A new route into Chinese truck industry

(chinatrucks.com, Nov. 20, 2009)Heavy truck manufacturers such as German-based Benz and Man are rolling into China as the Western market shrinks and their Chinese counterparts are eager for new technology to help themselves drive further and faster into both domestic and overseas markets.

They are especially thirsty for cleaner engines to meet China's increasingly strict environmental standards and the result is the formation of some powerful unions.

Man, the world's third largest heavy truck producer after Benz and Volvo, announced in middle October that it had acquired a 25 percent stake in Sinotruk, China's top heavy truck builder, for 560 million euros ($828 million).

It also said it would provide engine technology for Sinotruk to meet State IV emission standards, roughly equivalent to EU pollution caps, and to be enforced beginning in 2011.

Shandong-based Sinotruk is eager to update its diesel engine technology to comply with the new law.

Daimler, the parent company of Benz, and Beijing-based truck maker Foton also inked an agreement to set up a joint venture in January 2010 to use the Benz engine and produce heavy trucks under the Foton brand. Co-investing 6.4 billion yuan ($937.4 million) each, each side will own 50 percent of the JV.

Late September Jianghuai Auto Company (JAC), Central-China's Anhui-based truck maker, reached a framework agreement with NC2, a US-based heavy truck and diesel engine maker, to invest 2 billion yuan ($293 million) and provide cleaner engines for JAC's heavy trucks. JAC has been relying on Shandong-based Weifang Power for its engines.

However, there have been some divorces. Most recently, Volvo announced Monday that it would retreat from Huawo, a joint venture it launched in 2004 with Sinotruk to assemble Volvo trucks in China.

Sinotruk learned little new technology from Volvo because almost all the components used by Huawo were imported from Europe. The Huawo products sold poorly because they were twice as expensive as equivalent Chinese brands, said Li Menghai, a senior auto analyst with Beijing TX Investment Consulting.

Unlike Volvo, Benz and Man say they will be sharing technology with their JV partners and not simply selling trucks in China.

 
A new strategy

To directly sell trucks or launch JV to make foreign brand vehicles or sell technology directly is no longer a good idea, according to a research report by autobizreview.com.

Chinese truck engine technology was imported in the 1980s, with FAW buying from Germany-based Deutz, Dongfeng from US-based diesel engine giant Cummins, and Sinotruk purchasing from Austrian truck builder Steyr Nutzfahrzeuge, which was taken over by Man in 1991.

Technology sales are not really good business for foreign brands because the Chinese buyers will eventually become competitors, said Shangguan Zhoudong, a Beijing-based auto analyst.

"By launching joint ventures and acquiring stockholdings of domestic truck builders," said Shangguan, "Foreign brands will enter the Chinese market and share the market in a long run, while technology selling is a one off. They are adopting a technology-for-market strategy, which is smarter than selling or assembling trucks of their own brands in China."

Unlike the passenger vehicle market where joint-venture brands dominate, the heavy truck market is 95 percent occupied by domestic brands, with top five makers Sinotruk, Dongfeng, FAW, Shaanxi Auto and Foton sharing more than 80 percent of it.

From July to October this year, 236,715 heavy truck units were sold, 94 percent up from the same period last year, said a report by Zhongyuan Securities, which also predicted annual growth for 2009 at 10 percent.

The stimulus package to fight the financial recession spurred the logistics and transport industries, which meant additional demand for heavy trucks, said Shangguan.

By entering China, European truck makers are also eyeing emerging markets such as Russia and Brazil, said Li Menghai of TX Investment Consulting.

"Chinese truck makers understand the emerging markets better than their Western rivals," said Li. "We offer cheap but usable stuff. We know what the poor need because we are poor too."

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