Truck Industry S Green Challenge 2008-09-23

Automotive
The truck industrys green challenge

Headwind or competitive edge?
Automotive
The truck industrys green challenge

Headwind or competitive edge?
pwc
The truck industrys green challenge Headwind or competitive edge? Edited by PricewaterhouseCoopers September 2008, 68 pages, 41 figures, softcover All rights reserved. Reproduction, microfilming, as well as recording, storing and/or processing onto electronic media are not permitted without the expressed consent of the editor. Cover photo G. Fischer/Schapowalow Typesetting Nina Irmer, Digitale Gestaltung & Medienproduktion, Frankfurt am Main Printing Druckerei J. F. Niemeyer GmbH & Co. KG, Ostercappeln Printed in Germany
2008 PricewaterhouseCoopers AG Wirtschaftsprfungsgesellschaft PricewaterhouseCoopers refers to the German firm PricewaterhouseCoopers AG Wirtschaftsprfungsgesellschaft and the other member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.
The truck industrys green challenge Headwind or competitive edge?
Foreword
Foreword
The key note of the upcoming 2008 International Motor Show (IAA) Commercial Vehicles in Hanover, Germany, Commercial vehicles are on the move for everyone is indeed a very accurate theme in the light of increasing globalisation and recent records in global trade and transport volumes. But what about the industrys challenges on this move? Certainly the globalising world economy is a key growth driver for the truck industry and it is not incorrect to say that global economic conditions directly affect the transportation and by association, the truck industry on a macro level. Aside from these general economic issues, there are some critical challenges for the truck manufacturing industry. While public awareness around emissions, fuel consumption, and related changes in consumer behaviour are key market drivers for car manufacturers, the truck industry surprisingly has been able to keep out of the public debate and treat this environmental issue more or less as a regulatory burden with which they must comply in much the same way as regulations for road safety, noise reduction, and others. For truck manufacturers, transport efficiency still is the core factor from a commercial point of view that drives customer purchasing decisions. Increasing resource constraints, higher fuel prices, and stricter emission standards will certainly have a negative effect on transport costs and thus efficiency, which will in turn drive truck purchasing decisions accordingly. As a sequel from analyzing The framework and dynamics of the CO2 (r)evolution for the car industry that was conducted in 2007, this study aims to examine impacts of the increasingly important trend for truck manufacturers to address eco-friendly solutions. Our results build upon analyses of each major industry stakeholders parameters and focuses on exploring different scenarios and their consequences, concluding in an assessment of whether the truck industrys green challenge is a Headwind or competitive edge for its players. Our automotive experts of the Automotive Advisory practice as well as the PwC Automotive Institute looked at this complex industry network from multiple angles to shape pathways for the truck industry. We cordially thank the team namely Dr. Michael Borgmann, Jan Maser, Liang Cheng and Stephan Huber as well as Nishal Chauhan, Calum MacRae, Emeric Deramaux and Paul McCarthy for the production of this study as well any valuable contributions, drawing upon our expertise in both areas the truck sector as well as market and technology assessments in the automotive industry. September 2008 Harald Kayser Partner German Automotive Leader Felix Kuhnert Partner German Automotive Advisory Leader Bo Karlsson Partner Commercial Vehicles Competence Center
Contents
Contents
Foreword ........................................................................................................ 3 Figures............................................................................................................ 6 Abbreviations.................................................................................................. 8 A Executive summary ................................................................................ 11 B The truck industry and its underlying dynamics ..................................... 15 1 2 3 Global truck market: Growth driver emerging markets .......................... 15 Road transportation: Increasing demand............................................... 23 Key challenge for the industry: Driving efficiency .................................. 24
C The government: Value driver or drivers worry? ................................... 27 1 2 3 On the path to a cleaner environment.................................................... 27 Future emission standards ..................................................................... 32 Outlook: CO2 as new challenge? ........................................................... 35
D The transportation industry..................................................................... 38 1 2 3 Under pressure: Rising costs hit transportation industry ....................... 38 Managing rising costs............................................................................. 41 Consumers: Barriers or drivers to technological change?..................... 44
E Green strategies for sustainable growth ................................................ 49 1 2 3 Driven by resource constraints and rising oil prices .............................. 49 Business models: Meet future challenges ............................................. 52 Harmonisation of emission standards: Highly appreciated but hard to realise......................................................................................... 59
Appendix....................................................................................................... 61
Contents
Expert interviews .......................................................................................... 65 Methodology consumer and transport company survey .............................. 66 Contacts ....................................................................................................... 67
Figures
Figures
Fig. 1 Fig. 2 Fig. 3 Fig. 4 Fig. 5 Fig. 6 Fig. 7 Fig. 8 Fig. 9 Fig. 10 Fig. 11 Fig. 12 Fig. 13 Fig. 14 Fig. 15 Fig. 16 Fig. 17 Fig. 18 Fig. 19 Fig. 20 Fig. 21 Fig. 22 Fig. 23 Fig. 24 Industry stakeholders .................................................................. 11 Global truck sales by region (20032013) .................................. 15 Medium and heavy duty trucks: World........................................ 17 Medium and heavy duty trucks: North America.......................... 17 Medium and heavy duty trucks: China........................................ 17 Medium and heavy duty trucks: Western Europe....................... 18 Top 15 Truck manufacturers.................................................... 19 Key facts: Top 5 European truck manufacturers ..................... 21 Consolidation pressure: Market players by region ..................... 22 Economic performance and truck market cycles........................ 22 Transport volume, economic growth and population growth in the EU-27 .................................................................... 23 Modal split in the transport sector ............................................... 24 Net importing regions and oil price ............................................. 25 Regulations in the truck industry................................................. 28 CO2 contribution by sector .......................................................... 29 Reduction of pollutants in the European Union .......................... 30 Emission standards by region..................................................... 31 Euro emission standards apply in various countries .................. 32 Emission standards in comparison ............................................. 33 Test cycles in Europe, USA and Japan ...................................... 34 CO2 Futures challenge for the transportation industry?...................................................................................... 35 Potential instruments to reduce CO2 emissions in road transportation .............................................................................. 36 Average cost structure of Germanys transport companies ................................................................................... 38 Costs for a 1000 l diesel in Germany.......................................... 39
Figures
Fig. 25 Fig. 26 Fig. 27 Fig. 28 Fig. 29 Fig. 30 Fig. 31 Fig. 32 Fig. 33 Fig. 34 Fig. 35 Fig. 36 Fig. 37 Fig. 38 Fig. 39 Fig. 40 Fig. 41
German road toll dependent on emission class for trucks (> 12 t) .............................................................................. 40 Ability to shift costs to consumers............................................... 40 Expected increase of transport costs.......................................... 41 Cost-savings measures and their respective feasibility.............. 41 Top 10 purchasing criteria .......................................................... 42 Average fuel cost increases in the transportation industry........................................................................................ 43 Empty runs in the EU .................................................................. 44 Consumer perception of trucks ................................................... 45 Consumer evaluation of environmental friendliness................... 45 Alternative transport media substituting trucks........................... 46 Willingness to pay for green products......................................... 46 Responsibility for reducing truck emissions................................ 47 Scenario analysis: Driven by transportation need and crude oil price .............................................................................. 50 Powertrain technologies and their ability to meet future transportation needs ................................................................... 54 Truck manufacturers approach towards a green future............. 56 Development of truck industrys business model ....................... 58 Top 15 Global truck manufacturers............................................. 64
Abbreviations
Abbreviations
AG ACEA AFS AMA B2B BGL bn BTL CEO CH4 CO CO2 DSLV EC EPA ESS ETC ETS EU FAW FTP g g/kWh GDP GmbH Gpkm
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Aktiengesellschaft (public limited company) Association des Constructeurs Europens dAutomobiles (European Automobile Manufacturers Association) Adaptive Front-lighting System American Motorcyclist Association Business to Business Bundesverband Gterkraftverkehr Logistik und Entsorgung Billion Biomass to Liquid Chief Executive Officer Methane Carbon Monoxide Carbon Dioxide Deutscher Speditions- und Logistikverband European Commission Environment Protection Agency Emergency Stop Signal European Transient Cycle Emission Trading Scheme European Union First Automobile Works Federal Test Procedure Gram Gram per kilowatt-hour Gross Domestic Product Gemeinschaft mit beschrnkter Haftung (limited liability company) Giga passenger kilometre
Abbreviations
GVW HC HDT HDV IAA IPCC JP k km kWh l LDT LDV m MAN MDT
Gross Vehicle Weight Hydrocarbon Heavy Duty Truck Heavy Duty Vehicle Internationale Automobil-Ausstellung (International Motorshow) Intergovernmental Panel on Climate Change Japan Thousand Kilometre Kilowatt-hour Litre Light Duty Truck Light Duty Vehicle Million Maschinenfabrik Augsburg Nrnberg Medium Duty Trucks
NAFTA North American Free Trade Agreement NOx NTE OECD PFC PM R&D RoW SF6 SET t TCO Nitrogen Oxide Not to Exceed Organisation for Economic Cooperation and Development Perfluorocarbons Particulate Matter Research and Development Rest of World Sulphur Hexafluoride Supplemental Emissions Test Tonne Total Costs of Ownership
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Abbreviations
tr U.S. VDA WHDC WHSC WHTC
Trillion United States of America Verband der Automobilindustrie (German Automotive Industry Association) Worldwide Heavy Duty Certification World Harmonised Stationary Cycle World Harmonised Transient Cycle
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Executive summary
Executive summary
The relationships of the main stakeholders of the commercial vehicle industry form a complicated triangular network. The economic situation of truck manufacturers is not only impacted by their customers, transport and logistics companies, but also by various sets of law and regulations. Not only do the actual customers challenge the manufacturers business models by their requirements, but the legal framework does too from safety regulations to emission restrictions that significantly influence the industrys development and truck manufacturer profitability. Emission regulation has become paramount in this context, which was emphasised by Gran Simonsson, CEO, of Volvo Trucks Region Central Europe GmbH, in his press statement for the IAA, 2008: The development nowadays is primarily driven by emission legislation which means that stringent emission standards are competing with the resources to develop other customer benefits.
Which regulatory framework needs to be set-up to achieve climate targets? How to comply with new regulations on technological level? How to balance regulations, economic success and competitive advantage?
Regulator Resource constraints and climate change
Which measures need to be conducted to regulate transportation more efficiently? How to create future transportation infrastructure? How to balance regulations and economic success in the area of transportation?
Truck manufacturer
Transportation company
What is the right technological roadmap to meet future regulations? Who is bearing the costs for environmental friendly technology and transportation concepts? Is the consumer willing to pay for green transportation products? Source: PwC
Fig. 1
Industry stakeholders
The triangular network environment is characterised by the following issues:

Firstly, regulatory requirements have been and will continue to impact
transport companies. Whether directly through fees, or indirectly by increasing costs for vehicle development, commercial vehicle life cycle costs are strongly influenced by legal regulations. Costs are the key factor for the highly competitive transport industry and any increases in costs create new challenges for this sector.
Secondly, rising oil prices have a strong impact on this industry sector.
Since fuel costs are the biggest factor contributing to total transportation costs, rising fuel costs have put transport companies under high pressure.
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Executive summary
Thirdly, the global political agenda and the publics increasing
environmental awareness demands that greenhouse gases such as CO2 are extensively reduced, with a fair share of that reduction to be delivered by the transport industry. At the same time, further globalisation and the growth in emerging markets exacerbate the situation, because growing traffic volume increases fuel consumption and concurrently global emissions. The main focus of this study will be the examination of possible impacts for truck manufacturers. The results are based on interviews with industry executives and experts, a survey conducted with executives of transport companies as well as consumers and supported by the analysis of our PwC Automotive Institute. Generally, the demand for transport services is strongly dependent on economic growth. Therefore, the industry has shown strong cyclicality in the past, particularly in the mature markets such as the U.S. or Western Europe. In addition, significant economic development and growth in the emerging markets have fuelled transport volume and demand for commercial vehicles. However, these markets confront transitional truck manufacturers with different demand patterns caused by different regulatory regimes and consumer preferences. Further emission standards are steadily increasingly stringent and require truck manufactures to provide innovative engine technologies. The introduction of varying standards in different markets has increased development efforts of manufacturers significantly. Thus far, existing emission standards control quantities of substances that are held responsible for environmental pollution, e.g. CO, NOx, or particulate matter. Manufacturers have been making great improvements in these areas. Globally, growing awareness of climate change issues puts the greenhouse gas CO2 in the limelight of the public discussion.
Within the next 510 years, CO2 regulations will inevitably become part of emission regulations. The question is, what will it look like and how will it be regulated? Jan-Eric Sundgren, Senior Vice President, Environmental and Public Affairs, Volvo Group
Unlike other pollutants, CO2 is the fundamental product of combustion processes in an engine. Thus, a reduction in CO2 emission can be achieved whenever fuel efficiency can be increased. Alternatively CO2 emissions can be reduced by utilising regenerative fuel resources, since no additional CO2 is generated by burning renewable fuels and the CO2 life-cycle stays in balance. In the end, total transport costs are the driving factor in the highly fragmented global transport industry, as B2B businesses such as the commercial vehicle market are cost sensitive to a greater extent. In contrast to the emotionally driven passenger car market, low life-cycle costs are the prime motive for purchasing a commercial vehicle. Transportation costs are, to a large extent, determined by fuel costs, so that life-cycle costs account for fuel consumption as well. Accordingly, demand for fuel efficient vehicles rises with increasing fuel costs. The public discussion about climate change and greenhouse gases has intensified. This discussion has great influence on the passenger car market
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Executive summary
at first, and will soon affect the commercial vehicle industry. As the PwC survey shows, the majority of consumers see that truck manufacturers should mainly be responsible for reducing CO2 emissions. Even if the PwC survey covers only the German market, it is probable that a similar attitude is prevalent in other markets as well, or can be expected to emerge in the near future. Thus, many industry experts expect the introduction of CO2 emission standards sooner or later and this creates a strong compulsion to act quickly for truck makers. Analysing different scenarios for the development of transport volumes and oil prices, it becomes obvious that innovative competence in developing clean and fuel efficient engines has an essential impact on the competitiveness of truck manufacturers, regardless of the initial scenario or the underlying market conditions. Thus, in connection with strict emission standards, innovative engine technologies create entry barriers to established markets in North America and Europe and they facilitate entry into emerging markets, as domestic suppliers often have not acquired the necessary technology. In summary, expertise in clean and fuel efficient propulsion technology will generate a significant competitive edge. While improvements for long-distance traffic are generated by advancing diesel engines and using alternative fuels, enhancements of alternative propulsion technology like hybrids or natural gas engines are utilised to increase fuel efficiency for short distance traffic. As long as truly efficient new technologies have not been developed, manufacturers face great threats if they invest in the wrong technologies.
Measures to increase efficiency are determined by the size of a truck. The focus for heavy trucks, which are used for long-haul transports will lie on alternative fuel, however, diesel will still be predominate. While for the distributor traffic (light and medium trucks up to 12 t) alternative drive concepts such as natural gas and hybrid will be pursued as well. Dr. Thomas Schlick, Executive Director, VDA
Therefore, communication with the key customers the transport companies will become essential for truck manufacturers to develop technological innovations that meet customer demands. Moreover, costintensive R&D efforts will trigger increasing consolidation pressure in the industry, particularly for emerging markets. Finally, developing the right technologies leads to significant opportunities to create a competitive edge. The search for basic approaches for further reducing pollutant emissions and increase fuel efficiency not only considers the powertrain. Lightweight construction and improved aerodynamic attributes are taken into account for vehicle design. New telematics and innovative transportation concepts like the megaliner aim at increasing utilisation of infrastructure. This increases the need to manage the augmented product and to redesign the product range to meet market requirements. With an increasing number of different propulsion technologies and innovative transportation concepts, economies of scale will be eroded. This effect will additionally be intensified by the requirement of customised transport solutions when entering emerging markets. Therefore, cost efficient production and product modularisation will gain in significance.
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Executive summary
The current market situation, which is identified by high oil prices and sustained growing transport demand, offers a good starting point for European manufacturers to further generate growth, since they already achieved technological expertise in low-emission and fuel efficient propulsion technologies and forward-looking transport concepts. While production excellence and ongoing globalisation have long been addressed, managing technological risk and designing the range of augmented products are now in the spotlight. The implementation of globally harmonised standards would be a significant relief for truck makers, since it would drastically reduce competing R&D efforts. Financial resources could then be allocated for the development of innovative propulsion technologies. The implementation of globally harmonised standards requires intense coordination and the protracted nature of ongoing negotiations exemplifies how difficult it is to achieve a consensus in this matter. A focus on stricter enforcement of emission standards and shorter time periods between succeeding regulatory levels could be a promising approach in this context. An important step towards harmonised standards could be the World Heavy-Duty Certification (WHDC), a new standardised test cycle, which might be introduced with EURO VI, and gradually be introduced by other countries. In summary, as a result of the green challenge, the truck manufacturing industry must intensify their efforts to cope with regulations and stay competitive with other transport means. Nevertheless, the European manufacturers are in a promising position, since exhaust emission regulations and high fuel prices are going to increase their opportunity to exploit their technological competitive edge on a global scale. The implementation and enforcement of global emission standards could even improve this position. At the end of the day, there seems to be a good chance for the European truck industry that the regulation-induced headwind turns into a tailwind.
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The truck industry and its underlying dynamics
The global truck industry plays a key role in the transportation of goods from the manufacturer to the consumer. Although market conditions vary across regions, the global truck industry continues to be a pivotal agent to enable and support economic growth.
Global truck market: Growth driver emerging markets
Despite the various market conditions and challenges, the global truck industry is growing. The global demand for medium and heavy duty trucks rose by approximately 5.6% from 2006 to 2007 to reach a sales volume of 2.4 m units. Based upon 2007 data, the truck market is dominated by the emerging markets of China, India and Russia, which together account for more than 46% of global demand. China alone accounts for 30% of global truck demand, while North America and Western Europe account for 19% and 14% respectively. Global truck demand is predicted to grow by another 3.5% per year amounting to 2.9 m units by 2013.
1.500.000 1.250.000
Volume (in units)
1.000.000 750.000 500.000 250.000 0 2003 2004 2005 2006 2007 2008e 2009e 2010e 2011e 2012e 2013e Year China, India, Russia Western Europe Eastern Europe Rest of world North America
Source: Global Insight, Global Automotive Group Fig. 2 Global truck sales by region (20032013)
Western and Eastern Europe The European market, the headquarters of many of the leading truck makers, is driven by the individual markets cycles. Western European markets grew at a stable rate between 4% to 5% in the past, while the last years have been characterised by a slow-down. This slow-down is primarily driven by inflationary pressure and the subsequent price increases for consumer goods with the affect of decreasing demand in the transportation industry. Economic problems in the European market are expected to subside in the near future. According to the OECDs Economic Outlook, published in June 2008: The economic expansion is likely to moderate during 2008, with a trough in the second quarter. Output growth is being
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slowed by tighter financial conditions, higher inflation and weaker housing market activity. Growth is expected to drop below potential this year, before picking up slowly through 2009 as financial headwinds dissipate and the external environment improves. Thus, marginal growth of 0.3% per annum in the European truck market is expected in the short-term. The regions outlook is boosted by much faster growing transportation needs in Eastern Europe where current sales were up 15% and growth of 4% is expected in the upcoming years. North America North America is one of the major markets for the industry, with approximately 450,000 units sold in 2007. The market grew at a moderate level of 4.4% in the last four years. The new American emission standard EPA07 introduced in 2007 led to a pre-buy effect in 2006, increasing sales volumes for the year which were then followed by a sharp drop in 2007. Looking to the future the North American truck market faces several challenges, including the new emissions legislation in 2010 and the markets uncertain economic prospects could lead to high pressure in this market. China, India and Russia These markets are the key drivers for growth in the truck industry. The leading market is China with about 700,000 trucks sold in 2007 and an annual growth rate of 15.4% over the past four years. The strong growth is primarily driven by the booming transportation needs and large investments in road infrastructure. The introduction of the new Euro III emission standard in 2007 also had a positive effect on Chinese sales. India and Russia are following China with average growth rates of 16% per annum. Russia, with its predicted sales volume of approximately 170,000 trucks is a market that is of growing importance, especially for the European based truck manufacturers. Market segmentation The truck market is broadly segmented by gross vehicle weight (GVW) which indicates the use of the truck. Medium-duty trucks span the gross vehicle weight range 6 to 16 t and the heavy-duty trucks cover those with gross vehicle weight of over 16 t.1 Medium-duty trucks (MDTs) are typically utilised for local and regional distribution, as they are more flexible and suited to urban roads and infrastructure than heavy-duty trucks (HDTs), which are mainly used for long-haul transportation and heavier loads. HDTs account for 1.45 m units of the global total, with MDTs taking the remaining 0.9 m units. HDTs have also been dominant in terms of recent growth between 2003 and 2007 HDTs grew by 12% per year, while MDTs grew by 6%.
Light-duty trucks with a GVW from 3.5-6t are not within the scope of this study. Countries and truck manufacturers use different categories to define LDT, MDT and HDT.
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2000
Volume (in k units)
1600 1200 800 400 0 2003 2004 2005 2006 2007 2008 Year Heavy-duty Medium-duty 2009 2010 2011 2012 2013
Source: Global Insight, Global Automotive Group Fig. 3 Medium and heavy duty trucks: World
400
Volume (in k units)
300 200 100 0 2003 2004 2005 2006 2007 2008 Year Heavy-duty Medium-duty 2009 2010 2011 2012 2013
Source: Global Insight, Global Automotive Group Fig. 4 Medium and heavy duty trucks: North America
800
Volume (in k units)
600 400 200 0 2003 2004 2005 2006 2007 2008 Year Heavy-duty Medium-duty 2009 2010 2011 2012 2013
Source: Global Insight, Global Automotive Group Fig. 5 Medium and heavy duty trucks: China
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300
Volume (in k units)
200
100
0 2003 2004 2005 2006 2007 2008 Year Heavy-duty Medium-duty 2009 2010 2011 2012 2013
Source: Global Insight, Global Automotive Group Fig. 6 Medium and heavy duty trucks: Western Europe
In the forthcoming years demand for HDTs will continue to overweigh the MDTs as the drivers of topline truck growth China, Russia and India are of considerable geographic scale and are building up their road network and transportation infrastructure giving conditions suited to HDTs. China is predicted to increase its HDT sales gradually until 2013 accounting for an annual growth rate of 7.3% amounting to an additional sales volume of 250,000 units. Simultaneously, Chinas demand for medium-duty trucks will remain stable across the forecast period. A similar growth pattern is predicted for India. Key players Most of the worlds major truck manufacturers are headquartered in Western Europe and North America, but truck manufacturers, such as Tata, Dongfeng and First Automotive Works (FAW) from the emerging economies of India and China are gaining ground, and stand as the 4th, 5th and 6th largest manufacturers respectively on a global level.
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Daimler Volvo Paccar Tata Dongfeng FAW (China) Navistar China National HTC MAN Ash. Leyland Iveco Scania Isuzu Hino 0 50 100 150 200 250 300 350 400
Sales volume (in k units)
Source: VDA Fig. 7 Top 15 Truck manufacturers
Of the top 15 manufacturers measured by unit sales volumes, only two manufacturers Daimler and Volvo can truly be seen as global players. These manufacturers have multiple brands in their portfolio, which originate from different regions of the world and backed by local production, which gives them global player status. However, all European truck manufacturers are playing a key role in development of innovative technologies and sustainable transport solutions.
Besides the technological adoption to meet global emission targets and the global harmonisation of various emission standards, the localisation of trucks in the different regions will be a key challenge in the future to cope with. It is crucial to establish ourselves in low-cost markets with respective trucks. Georg Weiberg, Head of Truck Product Engineering, Daimler AG
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Manufacturer Daimler Trucks
Key figures Headquarter: Stuttgart, Germany Brands: Mercedes-Benz, Freightliner, Mitsubishi Fuso, Sterling, Thomas Built, Western Star Employees: 80,067 Revenue: EUR 28,466 m (trucks) Operating profit: EUR 2,121 m (trucks) Net sales by market WE 19% NA 24% SA 11% A 31% Other 15%
Market strategies
Global Excellence with the initiatives management of cycles, operational excellence, growth and market penetration and future product generations as important tool for the business strategy Capturing down-stream value through vehicle leasing, fleet management, repair and maintenance Strategies to enter emerging markets dependent upon market situation, cooperation, and acquisitions as applicable strategic options to enter those markets Aiming at increasing market share in the Central and Eastern European countries by launching new products Emerging markets are in the focus, the Russian and Indian market are entered with local partners
IVECO
Headquarter: Turin, Italy Brands: Iveco, Astra, Irisbus, Magirus Employees: 26,461 Revenue: EUR 11,174 m Operating profit: EUR 813 m Net sales by market WE 70% EE 15% Other 15%
In terms of alternative technologies compressed natural gas is seen as the most favourable solution Aiming at global growth Joint Venture with Force Motors Ltd. (India) as key aspect to realise global growth Assembly plant in Krakow enables MAN to manufacture within the strongly growing Eastern European markets Optimising organisation and the process of production Strengthening distribution network in Eastern Europe and the Middle East Strong market position in Russia shall be expanded by larger service network Efficiency increase is to be reached by the Scania Productivity System (SPS) Service products are seen as an important issue to provide maximum value to the customer Large investments are done to increase production capacity
MAN
Headquarter: Munich, Germany Brands: MAN, ERF, Neoplan, Star Employees: 36,591 Revenue: EUR 9,023 m (trucks) Operating profit: EUR 1,023 m (trucks) Net sales by market WE 49% EE 15% Other 36%
Scania
Headquarter: Sdertlje, Sweden Brands: Scania Employees: 35,096 Revenue: EUR 5,586 m (Scania Trucks)1 Operating profit: EUR 1,235 m (vehicles and service)1 Net sales by market WE 52% EE 22% SA 14% A 9% Other 3%
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Manufacturer Volvo
Key figures Headquarter: Gothenburg, Sweden Brands: Volvo, Renault, Mack, Nissan Diesel Employees: 63,200 Revenue: EUR 19,955 m (trucks)1 Operating profit: EUR 1,613 m (trucks)1 Net sales by market WE 42% EE 12% NA 14% SA 6% A 17% Other 9%
Market strategies
Market growth is aimed especially in Eastern Europe and Asia Significant investments in increasing production capacity Strong focus on the aftermarket and further development of the dealer network Focus on products with increased customer value Safety aspects and vehicle and plant emission reductions are strategic key goals Productivity and cost-efficiency improvements
Exchange Rate 31 Dec 2007 WE = Western Europe, EE = Eastern Europe, NA = North America, SA = South America, A = Asia
Source: Company web sites Fig. 8 Key facts: Top 5 European truck manufacturers
Market dynamics Consolidation While the light vehicle market those vehicles up to and less than 6 t gross vehicle weight saw almost 69 m units assembled in 2007, the truck market saw approximately 2.4 m units of medium and heavy-duty trucks assembled in 2007. Due to the relative low level of market volume and the cyclical demand for trucks, economies of scale are more difficult to realise and uncertainties in product planning must be overcome by the truck manufacturers. This factor has led to strong competition and consolidation in Western Europe and North America and will no doubt lead to consolidation in the fragmented Asian scene. According to market analysis, Asia has 33 manufacturers, of which most are located in China. Of these Asian manufacturers, ten truck manufacturers produce 87% of the overall volume, while the remaining 23 players account for only 13%. This provides a significant contrast to the concentrated West European markets where just four manufacturers produce 89% of the volume. Despite the market size and growth perspectives, the number of competitors in the Asian market appears to be unsustainable, since the cumulative number of manufacturers in Western Europe, NAFTA and the Rest of World (RoW) is far lower than in Asia alone.
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Share in regions assembly volume
100% 80% 60% 40% 20% 0% 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 Number of alliance groups Asia Western Europe NAFTA Rest of world
Source: Automotive World and PwC Analysis Fig. 9 Consolidation pressure: Market players by region
Market dynamics Cyclicality Economic growth brings greater demand for the transport of goods and services. As economies are subject to the business cycle, there is a corresponding degree of cyclicality in truck markets. As economies grow, demand for goods transportation increases, either by trucks, trains, ships or planes. Similarly, when economies face downturns, transportation needs also decrease. This cyclicality is straightforward in mature markets, such as in the U.S. and Western Europe. On an annual basis, growth rates of GDP expansion and truck sales are linked as such that a drop in GDP by 1% is accompanied by a drop of truck sales of 7%. Hence, the truck market is a pro-cyclical market, which highly correlates with the current economic performance.
50% 40%
Sales growth
8% 5% 2%
20% 10% 0% -10% -20% -30% 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 Year U.S.-Truck sales growth U.S.-GDP growth
-1% -4%
Source: UNStats, PwC
Fig. 10
Economic performance and truck market cycles
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GDP growth
30%
Road transportation: Increasing demand
The markets are on the move: Due to advancing globalisation, declining trade barriers and an increasingly mobile workforce, the transportation industry continues to enjoy above average growth. This also holds true for majority regions such as the European Union, with about EUR 250 bn of revenue. Based upon data and forecasts from the European Commission, there will be ample room for growth in the economic activities, passenger transport activities and freight transportation by trucks in the European Union. However, the need for road transportation of trucks is forecasted to exceed economic growth. A growing European single market and the increasing outsourcing of manufacturing processes were leading to an increasing demand for road transportation. However, due to the increasing importance of the tertiary sector, road transport activities and GDP growth will gradually decouple after 2025.2
300 Index (1900 = 100) 250 200 150 100 50 1990 GDP
Source: Eurostat Fig. 11 Transport volume, economic growth and population growth in the EU-27
1995
2000
2005
2010 Year
2015
2020
2025
2030
Population
Passenger transport activity
Transportation by trucks
While transportation of goods and services can be conducted by several modes trains, trucks, ships and airplanes it is the greater flexibility of truck transportation which has seen it increasingly favoured compared to other available modes of transportation. For example, while road transport carries more than 70% of all inland freight in Europe, railways and inland navigation account for less than 30%3 and is set to fall further as freight transportation on roads is set to increase to 75.4% by 2030. However, industry experts reckon that there is sufficient demand for all transport means; the industry needs to work on increasing overall efficiency of the combined transportation modes.
2 3
European Commissions Report on European Energy and Transport Trends to 2030, Update 2007. ACEA and Eurostat.
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4,000
Transport volume (in bn km)
3,000 11.4% 16.0% 10.6% 15.4%
10.2% 15.3%
10.0% 15.2%
9.7% 15.1%
9.6% 15.0%
2,000
13.7% 27.9%
13.7% 20.0% 66.3%
12.5% 18.2%
1,000 58.4% 0 1990 1995
69.3%
72.6%
74.0%
74.4%
74.8%
75.2%
75.4%
2000
2005 Trucks
2010 Year Rail
2015
2020
2025
2030
Source: Eurostat
Fig. 12
Inland navigation
Modal split in the transport sector
Environmental pressure generated by the growth of road transportation has forced the European Commission to publish several reports on transportation with the aim of fostering a modal shift away from roads and toward railways.4 However, it remains to be seen whether the different rail networks within the European Union can be harmonised, and whether the logistical requirements of flexibility and speed to manufacture, process and deliver intermediate and final goods under just-in-time production conditions can be met sufficiently by rail transport to challenge road transports dominance.
Key challenge for the industry: Driving efficiency
Growing markets and growing transportation needs usually mean favourable conditions for the truck manufacturing industry. However, there are some critical issues such as high fuel price, concerns about emission regulations, and turbulent changes on the demand side, such as rising costs and loading capacity. As the two stakeholders of the industry, the truck manufacturers and the transport companies depend on each other as demand of goods and demands of trucks are intertwined. It can be said that challenges are affecting both stakeholders to a similar extent. Crude oil prices and emission regulations are having, and will have in the future, a significant impact on the truck industry. High crude oil prices has boosted energy costs and commodity prices, creating inflationary pressure. In the past year, the cost of diesel increased by a staggering 31%. The role of fuel prices within the total cost of ownership is critical, as this is the primary attribute that transportation companies use for purchasing decisions. This factor is of even greater importance for those companies running their own truck fleet as many transportation companies are at the risk of bankruptcy due to increasing fuel prices. This
European Commission: Towards a rail network giving priority to freight (COM(2007)608).
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shows that further price hikes will have an enormous impact on all, not just transportation companies but the truck manufacturers themselves. Assumptions on future oil price development is difficult. Some market experts predict high level prices, others expect more moderate levels. Examining the oil dependency by regions reveals that Asia-Pacific, Western Europe and North America are net importing regions. Despite the fact that crude oil prices have been rising in current years, the overall demand in net importing regions increased even more, peaking on a level of 1.7 tr t of crude oil imports by the year 2007. While Western Europes dependence on oil declined during the prior years, regions like Asia-Pacific, with China in particular, and North America are demanding more.
2.400
Import volume (in mn t)
120
Oil price (USD/barrel)
2.000 1.600 1.200 800 400 0 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 Asia Pacific Western Europe Year North America Price per barrel
100 80 60 40 20 0
Source: British Petroleum, Statistical Energy Review 2008
Fig. 13
Net importing regions and oil price
As observable in recent history, the continuing industrial and economic development across the globe has brought an inexorable increase in the demand for oil. For instance, Chinas economic growth and development since the 1980s was accompanied by a 75% increase in oil demand from 1980 to 2006. Reliability and compliance with emission standards are broadly regarded as another important factor. With the introduction of the Euro IV and the JP05 in 2005, the truck industry saw major environmental milestones in Europe and Japan, followed by stricter emission regulations for the U.S. in 2007. Looking forward, the next step to deal with new emission standards is coming in 2010 for the U.S. and 2012 in Europe. Regulatory rules have a significant impact on the industry. The truck manufacturers must adopt technological approaches, and the transportation industry has to deal with significant toll fees for emissions. These market reactions to regulatory frameworks and increasing oil prices increase the volatility of an already-cyclical market environment. Those circumstances make it difficult to predict the direction of cyclicality in time, managing the fixed costs, dealing with new technologies and localising products.
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Key facts Eastern Europe and Asia, with China in particular, are going to be the future growth markets. The Asian market is fragmented and opportunities for consolidation exist. Demand for road transportation probably will continue to increase. Truck market and economic development are intertwined, leading to cyclicality of truck sales. Rising oil prices are common challenges for truck manufacturers and transportation companies.
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The government: Value driver or drivers worry?
Emission standards are just one of many regulations that truck manufacturers have to address. Within the EU, truck makers have to comply with environmental, safety, lighting, and other general rules to achieve compliance before trucks can ply the roads. These regulations have evolved over time and truck manufacturers have to engineer their vehicles to comply with these requirements. The maze of regulations is further complicated by the need to comply with laws in other parts of the world. Therefore, truck manufacturers must make considerable R&D investments to ensure that products are appropriately suited for the respective local markets. Daimler CEO Dieter Zetsche described the situation this way: Our engineers sometimes feel as if they are forced to play European soccer on an American baseball diamond by Japanese sumo wrestling rules. The regulations that have been implemented in the past and which are going to be implemented in the years to come are extensive. But these regulations, at times with regulators financial support, together with cost pressures, create avenues for technological breakthroughs. This is true for safety aspects but also relevant on other features around the truck (see figure 14, on page 28).
On the path to a cleaner environment
The industry knows about its high social responsibility. Therefore, safety aspects are especially stressed as one of the key issues. However, political incentives are necessary to get developments onto the street. As cost-oriented costumers wouldnt have any inducement to acquire costly safety measures. Dr. Thomas Schlick, Executive Director, VDA
CO2 emission, which is currently a relevant topic in the emissions discussion within the passenger car segment, has not been subject of a current proposal within the legislative framework for the truck industry. According to the Intergovernmental Panel on Climate Change (IPCC) Assessment Report 4 (2007), 13% of the worlds greenhouse gas emissions such as CO2 derive from the transport sector and therefore contribute to global warming.5 Within this share passenger transport accounts for a larger share than road transportation. While this figure may appear to be low, the public image is that trucks, as outlined later, are dirty and increase pollution. Nonetheless, truck makers realise that while they are part of the challenge, they are also part of the solution, and therefore, view emissions reductions as one of their key priorities.
The gases carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs) and sulphur hexafluoride (SF6) are the major greenhouse gases (direct greenhouse gases). In addition, gases as nitron oxides (NOx) and carbon monoxide (CO) are contributing to ozone depletion rather than to global warming.
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Time 2007
General
Environmental
Safety
Lighting
Diesel emission HDV Euro IV (Phase 2) Emission LDV Euro IV
Indirect vision devices (rear mirrors) Speed limiters Seat strength Frontal protection Seat belt & seat belt anchorages
Variable intensity signalisation (proposal, optional 06/2007) AFS Installation (proposal, optional 06/2007) Emergency stop signal (EES) (proposal, optional 06/2007) Front fog lamp installation (proposal, optional 06/2007) Conspicuity markings
2008 Diesel emission HDV Euro V 2009 Fuel quality Suppression radio (EMC) 2010 Buses & coaches interior fitting requirements 2011 Biofuels 2nd step Vehicle type approval (proposal) 2012 Front underrun protection Cab strength (proposal) Door latches & hinges (proposal) 2013 Diesel emission HDV Euro VI (proposal) Pedestrian protection Vehicle compatibility (proposal) Emission LDV Euro V (proposal) Recyclability Fuel tanks/rear DRL installation protection devices requirements (proposal, new Front impact homologation) Indirect vision devices Electronic stability control (proposal) Identification of controls Interior fittings Speed limiters
2014
2015 Emission LDV Euro IV (proposal)
Source: Iveco
Fig. 14
Regulations in the truck industry
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Energy supply Industry Forestry Agriculture Transport

