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Global Class 8 demand to grow at CAGR of 3% to 2020 – PSR

In a recent Automotive Megatrends webinar, Power Systems Research discussed five year forecast data for the global commercial vehicle market

In a recent Automotive Megatrends webinar, Chris Fisher and Kamini Patel from Power Systems Research discussed five year forecast data for the global commercial vehicle market.

Dramatic upsurge in North American Class 8 orders…

October 2014 saw the second-highest month ever recorded for Class 8 orders in North America. At 46,200 units, orders were up by a dramatic 76.5% year-over-year. Nobody is expecting that level of demand to continue, but at the same time it does look as if North America is carrying some of the other major truck markets. The question for OEMs and suppliers is: is such growth sustainable? And what is likely to happen moving into 2015?

“Class 8 build slots are full for 2014, and there is a backlog that will have to be manufactured well into 2015,” said Chris Fisher, Senior Commercial Vehicle Analyst at Power Systems Research (PSR). “We are forecasting somewhere in the region of 300,000 units for 2014, and we are showing a similar number of Class 8 trucks for 2015.”

As for whether this is sustainable, Fisher says no. “Right now we are in heavy replacement mode and into some expansion. Next year, I think that trend will continue, but moving into 2016 I do think we will see demand taper off. A good sustainable number to use when the economy is running solidly is around 260,000 or 265,000 Class 8 trucks. We will be at 300,000 this year and 300,000 next year. In 2016, we will see the numbers start to decline, as the market works back to sustainable levels. We certainly do not see 300,000 units rolling through the next five years.”

…contrasts with the market in Europe

The US market performance contrasts sharply with Europe. There are some very specific issues in Europe, such as the north-south divide and a Russian market that is not performing anywhere near the levels expected even 18 months ago. What does Fisher see as the medium and long-term outlook for Europe?

“Europe overall is a tricky market – it is much more complex than North America. We are not going to see any really strong years. The United States went through its recession and then plodded along for a couple of years and now we are seeing stronger growth. For Europe, I do not see anything that is going to drive sharp demand and production levels like in the US, but I think Europe is going to plod along and grow at a nice rate moving forward. Ultimately over the next few years we will start to see some expansion.”

“We track Russia and Eurasia as separate from Europe and we see growth in Russia and Eurasia over the next five years,” adds Kamini Patel, Vice President and Managing Director – Europe at PSR.

South Asia

Another market that has under-performed for some considerable time now is India, but growth is expected in production and sales, said Fisher. “Growth in India looks pretty strong [over the next five years]. We are also seeing production targeted to export markets. Take Daimler as an example. Its BharatBenz facility will be used as a production base to transfer production from Germany into India for export markets. India is becoming an export hub. Production and demand has been down for a few years in India, so we do expect to see some uptick in domestic demand as well.”

Across South Asia, including China, India and other markets, there is a transition under way from local assembly to full local production. How long this transition will take to complete requires a degree of speculation, said Fisher. “The shift has been ongoing and is expected to continue as the OEMs determine their strategies. Most manufacturers which assemble in South Asia localise product faster. Government policies regarding tariffs will also dictate the pace of this shift.” Joint ventures between global and local OEMs are expanding, but PSR expects China’s domestic manufacturers to play a key role in this transition. “At this point, Daimler and Volvo have the biggest global footprint and have operations in all regions,” said Fisher, “but I do think the Chinese OEMs will make the greatest transition over the near-term. I think China will be the major competitor in South Asia moving forward.”

Chinese and Korean OEMs are also targeting new markets, with export-ready products equipped with their own locally-built engines. Those brands still need market acceptance to succeed in penetrating new markets, and it’s unlikely to happen in the near future, said Fisher, “but long-term I can see it happening. If you can have the same quality of vehicle for a cheaper price, it has a chance to take hold.” One way a Chinese or Korean OEM could increase its chances in a new market is through a local joint venture.

The influence of technology

During the webinar, Fisher and Patel discussed not only sales figures, but also trends, including the impact of fuel quality, alternative fuel and powertrains, and rising technologies like automated manual transmission (AMT).

Fuel quality plays a significant role in meeting emissions regulations. Vehicle manufacturers and high tech diesel engine suppliers frequently complain about the quality of fuel, even in North America. “To meet the higher emission standards you definitely need more common rail engine designs, and the only way you will be able to do this is with lower sulphur fuel. Higher sulphur content can definitely do a lot of damage and shorten the life of the engine,” explained Fisher.

Citing China’s emissions regulations as an example, Fisher explained that although Euro 4 is technically in place, there have been only limited attempts to enforce it. This, he said, is due to the imminent implementation of the Nationwide China 4 diesel fuel quality standard, scheduled for the end of this year. “At this point we would expect stronger implementation enforcement of Euro for standards to coincide with the nationwide of China for regulation for fuel quality.”

Automated manual transmissions (AMT)

The adoption of AMT technology, already prevalent in Europe’s truck industry, is gathering pace in North America, and in other markets. “At Power Systems Research, we predicted that automated manual transmission systems would grow overall at a good pace of around 8% over the next five years. Most of these are in the Class 8 segment,” said Patel. “Today, we have Daimler and Volvo with AMT in the market, and their products improve fuel economy by 5%.”

PSR data indicates a major increase in AMT adoption, not only in mature markets but also in emerging truck markets. “Adoption in Europe and North America is significant and it is beginning to develop in Brazil thanks to the presence of European manufacturers. Over a period of time we will see the majority of manual transmissions substituted with AMT,” explained Patel. “Our latest Voice of the Customer research indicates that the transmission transition will happen in other regions, although this will be influenced greatly by the regulatory environment, cost structure and pricing. From 2020, we are showing double-digit growth for Class 8 AMT in Eurasia, China and the Indian subcontinent.”

Natural gas and hybrids go head to head, but cheap oil wins

Around 18 months ago, interest in natural gas vehicles began to wane. What will be the impact of the apparently abundant natural gas reserves which are available now in North America? “In my opinion, that will really be determined by the price of diesel,” said Fisher. “Diesel is the main fuel and will remain the main fuel going forward. Natural gas prices are down, but if diesel prices are also down, I really don’t see strong adoption rates for natural gas. It depends on the price of fuel and the price of the engines themselves.”

In North America, not are fuel prices not rising at the previously expected rates, they are falling. Rising fuel prices encourage buyers to consider investing in vehicles with efficient powertrain technology. As fuel prices rise, so too does investment on the part of the OEMs and suppliers. As fuel prices fall, demand heads toward more affordable but perhaps less efficient vehicle technology. The recent downturn in fuel prices is adding a new dimension to car and truck buyers’ decision making. In the light vehicle segment, falling prices has seen rising SUV sales. In trucking, it’s led to a lack of interest in hybrid truck technology in particular, adding to a decline in interest since 2011, when government subsidies were cut. Adding to this declining interest was direct competition from natural gas trucks and buses. “Hybrids really do seem to be dependent on subsidies at this point,” said Fisher. “Hybrids and natural gas compete head-to-head, and the combination of the abundance of NG plus falling diesel prices is definitely having a negative impact. Hybrid and natural gas will certainly see a hit. Look at the light vehicle segment – we have seen demand for SUVs increase with low fuel prices.”

Martin Kahl

Follow this link to learn more about this and other Automotive Megatrends webinars

https://www.automotiveworld.com/events/webinar-global-commercial-vehicle-market-trends/

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