STUTTGART, Germany — North America has proved a disappointing truck market so far this year with the most recent Class 8 intake standing at a multi-year low. Wolfgang Bernhard, member of the Board of Management and responsible for Daimler AG’s truck division, is sanguine about this; North America rises and North America falls and there’s not an awful lot to be done about it.
“When we look back in the history of the North American market we see big market swings and nobody is ever afraid of the upside,” he explains.
“Everybody is afraid of the downside and everybody takes the upside as a present and it’s a huge punishment to suffer through downside. We looked at the pattern of the past, we see that when overswing of historic averages is biggest, the underswing is also huge,” he continues. “So in a way, we’re glad to see that after the moderate overswing that we had last year, we see that the that the market is coming down a bit and we believe the silver lining in that is basically that if we don’t overswing so much we don’t have to suffer the underswing so much.
“And let’s be honest here. The market that we’re seeing this year which will be north of 350,000 trucks (Classes 6-8) and that is still a reasonable market in historical terms. Sure it’s nothing you write home about and it’s slightly below historic averages, but still a good market nonetheless, and I’m not sure we should be complaining about it. And rather than having huge up and down swings over time, I’m happy to live with a small oscillation around historic averages.
“And on top of this, in the special case of North America and Canada, I have to say that we can compensate some of the market downturn with gaining market share. We are increasing our market share and this is allowing us to position the organization strongly.”
Bernhard sees the current interest rate environment as a problem, and argues that the global economy needs to pursue a return to a more normal rate level. While this may seem slightly counterintuitive coming from a supplier of capital equipment, he sees the broader macro impact of low and zero rates as being one that is negative.
“At some point of time, we have to find a way back to the reasonable interest rates,” he says. The present situation is a drag on of financial structure; it is very difficult for pensions and insurers to find assets with adequate returns and it seems too that there is a constant danger of the misallocation of resources.
“I believe that at some point we have to get back to reasonable interest rates and, yes, there will be some repercussions. So if the Fed starts to raise interest rates it will make the situations in South America and in some emerging countries, more difficult. However, I believe that at the forefront of those countries is not an economic problem. It’s a political problem and unless these issues are not addressed the economy will not thrive. The decisive factor is not one of the interest rate in America or in Europe. The decisive factor is the political, the structural reforms that needs to be taken. I’d argue that the same thing applies to Greece as well.”
Looking forwards, the agenda within the truck industry at present is constituted of considerations of GHG regulations and the rather more nebulous issue that is connectivity.
To the first point, Bernhard is at pains to stress the need for fitness for purpose in terms of regulation, and adds to this the view that a regulatory framework that rewards GHG reduction is one that is ultimately self-perpetuating in a positive manner.
“Regulators tend not to be deeply ingrained in the particularities of this industry,” he says. “That means, they see the complete value chain of transportation but tend to focus only on the vehicle aspects and not other factors. And so while we are looking at – for example – a 10-20% difference between the best and the worst driver, they are fixated on expensive technical solutions to get at the 0.1-0.2% of potential – for instance in powertrain-derived reductions.”
He points to the experience of North America – where a regulatory framework mandating GHG reductions is now in place – as proof positive of the value of market forces.
“I believe in the power of market forces as a force for good in this industry,” he says. “The driver of progress on the CO2 side is being driven by our customers and their economic needs on the one hand, and our technology on the other hand. Looking at North America, what are the major drivers for the CO2 reductions that we see there? Customers were asking for it and paying for it. It is a business case for them, that’s what drives it.
“Secondly, the technology that enables it. What is it? It is an integrated powertrain. The departure from a component truck into a world of integrated powertrains where you have instead of a manual, an automated transmission, where you have highly sophisticated engines, and improved axles that fit the overall package as well as improved aerodynamics. Did the CO2 regulation of US force that to happen? I don’t think so. This was done through innovation that we had, and we innovated not because of any GHG regulation but because it is what our customers expect us to do to improve their cost of ownership.”
The customer relationship is also at the center of the move towards connectivity. Bernhard is quick to point out that the idea is not a new one – Fleetboard and Detroit Connect are both well-established examples of a connected vehicle and both are profitable in their own right. But he sounds a caveat: “I would caution to say that for us, connectivity will be a major stream of revenues and of income,” he says. “Even in our boldest dreams when we calculate this through, we cannot see anything getting close to what we have with the truck itself.
“We believe that this is something that if you don’t have it, you will lose your mainstream revenue,” he continues. “It is both a threat and an opportunity at once. If you are at the forefront, you will be able to gain market share. You will be able to build relationship with your customers that go beyond contract and legal obligations, and with that, you solidify your relationship with your customers, and if you grow a reputation of a leader in that industry, you will always have the upper hand. I believe rather than having this as a major source of income, it is a vital, crucial enabler to make sure for our shareholders that the business as it is stays in place.”
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