1
26% 19% 17% 14% 13% 8% 3% 5% 10% 15% 20% 25% 30%
Commercial and residential buildings Waste and wastewater 0%

1
Transport including passenger and freight traffic.
Source: IPCC
Fig. 15
CO2 contribution by sector
Nearly all trucks are powered by diesel engines that generate exhaust gases such as Nitrogen Oxide (NOx), Particulate Matter (PM), Carbon Monoxide (CO), Hydrocarbon (HC), and Carbon Dioxide (CO2). These exhaust gases, with the exception of CO2, are regulated based upon various global emission standards as they primarily contribute to acid rain, smog, and respiratory diseases. However, these pollutants are caused by an incomplete combustion of fuel, while CO2 would be the only gas if the combustion were complete. Hence, there is a trade-off between the emission of these exhaust gases, such as NOx and the emission of CO2. In response to reducing air pollution, regulators have implemented emission standards. These include the EPA standards in the U.S., Euro standards in the EU, and JP standards in Japan. These governmental regulations limit the emission of NOx, PM, CO, and HC. These standards vary across the regions, and are determined by government objectives to combat these pollutants. European-wide norms for commercial vehicles were introduced for the first time with the implementation of Euro 0 in 1988 which became mandatory in 1990. The Euro 0 standard sets emission limits for CO, HC and NOx emissions. PM emission was not part of the legislation then, but changed with the introduction of Euro I in 1992 where PM emission was included. In the subsequent years the EC gradually tightened the emission limits for the four pollutants, through a series of directives ranging from Euro 0 through Euro V.
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Euro 0 19881992 Euro I 19921995 Euro II 19952000 Euro III 20002005 Euro IV 20052008 Euro V 20082013 Euro VI 2013
1
100% 100% 100% 100% 40% 47% 83%
100%
33%
42%
38% 17% 25% 25% 12% 18% 24% 12% 18% 14% 12% 35%
49%
5%
Current standard
5% 5% 3% 3%
0%
1
20%
40% PM NOx
60% HC CO
80%
100%
EU Proposal as of 21 Dec 2007
Source: PwC Fig. 16 Reduction of pollutants in the European Union
In recent years, the emission legislation has focused on the reduction of PM and NOx emissions, as these two pollutants have been identified for having particularly negative impacts on air quality and health. Based upon the current Euro IV standard, PM and NOx emission limits are at 5% and 24% of the original limits set in Euro 0, and further reductions are anticipated with the implementation of future Euro standards such as Euro V and Euro VI. As the EU standards were the first to be introduced to combat emissions, the U.S. and Japanese governments followed the European approach to enable stricter emissions regulations.
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North- and South America
Europe/Middle-East/Africa
Asia/Pacific
EU standards and countries following EU standards U.S. standards and countries following U.S. standards Countries accepting EU and U.S. standards Japan standard No standard Source: PwC
Fig. 17
Emission standards by region
Many countries outside of Europe have applied Euro standards, making the European emission standards the most widely adopted worldwide. In terms of sales volumes, regions applying Euro standards account for approximately 1.6 m units, while countries applying U.S. standards account for approximately 450 k units. The residual of 350 k units are sold in countries that apply Japanese standards, accept both European and U.S. standards, or do not have any standards. In terms of emissions and the regulatory response towards them, emerging economies play a key role. This is due to the fact that these markets are expected to contribute significantly to global emissions caused by transportation in the future. Within the emerging markets, the implementation of Euro standards will occur at different time periods across various countries and metropolitan areas. In China and India, large cities have introduced or will introduce future standards earlier than on a national level, underlining the necessity of emission standards especially in cities with a large population for the purposes of clean air.
Securing competence to meet current and future emission regulations is a big challenge. Jan-Eric Sundgren, Environmental and Public Affairs, Senior Vice President, Volvo Group
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EU Brazil Russia India (11 Metros) India (nationwide) China (Beijing) China (nationwide)
Euro I
II Euro I
III II Euro I Euro I Euro I Euro I Euro I II II II
IV III II III II III III III
V IV IV IV III IV IV
VI V V
V V
1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Source: VDA, SIAM, CAAM, ANFAVEA, OAR 2008
Fig. 18
Euro emission standards apply in various countries
As the emerging economies implement the Euro standards at various time frames, the global truck makers have to ensure that they have engines to fulfil the different Euro standards. Thus the lack of a standardised Euro engine in the emerging economies is likely to add cost pressures to the truck manufacturers predominantly caused by the lack of commonality. The fact that different regulations apply in the U.S. and Japan lead to even more diverse engines, preventing manufacturers from realising economies of scale in producing trucks and engines. Together with competitive pressures, harmonising the different regulations to make economies of scale possible will be a main challenge for the truck industry.
Future emission standards
Although emission regulations have become rigorous since their first introduction, regulators continue to make emission standards stricter. This development will continue for future emission standards; however, the focus will be on further reductions of PM and NOx emissions. The proposal made by the EU Commission regarding Euro VI, which will go into effect in 2013, targets an additional decrease of NOx emissions by 80% and an additional PM reduction of 50% compared with the limits of Euro V. The U.S. standard EPA 10, to be introduced in 2010, will result in PM reductions of 83% while NOx reductions will be unchanged relative to EPA 07. Besides the evolution of Euro and EPA standards, the Japanese standards show similar developments and a focus on reduction on NOx and PM.
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0.20 0.18 0.16 Particulate matter (in g/kwh) 0.14 US 04 (2004) 0.12 0.10 0.08 0.06 0.04 US 10 (2010) 0.02 0.00 0 Euro VI (2013) Japan (2009) Japan (2005) Euro V (2008) US 07 (2007) 1 2 3 Nitrogen oxide (in g/kwh)
Source: EPA, AMA, ACEA, MCH
Japan (2003)
Euro III (2000)
Euro IV (2005)
Fig. 19
Emission standards in comparison
To add complexity to this matter, testing procedures vary across regions. As vehicle testing is very complex for heavy duty vehicles, regionally based test cycle approaches were developed. For instance, in the U.S. testing procedures are geared towards HDT trucks on motorways, with minimal traffic congestion. The Japanese testing standards are based upon urban driving, while European test cycles are weighted more towards a mixture of the Japanese and U.S. testing schemes.
In addition to other factors, the issue of not having harmonised testing and emission standards, does impact our decision to expand into new markets. Urban Wstljung, Head of Public and Environmental Affairs, Scania
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Region U.S.
Test cycle FTP (Federal Test Procedure)
Description This transient cycle consists of driving conditions simulated in three different U.S. conditions. The first simulates light urban traffic with frequent stops and starts, the second simulates crowded urban traffic with few stops, and the third simulates a crowded motorway. A steady-state test ensures that emissions are controlled during steady-state type driving, such as motorway driving. This test monitors emissions resulting from driving of any type that could occur within the bounds of a pre-defined NTE control area, including operation under steady-state or transient conditions and under varying ambient conditions. However, these emission limits are typically higher than the FTP limits. The NTE control area represents engine speeds and loads expected to be encountered during normal operating conditions. This transient cycle test represents driving conditions in urban, rural and motorway driving. The stationary cycle consists of 13 modes where the engine is tested in every single mode over a certain period of time. The JE05 cycle is a transient test based on Tokyo driving conditions, which are involve urban and congested roads.
Start conditions Cold/Warm
U.S.
SET (Supplemental Emissions Test) NTE (Not to Exceed)
Cold/Warm
U.S.
Cold/Warm
Euro Euro
ETC (European Transient Cycle) ESC (European Stationary Cycle) JE05 (Japan 2005)
Warm Warm
Japan
Warm
Source: EPA, JAMA, European Commission Fig. 20 Test cycles in Europe, USA and Japan
The lack of a global emission and testing standard forces the truck manufacturers to create varied powertrains to meet the different standards thus resulting in increased engineering, testing, and certification costs. Manufacturers are forced to spread their R&D costs across a variety of engine platforms to comply with all standards, hence being unable to channel energy and resources into a single global standard that would otherwise save costs. Such inefficiencies result in significant costs which are ultimately borne by the end-user. Truck manufacturers have been grappling with this issue for many years. The concept of creating a worldwide heavy duty certification (WHDC) is not new, as such discussions have been occurring over the past couple of decades, but disagreement between regulators in the various markets has resulted in the failure to create a global emission standard. However, it is anticipated by the industry that a harmonisation may probably occur in 10 to 15 years. A world harmonised testing standard such as the world harmonised transient cycle (WHTC) as well as a world harmonised stationary cycle (WHSC) have been developed. The creation of these test cycles was achieved through collecting data about driving behaviour, road classes, and vehicle use statistics. This information was weighted according to their worldwide prevalence. Relative to the regional standards, the WHTC results indicated that deviations in PM and NOx emissions were small, but variances for CO and HC were much higher. The variances were attributed
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to frequencies in engine speed and load as well as differences in the average power output between the cycles. However, such differences would be significantly smaller if engine were optimised for a worldwide standard. So what can and what should truck manufacturers do? Truck manufacturers have a key role as regulators are unlikely to push such development towards harmonised standards on their own accord. The global truck market is dominated by the European truck manufacturers who have forged alliances with other manufacturers around the world (MAN and DAF have an alliance with Paccar and Navistar, Volvo owns Nissan Diesel in Japan and Mack Trucks in the U.S., Daimler has a controlling stake in Mitsubishi Fuso and owns Freightliner in the U.S.), and therefore these truck manufacturers, through their geographic reach, should continue to work with the regulators to create global emission standards, together with uniform testing standards. The way towards worldwide harmonisation could involve a two-step model. Such an approach would entail harmonising the varied testing standards first, and then harmonising emission standards such that one worldwide emission standard with one test cycle, can be achieved.
Emission laws and new emission targets will always play a role. After Euro VI further emission standards are likely to occur, since new pollutant combinations will be found and regulated. Gerd Rohrsen, Head of Corporate Communications, Schmitz Cargobull AG
Outlook: CO2 as new challenge?
Although emission standards are being enhanced, truck makers need to be prepared for the emergence of additional regulations that could target other emissions.
200 180 160 140 120 100 80 60 40 20 0 1995 2000 2005 2010 C6 H 6 2011 CO 2012 CO2 2013 NOx 2014 PM 2015 2020 Year
Source: Tremove
Fig. 21
CO2 Futures challenge for the transportation industry?
Unlike the other pollutants, CO2 is one of the major products of a complete combustion of fuel. If fuel consumption can be reduced, the emission of CO2 would decrease as well. Against this background, the cost-sensitive
35
transport companies running their own truck fleets have a substantial interest in the reduction of CO2, and thus of their fleets fuel consumption. As was the aim of the Euro standards targeting a reduction of emission gases, the overall emission of the four pollutants declined over time. However, due to the existing trade-off between CO2 and the pollutants, CO2 emissions increased and are expected to increase further as the emissions of the four pollutants are expected to decrease.
CO2 is an issue in the commercial vehicle sector the latest calculations for the development of CO2 emissions for freight transport in Germany showed a constant level of growth by 2020. This is attributed to ambitious increase of 18% in vehicle technology and logistics. Against this background, measures to reduce emissions are necessary, especially since they generate not only ecological, but also economic benefits. Dr. Uwe Lahl, Head of Department, German Federal Ministry for the Environment
If the target would be to reduce all truck related CO2 emissions in 2020 to 90% of the emissions at 2005 level, as required by the EU, it would require a reduction of approximately 20 m t compared to 2005. There are multiple possibilities, but unlike in the car industry, the truck industry has varied products based upon size, weight, length, and truck application. Whatever the solution, such truck variances will have to be an important consideration. Three possible instruments could be considered as illustrated below.
280
(in m t)
240 200 160 120 1995 2000 2005 Year CO2 emission (est.)
Option Tax on CO2 emissions Measure
2010
2015
2020
CO2 reduction simulation

Immediate cost-bearer
Implementation of a CO2 emission tax Logistics companies based upon the level of CO2 emission The CO2 emissions tax could be paid at road tolls as such tolls exist in most of the EU member states. Similar to the passenger car industry, a limit on CO2 emissions might be introduced. Penalties could be conducted on each unit of CO2 emissions exceeding a maximum threshold depending on distance or tonnage per distance. Immediate cost bearer could be either the truck manufacturers based on the development costs and logistic companies, which would have an incentive to buy low CO2 emission vehicles.
CO2 limits
Emission Trading Scheme (ETS)
As recently introduced for the aviation Logistics companies industry, CO2 emissions could be reduced by restricting the amount of emissions and allow the stakeholders to trade within this trading system.
Source: Tremove, PwC
Fig. 22
Potential instruments to reduce CO2 emissions in road transportation
36
First, governments could introduce tolls based upon a vehicles CO2 emission levels. While this matter is currently under discussion in various parts of Europe, it is likely to face opposition as freight companies as they are already inundated with paying high fuel prices. A current suggestion is the concept of a Eurovignette, which reflects taxing CO2 emissions as a toll on EU member states that have a national toll system.
According to ongoing discussions in Germany and the EU, we expect a regulation on CO2 to come. Eurovignette and ETS (Emission Trading Scheme) are reasonable solutions to incorporate CO2 emissions. Michael Lohmeier, Senior Expert Corporate Development, Deutsche Post World Net
Second, regulators could issue rules relating to fuel efficiency standards. If a vehicle is not fuel efficient, more CO2 would be emitted. This approach is taken by the car industry where limits on CO2 emissions per kilometre are expected to be introduced and could be expanded to the truck industry. In Japan, for instance, the Top Runner Program has been introduced for trucks with a gross vehicle weight of more than 3.5 t. The program specifically targets the improvement of fuel efficiency and thus CO2 emissions. It is intended to increase fuel efficiency from a level of 6.32 km/l in 2002 to 7.09 km/l in average in 2015. In terms of CO2 emission this fuel efficiency improvement leads to a decrease from 415 g CO2/km in 2002 to 370 g CO2/km in 2015 resulting in a decrease of 12.2%. The target values for the different vehicle classes are set by gross vehicle weight. Finally, an emission trading scheme could be introduced that requires trucks of a specific weight to be included. Under this cap and trade scheme, the overall emission limits cannot exceed a certain level, and if it does, participants in this scheme are allowed to buy and sell allowances as they require. However, for fleet operators to reduce such costs, the truck manufacturers will face even further pressure to enhance fuel efficiency levels.
Key facts Within the combustion process CO2 is generated as the main emission gas. Hence, reducing fuel consumption within an engine would lead to less emission of CO2. CO2 which is an unregulated greenhouse gas is expected to become part of future emission legislations. The nature of what this law may look like however is unclear. Significant reduction of the pollutants was made; further emission standards (Euro VI, EPA 10, JP 09) are going to be implemented in the years to come. Emission standards and testing procedures are not globally harmonised yet, leading to the necessity of different engines for different regions.
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The transportation industry
Transport companies have been encountering growing cost pressure from various sides including fuel prices, road charges and price premiums on modern technology to comply with emission standards. Fuel prices of course have manifold effects; on the one hand a negative effect on the economy, which affects the demand for transportation negatively, and on the other it increases the costs for transportation.
Under pressure: Rising costs hit transportation industry
Costs are the dominant issue for transport companies. The need for efficient use of fuel, the avoidance of empty runs and the compliance with emission regulations are critical success factors for transport and logistic companies. Labour inputs, such as personnel costs, driver costs, and so on, are the primary element within the overall cost structure of transport companies running a truck fleet.6 Nonetheless, in line with rising fuel prices, the share comprised by rising fuel costs in the overall cost structure of transport companies is increasing.
Crucial cost factors for logistic providers are fuel costs, labour expenditures, which are determined by social regulations, security measures and toll fees. It is especially profound that these hurdles will get higher. Frank Huster & Markus Olligschlger, Deutscher Speditions- und Logistikverband (DSLV)
Other distance related costs 15.4% Labour costs 28.6%
Road toll 6.8% Overhead costs 10.6%
Fixed costs 12.7%
Fuel costs 25.9%
Cost structure is referring to national long haulage transportation. Source: Bundesverband Gterverkehr, Logistik und Entsorgung (BGL)
Fig. 23
Average cost structure of Germanys transport companies
In 2007, the share of fuel prices in the total costs within the long-distance haulage accounted for approximately 26%. While overall costs have
It should be noted that the decreasing fixed costs is partially due to the fact that a time-based toll (tax) was substituted by the distance-based road toll in Germany.
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increased by approximately 9% within the last year, fuel prices have contributed some 8% to that increase.7 The second largest contributor to the increasing costs was road tolls.
1,400 1,200
Diesel costs (EUR/1000 l)
1,000 800 600 400 200 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Data for 2008 include prices for diesel up from January to June 2008. Source: MWV
Fig. 24 Costs for a 1000 l diesel in Germany
Fuel prices have skyrocketed to a record high. In Germany, filling-up a 1,000 l tank in the first half of 2008 was nearly EUR 1,400, EUR 200 more than the average cost in 2007. Road tolls, the second largest component of a transport companys variable costs, are also increasing. Germany, one of the main transit countries in the EU, will increase its road tolls by 40% to 85% beginning in January 2009.8 The road toll increases for January 2009 will be imposed on a variable basis depending on the Euro emission standards of the truck. Costs for each kilometre are increasing by 85% for trucks fulfilling only Euro I or Euro II standards, while Euro III trucks have to face an increase of 72% and Euro IV and V compliant trucks will encounter increases of 40%.
The comparison is based on data from July 2007 to July 2008, obtained by the Bundesverband Gterkraftverkehr Logistik und Entsorgung (BGL). Values are referring to trucks above 12 t and 4-axles. However, 3-axles trucks larger 12 t are facing similar increases in road toll.
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0,30 0,25 EUR/km 0,20 0,15 0,10 0,05 0,00 Euro I & II Euro III Current road toll Euro IV Future road toll (1 Jan 2009) Euro V Emission standards
85% 72% 40%
40%
Source: BMVBS, PwC
Fig. 25
German road toll dependent on emission class for trucks (> 12 t)
In a situation of rising costs, most companies attempt to pass on cost increases to consumer, if at all possible. According to a PwC survey conducted for this report, 53% of the increasing transport costs can be shifted in this way.
Total Truck fleet > 50 trucks Truck fleet < 50 trucks 0% 10% 20% 30% 40% 48% 50%
53% 59%
60%
Source: PwC survey (n = 103)

