A study by AlixPartners predicts that by 2014, North American OEMs will be losing significant market share around the world due to low-cost competitors.
Emerging market countries such as Russia, India and China, will be tough for the North American companies to crack as low-cost commercial vehicle manufacturers in those countries gain share. According to the business advisory firm, current growth and cost trends indicate that about half of the global market will effectively be shut off to North American companies.
“The key for North American OEMs is to focus on how to quickly gain a foothold in the ‘middle segment,’” said Francesco Barosi, a managing director at AlixPartners and head of the firm’s Commercial Vehicle Practice. “However, that’s all the more difficult today because there are now only a few ‘unmarried’ joint-venture partners left in China, India and Russia to aid in lowering costs. That means OEMs, and their suppliers, must focus like never before on whatever is necessary to customize low-cost products for emerging markets. The alternative is to cede half of the global market and, thereby, perhaps a company’s long-term future.”
The report said that emerging market based OEMs now account for two-thirds of global commercial truck production and with European OEMs striking partnerships with these companies around the world, opportunities for North American companies are shrinking. Producers in China, India and Russia are expected to boost output by 50% in the next four years, the study said, due to strong domestic markets and growth in Southeast Asia, Africa, the Middle East and Central America.
According to AlixPartners, North American OEMs are not well positioned to exploit this increasing demand in emerging markets because of a mismatch of product types, a lack of local partners and high costs. In fact, the study finds, even with a growing demand for a so-called “middle segment” of more sophisticated trucks on the horizon in BRIC and other emerging markets, the cost of these vehicles is still 40% to 50% less than the average North American-made truck.
“North American companies must invest in producing simpler designs for commercial vehicle components so that they can generate the significant cost improvements – up to 50% – necessary to compete in the future,” said Tai Li, a director in AlixPartners’ Commercial Vehicle Practice. “Furthermore, in order to penetrate emerging markets, a key priority for suppliers as well as OEMs should be to invest in developing low-cost products better customized to the needs of these markets.”
Additional study findings include:
- China’s commercial vehicle production volume increased by 22% in 2009, while volume globally decreased by 29%.
- Today, China accounts for 49% of total BRIC (Brazil, Russia, India, China) commercial vehicle production, which in turn accounts for 66% of global production.
- As part of the expected Western OEM recovery, North American Class-8 truck production is expected to increase by 25% in 2010 to 150,000 units.
- By 2014, the global commercial vehicle industry is expected to grow by 1.8 million units, with China expected to account for 36% of total global growth.