North American commercial vehicle market: Trends and OEM strategies

Paccar starts production in Brazil; Navistar increases sales with SCR-equipped models

2014/12/03

Summary

 The medium- and heavy-duty truck market in North America (the U.S. and Canada) shrank by 30% year-over-year (y/y) to 223,000 units in 2009 due to the economic crisis、but has been steadily recovering since 2010. The market reached 392,000 units in 2013 and 327,000 units for the January-September 2014 period owing to the economic recovery in the U.S. The heavy-duty truck (Class 8) market for the first nine months of 2014 was split among four major OEMs: Daimler (36.6%), Paccar (27.5%), Volvo (21.2%) and Navistar (14.6%). Paccar's sales in North America for the January-September 2014 period grew 16.2% y/y. Navistar reported a 24.0% y/y increase in its sales of heavy-duty trucks in North America for the first nine months of FY2014 owing to introduction of SCR-equipped models. Daimler and Volvo will be featured in our upcoming reports.

Medium and heavy duty truck sales in North America Heavy duty truck (Class 8) market share in North America



North American medium- and heavy-duty truck market grows 14.7% for Jan-Sep 2014 period

 The U.S. and Canada Class 4-7 medium-duty truck market expanded by 11.8% y/y to 147,000 units during the January-September 2014 period. Over the same period, the Class 8 heavy-duty truck market grew 17.3% y/y to 179,000 units. The U.S. Class 8 sales increased by 19.4% y/y while Canadian sales improved 3.4 % y/y. In addition to replacing older vehicles, many customers are expanding their fleets owing to good economic growth, improving freight rates, and lower fuel prices.

 According to Paccar's forecast disclosed in October 2014, the U.S. and Canada Class 8 market is likely to be in the range of 245,000-255,000 units in 2014 and in the rage of 240,000-270,000 units in 2015. Navistar estimated in September 2014 that the U.S. and Canada Class 8 market for the fiscal year ended October 2014 (from November 2013 to October 2014) would be in the range of 235,000-240,000 units.

 The U.S. Environmental Protection Agency and Department of Transportation jointly issued the first-ever global warming emissions and fuel efficiency standards for medium- and heavy-duty commercial vehicles in August 2011. The Phase 1 standards are applicable to the 2014 models through 2018 models. Under the  standards, combination trailers and vocational trucks are required to reduce fuel consumption by up to 23% and 9%, respectively, from the 2010 models. As for large pickups and vans, fuel consumption reduction targets are up to 10% for petrol engine models and 15% for diesel engine models. The Phase 2 standards which are applicable to vehicles manufactured in model years beyond 2018 will be issued by the spring of 2016. All OEMs should put forth continuous efforts to improve fuel efficiency of their vehicles.

Medium- and heavy-duty truck sales in the US

(units)
2008 2009 2010 2011 2012 2013 Jan.-Sep.
2013
Jan.-Sep.
2014
Medium (Class 4-7) 164,951 104,888 110,550 134,831 151,161 166,953 121,795 137,075
Heavy (Class 8) 133,473 94,798 107,152 171,358 194,715 184,784 132,593 158,288
Medium + Heavy 298,424 199,686 217,702 306,189 345,876 351,737 254,388 295,363

Medium- and heavy-duty truck sales in Canada

(units)
2008 2009 2010 2011 2012 2013 Jan.-Sep.
2013
Jan.-Sep.
2014
Medium (Class 4-7) 15,730 10,072 9,772 12,722 13,883 12,968 10,060 10,293
Heavy (Class 8) 23,971 13,460 18,916 25,512 30,163 27,430 20,366 21,060
Medium + Heavy 39,701 23,532 28,688 38,234 44,046 40,398 30,426 31,353

Medium- and heavy-duty truck sales in the US and Canada

(units)
2008 2009 2010 2011 2012 2013 Jan.-Sep.
2013
Jan.-Sep.
2014
Medium (Class 4-7) 180,681 114,960 120,322 147,553 165,044 179,921 131,855 147,368
Heavy (Class 8) 157,444 108,258 126,068 196,870 224,878 212,214 152,959 179,348
Medium + Heavy 338,125 223,218 246,390 344,423 389,922 392,135 284,814 326,716