Fig. 26 Ability to shift costs to consumers
However, the ability to shift costs to consumer is dependent on the size of the fleet of the company in question. Smaller and medium-sized companies reported that they could move 48% of increased costs to the consumer, compared to 59% for larger companies. Looking forward, it does not appear that these cost pressures will ease, as transport companies are expecting further increases in transport costs; the vast majority believing that a significant increase of 10 to 30% will occur in the next four to five years. Even higher increases are seen by 17% of the companies. Only 13% of the companies think that transport costs are increasing on a rather modest level of less than 10%.
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Increase lower than 10% Increase between 10% and 30% Increase between 30% and 50% Increase of more than 50% No statement 0% 5% 3% 10%
13% 67% 12%
20%
30%
40%
50%
60%
70%
Source: PwC survey Fig. 27 Expected increase of transport costs
Whether companies will be able to shift increasing transport costs to the consumer will be crucial for the business of the transport industry. Since consumers are cost-sensitive, managing rising costs will be important for transport companies and fleet operators.
Managing rising costs
Reducing fuel consumption can enable transportation companies to become more profitable providing the benefit of improved fuel consumption is not wiped out by increased fuel costs. According to the PwC survey for this study, the three most desired means to reduce costs were the purchase of fuel-saving trucks, increasing utilisation of trucks, and driver training.
Purchasing fuel-saving trucks Increasing utilisation of trucks Improving fuel-saving driving manners through driver training Charging diesel surplus Sorting out older trucks Boosting new vehicle sales Reducing truck pool, outsourcing to contractors Increasing deals with foreign contractors Terminating trucks after shorter time 0% 20% 26% 40% 60% 45% 43% 55% 56% 67% 68% 63% 57%
78% 94% 93% 88% 92% 86% 85% 80% 79%
80%
100%
Appropriate measure to decrease costs
Feasible measure
Source: PwC survey

Fig. 28 Cost-savings measures and their respective feasibility
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A significant factor for a trucks fuel consumption is the driver whose driving attitudes affects about 20% 30% of the overall fuel consumption. Regarding driving behaviour I assume an additional savings potential by up to 10% in the future. Furthermore, the improvement of aerodynamics still offers opportunities to reduce fuel consumption. Hans-Georg Scholz, Fleet-Manager, Schnellecke Group
Nonetheless, purchasing new trucks and increasing utilisation of truck fleets are considered to be rather unfeasible, making the most appropriate costsaving measures rather inaccessible. Since new trucks are another acquisition cost, and utilisation is dependent on the contracted business on the one side and optimisation of fleet-management and route planning on the other side, realising these measures appears to be a complex task for transport companies. Driving behaviours are very difficult to control, as they depend on the skills and experience of the individual driver. Hence, companies consider driver training as a feasible measure to cut costs. Charging a diesel surplus would be a surplus dependent on the fuel (diesel) price, which is passed to the consumer when prices increase. However, as discussed above how much of the costs can be shifted is rather different across companies of different size. Other cost-saving measures are considered as relatively feasible, but are not considered as significant for reducing costs.
In terms of cost reduction and individual competitive advantage, measures to reduce fuel costs, such as driver training, fleet management, and route planning are the most favourable ones. Frank Huster & Markus Olligschlger, Deutscher Speditions- und Logistikverband (DSLV)
According to the PwC survey, the total costs of purchasing and owning trucks are mostly driven by fuel economy, reliability of trucks and emission standards.
Rank 1 2 3 4 5 6 7 8 9 10 Top 10 purchasing criteria Fuel economy (fuel efficient trucks technology) Reliability (high technological reliability of trucks, service interval) Emission standards (technology complying with new emission standards) Life cycle costs (low operational cost over the life cycle) Service (service network, service availability, qualified staff) Handling system (e.g. tie-down system, anti-slide mat, angle schooner, belt system) Purchasing Price (low purchasing prices, finance service) Low weight (low weight of truck and trailier) Multifunctionality (flexibility and multifunctionality of truck) Ergonomic (comfort and functionality of the driver cabin) Category Total cost of ownership Quality Environment Total cost of ownership Service Functionality & flexibility Total cost of ownership Functionality & flexibility Functionality & flexibility Functionality & flexibility
Source: PwC survey Fig. 29 Top 10 purchasing criteria
The fuel efficiency of trucks is crucial for cost management. Reliability is crucial for transport companies to ensure their trucks quality and therefore the supply chain involving trucks. Moreover, reliable trucks guarantee longer service intervals, while shorter intervals increase the total cost of ownership.
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The third most important purchasing criterion is compliance with emission standards, as non-compliance would lead to higher road tolls and higher taxes. In total, most of the criteria reveal that total costs of ownership and functionality of trucks are the most important aspects when purchasing trucks. Hence, it is straightforward that each reduction in the average fuel consumption bears high potentials for cost savings.
2,250,000 2,000,000 Fuel costs (in EUR) 1,750,000 1,500,000 1,250,000 1,000,000 750,000 500,000 0 -1 -2 -3 -4 1998 -5 2003 -6 -7 2008 -8 -9 -10 Reduction of average fuel consumption (in l)
Assumptions Average distance of truck fleet: 150,000 Average fuel consumption: 32.5 l/100 km Fleet volume (no. of trucks): 30 Source: Tremove, PwC
Diesel price (1998) (in EUR/l): 0.587 Diesel price (2003) (in EUR/l): 0.888 Diesel price (2008) (in EUR/l): 1.360
Fig. 30
Average fuel cost increases in the transportation industry
For instance, fuel costs for a medium size transport company running an own fleet with 30 trucks, driving a distance of 150,000 km per truck on average has been risen by 39% between 1998 and 2003 and by another 53% in the years between 2003 and 2008. Reducing one litre per 100 km in average fuel consumption would cut 3.2% of the total fuel costs of this respective company. In order to save 10% in total fuel costs, the respective company would have to cut fuel consumption by 3 l on average per 100 km, leading to a substantial reduction by approximately EUR 200,000. Considered as the second most effective cost-savings measure, the enhancement of utilisation has already achieved considerable momentum in Germany where empty runs continuously declined in the period from 1999 to 2006. However, elsewhere in Europe the position is much more varied with empty runs in the EU-15 and in new member states of the EU increasing.
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Empyt runs (in % of km traveled)
28% 26% 24% 22% 20% 18% 1999 2000 2001 2002 Year New members EU-15 Germany 2003 2004 2005 2006
Source: Eurostat Fig. 31 Empty runs in the EU
Empty runs still account for a quarter of total runs of trucks in the EU-15 countries. According to data of the European Union, Germanys empty runs accounted for one-fifth of the total of kilometres travelled. According to the German Association of the Automotive Industry (VDA), empty runs in longdistance haulage have been even lower, accounting for only 10% of total runs.
Consumers: Barriers or drivers to technological change?
Consumer demand for final goods drives the need for transportation. Therefore, consumers perception of the transport industry and its trucks is of high interest for marketing of environmental-friendly and safe trucks. According to the PwC survey, most consumers are aware of the fact that trucks are securing the supply of daily goods and are able to guarantee the quick transportation of goods. However, it is also apparent that most of the consumers think that trucks are responsible for traffic jams, cause a lot of pollution, contamination, nuisances and contribute to accidents.
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How far do you agree with the following statements? Trucks

... increase air pollution and contaminant load in cities. ... cause additional accidents in road traffic. ... generate income for the government via road charges. ... allow fast transportation of packages and goods. ... cause a lot of road damages. ... increase nuisances. ... pollute the environment heavily via their emissions. lead to traffic jams. ... secure the supply of daily used goods. 0% 20% Agree 67% 57% 64% 76% 64% 67% 67% 70% 86% 40% Agree partially 60% 80% 23% 23% 25% 24% 11% 100% 24% 29% 20% 6% 10% 6% 10% 18% 7% 6% 7%
Dont agree Don't
Dont know Don't know
Fig. 32
Consumer perception of trucks
However, the discussion on climate change and CO2 emissions combined with the general image of trucks causing traffic jams and delays in road passenger transportation have led to a very unfavourable image of trucks in comparison to trains, airplanes and ships.
Do you regard following transport media as environmental friendly?
100% 80% 60% 83% 40% 63% 20% 0% 7% Trucks 11% Airplanes Yes, rather friendly Ships No, rather unfriendly Trains Don't know Dont know 80% 86% 10% 9% 16% 21% 6% 8%

Fig. 33 Consumer evaluation of environmental friendliness
Trucks are perceived to be even less environmentally friendly than airplanes. Only 7% of respondents saw trucks as environmentally friendly,
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while 11% saw airplanes in a positive light and 63% for ships and 86% for trains. In accordance to this perception, consumers are inclined to state that more transportation should be shifted onto rail from the road network. Almost 95% of consumers suggest that trains should substitute transport loads from the road. However, alternative transportation modes are considered less important and less feasible to conduct transportation versus trucks.
Goods are transported in different ways. Do you think there are better ways to deliver them than transporting it by trucks?
Trains Ships Airplanes Cars/transporter No statement 7.3% 0.9% 0.3% 20% 40% 60% 80% 100% 23.3% 94.5%
0%
Multiple answers possible Source: PwC survey (n = 500)

