Commercial trucks in Brazil. (Image: Shutterstock)
In 2030, mature markets such as North America and Europe will still be the most profitable regions globally for truck manufacturers, but nearly half of the growth in profits for original equipment manufacturers (OEMs) will come from the aftermarket. In the next decade, volume growth will be decoupled from profit growth – price pressure in emerging markets will make truck sales barely profitable, while mature markets’ appetite for expensive services will grow.
That’s what the McKinsey Center for Future Mobility, a specialty practice group of McKinsey & Company, the global management and consulting firm, found in a January 2019 study titled “A Regional View of Trucking Industry Profit Pools.” In fact, even as global OEM profits grow from €11.2 billion in 2017 to €16.1 billion in 2030 (2.9 percent growth annually), McKinsey expects global aftermarket profits to grow from €4.6 billion in 2017. To €7.1 billion in 2030 (3.4%). annual growth).
What are the after-sales profits? Simply put, aftermarket profit is the money OEMs make from providing replacement parts, repair, maintenance and digital services for equipment already sold. Industry trends, including battery electric commercial vehicles, autonomous vehicle technology, and vehicle connectivity, are expected to create new opportunities for expensive aftermarket services for trucking OEMs. In the other direction, trends such as increased emissions regulation, EV cannibalization, and pricing pressure are expected to pose significant headwinds against profits from new truck sales.
“We believe that increased competition, industry consolidation, higher emissions standards and the replacement of diesel trucks with battery electric vehicles (BEVs) will reduce total global truck profits by €3.9 billion through 2030,” McKinsey found. “Besides the expected positive earnings expansion of EUR 3.2 billion due to volume increases and structural shifts, the net impact of the two market developments will reduce the global earnings pool by EUR 0.6 billion in 2030.”
“OEMs therefore cannot rely on the market to ‘grow’ their way to higher profitability,” McKinsey recommended. “Instead, they should focus on addressable business areas,” including operational efficiency and new opportunities like the technology trends mentioned above.
The fundamental characteristics of regional commercial vehicle markets around the world drive McKinsey’s analysis. Mature markets such as NAFTA (the new USMCA agreement) and the EU will see structurally low growth in truck volumes sold – never mind the record number of truck orders in the US last year, which is a better measure of trucking sentiment than growth in truck production capacity. However, these low-growth markets are well capitalized, relatively high-tech, and strictly regulated, making them ripe for expansion into expensive aftermarket services. For the NAFTA market, McKinsey expects 1.3 percent growth in new truck sales volume from 2017 to 2030; For the European Union, the growth rate is only 0.7%.
“From a very strong base in 2015, NAFTA saw a decline of about 60,000 units from 2015 to 2017,” McKenzie wrote. “This decline affected profitability, which fell from 9.6% to 8.6% (return on sales). However, the region, which is set to eventually fall under the new United States-Mexico-Canada Agreement (USMCA) that will replace the Free Trade Agreement For North America (NAFTA), it remains the most profitable truck market worldwide. We believe overall profitability will return to 9.6% by 2030. From a volume perspective, the region should see limited structural growth until 2030 (about 1.3% per year), in When revenues grow moderately (2.8% annually).
Brazil, on the other hand, will see some of the fastest growth in the volume of new trucks sold, expanding its annual market from 55,000 new truck sales in 2017 to 120,000 by 2030, amounting to an annual growth rate of 6.2 percent. While McKinsey expects OEM revenues in Brazil to expand at an annual rate of 5.9 percent through 2030, profit or return on sales (RoS) will grow from -1.6 percent to 2.8 percent (ROS in the NAFTA region was 8.6 percent) in 2017 and is expected to grow to 9.6 percent by 2030).
With the exception of Brazil, profit opportunities for South American truck OEMs are slim: while overall revenues are expected to grow from €3.7 billion to €5.7 billion by 2030, absolute profits should remain flat at €100 million, with profitability falling from €2.1 per year. cent to 2.1 percent. 1.4 percent.
“China’s truck market is expected to expand its total earnings from €1.6 billion in 2017 to €1.8-2.4 billion in 2030, driven by the attractive ‘upper budget’ segment, while the share of premium imports in the Chinese truck market will rise significantly.” “Recession,” McKinsey predicted. “Global truck makers are expected to localize their products in China and compete for the high-budget market, which includes ‘domestic premium’ trucks.”
McKinsey’s basic model for the Chinese trucking market sees it contract from 1.3 million new trucks in 2017 to 902,000 trucks in 2030, while the upside associated with upbeat GDP growth would put the market at just 1.21 million trucks in 2030. This situation will shrink from 4.7 percent to 4.6 percent by 2030, even as revenues grow at 1.1 percent annually.
McKinsey found that “the real opportunity in the Chinese market lies in the upper budget segment (premium domestic).” “This segment is particularly attractive for domestic trucks from global players and high-quality local trucks. For foreign players, the key to winning in this attractive market involves making comprehensive localization efforts to significantly reduce costs.
One of the most interesting regional opportunities identified by McKinsey analysts was Central and Eastern Europe (CEE), where truck OEM profitability is expected to reach 6.4 percent return on service by 2030, while volume growth is likely to reach 284,000 unit by 2030, a 13-year compound annual rate of growth of 3.8 percent.