Source: Ward's Automotive Reports

(Reference) US and Canadian medium- and heavy-duty truck classification
Medium-duty Heavy-duty
Class 4 Class 5 Class 6 Class 7 Class 8
GVW (pounds) 14,001-16,000 16,001-19,500 19,501-26,000 26,001-33,000 33,001-
GVW (tons) 6.4-7.3 7.4-8.8 8.9-11.8 11.9-14.9 <15.0

(Note) The values in the bottom row are converted values of GVW from pounds to tons. According to the truck classification based on the payload capacity in Japan, the Class 4 trucks with GVW of 7.3 tons or less are equivalent to the trucks with payload capacity of 3-4 tons, and the Class 8 trucks with GVW of 15 tons or more are equivalent to the trucks with payload capacity of 8-9 tons or more.

 

 



Heavy-duty truck market share in North America: Navistar sees positive momentum

Heavy duty truck (Class 8) market share in North America The Class 8 heavy-duty truck market in the U.S. and Canada is split among four major OEMs: Daimler, Paccar, Volvo, and Navistar. They have been competing to expand their market shares. While all four OEMs increased their sales volume during the January-September 2014 period, Volvo and Navistar expanded their shares, while Daimler and Paccar lost theirs. Navistar's market share had been declining since 2010 when the manufacturer had failed delivering the trucks which meet new emissions standards. However, after Navistar launched the revamped models to satisfy the standards at the end of 2012, the OEM's share seemed to cease declining.

 In the Class 4 to 7 medium-duty truck market, three major OEMs, namely, Ford, Navistar and Daimler had a combined share of 75% for the January-September 2014 period. Although three manufacturers increased their sales volumes over the period, their market shares showed slight decreases. On the other hand, Chrysler and Isuzu expanded their shares to about 7%, respectively.


U.S. and Canada: medium-duty truck (Class 4 to 7) sales volume by OEM

Sales volume (units) Market share
2011 2012 2013 Jan.-Sep.
2013
Jan.-Sep.
2014
Jan.-Sep.
2013
Jan.-Sep.
2014
Ford 41,691 48,324 61,968 44,484 48,581 33.7% 33.0%
Navistar 39,718 37,309 26,794 21,162 22,458 16.0% 15.2%
Freightliner 31,230 34,849 44,745 33,870 37,461 25.7% 25.4%
Mitsubishi Fuso 2,455 2,861 2,079 1,456 1,300 1.1% 0.9%
Daimler total 33,685 37,710 46,824 35,326 38,761 26.8% 26.3%
Chrysler 8,895 11,928 12,356 8,368 10,530 6.3% 7.1%
Isuzu 8,716 10,700 12,212 8,347 10,747 6.3% 7.3%
Kenworth 4,088 5,125 5,077 3,566 4,607 2.7% 3.1%
Peterbilt 3,520 4,913 5,386 3,815 4,175 2.9% 2.8%
Paccar total 7,608 10,038 10,463 7,381 8,782 5.6% 6.0%
Hino 6,383 8,031 9,137 6,620 7,509 5.0% 5.1%
UD Trucks 819 1,004 167 167 0 0.1% 0.0%
GM 38 0 0 0 0 0.0% 0.0%
Total Medium Duty 147,553 165,044 179,921 131,855 147,368 100.0% 100.0%

(Note) GM withdrew from medium-duty truck businesses at the end of July 2009.

U.S. and Canada: heavy-duty truck (Class 8) sales volume by OEM

Sales volume (units) Market share
2011 2012 2013 Jan.-Sep.
2013
Jan.-Sep.
2014
Jan.-Sep.
2013
Jan.-Sep.
2014
Freightliner 58,918 71,647 74,393 54,683 61,517 35.8% 34.3%
Westin Star 3,771 5,079 5,454 4,019 4,111 2.6% 2.3%
Daimler total 62,689 76,726 79,847 58,702 65,628 38.4% 36.6%
Kenworth 27,797 33,629 30,829 22,294 25,408 14.6% 14.2%
Peterbilt 27,501 31,413 28,568 20,360 23,958 13.3% 13.4%
Paccar total 55,298 65,042 59,397 42,654 49,366 27.9% 27.5%
Volvo 23,820 24,638 24,311 16,817 22,660 11.0% 12.6%
Mack 14,564 19,654 18,446 12,844 15,389 8.4% 8.6%
Volvo total 38,384 44,292 42,757 29,661 38,049 19.4% 21.2%
Navistar 40,479 38,806 30,167 21,909 26,249 14.3% 14.6%
Others 20 12 46 33 56 0.0% 0.0%
Total Heavy Duty 196,870 224,878 212,214 152,959 179,348 100.0% 100.0%

Source: Ward's Automotive Reports
(Note) The values in blue under Daimler, Paccar and Volvo represent sales volumes by brand.

