’s specific characteristics
as described in previous chapters.
The segment of “modern Its proximity to Europe means that the Russian market is expected to evolve the
domestic” trucks will see most in relative terms. By 2020, the market share of premium trucks is estimated
the strongest growth in to double, while the share of modern domestic trucks will triple, leaving only a 20
the medium-term. 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 5 3
10 10
20 13 15
20
20
35
60
85 82
70 75
55
20
2010 2020 2010 2020 2010 2020
Russia India China
Low Cost Trucks Modern Domestic Trucks Premium Trucks
NAVISTAR
Interview with Dee Kapur,
President of the Truck Group and
“There is increased regulation on things like emissions
Jack Allen, and safety regulations, which means more cost,” he
President of the North American Truck Group at says. “Our customers expect us to offset these changes
Navistar International Corporation (USA) through innovation. We’ve addressed things like fuel
economy, weight, and driver environment. Next, we’ll
see technologies such as collision avoidance systems,
stability systems – anything which can reduce their overall
Predicting sweeping changes to the global truck market
costs further.”
Although demand for trucks is expected to remain high,
In terms of competition with foreign OEMs, value-
new approaches will be necessary as OEMs adapt to
driven models produced by manufacturers in emerging
worldwide changes triggered by technological, economic
economies are already threatening the dominance of
and regulatory shifts.
established global players. “It could take one or two cycles
Domestically, Dee Kapur, president of Navistar’s Global Truck for them to compete fully,” says Kapur, “but we should not
Group, believes road haulage will still be vital for transporting underestimate them in any way.”
goods. Emerging markets such as China and Brazil are
As Navistar has discovered, one tactic for branching out into
expected to share the US’s healthy appetite for haulage. Like
emerging markets is to form local alliances, such as its own
America, these are enormous, widely-populated countries
joint venture with Indian manufacturer Mahindra & Mahindra
with huge scope for mass road network developments.
in 2005.
“Transporting goods between the hinterland and the ports in
Allen, meanwhile, notes that over the past two decades, the
China can mean journeys of thousands of miles,” says Kapur.
export market has been “feast or famine”, largely dictated
“That’s why we could see a movement there towards the
by the strength of local currencies. Building vehicles in local
kinds of commercial vehicles which currently ply US roads.”
markets should offer OEMs a lot more control.
A similar gravitation towards heavier trucks should emerge
“In China, the duty on built-up commercial vehicles is about
in India, he believes, but this might take longer because
25 percent,” says Kapur. “Even components have a fairly
India’s traffic levels make lower-displacement, lower-
significant tariff – about 15 percent in India, for example.”
powered engines more attractive.
In response, Navistar is stepping-up its political lobbying
The industry is fully aware of its need to continue evolving.
for these limitations to be eased. If they are successful, the
Jack Allen, president of Navistar’s North American Truck Group,
global prospects for the commercial vehicle industry will be
says that advancements in the commercial vehicle sector will
even more enticing.
be driven by both legislation and consumer demand.
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 vs. COMMERCIAL VEHICLE BUSINESS
• Market development “from top to bottom” • Market development “from bottom to top”
(brand transfer) REGIONALIZED
TECHNOLOGY & PRODUCT • Localized brands
• Global brands (at least in premium segment)
MANAGEMENT & • Low-cost focus hampers success for Western
• Immediate success for Western premium MULTI-BRANDING premium trucks in emerging markets
vehicles in emerging markets
• Market cyclicality can still be mostly absorbed • Strong dependency on GDP makes CV business
by exporting to growth regions extremely prone to market cyclicality (especially in
FLEXIBLE CAPACITY the mature markets)
- Particularly in the premium segment,
while much more difficult in other
MANAGEMENT
• Flexible capacity management is widely
segments implemented
• Services as “product support” • Services as source of profitability and competitive

EXPANSION OF THE VALUE advantage
• Mobility service solutions, communities and
full-service leasing gain importance for the CHAIN • Full-service mobility solutions have long been
passenger car business implemented
• Globally uniform technologies and platforms • Regionally differentiated technological level

