Europeans Pushing Into the North American Medium and Heavy-Duty Market
Europeans Pushing Into the North American Medium and Heavy-Duty Market Recent acquisitions from DaimlerChrysler and AB Volvo involving heavy-duty truck suppliers and manufacturers in North America will reinforce the already existing trend for greater participation of European suppliers in the market. A recent Frost & Sullivan analysis of the Class 6, 7, and 8 powertrain and chassis component market in North America showed that participation of European-rooted suppliers, although still quite low, has increased by around 40 percent in the last three years. In fact, sales in 1997 were about $160 million and for 2000 the total approached $230 million. Revenues only account for less than 3 percent of the total market and are yet quite low to make for a strong force in the market. More important, however, is the feeling that European truck manufacturers might be contemplating the use of European components in the North American market. Here, Alfonso Corredor, Research Analyst at Frost & Sullivan, ( http://transportation.frost.com) talks about the industry. In the summer of 2000 DaimlerChrysler acquired the outstanding shares of Detroit Diesel Corporation (DDC), as it already had 21.3 percent of the shares. DDC manufactures diesel engines for automobiles, buses, trucks, and various vocational heavy-duty vehicles. In the truck segment, production is specialized in heavy-duty engines. In addition, DaimlerChrysler is the owner of Freightliner Trucks, the largest manufacturer of Class 6, 7, and 8 trucks in North America. In turn, Freightliner is the owner of Western Star Trucks and Sterling Truck Corporation. Before the DaimlerChrysler's acquisition, the Freightliner Group was DDC's main customer. The move, then, is not a surprise for the market. However at the beginning of 2001, the PACCAR Group -- Kenworth Trucks and Peterbilt Motors -- announced that it will stop offering DDC engines in its trucks. In January 2001, AB Volvo acquired Renault V.I. The move gave Volvo control of Mack Trucks, since Renault owned Mack. This is an important movement for Volvo in the North American market. Mack Trucks mainly covers the Class 8 market and is the third largest manufacturer of medium and heavy-duty trucks. The joint production of the two companies will move Volvo to the second largest producer of Class 8 trucks. Additionally, Mack Truck produces its own engines and only buys marginal quantities from other suppliers. The result is that now more that 60 percent of the truck production in North America will be guided by European parent companies and this is making American truck suppliers nervous. European Suppliers Activity On the truck component supplier side, there are mainly four companies covering the powertrain and chassis component market for medium and heavy-duty trucks. The oldest participant in this market is Behr Heat Transfer Systems, Inc., part of the German Behr Group. Behr entered the market in 1974 and is now the second provider of cooling systems for Class 6, 7, and 8 trucks in North America, with about a third of the share of the market. The largest European participant in the truck component market is Haldex Brake Systems, part of the Swedish Haldex Group. Haldex started production of brake adjusters in the North American market in 1981 and solidified its market position in 1998 with the acquisition of Midland-Grau from Echlin, Inc. It is now the dominant provider of slack adjusters for Class 6, 7, and 8 trucks, with more than 80 percent of the market. Valeo is a third participant in the truck component market, mainly with Valeo Engine Cooling, but also with a small participation with Valeo Clutches & Transmissions. In the provision of cooling systems, Valeo won more than 10 percentage points in revenue market share from 1997 to 2000. BorgWarner is a fourth European participant in this market. It started to compete under its own name in the turbocharger market when it bought Schwitzer from Kulhman Corporation in 1999. Kulhman had acquired Schwitzer, Inc. in 1995. However, BorgWarner was previously participating in the market as part of Warner-Ishi Corporation and sold its participation to Ishikawajima Harima Heavy Industries, Ltd. (IHI), the other partner, in 1998. Schwitzer used to be a strong a participant in the market and BorgWarner has increased revenue market share at about 4 percentage points, since the acquisition. It is quite clear that European suppliers do not have a strong participation in the total market, although they are strong competitors in some market segments. However, the rest of the competitors in the North American market are getting nervous about the possible changes in the purchasing policies of companies such as Volvo. It might still be to too early to predict the impact of Volvo's acquisition or DaimlerChrysler move to have full control of DDC. But Volvo has already formed a business unit called Volvo Global Truck to include not only Volvo Trucks, Renault V.I., and Mack Trucks, but also a new unit called 3P, for planning, purchasing and product development. There is no doubt that competition will get tougher. Even if the component market does not really witness new European providers, the potential for them to enter the North American market is enough for truck maker like Volvo to push for more price reductions. The market is bound for leaner margins and though negotiation of provision contracts. http://transportation.frost.com is Frost & Sullivan's new innovative and interactive homepage aimed at the global automotive and transportation industries. Bringing together the experience of our team of analysts positioned around the world, transportation.frost.com offers unrivalled market analysis of all sectors of the automotive and transportation industries. Frost & Sullivan is currently studying the North American Class 6, 7, and 8 truck component market (7989-18). The results of the study will be published in July 2001.