Fig. 34 Alternative transport media substituting trucks
In contrast to consumers perceptions about trucks, transportation requires flexibility and punctuality to guarantee the supply of intermediate goods for manufacturing processes or of final goods for retailing. Trains are restricted by capacity, therefore making a complete modal shift from roads to railways unfeasible. Even though the truck industry could get greener, the inherent costs have to be borne by someone.
What is the consumer willing to pay more for green products? Dont know Yes, up to 20% 3%
12% No 36%
Yes, up to 10%
19%
30%
Yes, up to 5% Source: PwC survey
Fig. 35
Willingness to pay for green products
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Assuming that a green seal would be introduced, which would incorporate a fee for the green transport of goods, 52% of the consumers would be willing to pay for such a green seal. However, 19% of consumers reveal that they would pay up to 10% for green transported goods.
GoGreen A unique marketing strategy To counteract the negative customer perceptions around heavy duty transport, truck manufacturers in conjunction with transportation companies have to create green marketing campaigns which demonstrate the transportation industrys resolve to address climate change and emissions. An example of such a marketing strategy is Deutsche Post World Net/DHL, which has taken an active approach to sustainability. The company has launched a GoGreen program under which business or private customers choosing GoGreen are assured that their package will be shipped CO2-neutral. Therefore, DHL is using its growing fleet of alternative fuel and advanced technology vehicles, or transport-related CO2 emissions are offset by a combination of internal and external initiatives.
Revenues for our environmental friendly (CO2-neutral) products increased tremendously, especially in the 2nd half-year of 2007 and the 1st half-year of 2008. Since introduction in 2006, revenues have grown 20-fold. Michael Lohmeier, Deutsche Post World Net
The awareness of environmental issues has sharpened in society. Concerning the truck industry, consumers largely agree that some group has to take the burden of social responsibility for the reduction of emissions within the truck industry.
Who should be responsible for the reduction of emission of trucks? Dont know 7.0% None of them 4.4% Logistic companies 5.4% Industry 15.0%
Manufacturers 68.2% Source: PwC survey (n = 500)
Fig. 36
Responsibility for reducing truck emissions
In the PwC survey, a vast majority stated that social responsibility lies with the truck manufacturers. While logistic companies are hardly regarded to be responsible for reducing emissions of trucks, the industry receiving resources and goods to produce final goods was also seen as having a social responsibility. In summary, trucks have a negative perception among consumers and they are not willing to pay a premium for the use of a green seal to ensure transportation through environmentally friendly means. Furthermore, truck manufacturers are viewed as being primarily responsible for the environmental performance of trucks.
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Key facts Fuel efficiency and reliability are major factors that influence purchasing criteria. Emission standards and the compliance with these standards are big issues for both truck manufacturers and transport companies. Fuel prices and road tolls are two key issues for transportation companies, both being objects of either economic or regulator led price increases. Consumers perceive trucks to be the least environmental friendly transport mode; causing air pollution, road jams and damages. Consumers perceive rail transport to be a potential substitute for road transportation.
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Green strategies for sustainable growth
Cost pressures, diversified global emission standards, new road transportation concepts, operational effectiveness and fuel efficiency. In summary, these are some of the challenges truck manufacturers face as they move towards the future.
Driven by resource constraints and rising oil prices
The discussion on CO2 emissions only superficially highlights a new driving element in the supply and demand side of the truck industry. As has been demonstrated, the truck industry has been strongly focusing on the reduction of fuel. However, the great amount of public attention attracted by this discussion might induce stricter regulations and therefore new industry constraints. This discussion takes place in the context of a global market affected by rising oil prices and a growing demand for transportation. Hardly anyone expects these trends to change in the future, but strong reliance on trends bears great risks not to be prepared for unanticipated changes. Nevertheless, there are some deviating opinions on the future transportation needs and oil prices. Surely, given current economic conditions, transportation needs will probably increase. Looking at the growth markets of India, China and Eastern Europe, one cannot but notice the increasing demand for transportation. These economies are growing, as is their infrastructure, and other significant investments that are planned to foster economic growth. Additionally, with recovery from the economic downturn in the U.S. and the slowdown in Europe, we also can expect continued demand growth in these mature markets. From an oil price perspective, the global oil demand is predicted to grow rapidly in the years from 2008 to 2030 and, therefore, crude oil prices are projected to remain the same level or increase in the long run with a significant speculative volatility in the markets. For the short run, the expectations differ. Based on projections of global oil supply and demand in the coming decades, analysts projected a wide range of future oil prices, some of whom expect USD 200 per barrel in 2009, while others such as Deutsche Banks chief energy economist, Adam Sieminski, expect oil prices to decrease to an average of about USD 105 per barrel in 2009 before predicting that oil prices will eventually settle at USD 85 per barrel. Therefore, assessing what oil prices are going to look like in the future is a challenge. Moreover, to complete the picture the dawn of alternative energy sources has to be taken into account. Considering that, some experts assume that fuel prices first will increase further, before stagnating and slowly begin to fall as alternative energy sources will become more competitive.
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However, even if crude oil prices rise due to increased demand and a low supply, these factors could be a strong driver for a changing global business landscape. There are already examples of this today. In India for instance, rising transportation and port costs start to impact its trade, as costs for moving a container 1 km in India is 50% higher than it is in the U.S. Similarly in China, rising transportation costs are changing the supply chain. Facts such as these could reshape global trade into regional blocs. Instead of relying heavily on imports from Chinese factories 12,000 km away, the U.S. could source from Mexico. Western Europe will rely upon suppliers in Eastern Europe. And Asia could orient itself around the ever-larger Chinese economy, expected to be roughly as large as the U.S. economy by 2030. Though it seems obvious that the truck industry has to handle with rising transport volumes and oil prices respectively, it could be quite valuable to consider the impact of other scenarios as well. For instance, what happens if the rising crude oil price will lead into a weak economy? What happens if there is less need for transportation, or if new city logistic concepts will change the transportation landscape? Eventually, this allows the truck manufacturers to assess their current capability to react properly to changing conditions. Based on these uncertainties, four different scenarios, based on oil price and transportation demand variations are presented, with the intention of illustrating their impact on the industrys stakeholders. These scenarios provide the basis for deducing possible effects for the industry.
Crude oil price increases Scenario 3 Scenario 1
decreases
Scenario 4
Scenario 2
decreases Source: PwC

