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OEMs rebooting truck market strategies

The announcement that UD Trucks is shutting off North American sales of its medium-duty product, coupled by the latest downswing in Class 8 orders in the U.S., would seem on the surface at least to indicate a truck market in retrograde in this region of the world.

Dig a little deeper, though, and you’ll find something very different at work.

Let’s start with UD’s move to abandon importing its trucks into the U.S. First of all, the U.S. market is very crowded with Japanese medium-duty cabover manufacturers – Hino Motors (a division of Toyota), Mitsubishi Fuso, and Isuzu Trucks – and domestic builder Paccar just got back into the cabover game this year via a new model sold via its Kenworth Truck Co. division.

Second – and much more importantly – medium-duty is the one segment of the U.S. truck market forecast to decline over time in terms of volumes, as the renewed growth of major metropolitan centers in this country (and around the world for that matter) will demand more light-duty sized equipment for skipping about crowded urban roads, while relying on mire heavy-duty trucks to deliver freight between big “megacities.”

Yet the gradual falloff in medium-duty demand in the U.S. isn’t being replicated in other nations, Sandeep Kar, global director of commercial vehicle research for Frost & Sullivan, told me by phone. Indeed, UD may be repositioning factory capacity it once dedicated to North America to instead serve markets close to its home base – particularly Indonesia.

“We’re predicting the medium-duty market in Indonesia alone is going to double over the next six years – from 280,000 units this year to 670,000 units by 2018,” Kar (seen at left) explained to me. “Those kinds of volumes far and away dominate anything UD could hope to achieve in the U.S.”

There’s another wrinkle to consider as well. UD is a division of Sweden’s Volvo Trucks: a purchase made a few years ago. Yet pre-dating that buy is a 50/50 joint venture Volvo formed in India dubbed VE Commercial Vehicles, which is building buses and medium-duty cabover trucks that – in Kar’s view – are selling “like hotcakes.”

Now step back and take a global view of the truck market, Kar said – particularly from the perspective of trying to build lower-cost worldwide truck platforms. Volvo may one day try to bring a version of the medium-duty truck it’s building in India to the U.S., thus it would be best not to compete with any truck models it already sells here (read as: UD).

Thus UD exits the U.S., perhaps opening the door to a new and different medium-duty model from its parent company, while getting the chance to maximize market share in other region of the world. That would be a pretty clever strategy, if you ask me.

Now, Kar stressed to me that the above is speculative because (of course) Volvo hasn’t mentioned bringing a new medium-duty to market in the U.S., nor that it plans to sell its India-built cabover anywhere but in India.

But it’s not all that far–fetched. Take for example what Volvo’s German rival, Daimler AG, is doing in the area of medium-duty truck engines. It just rolled out a new model that it’s planning to bring to the U.S. fairly soon (you can read more about that effort in an excellent story filed by my boss Jim Mele by clicking here), which dovetails with its bigger-picture plans of selling all sorts of commercial truck platforms on a global basis.

Yet it’s crucial to remember that all the above global truck sales scenarios – those both confirmed and speculative – are long term strategies by nature. In the short term, especially in the Class 8 segment of the U.S. market, we should expect orders and sales to dip down due to continued uncertainty about the global economy.

“Weakness at the front end of the demand cycle for heavy duty commercial vehicles persisted into August, although underlying fundamentals are healthy,” noted Kenny Vieth, president and senior analyst with ACT Research in a recent market update.

“Class 8 orders are likely to continue in hand-to-mouth fashion until there is better clarity about the domestic fiscal policy,” he stressed. “That means that orders will remain soft at least through October, leaving little opportunity for a production rebound into early 2013.”

Yet Vieth added that because underlying fundamentals are healthy, as the near-term outlook becomes less opaque, national confidence will improve. “This will set the stage for a rebound in commercial vehicle demand,” he explained.

We’ll just have to sit back and see how that prediction plays out. 

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