High-end trucks set to take bigger share

Logistics firms focus more on efficiency

Though medium-priced and even low-end models still dominate truck sales in China, German consulting firm Roland Berger expects the need for efficiency at logistics firms and the government's strong push for lower emissions will eventually change the market mix.

"Imported high-end trucks only account for 1 percent of China's heavy-duty truck market - it's very low," said Norbert Dressler, partner of Roland Berger Strategy Consultants GmbH.

But "we see the percentage increasing due to logistics companies paying more attention to their business efficiency", said Dressler.

"Roland Berger assumes the ratio will increase to 3 percent by 2020."

He noted China's truck market - the largest in the world - is a pyramid structure with medium and lower-end products ranging in price from 300,000 yuan ($49,180) to 800,000 yuan taking about 80 percent of the share.

Statistics from the China Association of Automobile Manufacturers show that 1.77 million trucks were sold in the first half, a drop of 4.27 percent on an annual basis.

Only the heavy-duty truck segment showed an increase as it rose 6.53 percent while lower-capacity commercial trucks all reported sales declines.

At the same time the overall auto market increased 8.4 percent and the passenger vehicle segment surged 12.1 percent.

"We should say that the first-half performance is really good in such a weak environment as China's economy slowed after the 4 trillion yuan stimulus investment in infrastructure ended in 2011," said Dressler. "The first quarter started off the year with an strong increase followed by a little drop in the second quarter."

Though he predicted heavy-duty truck sales won't break the 800,000-unit barrier this year, "we can still expect a small increase from the 770,000 units in 2013".

Sales are predicted to increase even as truck prices rise with more advanced models, said Dressler.

New policies

According to the Ministry of Industry and Information Technology, sales of commercial vehicles that meet only the China III emission standard will be stopped by the end of this year.

And by 2015, the State Council has mandated 6 million vehicles with yellow license plates must be taken off the road - those that cannot reach the Euro I petrol exhaust standard and China III diesel emission standard.

The two policies will both lead to increased demand in the short term, said Dressler.

"From a long-term perspective, the heavy-duty truck segment may welcome back big increases in 2018 and 2019 and enter single-digit, healthy and sustainable growth in 2020," he said.

He said many Chinese logistics companies are now paying more attention to total operating costs rather than just the one-time investment for purchase of a vehicle.

As well, "consolidation of the logistics sector will also give a boost to the heavy-duty truck segment as now there are too many small or tiny logistics companies", said Dressler.

To support the consolidation and help companies have bigger fleets, Dressler suggested stronger efforts in financing and more innovative business models.

"After-sales service quality also affects a logistics company's business efficiency."

With more environmental concerns, Dressler said that the government should be the key driver in modernization of heavy-duty trucks on the road.

"Exhaust limits, as well as green technologies, can help decrease pollution," he said. "Though the new emission standards will lead to a sales drop at the beginning."

Overseas market

Though the domestic market is tight, Dressler said it's hard for Chinese truck makers to find out opportunities overseas. The ratio of exports is still very low.

"European and US markets have overcapacity. More opportunities come from emerging markets in Southeast Asia, the Middle East, North Africa and South America," said Dressler.

He said Chinese truck makers should first learn how to enter new markets with different, tailored strategies.

"Second, the key to localization is how they can get the right position for their brands among competitors," he said. "Last but most important, Chinese truck makers should put heavy efforts on services, product quality and dealer networks."

"Brazil and Russia are two important markets with huge potential to have CKD (complete knocked down) production," he added.