Fig. 37
increases
Transportation demand
Scenario analysis: Driven by transportation need and crude oil price
Scenario 1: Transportation demand increases, oil price increases Growing transportation demand results in higher demand for additional means of transportation, particularly for commercial vehicles given the limited opportunities to expand the infrastructure in the short term. With rising oil prices, transport companies will especially demand fuel efficient vehicles to counter the cost impact of fuel consumption. This also applies to emerging markets, since the relative effect of rising fuel costs is higher due to the lower costs of human capital. Because of the growing transport volume, the problem of insufficient infrastructure caused by intensifying traffic will become most evident in this scenario, especially in urban centres. Consequently, it is assumed that the
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public call for environmentally friendly technologies will continue to rise significantly. Scenario 2: Transportation demand increases, oil price decreases In this case as well, rising demand for transportation creates increasing demand for commercial vehicles and infrastructure solutions. Nevertheless, the reduced pressure of oil prices may lead to shifting the focus of the transportation industry on other cost elements which will gain in relevance. Because of the growing transport volume, CO2 and other pollutant emissions will increase simultaneously, and governments will assume the obligation to pass new regulatory measures. Triggered by higher demand and therefore higher profits, adequate resources for R&D should be available on the truck manufacturers side. Regarding the high relevance of the infrastructure sufficiency problem, the relevant R&D projects might place a greater emphasis on logistics solutions than on fuel efficiency. Scenario 3: Transportation demand decreases, oil price increases If the transport volume decreases, competition will intensify. Together with booming oil prices and consequently increasing transportation costs, these conditions put high consolidation pressure on transportation companies. Passing on the additional costs to customers appears to be exceptionally difficult in this scenario, since refused demand in transportation indicates a weak economy. With transportation costs being a major source for a competitive edge in the transportation sector, the demand for fuel efficient commercial vehicles will be strengthened. In regions where the enforcement of environmental regulations is not pursued consistently, demand for older, less sophisticated solutions can be leveraged due to their lower prices. This is especially true regarding R&D focusing on emissions reduction which would not be able to exploit the given potential for increasing fuel efficiency in the development of engines. The unpleasant economic situation could change the impression of the public regarding the importance of emissions standards. There might be concerns that the induced measures will cause additional economic harm. Scenario 4: Transportation demand decreases, oil price decreases As a result of a declining demand for transportation, the demand for commercial vehicles shrinks. This intensifies competition between manufacturers. The basic industry conditions constrain resources that are available for R&D whereby a stringent concentration on a few important issues becomes necessary. The falling oil price offers less incentive to invest in commercial vehicles with higher fuel efficiency. Again, other cost drivers will be shifted into the spotlight of consolidation measures. However, fuel consumption will not completely lose its significance, since managing fuel costs remains a significant task. So, new technologic solutions that offer high fuel economy will still be rewarded.
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In urban centres, transportation demand is less volatile and is not expected to be strongly affected by the tense economic environment. Accordingly, there remains an extraordinary need for infrastructure solutions.
Business models: Meet future challenges
Consequences for the markets An increasing transport volume indicates rising demand for the truck industry. The extent of how much a single truck manufacturer will benefit from the higher demand will surely depend on the position in each of the global markets regions. In mature markets, strict emissions regulations establish strong market barriers for new entrants. For truck makers based in emerging markets, success in the mature markets seems only be possible after acquiring the necessary technologies to meet the terms of all regulations. For producers, offering the adequate technology together with the best total cost of ownership (TCO) ratio will be the crucial determining factor for success. Therefore, expecting oil prices to rise further, importance heavily shifts towards fuel efficiency.
High fuel prices are driving intense competition among the truck makers to engineer energy efficient trucks. Urban Wstljung, Head of Public and Environmental Affairs. Scania
Because of greater fragmentation in emerging markets, strong competition is expected. Nonetheless, engine technology will play an important role, because emissions standards must be complied with in these markets, too. This especially applies to urban centres where stricter regulations have been passed. The introduction of EU emission standards to most of the emerging markets primarily favours truck makers with EU competences.
Comprehensive engine technology and robust quality are important factors to succeed in many emerging markets. Peter Erichreineke, Executive Board Marketing and Sales, MAN Nutzfahrzeuge AG
If growing transportation volumes are accompanied by decreasing oil prices, this could offer the opportunity for manufacturers from emerging markets to enter the more mature markets in Western Europe or North America. Nevertheless, sophisticated clean and energy-efficient technology gives established truck makers in mature markets a substantial competitive edge considering the compliance with emissions regulations. Given the narrow link between economic development and truck demand in the case of a shrinking transport volume, the demand for trucks will also diminish the trend toward stronger competition. Still, a competitive edge can be generated by manufacturers offering products with the best TCO ratio. Higher oil prices combined with declining transport volumes will create a favourable environment for suppliers with appropriate technological solutions. Declining overall demand for commercial vehicles and intensifying competition between truck makers will result in a technological squeeze-out
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in the industry: Only the suppliers with the most technological sophisticated products offering the most efficient solutions will survive. Generally, high oil prices will create competitive advantages for truck manufacturer that can offer fuel efficient vehicles. This principle also works in emerging markets, where fuel costs account for a higher percentage of total transportation costs due to lower costs for human capital in these markets. As the growth potential for the truck industry is the biggest in the emerging markets, these areas will gain in significance if global transport volume struggles on its growth path. As a result, competition in these markets will intensify. The focus on costs gives rise to more consolidation in this area. But regardless what development will appear, providing the required emission technology remains a necessary condition insofar as the relevant countries do not decide to refuse emissions standards in order to support their domestic industry. Other cost drivers that also influence total transportation costs will be focused on if oil prices drop. Caused by a high sensitivity regarding environment pollution in urban centres and megacities, these areas remain largely unaffected by variations in transport volume. This becomes evident when considering that some Asian cities have already introduced Euro IV emission standards whereas only lower standards are enforced on a national level. The difficult situation for transport companies and manufacturers will certainly put pressure on governments to control the enforcement of emission standards in a more flexible manner. Nevertheless, truck makers offering engine technology that complies with all regulations seems to maintain competitive advantage in the long-term. In summary, it is worth noting that expertise in powertrain technology is of great importance for the competitiveness of a truck manufacturer regardless of variations in transportation demand. Rising oil prices will push demand for fuel efficient vehicles in any case. At the same time, the global sensitivity for CO2 emissions will drive R&D of low emission drive technologies. Even if markets are characterised by low levels of transport volume and low oil prices, what may reduce the industrys focus on technology, the public debate on CO2 emissions is likely to keep the pressure on to provide environmental friendly solutions. Consequences for technological innovations The competitive race for developing fuel efficient vehicles emphasises the quest for alternative drive technologies aiming at enhancements of diesel engines, alternative technologies and alternative fuels.
Especially in regional and urban transportation, with its frequent acceleration and braking we see alternative fuels such as hybrid, and natural gas as a good alternative to conventional powertrain. Daimler also sees hybrid drives as a possibility in long-distance traffic. Georg Weiberg, Head of Truck Product Engineering, Daimler AG
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Apparently, two different approaches are shaping the technological path of the truck industry: For long-distance traffic, the main focus lies on diesel engines and alternative fuels whereas alternative technologies like hybrid drive trains or natural gas technology are used for short-distance traffic.
Inner-city transportation Diesel engine Regional transportation Longdistance transportation
Description
The diesel engine has had become cleaner over the year and advances in technology have made the engine cleaner. Diesel engines will play a predominant role in the sector due to its reliability. Biofuels are used as a blend on most types of trucks and buses, as there are a myriad of sources to choose from. The success factors for biofuels are infrastructure, availability, and CO2 neutral production, and can be used for a wide range of transportation scenarios. Hybrid solutions are effective for short distance and city transportations, because of high fuel savings at start-up and acceleration. Hybridisation may become prevalent within the long haul transportation sector in the future due to advances in technology. Truck manufacturers are experimenting with this technology but it has not received widespread use, due to limitations in storing hydrogen, and is therefore widely expected to be initially used in city transportation before further advancements can be made for applicability in long distance transportation. Natural gas is a good alternative to diesel in urban traffic as the technology is already available and this fuel produces minimal pollutants. However, storage for this fuel has restricted its use on long distance transportation. The electrical engine is currently used on certain hybrid trucks to power the trucks auxiliary functions, as well as breaking and acceleration to 20 km/h. Therefore, stop and go vehicles like refuse trucks is where this technology can be applied. Limitation in battery technology has made this engine not useful for long distance transport needs.
Biofuels
Hybrid engine
Fuel cell
Natural gas engine
Electrical engine
Unlikely
Likely
Source: PwC expert interviews Fig. 38 Powertrain technologies and their ability to meet future transportation needs
Diesel engines will be the predominant choice of powertrain for commercial vehicles for the time being. Diesel-Hybrid applications for light commercial vehicles have further potential to reduce consumption and thus CO2 emissions and allow fully electrical driving in inner cities. Christoph Kirsch, Diesel Systems Commercial Vehicles, Robert Bosch GmbH
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Since short-distance and long-distance traffic show the similar reaction to economic cycles the impact of a varying transport volume on the direction of technological innovations seems to be small. On the contrary, rising oil prices probably have much stronger influence on the focal point of R&D. As there is still a particularly high fuel savings potential for short-distance traffic, enduring high oil prices are likely to support the development of alternative technologies.
Looking at inner-city transportation new technologies such as hybrid drives could be seen as business case. For regional transportation and long-distance transportation the cost-benefit ratio makes no sense at the moment. Prof. Dr. Karl-Viktor Schaller, Member of Management Board for Engineering & Purchasing, MAN Nutzfahrzeuge AG
Analogous to the passenger car market, truck manufacturers are exposed to great technological risk since the leading technology of the future has not yet been identified. On a second look, the technological risk must be weighted against the potential to generate essential competitive advantages based on innovative technologies. Therefore, discovering the most promising technological solution might become one of the major challenges for the manufacturers in the near future, but it will be rewarded with an excellent competitive position. In general, truck makers that can leverage such competitive advantages are those that have had extensive R&D programs in the past, and therefore are already in possession of an adequate knowledge base.
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Truck manufacturer Daimler Trucks
Company quote
Technological approaches
Through our Shaping Future Transportation initiative we will continue to ensure sustainable mobility in the transportation sector. We impressively demonstrated that once again in January this year, when we became the first manufacturer to launch hybrid trucks on the road in Europe. Andreas Renschler, CEO Daimler Trucks Customers can count on excellent performance, reliability and fuel efficiency and this means an optimised total cost of ownership. Moreover, we have introduced Euro 5-compliant engines on our heavy range many years ahead of legislation requirements, and this guarantees high resell values for all our trucks. Paolo Monferino, CEO IVECO Justifiably, our customers expect us to develop products and solutions that will further decrease energy consumption, significantly reduce harmful emissions and still operate cost-effectively. However, we will do even more and, in particular, we will size new growth opportunities offered by new technical solutions for the protection of our climate. Hkan Samuelsson, CEO MAN AG From 2000 until 2020, we expect to halve the carbon dioxide emissions associated with transporting a tonne of cargo. We will achieve this by means of engine development, driver training, reduced air drag and rolling resistance as well as better payload capacity per vehicle. Hybrid technology and biofuels will also play an important role. Leif stling, CEO Scania
Focus on the development of diesel electric hybrids, biofuels (RME, FAME), and second generation biomass to liquids through 2020 Post 2020, biofuels use will be widespread, however a possible shift towards hydrogen fuel cells is possible Research on hybrid technology Focus on technology based upon compressed natural gas
IVECO
MAN
Research and development on hybrids, start stop technology as well as brake energy recovery and alternative fuels (synthetic diesel, bio diesel). No planned future focus on hydrogen fuel cells, but 2nd or 3rd generation biofuels should be widespread post 2020 Continue to focus on improvement of current engine technology Hybrid technology with different degrees of hybridisation, alternative fuels (ethanol, synthetic diesel, bio diesel, natural gas). Ethanol is the most promising alternative fuel Research and development on energy recovery, new injection systems with higher pressure Most likely focus on hydrogen fuel cell post 2020 Concentration on research and development of hybrid technology in combination with diesel engines, which has the potential to be run on different renewable biofuels Possible alternative fuels are bio diesel, synthetic diesel, dimethyl ether, methanol, ethanol, biogas Alternative fuels will vary by region and there will be multiple future fuels that will be available on the marketplace
Scania
Volvo
If we are to be able to address the greenhouse effect, those of us in the transport industry in particular face major challenges. We know that we are part of the problem, but we are also convinced that we are part of the solution. Volvo is investing heavily in developing the technology that will resolve the problem of greenhouse gas emissions from transports. This involves everything from carbon-dioxide-free automotive plants to advanced hybrid technology for heavy vehicles and engines that can burn a wide range of alternative fuels. Leif Johansson, Volvo CEO
Source: Company web sites Fig. 39 Truck manufacturers approach towards a green future
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Manufacturers in emerging markets, and smaller truck makers are in a much worse position. The former have to catch up with the R&D programs of established companies, and the latter mostly cannot raise enough funds for extensive innovation activities. Consolidation pressure is also intensified by these circumstances. Manufacturers can react to the technological risk by increasing R&D efficiency. Pursuing high R&D efficiency is expected to become exceptionally important when transportation demand decreases and fewer funds are available to be allocated to R&D programs. As a result, communication between truck manufacturers and transport companies gains in importance, because close contact to customers can prevent the manufacturers developing new concepts that do not meet the market requirements. Particularly in a case with rising transport volume, competence in drivetrain technologies alone might be not sufficient to solve challenges in commercial transportation. Therefore, beside other measures to improve the fuel efficiency of the vehicle, innovative concepts that offer a more efficient utilisation of the existing infrastructure must be developed. Consequences for the product portfolio The pressure to fully utilise all potentials to increase fuel economy becomes crucial with increasing fuel costs. In this connection basic approaches are lightweight construction or improved aerodynamic attributes. The latter is often referred to as a major lever for further consumption reduction. However, further improvements in aerodynamics have to follow the respective regulatory framework.
Fuel efficiency an outstanding potential for improvement still exists and not only in engine engineering. For example, with new aerodynamic concepts 25% fuel savings could be realised. For this purpose the truck length must be widened, which depends on legal decisions. Prof. Dr. Karl-Viktor Schaller, Member of Management Board for Engineering & Purchasing, MAN Nutzfahrzeuge AG
With a sustained pattern of increasing demand for transportation, the demand for infrastructure solutions comes to the fore. Discussed concepts for transportation in this regard are mega liner and road trains which are several trailers connected to one tractor unit creating a convoy. Especially in urban centres where infrastructure improvements are not only subject to time constraints but also to space restrictions, demand for efficient transport concepts is growing. Increasingly important in this context are new telematics concepts that, for example, support the reduction of empty drives. Since transport companies will prefer solutions independent of the manufacturer, to avoid committing themselves to specific providers in advance through the selection of a special system. Therefore, truck manufacturers could rather concentrate on offering appropriate interfaces and have to gain the critical expertise in this field in the future. Even though unobstructed traffic flow is the main focus of innovative transport and traffic concepts, consumption and emission reductions indirectly arise from the avoidance of traffic congestion.
