The Commercial Vehicle Outlook conference preceding the recent Great American Trucking Show at the Dallas Convention Center was a very interesting two-day program of presentations from industry consultants, economists and association watchdogs.
The first speaker, Sandeep Kar, an industry watcher from Toronto-based Frost and Sullivan, discussed the potential in the American truck market for heavy trucks much like those going to work in emerging markets China and India. He then spoke on telematics, particularly as it enables predictive or prognostic maintenance and fast response to potential breakdown situations. Interestingly, this came hard on the heels of Freightliner’s launch of Virtual Technician (see Blog for August 17th).
Kar says low cost heavy trucks doesn’t equate to low technology content. The low cost for these future trucks, he says, will come from the way the parts are sourced and the inexpensive way the trucks are built. He predicts a class 8 truck would come in at around $65,000, targeted at the regional haul carrier as well as the vocational user.
According to Frost and Sullivan research, this market segment will see as many as 29 different platforms by 2016, including the introduction of a new truck in India by Navistar partner Mahindra, launch of low-cost trucks by Italian brand Iveco and a Chinese partner, and a whole new brand being created by Daimler Trucks that would offer a variety of commercial vehicles at prices from $25,000 to $80,000.
Kar doesn’t think these trucks will necessarily be coming to us from China or India. The thing to realize, he says, is that these low-cost trucks are assembled from components and sub-systems that in many cases are sourced through subsidiaries of North American manufacturers and suppliers.
BRIC and N11
In essence, Kar was saying that far from sitting back and watching low-cost imports come in, American manufacturers should be creating their own products to compete here at home, as well as in the export markets. The export markets could be the BRIC nations – Brazil, Russia, India and China – or “The Next 11 (N11),” emerging markets.
This N11 is an interesting mix of fast-growing markets. I first heard the term used in Hanover last year by Daimler Trucks Head and Board Member Andreas Renschler, talking about plans to expand Daimler’s Truck business. However, it was coined in a Goldman-Sachs report in 2005. The N11 includes Bangladesh, Egypt, Indonesia, Iran, South Korea, Mexico, Nigeria, Pakistan, the Philippines, Turkey and Vietnam. Egypt may be a little shaky in right now, but as a concept these latterly emerging markets have enormous potential for manufacturers who can come at them with low-cost commercial vehicles. For an interesting analysis of the potential of the N11, go to www.euromonitor.com/the-next-11-emerging-economies/article.
Creating further demand for the low-cost commercial vehicle is the trend towards creation of megacities. Citing Toronto as an example, Kar says the expansion of neighboring population centers is causing one city to run into another, for example, Johannesburg and Pretoria in South Africa, Chennai in China and Sao Paulo in Brazil.
Expansion can also include a corridor, such as Vancouver/Seattle/Portland in the west or Toronto/New York in the east.
In these megacities, three zones emerge: the center is the older city, surrounding this are the mid-income residential city groups, and surrounding all that is the commercial zone. In those commercial zones, freight is transferred from big over-the-highway trucks to smaller distribution vehicles that move the freight throughout the city in a new type of hub and spoke system.
The development of megacities will drive up the need for smaller, more maneuverable commercial vehicles that can nimbly deal with access, parking, congestion taxes, emissions restrictions, and all the other issues that come with urbanization.
Kar adds that the freight of the future will change, such as happened with the music industry and photography. The vinyl records, cassettes and the photographic supplies that use to fill hundreds and hundreds of trucks daily are gone, and so are the trucks that carried them.
With these world-wide pressures on smaller trucks there will be a major proliferation of the low-cost platform, predicts Kar. In 2009, around 1.8 million of these types of trucks were sold. By 2017 expect that to hit 17 million, he says. This is good news for the supplier side of truck manufacturing as global subsidiaries of long-established U.S. firms will be those suppliers, such as Cummins, Hendrickson and Visteon that are already in the low-cost-truck supply chain.
The Telematics Opportunity
By no means will all future activity be in the low-cost truck. There’s plenty of opportunity to develop safety and efficiency enhancing technologies that add further cost to the top-line trucks but technologies that have a swift and meaningful payback.
Trucks with safety systems – stability control – totaled about 376,000 in 2010. This will climb to 1.2 million by 2017, with the revenue growing from $196 million to $610 million.
One of the big changes will be the addition of telematics to collision-avoidance, stability control systems. Telematics can address fuel efficiency, ecology, and total cost of ownership, as well as safety.
This “second wave” of telematics technology brings far more than the messaging and vehicle location of the first. The next generation offers vehicle and driver reporting in real time, ecological benefits and new revenues streams with services generating far more revenue than the hardware cost. Kar says that today, about 15% of trucks have telematics hardware; by 2017 this will rise to 30%.
But the proliferation of systems is driving up the cost of vehicles, not lowering it, so more and more integration will have to be done to lower the total system cost. This means more and more telematics will be supplied by truck OEMs. By 2017, one in four trucks would have an integrated safety and telematics system engineered and supplied by the OEM, Kar says.
Through fleet manager surveys, Frost & Sullivan has found that during the next purchase cycle, 50% of buyers will be looking at more semi-automated transmissions and advanced engine oils. Safety technologies are also important to them, and the number one will be those that encourage safe driving practices. Fewer accidents and CSA compliance are all a result of embracing components like disc brakes and larger drums, tire pressure monitoring, blind spot detection, trailer tire inflation, and lane keeping assistance.
Telematics offer the opportunity to reduce operating cost through things like automated regulatory compliance and enhanced safety. And many of those surveyed – 23% – said they were looking for telematics to make prognostics a part of the maintenance process. In fact, it scored #5 is the wish list after safety intervention reports, etc. Frost & Sullivan even has a price derived for the service at $12.50 a month.
Finally, Kar says that in the next 10 years a new field will open up to help OEMs differentiate their products. Health, wellness and well being are becoming increasingly important with today’s drivers, already on the wrong side of 40, and something has to be done to address the driver shortage.