REALIZATION OF
• “World Car” strategy feasible (particularly in ECONOMIES OF SCALE • “World Truck” not feasible due to hugely varying
the premium segment) regional requirements
• Alternative drive train technologies are of high • Optimization of diesel engines still offers the best
priority for OEMs and are heavily subsidized long-term cost-benefit ratio
by governments GREEN TECHNOLOGIES • The willingness of hauliers to pay a price for
• Several mass-market hybrids and EVs are eco-innovations is very low
already available
Source: Institut für 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 The truck business follows
truck OEMs in the emerging markets. Furthermore, the global passenger vehicle B2B logic, while the car
market is not immune from market cyclicality either. It could therefore benefit from business mainly follows
adopting flexible capacity management best practices that have already proven
effective in the truck industry. Last but not least, the growing trend towards on-
B2C rules.
demand vehicle usage instead of vehicle ownership in the private automobile sector
is opening up space for substantial knowledge transfer from the truck business.
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. Emerging truck markets
The purchase decisions of owner-drivers tend to be based more on emotions
follow B2C rules, as the
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. majority of truck operators
However, it can be assumed that once larger fleets are more common, economic are owner-drivers.
considerations will play a larger role in the purchase decision.
The biggest issue is the distribution side; it’s the

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

opportunities in emerging markets’ low-cost passenger CAR BUSINESS CAN LEARN
vehicle segments 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 brand’s
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 added-

value 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 Mobility solutions such
to the emergence of on-demand vehicle usage patterns, replacing the vehicle
as car-sharing can learn a
ownership that has dominated the private auto sector for decades. These newly
emerging mobility patterns are increasingly transforming the consumer good lot from the commercial
“passenger car” into a “mobility service” investment asset. Besides financial vehicle sector regarding
service providers and auto rental companies, which have already treated TCO monitoring,
passenger cars as investment assets, a rising number of so-called mobility maintenance, service, and
service providers populate the market for passenger vehicles – occupying the
B2C interface. These commercially oriented service providers certainly have an
fleet management.
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.
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 customer’s 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
owner’s 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
The average standing time of a private passenger car in Germany is around 23
Reduction of standing time hours a day. By using car-sharing schemes or mobility solutions, this time will be
and lifetime improvement 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
safes money. 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 industry’s 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
Car2Go, the short-term rental concept of Daimler AG, started its first pilot project
To be successful as 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
mobility provider, an customers can drop off their rented cars wherever they prefer usually results in an
effective management of unfavorable misallocation of vehicles. To guarantee a high quality of service and
the fleet is necessary 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 It is nearly impossible to imagine a future world without

BUSINESS CAN LEARN standardized platforms and electric drive trains – even in the
FROM THE PASSENGER CAR truck sector
BUSINESS 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
• Low customer expectations in emerging • Introduction of localized

REGIONALIZED markets regarding technological brands in entry-level segments
TECHNOLOGY & PRODUCT sophistication • Gain market share without
MANAGEMENT &
• Strong competition with domestic low blurring premium brand
MULTI-BRANDING cost OEMs in emerging markets reputation
• Strong market cyclicality also observable

in the car business • Global management of
FLEXIBLE CAPACITY overcapacity
• Worldwide impacts of regional economic
MANAGEMENT instabilities and environmental • Solutions for unforeseen
catastrophes demand collapses
• Rising importance of TCO • Cater to new B2B customers

