China’s commercial vehicle market is keeping pace with the boom but don’t expect to see Chinese trucks in the West. Meanwhile, a robust economy and keen interest in Indian vehicles is driving sales for the country’s commercial vehicle makers
With all those outbound container ships laden with cheap Chinese consumer goods steaming from the Middle Kingdom to world markets, it stands to reason that there’s a healthy truck market helping to move those goods along from factory to port.
The fact is Chinese trucking firms have been snapping up trucks – almost exclusively locally built vehicles like Dongfengs and Fotons – at a rate in line with the country’s booming economy. Since 1998, the Chinese truck market has been growing at around 13 per cent per year. And as long as the economy remains robust and diesel stays relatively cheap (about half the price of European fuel), it shows no sign of abating.
“The total amount of foreign direct investment in China continues to grow which means if you build a factory, you’re going to need to transport goods,” says Christophe Bauduin, Managing Director of Polk China. “That’s the main driving factor. Everything is booming and it requires trucks to move it all around.”
Obviously the Chinese economy and a domestic and export market hungry for Chinese manufactured goods is helping sell trucks, but there are other factors contributing to the growth as well.
All those insanely overstuffed vehicles trundling down Chinese highways?
The government wants those off the roads – at least in time for the Shanghai Olympics.
“The government is trying to wean everyone off the smaller, overloaded vehicles and convert them to the heavier trucks – up in the 4.5-ton range that you see in North America and Europe,” says Chris Fisher, a commercial vehicle analyst with global market research firm Power Systems Research, which specialises in the engine, OE and components industries.
“That’s for safety concerns, emissions, fuel economy, and just plain congestion on the roads.”
Bauduin agrees: “Overloaded trucks are serious issue from an infrastructure perspective as well – they just destroy the roads. The range of overload you see in some provinces is in the range of 400 per cent – it’s absurd. The authorities are trying to deal with it by pushing for more transport-style trucks on the road rather than a bunch of badly overloaded smaller trucks.”
And extensive road building in China is also selling trucks in a kind of “build it and they will come” scenario for heavy vehicles. The country is making good progress in building an extensive interstate system that will bypass small towns and concentrate on linking major cities. “The eastern seaboard road infrastructure is already quite well developed, but if you go further west it’s not as good,” says Bauduin.
“They’re making efforts to increase the quality and number of roads in this part of the country.”
Like all foreign manufacturers, Western truckmakers have been clamouring for a piece of the action in China and Chinese manufacturers are eager to enter into joint ventures to learn and benefit from Western technology transfers.
“Basically all local manufacturers are quite active in JVs with foreign partners. You’ve got Foton with Mercedes, Dongfeng with Nissan, Shan Xi with MAN, Wuling GM with GM, to name a few,” says Bauduin. “What typically happens is you’ve got a Chinese manufacturer producing its own products, and then on top of that they’ll have a joint venture with a foreign partner and they produce something else with them. But of course, whatever a Chinese company is learning through their JV relationship, I’m pretty sure they’re going to implement that into their own vehicles.
“The foreign partner is generally in charge of production, and the Chinese side handles the sales and marketing. But there’s always a struggle – the foreign OE has to figure out how much it wants to give in terms of technology transfer and the Chinese side naturally wants to have as much as possible; that’s the situation.”
“A lot of foreign OEs go to China with high hopes and then their Chinese partners just turn around and say ‘thanks for the technology,’ says Fisher. “I know Volvo doesn’t have a lot of confidence in its recent JV – sales are around 250 trucks per year and they were hoping for more in the range of 10,000.”
Foreign OEs also have a struggle selling their products in a market that is incredibly brand loyal to the home side.
“The commercial vehicle market in China is really dominated by local manufacturers, which is quite different than the personal vehicle market. If you look at imports, there are very few; it’s a tiny fraction of the commercial vehicle market,” says Fisher.
The major reason for this is price. In the Chinese market, the local product is very competitive. For example, a Volvo truck costs around 700,000 RMB (nearly $100,000). A similar Chinese truck, equipped with a 380 hp engine, is about half the price. Sure, the Volvo is going to have a sumptuous cabin but foreign OEs can’t compete with the 50 per cent price differential.
Another reason is aftermarket service. If you have a Chinese truck, you can get it repaired anywhere in the country. “If you have an imported truck and suffer a breakdown, then what do you do? There’s probably a tiny network of repair facilities for the brand and you’re going to end up losing money with your truck out of service,” says Bauduin.
Most of these local truck manufacturers have been around for a long time. Major players include: Dongfeng, which accounts for about 30 per cent of the Chinese market. Last year it sold around 170,000 heavy trucks. First Autoworks with its Jie Fang brand is another big OE with around 17 per cent market share; and Foton, which produces light- to medium-range trucks, enjoys a 25 per cent market share. China National Heavy Truck, Shan Xi and Sino Truck are smaller players in the Chinese market.
China is a net exporter of a whole lot of manufactured goods, but trucks aren’t among them. While the export market is growing, 90 per cent of Chinese truck production is sold in China.
“These manufacturers are trying to develop an export market, but it’s still very small,” says Fisher. “For example, Foton is selling around 350,000 trucks in China and exporting maybe 16,000. It’s quite low compared to domestic sales, but they’re trying to grow the export side.
The objective from government is to export 10 per cent of production by 2010. Right now the big export markets are the Middle East (Iran, Iraq), Southeast Asia (Indonesia, Malaysia), and they’re trying to get into South America.
“Obviously they can’t export to Europe or North America because the technology isn’t there. The trucks are very basic compared to the international market, but they’re trying to change that via joint ventures with foreign OEs.
“Personally, I believe Chinese exports are only going to go up. They’re getting better technology – the Europeans have gone in there, the Chinese have built on it, and they’re starting to make some decent trucks. If they increase quality, I can only see exports going up.”