 

 



Paccar increases sales in North America by 16.2% to 58,000 for Jan-Sep 2014 period

 Paccar manufactures and distributes medium- and heavy-duty commercial vehicles under the Kenworth and Peterbilt brands in North America, DAF brand in Europe, and mainly Kenworth and DAF brands in Australia, South America, and other regions.

 Paccar's sales in the U.S. for the January-September 2014 period grew 19.4% y/y while its sales in Canada fell 1.7% y/y. Thus, Paccar's sales in North America increased by 16.2% y/y to 58,000 units. During the same period, its total revenues improved by 10.8% y/y to USD 13.88 billion, and net income rose by 15.2% to USD 960 million. The net income ratio to total revenues climbed to 6.9% from 6.7% for the same period last year. Paccar's higher revenues and income reflect the benefits of strong sales in North America and excellent aftermarket parts businesses.

 As a part of business expansion in emerging countries, Paccar completed construction of its new DAF assembly plant in Brazil in October 2013. Truck production in this plant is projected to improve Paccar's sales in South America. Besides, the company has opened several new parts distribution centers, whose number will continue to increase globally.

Paccar Group's sales volume by region

(units)
2010 2011 2012 2013 Jan.-Sep.
2013
Jan.-Sep.
2014
U.S. 29,100 59,400 62,200 59,000 42,578 50,819
Canada 6,100 10,500 10,900 9,700 7,457 7,329
North America total 35,200 69,900 73,100 68,700 50,035 58,148
Europe 31,200 51,100 43,500 48,400 n.a. n.a.
Mexico, Australia, and others 12,400 17,000 23,800 20,000
Worldwide 78,800 138,000 140,400 137,100
Source: Paccar Annual Report 2013 (Ward's Automotive Reports for Jan.-Sep. period of 2013 and 2014)
(Note) 1. DAF trucks gained a record 16.2% share for 2013 in the segment above 16 tons GVW in Europe (DAF had a 16.0% share in 2012).
2. According to Paccar's forecast disclosed in October 2014, the truck market above 16 tons GVW in Europe is likely to reach 210,000-220,000 units in 2014 (241,000 units in 2013) and 200,000-240,000 units in 2015. The Heavy-duty truck market in South America is estimated to be 140,000-150,000 units in 2014 and 130,000-160,000 units in 2015.

 

Paccar Group's business results

(in millions of USD )
2010 2011 2012 2013 Jan.-Sep.
2013
Jan.-Sep.
2014
Truck and other Net Sales 9,325.1 15,325.9 15,951.7 15,948.9 11,649.5 12,975.7
Financial Services Revenues 967.8 1,029.3 1,098.8 1,174.9 875.4 902.2
Total Revenues 10,292.9 16,355.2 17,050.5 17,123.8 12,524.9 13,877.9
Net Income
Net Income ratio
457.6
4.4%
1,042.3
6.4%
1,111.6
6.5%
1,171.3
6.8%
837.1
6.7%
964.5
6.9%
Source: Paccar Annual Report 2013, Q3 2014 Earnings Statement
(Note) 1. Paccar manufactures commercial vehicles and industrial winches.
2. Net income ratio is calculated by dividing net income by total revenues.