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Finally, manufacturers will be required to continually improve and to expand their product portfolio. The underlying challenge is the decision about the appropriate portfolio, since the augmented product range will no longer be limited solely to the vehicle itself.
Total transport solution
Service & financing Services & financing
Trucks
Trucks
Trucks
Yesterday Research & development Production of trucks Distribution & marketing
Today Financing Insurance Service Charterway Driver training Image & social Responsibility
Tomorrow Transport and route planning Intelligent fleet and life cycle management Integrated and transport solutions Customised product portfolio Branding
Source: PwC
Fig. 40
Development of truck industrys business model
Consequences for manufacturing technology Even a global harmonisation of all emission standards will not allow manufacturers to completely dismiss their manufacturing excellence. Different drive technologies and different designs, particularly in regards to innovative aerodynamic concepts, will furthermore necessitate modern production processes to ensure cost efficiency. As long as specific technical solutions have not been established, the rising variety of drive concepts reduces economies of scale. Hence, cost efficient production and modular design will strongly gain in significance in the future and a higher degree of customising products especially to meet customers requirements in emerging markets will further increase the necessity of highly efficient production processes. Consequences for the European truck industry In the current situation characterised by continually rising oil prices and increasing demand for commercial transportation, European truck makers see themselves in a beneficial starting point, because they already have built up know-how in designing low-emission engines. This edge is particularly crucial in those market scenarios characterised by high demand for fuel efficient and low-emission drive technologies.
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Innovation of different drive technologies for short-distance and long-
distance traffic
Technological risk increases the importance of customer relations Product line gains in significance Production excellence becomes crucial: How to operate cost effectively
on a global market? While cost effectiveness and globalisation are well known challenges, the management of technological risk and the appropriate product portfolio, respectively, seem to be the new important challenges for the manufacturers in the next future.
Harmonisation of emission standards: Highly appreciated but hard to realise
Truck manufacturers all seek the introduction of globally harmonised emission standards. Differing EU, NAFTA and Japanese standards combined with varying test cycles, ultimately lead to artificially increased development costs. Thus, a global standardisation is desirable and the cost savings could be invested in more expensive but promising R&D projects for new propulsion technologies. However, the introduction of such global standards requires coordination and compromise. The tediousness of ongoing negotiations demonstrates how difficult it is to achieve a consensus in this matter.
It is anticipated, or at least we hope for, that standards will be harmonised by 2020. Urban Wstljung, Head of Public and Environmental Affairs, Scania
A welcome improvement could be the implementation of a new test cycle for the EURO VI standard, which could be adopted by other countries. It is certainly helpful that NAFTA and Japan based manufacturers are exposed to great pressure act quickly, since commercial vehicle sales in countries that use EU test cycles account for approximately 65% of the global commercial vehicle sales. Without an identical test cycle, expansion in BRIC markets would be significantly more expensive for these truck makers.
The global standardisation of emission rules, especially from the industrial perspective is unquestionably desirable. Because of the many special interests, it is a complicated and lengthy process. The high need for cooperation required often leads to a standstill. Hence updating regional regulations is more effective and leads to faster results. Dr. Uwe Lahl, Head of Department, German Federal Ministry for the Environment
Another important step towards uniform regulations is the consequent enforcement of existing standards. If existing standards are not enforced, there are neither the desired environmental effects, nor will companies benefit from having invested in and developed environmental friendly technologies. The reasons for this are the highly cost sensitive transport companies that will invest in cheaper, older technologies. As existing standards have already been implemented, their consequent enforcement can be achieved quicker than an agreement relating to global standards.
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The rapid introduction of stricter emission standards is also of major importance. For example, China and Russia have just implemented EURO III emission standards and India will implement this regulatory level not until 2010. However, a shortening of time periods between successive regulatory levels is hardly possible, because manufacturers based in emerging markets would suffer essential competitive disadvantages due to not having the technology to comply with the new set of regulations, whereas the established truck makers have already developed the technology to meet the new standards. The faster implementation of stricter standards is more likely to be feasible in urban centres or so called megalopolises, where the sensitivity concerning environmental issues is extraordinary high. The public environmental pull will increase the pace for the implementation of higher standards. This is exemplified by the city Beijing, where EURO IV standards have already been introduced. Therefore, it is not unlikely that urban centres will play a leading role in implementing and enforcing new and stricter emission restrictions. This is unrelated to the development of commercial transportation demand, as these regions already have to cope with high traffic insensitivity at this stage. In addition to globally harmonised emission standards the standardisation of the regulatory framework would be highly appreciated. This applies especially to fuel quality. Low quality fuel is responsible for lower fuel efficiency. In other words, heavy duty vehicles operated with low quality fuel will not reach the performance prescribed by the standards and which was tested during the test cycles. An appropriate legal framework for researching alternative propulsion technologies could also simplify R&D projects and reduce necessary research efforts. Finally, the intensifying discussion on CO2 regulations should in its principles aim at a consensus on globally accepted standards. At the very least, it should establish standardised test cycles, or else the truck manufacturers competitive situation will continually be jeopardised. In any case, patience is in great demand due to the complexity of global negotiations that take much longer to achieve than agreeing on regional isolated applications. How quickly consensus will be achieved strongly depends on the public sensitivity to environmental issues. An increasing demand for commercial transportation will most likely increase public sensitivity and therefore accelerate negotiations for globally standardised emission regulations. As the transport industry and governments share a common interest in CO2 issues, a good basis for negotiations is established. Given the high potential to utilise environment friendly products for marketing purposes, truck manufacturers might wish to agree on global standards solely for having a successful measurement to announce their success in CO2 reduction.
CO2 is playing an increasing role in the commercial vehicle industry. Even today our clients customers are asking for the energy balance to ensure their own marketing strategy. This trend will carry on increasingly in the future due to the social awareness of environmental sinners, which will be sharpened. Gerd Rohrsen, Head of Corporate Communications, Schmitz Cargobull AG
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Appendix
Appendix
Manufacturer Daimler Trucks Vision/Mission Global production footprint Market strategies Measures for emission reduction
In all our activities the main focus is on the benefits to our customers. For this we work with passion and commitment on a daily basis worldwide to produce Trucks for the World!
Germany USA Japan Brazil Canada Mexico Portugal Thailand Turkey South Africa
Global Excellence with the initiatives management of cycles, operational excellence, growth and market penetration and future product generations as important tool for the business strategy Capturing down-stream value through vehicle leasing, fleet management, repair and maintenance Strategies to enter emerging markets dependent upon market situation, cooperation, and acquisitions as applicable strategic options to enter those markets Aiming at increasing market share in the Central and Eastern European countries by launching new products Emerging markets are in the focus, the Russian and Indian market are entered with local partners In terms of alternative technologies compressed natural gas is seen as the most favourable solution
Hybrid technology BlueEFFICIENCY (improvement of aerodynamics, lightweight construction, energy management) BlueTec with AdBlue injection Electric engines Fuel cell Alternative fuels (synthetic diesel, biodiesel, natural gas) Hybrid technology Alternative fuels (focus on technology based on compressed natural gas) Development of the Blue&Me infotainment system as environmental control unit
IVECO
Vision: Best-in-class performer in the industry and continuously delivering values to customers and their business. Mission: To deliver solutions for the transport industry leveraging excellent know-how and partnerships worldwide.
Italy Argentina Australia Brazil China Germany India Kenya South America Spain Turkey (Otoyol)
MAN
Our corporate values are based on the solid, tried and true foundations of our 250 years of history. Today, as in the past, we uphold our four core values: reliability, innovation, dynamic strength and openness. These values are essential success factors for MAN in product markets, the capital market, the acquisition of qualified employees and for society's acceptance of the company's entrepreneurial activities. Navistar, together with its subsidiaries International Truck and Engine Corporation, IC Corporation and Navistar Financial Corporation is committed to creating and delivering great products, building a competitive cost structure, and delivering profitable growth. Aiding us in all these areas is our commitment to sustainability, which we view as a guidepost to good business practice.
Germany Austria Poland South Africa Turkey India China (end of 2008)
Aiming at global growth Joint Venture with Force Motors Ltd. (India) as key aspect to realise global growth Assembly plant in Krakow enables MAN to manufacture within the strongly growing Eastern European markets Optimising organisation and the process of production Strengthening distribution network in Eastern Europe and the Middle East
Hybrid technology Start-stop technology MAN PM-KAT MAN PURE DIESEL Alternative fuels (synthetic diesel, biodiesel) Technology to fulfil EURO 5 without AdBlue injection
Navistar
USA Brazil India (2009) Mexico
Entering emerging markets (joint venture with Mahindra in India: New plant will start production 2009) Increasing market shares in foreign markets like Russia, Mexico, Australia, Latin and South America as well as the Middle East Strategic alliance with MAN in engine and platform engineering as well as vehicle manufacturing Setting trends, rather than following them Economies of scale, and market growth opportunities through acquisitions, agreements, and Joint Ventures
Hybrid technology Aerodynamic design Fleetrite auxiliary power unit to reduce fuel consumption
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Appendix
Manufacturer Paccar
Vision/Mission
Global production footprint
Market strategies
Measures for emission reduction
PACCAR is a global technology leader in the design, manufacture and customer support of premium light-, medium- and heavy-duty trucks under the Kenworth, Peterbilt and DAF nameplates. The company also provides customised financial services, information technology and truck parts related to its principal business.
USA Australia Belgium Canada Czech Republic Hungary Mexico Netherlands United Kingdom
Examining business opportunities in Asia with primary focus on China and India Exploiting of Western and Eastern European market as well as Middle East and Africa under the DAF brand Productivity, efficiency and capacity improvements Long-term supplier partnerships
Hybrid technology Driver training Aerodynamic design Lightweight design
Scania
Vision: Scanias vision is to be the leading company in its industry by creating lasting value for its customers, employees, shareholders and the societies in which it operates. Mission: Scanias mission is to supply its customers with high-quality heavy vehicles and services related to the transport of goods and passengers by road. By focusing on customer needs, high-quality products and services, as well as respect for the individual, Scania shall create value-added for the customer and grow with sustained profitability.
Sweden France Netherlands Poland Russia Argentina Brazil
Strong market position in Russia shall be expanded by larger service network Efficiency increase is to be reached by the Scania Productivity System (SPS) Service products are seen as an important issue to provide maximum value to the customer Large investments are done to increase production capacity
Hybrid technology with different degrees of hybridisation Alternative fuels (ethanol, synthetic diesel, biodiesel, natural gas, hydrogen). Ethanol is seen as the most promising alternative fuel. Driver trainings and driver management system Aerodynamic design Reduction of rolling resistance Energy recovery Injection systems with higher pressure
Volvo
Vision: The Volvo Groups vision is to be valued as the worlds leading supplier of commercial transport solutions. Mission. By creating value for our customers, we create value for our shareholders. We use our expertise to create transportrelated products and services of superior quality, safety and environmental care for demanding customers in selected segments.
Sweden France Belgium Russia USA Brazil Saudi Arabia India Iran Taiwan Malaysia China Thailand Australia South Africa Morocco Tunisia
Market growth is aimed especially in Eastern Europe and Asia Significant investments in increasing production capacity Strong focus on the aftermarket and further development of the dealer network Focus on products with increased customer value Safety aspects and vehicle and plant emission reductions are strategic key goals Productivity and cost-efficiency improvements
Concentration on research and development of hybrid technology Fuel cell Alternative fuels (biodiesel, synthetic diesel, dimethyl ether, methanol, ethanol, biogas) SCR (Selective Catalytic Reduction) CO2 neutral production
62
Appendix
Manufacturer Hino (Toyota)
Vision/Mission
Global production footprint
Market strategies
Hino Motors, with it longstanding record as the No. 1 sales position in Japanese markets of heavy- and mediumduty trucks, is poised to reach for an absolute share in the total truck segment including lightduty trucks, and going forward will widen its activities globally in order to become a company known and appreciated by customers throughout the world. As we seek to become leading global company in CV and diesel engine manufacturing, I believe that it is part of our social mission to help people worldwide enjoy prosperous life by developing and supplying clean diesel engines with exceptional fuel economy. It is part to fulfil this important mission that Isuzu will continue to work hard to earn the support of stakeholders by staying focused on the future and pursuing technological innovations. We believe that our impressive strides in the marketplace stem in equal parts from our proactive approach and our customers' unstinting support, earned the only way we know: by giving our customers the most appropriate transport solutions for each of their applications, and by backing them up with consultancy, finance, driver training and a responsive aftermarket network.
Vision: As China's oldest and largest passenger car, bus, coach, and commercial truck manufacturer, the lead pioneer in the industry, FAW Group reaffirms its dominant position year-afteryear with exciting and cutting edge vehicles that meet and exceed the demands of our customers around the world. We understand and focus on the needs of our customers, delivering outstanding products and service. Mission: We endeavour to evolve today's dream into tomorrow's reality.
Japan Thailand Indonesia USA Columbia
Entering emerging markets (joint ventures in China, Russia (only sales) and Columbia) Continue to bring important new technologies onto the road, esp. to protect the environment and ensuring safety
Hybrid technology Alternative fuels (biodiesel and synthetic fuels) Driver training
Isuzu
Japan China (MDT) Thailand (MDT)
Building a solid position in the industry by marketing highly differentiated and unique commercial vehicles around the world which are based on advanced diesel technologies Focus on developing overseas markets
Hybrid technology Electronic-controlled engine management systems to improve fuel consumption Alternative fuels (compressed natural gas, biomass)
Ashok Leyland
India
Concentration on growth of emerging markets Entering Eastern European Markets over Czech Republic subsidiary Rapid new product introduction programme
Hybrid technology AdBlue technology Electronic-controlled engine management systems to improve fuel consumption Alternative fuels (Hythane gas and natural gas) Driver training
FAW
China
Further develop sales in emerging markets such as in the CIS countries or Southern Africa
Hybrid technology Electronic-controlled diesel engine management systems to improve fuel consumption
63
Appendix
Manufacturer Dong-feng
Vision/Mission Mission: Centering around the strategic target of China's top and the world's top three ranking.
Global production footprint China
Market strategies
JV with Nissan Diesel Distributing vehicles in North Korea and several African countries Possible JV with Volvo in the heavy and medium-duty commercial vehicle business
Hybrid technology Alternative fuels (e. g. compressed natural gas, ethanol) Fuel cell
n/a
Kamaz
Mission: KAMAZ is a socioresponsible partner functioning to create welfare for employees and maintain shareholders long-term interests.
Russia Poland Vietnam Kazakhstan Azerbaijan Ukraine Ethiopia
Create Joint Venture in Russia and Kazakhstan to extend capacities
Tata Motors
With intense global competition, the challenges will be great but with the spirit, commitment and dedication displayed by employees at all levels, these challenges will continue to be met and overcome. Tata Motors will strive to retain its leadership position in India while being increasingly recognised internationally as an emerging automobile company in the global marketplace.
India Korea (Daewoo)
Expanding exports to West Africa, Russia as well as Eastern Europe and South Africa Acquisition of Daewoo Commercial Vehicles as an important aspect to realise market expansion
Hybrid technology Alternative fuels AdBlue-technology Fuel cell Electric engine
Source: Company web sites Fig. 41 Top 15 Global truck manufacturers
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Expert interviews
Expert interviews
Peter Erichreineke & Prof. Dr. Karl-Viktor Schaller Members of Management Board MAN Nutzfahrzeuge AG Frank Huster & Markus Olligschlger Deutscher Speditions- und Logistikverband (DSLV) Christoph Kirsch Head of Diesel Systems Commercial Vehicles Robert Bosch GmbH Dr. Uwe Lahl Head of Department German Ministry for the Environment (Bundesumweltministerium) Michael Lohmeier Senior Expert Corporate Development Deutsche Post World Net Gerd Rohrsen Head of Corporate Communications Schmitz Cargobull AG Dr. Thomas Schlick Executive Director VDA (Verband der Automobilindustrie) Hans-Georg Scholz Fleet-Manager Schnellecke Group Prof. Dr. Jan-Eric Sundgren Senior Vice President, Environmental and Public Affairs Volvo Group Urban Wstljung Head of Public and Environmental Affairs Scania AB Georg Weiberg Head of Truck Product Engineering Daimler AG
65
Methodology consumer and transport company survey
Methodology consumer and transport company survey

