Meeting of Minds

MEETING OF

It’s interesting to reflect on how much the global vehicle manufacturing industry has changed over more than a century since it began. In the very early stages, a vast number of entrepreneurs waded into the production of the ‘horseless carriage’. From blacksmiths to bicycle manufacturers, anyone with initiative and basic knowhow could have a crack in what was at that time an entirely self-regulated industry. While early examples were exclusively hand-built on a one-at-a-time basis, it didn’t take long for commercial competitiveness to drive innovation in production techniques and a standout example of this was Henry Ford with his invention of the car assembly production line. A humanitarian at heart, Ford used this newfound efficiency to not only introduce better working conditions –including the eight-hour shift and better wages – for his employees, but also to cost-effectively turn out a steady stream of reliable and wellpriced automobiles for the masses. In this way Ford pioneered the principle of mass production that would become a standard process across the manufacturing realm. Of course, as with any innovative idea, this concept was soon copied by others and it wasn’t long before auto builders the world over were reaping the efficiency benefits. The next phase involved a number of takeovers and acquisitions as larger companies sought to consolidate their positions by buying up smaller competitors, many of whom were struggling to survive and open THE EVOLUTION OF THE AUTOMOTIVE INDUSTRY OVER THE LAST 100 YEARS HAS INVOLVED MANY MERGERS AND ACQUISITIONS. IN RECENT TIMES THOUGH, COLLABORATION AMONGSTTRUCK PRODUCERS HAS BECOME MORE PREVALENT AS MANUFACTURERS HAVE SOUGHT ALLIANCES AND STRATEGIC ACQUISITIONS TO ENABLE POOLING OF RESOURCES ANDTECHNOLOGY FOR THE BENEFIT OF EACH PARTY INVOLVED.

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to the opportunity of being ‘rescued’ by their bigger brethren. The giant North American automotive conglomerate General Motors was formed from the amalgamation of a number of individual automakers, with the company going on to forge a significant global presence with additional divisions in the UK, Europe and Australia. The truck manufacturing scene has seen similar developments, albeit later in the 20th century, with one of the most significant being the acquisition of the quintessential North American Mack brand by the Swedish Volvo Group. Following this the Japanese UD Trucks brand was also added to the portfolio, giving Volvo Group a significant presence in each of the three main truck manufacturing regions of the world. What’s important to note is that each of the brands is complementary to the other, meaning the trifecta of brands enables Volvo Group to cover most market segments across the globe. In a local sense this is borne out by the fact that Volvo Group Australia’s Brisbane production facility assembles both Mack and Volvo trucks on the same assembly line. Another strong example of a crosscontinental strategic acquisition is PACCAR’s – owner of Kenworth and Peterbilt brands – purchase of the Dutch brand DAF in the last decade of the 20th century. In the same vein as Volvo acquiring Mack, PACCAR considered the DAF cab-over models as the ideal complement to its existing primarily bonneted models to bolster its market share on a global scale. The third player in the long-standing triumvirate of global truck manufacturing heavyweights is, of course, Daimler Trucks.

“Isuzu and Cummins recognise the fact that the advanced diesel engine is, and will continue to be, an important power choice for global customers in commercial vehicle and industrial applications... This is especially true in developed countries where power sources are used for high-intensity operations, as well as in emerging countries where social infrastructure conditions are severe.” Masanori Katayama Isuzu Motors President

Along the same lines as its rivals, the German giant with its native MercedesBenz brand of cab-over models sought a strategic advantage by acquiring the North American Freightliner brand and Japan’s Fuso, giving it the respective critical presences it needed in both the bonneted heavy-duty and medium- to light-duty market segments. Looking at the three conglomerates, the common themes surrounding the various acquisitions are economies of scale in production, technology sharing and broad market penetration. In essence it enables them to be more things to more people in a way that simply wouldn’t be achievable as individual brands. There is, however, a fourth contender called TRATON – a relative newcomer that is a wholly-owned subsidiary of the Volkswagen Group. It was formed in 2015 after Volkswagen moved to separate its car and commercial vehicle divisions. At this stage TRATON owns two leading European brands, Scania and MAN, along with the Brazilian Volkswagen truck business, and is also connected with the North American Navistar company, owner of the International brand of conventional heavy-duty trucks. In fact, TRATON now holds a 16.8 per cent stake in Navistar and the companies have reportedly entered into a strategic technology and supply cooperation initiative and established a purchasing joint venture. The company sees this link with Navistar as crucial for opening the door to the huge North American market that the company needs to successfully compete on in the global playing field with the likes of Volvo, Daimler and PACCAR. TRATON has also collaborated with Japanese truck producer Hino – part of the Toyota Group – on electric technology, product development and purchasing. President and CEO of Scania Trucks, Henrik Henriksson is a strong believer in focusing on the bigger picture to make the most of available synergies between the various TRATON brands. Henriksson is a member of the TRATON board, which is chaired by former Daimler Trucks boss, Andreas Renschler. The board is tasked with navigating the fine line between maintaining strong brand identity with the individual marques and leveraging the scale of the global operations to find cost savings for their manufacture.