 

Paccar Group's production of medium- and heavy-duty trucks by country

(units)
Brand Country 2008 2009 2010 2011 2012 2013
Kenworth USA 18,729 12,679 14,916 30,625 32,667 30,947
Mexico 13,611 6,037 10,325 15,870 19,329 15,296
Canada 3,968 3,044 5,622 5,543 4,538 4,783
Peterbilt USA 17,794 12,814 13,853 28,124 29,355 26,342
Canada 3,805 2,774 (注3) 4,337 4,762 5,090
DAF Netherlands 42,515 13,369 22,168 22,168 20,000 38,000
Brazil 33
(Leyland Trucks) UK 24,662 8,201 9,290 14,568 14,685 15,400
Total 125,084 58,918 76,174 121,235 125,336 135,891
Source: OICA (National automobile associations and MarkLines Data Center for 2010)
(Note) 1. The counted are trucks above 3.5 to 7 tons GVW.
2. Leyland Trucks is not a brand name but a manufacturing company. It produces and develops DAF brand vehicles.
2. Production of Peterbilt vehicles in Canada for 2010 is included in that of Kenworth vehicles.

 

Paccar's new models released in period from March 2013 to September 2014

Kenworth/
Peterbilt
 Paccar unveiled the Kenworth T880 and Peterbilt Model 567 in March 2013. Both models are new vocational trucks which share their cab design. They feature a 2.1-meter wide cab, a panoramic windshield, larger door openings and an outstanding forward lighting system. These models come with the PACCAR MX-13 engine which delivers maximum power of 500 hp and maximum torque of 1,850 lb-ft. They are designed for vocational applications, including dump, mixer, garbage truck and heavy haul.
 Paccar launched new medium-duty cab-over-engine delivery trucks, namely, Kenworth K270 and K370 as well as Peterbilt Model 220 in the second quarter of 2014. Compared to the conventional medium-duty trucks, the new models have been designed with a shorter overall length and enhanced turning radius to excel in delivery applications in urban areas.
 As a part of commitment to the environment, Paccar released the Kenworth T680 Advantage in the third quarter of 2014. The model has an aerodynamic body and a fuel-efficient powertrain including the PACCAR MX-13 engine. The Kenworth T680 Advantage improves fuel economy up to 5% from the standard T680 and is Kenworth's most fuel-efficient truck.
DAF  Paccar unveiled the new DAF LF and CF Euro 6 truck models in April 2013. The CF Euro 6 began production in mid-2013 and is designed for regional transportation and heavy construction. The LF Euro 6 has been developed for distribution and urban delivery and began production in the fourth quarter of 2013. Both models feature a durable, lightweight chassis, fuel-efficient drivetrains, an enhanced aerodynamic exterior and spacious interiors.
 Paccar introduced the DAF LF Aerobody in the first quarter of 2014. The 12-ton distribution truck is fitted with an aerodynamic van body designed by Paccar. The new model enjoys fuel efficiency improvements of up to 8% from the standard LF. The LF Aerobody is produced at Leyland Trucks in the U.K.

 

Paccar launches new MX-11 Euro 6 engine

 Paccar unveiled the new PACCAR MX-11 Euro 6 engine in the Netherlands in March 2013. The DAF CF and XF Euro 6 trucks were equipped with the MX-11 Euro 6 engine in October 2013 while the Kenworth and Peterbilt trucks are scheduled to employ the engine in 2015. This is a 10.8-liter six-cylinder engine with power outputs of 290 hp to 440 hp and a torque range up to 1,550 lb-ft. It features a compact graphite iron engine block and cylinder head for long-lasting durability. The MX-11 Euro 6 engine incorporates a common rail fuel injection system, a turbo charger with variable geometry and a double overhead camshaft design to improve fuel efficiency.

Paccar opens new parts distribution centers

 In 2013, Paccar opened a new 280,000 square-foot Parts Distribution Center (PDC) in Eindhoven, the Netherlands and another PDC in Ponta Grossa, Brazil. Paccar also doubled the size of the storage space at the Lancaster PDC in Pennsylvania, the U.S. In the third quarter of 2014, Paccar opened a new PDC in Montreal, Canada. Currently, 17 PDCs support over 2,000 DAF, Kenworth and Peterbilt dealers.
 Paccar plans to start construction of a new 176,000 square-foot PDC in Renton, Washington, the U.S. in the fourth quarter of 2014. This PDC will more than double the distribution capacity of parts in northwestern United States and western Canada.

Paccar starts production at new plant in Brazil

 In October 2013, Paccar opened a new DAF truck assembly plant in Ponta Grossa, Parana, Brazil with an investment of USD 320 million. The new plant started production of the DAF XF, CF, and LF premium trucks for sale in Brazil and other South American markets. Paccar projects to expand its dealer network in Brazil from 20 service locations in 2013 to 40 locations in 2014.

