Is the Chinese economy set for a hard landing? This fundamental question underpins all investment and growth decisions in China. Frost & Sullivan’s recent study, ‘Strategic Analysis of the Chinese Commercial Truck Market’, reveals that whether there is a hard-landing, soft landing, or no landing, the Chinese truck industry is undergoing a transformation. This necessitates a recalibration of growth strategies for all market participants, Chinese and foreign.
The Chinese truck industry generated sales of 3.25 million light, medium and heavy trucks in 2010. It is safe to assume Chinese truck sales will reach 4.59 million by 2017. While such sales volumes and the 5.1% compound annual growth rate can easily attract the global truck industry, these numbers conceal the changes sweeping the Chinese truck market.
The Chinese truck industry generated sales of 3.25 million light, medium and heavy trucks in 2010. It is safe to assume Chinese truck sales will reach 4.59 million by 2017.
After years of government policies like ‘Automobiles for the Countryside’, ‘Vehicle Replacement Policy’, and ‘Charge by Weight’, the Chinese truck market stands at an interesting junction. The government, burdened by inflationary and currency pressures and the need to restrict credit, is acting as a restraining force for speedier growth. However, despite these issues, the wheels of the Chinese commercial truck industry will keep turning, just more slowly than in the past five years, ushering in adjusted growth strategies in a maturing market.
A noticeable trend is that of polarisation: the light and heavy classes are outgrowing the medium duty segment. Along with a stronger regulatory environment underlining the urgency for local OEMs to improve Chinese trucks, this offers tremendous opportunities to foreign truck market participants to introduce advanced truck technologies. It also exposes the imbalances in the local market that favour domestic joint venture (JV) partners.
The recent failures of some high-profile JVs and partnerships and the concerns of foreign market participants about bringing new technologies to China must be a government priority, not just to make locally-built trucks more efficient, but to make those trucks exportable.
China exported nearly 232,000 trucks in 2010, mostly to developing markets, but it is a matter of time before Chinese OEMs start targeting Western Europe and North America. Companies like Foton and CNHTC have already published plans to introduce cost effective commercial vehicles in developed markets.
More so in China than elsewhere, the voice of truck buyers and end-users has been largely ignored by OEMs. In the past, Chinese buyers took whatever was offered, but this is changing rapidly.
The global ambitions of Chinese OEMs also provide attractive opportunities for global Tier Ones. In order to develop and introduce market-focused trucks in Europe and North America, Chinese OEMs rely on suppliers of advanced technologies, and this mutual reliance will only increase.
Given current market conditions, end-user-focused product planning is essential. More so in China than elsewhere, the voice of truck buyers and end-users has been largely ignored by OEMs. In the past, Chinese buyers took whatever was offered, but this is changing rapidly. As growth in China slows, and truck buyers find themselves in a market guided by total cost of ownership and tightening regulations, end-user focused product planning will emerge as a key strategy. Green powertrain technologies will also deliver handsome returns, as will the creation of a strong aftermarket.
Let us not kid ourselves: all parties are in this market for the money. Forging strong partnerships is the way to be certain to say “Ni Hao” to profitability and growth in China.
The opinions expressed here are those of the author and do not necessarily reflect the positions of Automotive World Ltd.
Sandeep Kar is Global Director, Commercial Vehicle Research at Frost & Sullivan
In an Automotive World webinar, Sandeep Kar will present the findings of the report, ‘Strategic Analysis of the Chinese Commercial Truck Market’. Click here for more details.
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