The representative consumer and transport company survey was performed by an independent market research institution (Denkstelle Hamburg), guaranteeing the data security and anonymity of the people interviewed. Five hundred consumers from Germany were interviewed over the telephone between 14 and 25 July 2008. Hundred and three German executives from transport companies with more than eleven employees were interviewed between 16 and 30 July 2008.
66
Contacts
Contacts
Harald Kayser German Automotive Leader Fuhrberger Strae 5 30625 Hannover Germany Phone: +49 511 5357-5685 harald.kayser@de.pwc.com Felix Kuhnert Leader Automotive Advisory Friedrichstrae 14 70174 Stuttgart Germany Phone: +49 711 25034-3309 felix.kuhnert@de.pwc.com Bo Karlsson Partner, Commercial Vehicles Lilla Bommen 2 405 32 Gothenburg Sweden Phone: +46 793 11-17 bo.karlsson@se.pwc.com Dr. Michael Borgmann Senior Manager Automotive Advisory Fuhrberger Strae 5 30625 Hannover Germany Phone: +49 511 5357-5851 michael.borgmann@de.pwc.com
PwC Automotive Institute and AUTOFACTS global light vehicle outlook The PwC Automotive Institute is a team of industry specialists inside the firms Global Automotive Practice dedicated to the ongoing analysis of sector trends. Client service offerings include insightful analyst briefings, the analyst notes information service, as well as the proprietary AUTOFACTS forecast for global light vehicle assembly and powertrain consumption. The AUTOFACTS global light vehicle outlook is an independent, proprietary database of forecast values for light vehicle assembly, capacity and powertrain consumption at a region, country, automaker, plant, platform and nameplate level of detail. The PwC AUTOFACTS forecast is developed using a combination of forecasting techniques and methodologies, utilising a continuous information acquisition and processing cycle, fully supported by systematic knowledge generation. The PwC AUTOFACTS vehicle assembly and powertrain consumption forecast for 2015 takes into consideration capacity, demand and competitor actions. This is a global bottom-up, model-by-model methodology, which is then matched with a topdown analysis of countries, markets and segments. Data sets for every vehicle produced around the world are updated on a quarterly basis.
67
Contacts
PricewaterhouseCoopers PricewaterhouseCoopers is one of the leading auditing and consulting services networks worldwide and is drawing on the knowledge and skills of about 146,000 employees in 150 countries. In Germany, more than 8,400 employees generate a turnover of EUR 1.35 bn in assurance, tax and advisory services at 28 locations. For many years we have been auditing and consulting major companies of all sizes on the industrial and service sector. The service line Middle Market, attending directly to small and medium-sized companies with a solid network of local contacts, has been greatly expanded. And also the public sector, associations, municipal bodies and other organisations place their confidence in our knowledge and experience. For good reason: 400 partners and about 6,200 specialists impart their expertise to all important branches of industry. The commitment of these experts not only reflects the highest quality criteria in terms of their professionalism, but integrity, impartiality and objectivity are also part of the corporate philosophy. For this reason, great care is taken to offer clients only those all-in-one services that are consistent with the law above all with the specific regulations for the American capital market. The most modern approaches are taken towards auditing, consulting and evaluation, thus supporting the companies in meeting the high demands of a competitive market. Our emphasis on high quality is complemented by forward thinking for our clients. This means going beyond the mere completion of a task and also anticipating their needs and providing a forward-looking solution. In doing so, we give our clients added security and help them succeed in world markets.
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www.pwc.de/de/automotive www.autofacts.com

Truck Industry S Green Challenge 2008-09-23

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Automotive

The truck industrys green challenge

The truck industrys green challenge

The truck industrys green challenge Headwind or competitive edge?

The truck industrys green challenge Headwind or competitive edge?

The truck industrys green challenge Headwind or competitive edge?

The truck industrys green challenge Headwind or competitive edge?

The truck industrys green challenge Headwind or competitive edge?

The truck industrys green challenge Headwind or competitive edge?

The truck industrys green challenge Headwind or competitive edge?

The truck industrys green challenge Headwind or competitive edge?

tr U.S. VDA WHDC WHSC WHTC

The truck industrys green challenge Headwind or competitive edge?

Regulator Resource constraints and climate change

The triangular network environment is characterised by the following issues:

The truck industrys green challenge Headwind or competitive edge?

Thirdly, the global political agenda and the publics increasing

The truck industrys green challenge Headwind or competitive edge?

The truck industrys green challenge Headwind or competitive edge?

The truck industrys green challenge Headwind or competitive edge?

The truck industry and its underlying dynamics

The truck industry and its underlying dynamics

Global truck market: Growth driver emerging markets

The truck industrys green challenge Headwind or competitive edge?

The truck industry and its underlying dynamics

The truck industrys green challenge Headwind or competitive edge?

The truck industry and its underlying dynamics

Volume (in k units)

Volume (in k units)

Volume (in k units)

The truck industrys green challenge Headwind or competitive edge?

The truck industry and its underlying dynamics

Volume (in k units)

The truck industrys green challenge Headwind or competitive edge?

The truck industry and its underlying dynamics

Sales volume (in k units)

Source: VDA Fig. 7 Top 15 Truck manufacturers

The truck industrys green challenge Headwind or competitive edge?

The truck industry and its underlying dynamics

Manufacturer Daimler Trucks

The truck industrys green challenge Headwind or competitive edge?

The truck industry and its underlying dynamics

The truck industrys green challenge Headwind or competitive edge?

The truck industry and its underlying dynamics

Share in regions assembly volume

Source: UNStats, PwC

Economic performance and truck market cycles

The truck industrys green challenge Headwind or competitive edge?

The truck industry and its underlying dynamics

Road transportation: Increasing demand

Passenger transport activity

The truck industrys green challenge Headwind or competitive edge?

The truck industry and its underlying dynamics

Transport volume (in bn km)

3,000 11.4% 16.0% 10.6% 15.4%

13.7% 20.0% 66.3%

1,000 58.4% 0 1990 1995

2010 Year Rail

Modal split in the transport sector

Key challenge for the industry: Driving efficiency

European Commission: Towards a rail network giving priority to freight (COM(2007)608).

The truck industrys green challenge Headwind or competitive edge?