 

 



Navistar completes transition to SCR-equipped models for heavy-duty segment

 Navistar International Corporation is a holding company whose subsidiaries and affiliates produce International brand commercial and military trucks, IC Bus brand buses, MaxxForce brand diesel engines, as well as truck and diesel engine service parts for aftermarket. In addition to North America, Navistar operates in areas including Australia, Brazil, and South Africa.

 Navistar had relied on exhaust gas recirculation (EGR) technology to meet the U.S. Environmental Protection Agency (EPA) 2010 emissions standard instead of selective catalytic reduction (SCR) systems while all other competitors used both SCR and EGR. However, the company was not able to meet the standards by mid-2012, resulting in penalties and sales decline. In August 2012, Navistar shifted its emissions strategy and introduced a new turnaround plan called "Drive to Deliver" including adoption of SCR. Navistar completed transition to SCR technology for its all heavy-duty truck models by the end of 2013. The company is now revamping its medium-duty models. In order to reduce costs, Navistar divested non-core businesses such as Monaco RV and consolidated manufacturing at some plants.

 Navistar's sales for the first nine months of the fiscal year ended October 2014 (FY 2014) in North America rose 8% y/y owing to positive market trends and introduction of SCR-equipped models while sales in other regions dropped 6.6% y/y. As a result, its global sales increased by 3.0% y/y to 65,000 units. Over the same period, the company reported net loss of USD 550 million (narrower than the loss of USD 740 million for the period year earlier) on revenues of USD 7.8 billion, down 2.8% y/y. While Navistar is still struggling with its business results, narrower net loss reflected increased North American sales, cost reduction, and less warranty charges.

Navistar's sales volume of trucks, buses and engines

(units)
FY ended Oct. 2011 FY ended Oct. 2012 FY ended Oct. 2013 Nov.2012
-Jul. 2013
Nov.2013
-Jul. 2014
Truck/bus
(units)
US and Canada Bus 9,500 9,700 9,500 7,200 7,700
Medium 23,400 19,900 14,700 12,000 12,200
Heavy 25,700 27,100 21,100 15,000 18,600
Severe service 11,400 13,600 9,800 7,200 6,200
North America total 70,000 70,300 55,100 41,400 44,700
Other regions Military (Note) 3,700 1,600 800 800 100
Expansionary 28,600 29,400 28,500 20,500 19,800
Continuing operations total 102,300 101,300 84,400 62,700 64,600
Discontinued operations 6,100 3,700 400
Total 108,400 105,000 84,800 62,700 64,600
Diesel engine (units) OEM sales - South America 138,600 106,700 116,200 87,400 65,700
Other OEM sales 16,200 10,100 9,300 6,800 8,500
Intercompany sales 88,800 83,100 59,900 46,500 30,400
Total shipments 243,600 199,900 185,400 140,700 104,600

Source: Navistar Q4 2013/Q3 2014 Earnings Presentation
(Note) "Military vehicles" under "Other regions" include all militarized units sold to the US and Canadian militaries.

Navistar's business results

(in millions of USD)
FY ended
Oct. 2009
FY ended
Oct. 2010
FY ended
Oct. 2011
FY ended
Oct. 2012
FY ended
Oct. 2013
Nov.2012
-Jul. 2013
Nov.2013
-Jul. 2014
Net sales and revenues 11,569 12,145 13,958 12,695 10,775 8,024 7,798
Net income (loss) attributable
to Navistar International
Corporation
320 223 1,723 (3,010) (898) (744) (547)

Source: Navistar Q4 2013, Q3 2014 Earnings Presentation

Navistar's production of medium- and heavy-duty trucks and buses by country

(units)
Vehicle type Country 2008 2009 2010 2011 2012 2013
Buses USA 13,962 13,820 n.a. 9,487 11,366 10,396
Medium- and
heavy-duty trucks
USA 40,087 30,483 32,479 42,998 41,041 21,346
Canada 15,986 3,892 8 1
Mexico 20,114 17,169 26,468 36,363 30,964 46,732
Brazil 500
Russia 115
Total 90,264 65,364 58,955 88,849 83,371 78,974
Source: OICA (National automobile associations and MarkLines Data Center for 2010)
(Note) 1. The counted are trucks and buses above 3.5 to 7 tons GVW.
2. The Chatham plant in Ontario, Canada ceased operations in June 2009 and was closed in 2011.