Home and abroad: Scania’s Mikael Jansson and Henrik Henriksson.

As such, Henriksson is in a prime position to view the truck industry as it develops over the coming decade. His mission is to keep the organisation moving forward, providing leadership in technology and services provision. The Scania organisa tion is relatively large as a single brand of truck, selling well over 300,000 units per year. In 2017, the company held a 16.2 per cent market share – with over 50,000 trucks registered – in Europe. Research and development is a vital part of building trucks and the company spends $1.14 billion per year on new technology. As for TRATON, after plans to launch an initial public offering (IPO) finally came to fruition in late June, Volkswagen floated 11.5 per cent of TRATON shares after initially proposing to list a stake of up to 25 per cent in a bid to put the company’s truck business on an independent footing. The deal reportedly values TRATON at 7.9 and 7.0 times its respective 2019 and 2020 earnings before interest and taxes, roughly in line with the valuation of its rival, the Volvo Group. The 1.55 billion euros ($1.77 billion) in proceeds from the offering will flow to parent Volkswagen which reportedly aims to use the funding to in vest in mass producing electric cars. According to Henriksson, the results of the share float will not impact the operations ofTRATON. “Regardless of what happens with the capital structure of TRATON Group, the former Volkswagen Truck and Bus, we have during the last three years found a modus operandi, a way of operating together, and we have found how we should collaborate,” he says. “Where we are co-operating is mainly in purchasing,” he adds, “and with certain basic platform technology developments for the future like powertrains, electrification and autonomous vehicle systems. “We also have the benefit of belonging to the Volkswagen Group, which gives us access to technology fro m companies like Porsche and Audi.” Henriksson says that these synergies are being seen among all the global truck manufacturing conglomerates. “The basic building blocks of the truck, be it the braking system, engine block or windscreen wiper control, are used across all the brands in the group.

The diversification occurs in the final stages ofdevelopment when it comes to adapting the component into a new truck,” he explains. “This kind of co-operative work across brands is also needed in the development of new technologies, especially around automatic and autonomous trucking. The development costs are so high in these areas that overall costs need to be amortised over as many trucks as possible to make the development worthwhile.” According to Henriksson the group as found a way to co-operate so that the basic principle in some of the platforms like electrification – for example with battery cells – facilitates the discovery ofsynergies. “When it comes to conventional powertrains like engines and transmissions, we have found ways of how we should develop together to a certain level, maybe 60 per cent or something like that, and then we allow a proper base for differentiation ofthe brands,” he says. “As for Scania, I believe we have a huge benefit belonging to TRATON. We spent more than €2 billion ($3.2 billion) in developing our New Truck Generation (NTG) range. If we were on our own today, we would probably have waited a few years before starting our next major project. But now, since we’re part of a bigger group, we have already kicked offthe next generation ofpowertrains.” Naturally, not all technology sharing arrangements involve collaboration between two or more vehicle manufacturers. Some are between truck and major component manufacturers. In May this year, independent engine maker Cummins and truck maker Isuzu Motors announced the Isuzu Cummins Powertrain Partnership agreement, which formalises a business structure for the companies to bring new diesel and dieselbased powertrains to global markets. “Isuzu and Cummins recognise the fact that the advanced diesel engine is, and will continue to be, an important power choice for global customers in commercial vehicle and industrial applications,” Isuzu Motors President Masanori Katayama said in a statement. “This is especially true in developed countries where power sources are used for high-intensity operations, as well as in emerging countries where social infrastructure conditions are severe.” In sum, the amount of collaboration between the various brands in each of the truck manufacturing conglomerates is on the rise and cause for awe. Put simply, this co-operation is absolutely vital to enable the expensive technological advancements such as emissions controls and automated functions to be amortised. It is also enab ling the widespread adoption of the many safety features available today that enable the trucking industry to continue working towards the goal of zero road accidents.

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