EXPANSION OF THE (mobility service providers)
VALUE CHAIN • Declining importance of vehicle ownership
• Focus on TCO as
(SERVICE-ORIENTED • Passenger vehicles transform to differentiating factor and
BUSINESS MODELS) investment assets for B2B customers competitive advantage
LESSONS THE TRUCK BUSINESS CAN LEARN FROM THE PASSENGER CAR BUSINESS
• Adoption of platform • Intense global competition

strategies and modularization • New competitors from emerging markets REALIZATION OF
without sacrificing regional • High cost pressure due to low cost OEMs ECONOMIES OF SCALE
adjustments and specifications from emerging markets
• Adoption of alternative
propulsion technologies • Raising environmental pollution GREEN
• Sharing R&D costs via • Tightening regulatory environment TECHNOLOGIES
cross-segment 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
The views and opinions expressed herein are those of the survey respondents and do not necessarily represent the views and
opinions of KPMG International or KPMG member firms.
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual
or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is
accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information
without appropriate professional advice after a thorough examination of the particular situation.
© 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. No member firm has any
authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have
any such authority to obligate or bind any member firm. All rights reserved.
The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
Designed by Evalueserve.
Publication name: Competing in the Global Truck Industry – Emerging Markets Spotlight
Image on page 16 is used with
Publication number: 110604 kind permission of Daimler
Trucks Division, Daimler AG
Publication date: September 2011

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KPMG INTERNATIONAL

Prof. Dr. Willi Diez

Prof. Dr.-Ing. Heinz Junker

1 Developments in the global commercial vehicle market 4

2 Challenges for commercial vehicle manufacturers 8

2.1 Demand shift to growth regions 9

3.1 Regionalized technology and

1 Developments in the global

The global commercial vehicle market is growing, particularly

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

2006 2007 2008 2009 2010 2011f 2012f

Source: IHS Automotive, KPMG International

Positive economic developments will by 2015 if current trends continue.

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

2006 2007 2008 2009 2010

n°4 PACCAR CNHTC 2

n°5 TATA MOTORS

n°6 NAVISTAR VOLVO TRUCKS

n°9 FORD MAN

n°10 TOYOTA ASHOK LEYLAND

2 Challenges for commercial

Global truck manufacturers face a number of challenges

Truck OEMs have to be aware of the

Costly innovations will be needed Overcoming the Suitable business

Source: KPMG International

2.1 Demand shift to growth regions

Source: IHS Automotive, KPMG International

Development of the world market share by market clusters

Source: IHS Automotive, KPMG International

Consolidation has almost come to an end in mature markets

Overview of Chinese commercial vehicle manufacturer groups

LCV (< 6t) HCV (> 6t) FULL-LINE (LCV + HCV)

Brilliance-Jinbei Anhui Ankai BAIC

DAIMLER TRUCKS 46.7 23.3%

MAN 31.3 15.6%

PACCAR 27.5 13.7%

IVECO (FIAT) 26.0 13.0%

SCANIA (VW) 20.5 10.2%

DAIMLER TRUCKS 73.5 27.4%

NAVISTAR 72.2 26.9%

PACCAR 42.6 15.8%

FORD 33.4 12.4%

DAIMLER TRUCKS 70.9 26.1%

MAN 60.2 22.1%

FORD 31.3 11.5%

IVECO (FIAT) 20.6 7.6%

VOLVO GLOBAL TRUCKS3 19.7 7.3%

Source: IHS Automotive, KPMG International

EAST EUROPE (incl. Russia)

KAMAZ 28.9 25.4%

GAZ GROUP 23.9 20.9%

MAZ 7.7 6.8%

MAN 7.6 6.6%

DONGFENG 299 20.6%

FAW1 273 18.8%

CNHTC2 200 13.7%

TORCH 113 7.8%

TATA MOTORS 189 59.3%

ASHOK LEYLAND 80 25.0%

EICHER MOTORS 28 8.9%

SWARAJ MAZDA 7 2.2%

2.2 Continuous market cyclicality

Connection between commercial vehicle demand and GDP

1 Developments in the global commercial vehicle market 4

2 Challenges for commercial vehicle manufacturers 8

2.1 Demand shift to growth regions 9

2.3 Suitable business models and

2.4 Overcoming the environmental

2.5 Pressure on total cost of ownership

3.1 Regionalized technology and

3.2 Realization of economies of scale

3.3 Flexible capacity management

3.5 Green fleet

3.6 Expansion of the value chain

3.6.1 After-sales market

3.6.2 Financial services

3.6.3 Contract hire/short-term rental

3.6.4 Used vehicle trade