 

Navistar's turnaround plan "Drive to Deliver"

Overview  In August 2012, Navistar announced a new turnaround plan called "Drive to Deliver." Under the plan, the company has launched new models which adopted selective catalytic reduction (SCR) systems and has been reducing costs.
New model launches  Heavy-duty trucks: Navistar installed Cummins' ISX15 engine (including the SCR system) or Navistar's MaxxForce 13 engine and Cummin's SCR system to make its models compliant with the applicable emissions standards. Starting with the SCR-equipped ProStar in December 2012, SCR models of the PayStar, TranStar and WorkStar had been introduced. Navistar completed heavy-duty trucks transition to SCR technology by installing the ISX15 engine in the LoneStar in October 2013.
 Medium-duty trucks: In the first quarter of FY 2014, Navistar launched the medium-duty DuraStar truck and IC Bus CE Series school bus which are equipped with the Cummins ISB 6.7 engines. Also, Navistar shipped the first vocational vehicles which feature the company's 9- and 10-liter engines with SCR technology in July. The DuraStar is available with the 9-liter engine and the WorkStar is available with 9- and 10-liter engines. These models are delivering up to 8% fuel economy improvement over the previous generation.
 Supported by launches of new SCR-equipped models, Navistar finished FY 2013 with 26% increase and the third quarter of FY 2014 with 56% increase in order backlog in North America y/y. On account of quality performance improvements, warranty costs as a percentage of manufacturing revenues for the first nine months of FY 2014 were 4.2%, compared to 7.7% for FY 2013. Since most of Navistar's trucks with the all-EGR engines will be out of warranty by the end of 2015, warranty expenses are expected to decrease in the future.
Cost reductions  While Navistar had aimed to reduce its structural costs by USD 175 million during FY 2013, the company finished the full year with reduced structural costs of USD 330 million, twice as much as the objective. Furthermore, in the first nine months in FY 2014, Navistar reduced its costs by USD 245 million.
 In order to reduce its structural costs in 2013, Navistar sold its equity in the joint engine manufacturing ventures in India to Mahindra, divested non-core businesses including Workhorse Custom Chassis, Monaco RV and Bison Coach trailer manufacturing business, and subleased a portion of its Cherokee plant in Alabama. In 2014, the company announced a plan to consolidate mid-range engine manufacturing into its Melrose Park plant in Illinois and to idle its Huntsville plant in Alabama.

(Note) The U.S. EPA 2010 emissions standard limited NOx emissions to 0.20 g/bhp-hr. The standard had been phased in between 2007 and 2010: 50% for the  2007 models through 2009 models  and 100% beginning with the 2010 models. Initially, Navistar used earned emissions credits to continue to build and ship its non-compliant models, but ran out of credits in February 2012. Since then, Navistar has paid penalties. The penalty per engine amounted to a maximum of USD 3,775.

 

Navistar increasing production in second half of FY2014

 In April 2014, Navistar announced a plan to increase its production rates at its bus plant in Tulsa, Oklahoma and its heavy-duty truck plant in Escobedo, Mexico in the second half of FY 2014. The Tulsa bus plant will increase its average daily production rate by 17% over the first half rate while the Escobedo truck plant will increase its average daily production rate by 24%. Positive trends in the industry and good customer response to Navistar's new SCR-equipped models prompted the company to raise its production rates.

 

Navistar opens joint engine plant with Jianghuai Automobile in China

 In September 2014, Navistar announced that Anhui Jianghuai Navistar Diesel Engine Co., Ltd (JND), the company's joint venture with Chinese truck maker Anhui Jianghuai Automobile Co., Ltd., has begun diesel engine production at its new plant. Located in Hefei Economic Development Area, the new plant manufactures Navistar's MaxxForce 3.2- and 4.8-lter engines as well as Jianghuai's 2.8-liter engines. JND plans to add the MaxxForce 7.2-liter engine to its product line in 2016. The new plant houses an administrative office and a research and development center in addition to a flexible assembly line with an annual production capacity of 200,000 units.

 

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