Guest Profile:
Dr. Qian Cheng
In 1987 graduated from the Northwestern Polytechnical University with a master's degree in aviation. He received a Ph.D. in mechanical engineering from the University of Kentucky in the United States in 1995. After graduating, he worked as a senior project engineer at Caterpillar, as an engine project manager at Ricardo North America, as a senior product designer at Ford Motor Company's chassis division, and as a senior engineer at General Motors Design Center. And I studied at the Michigan State University EMBA program. After returning to China in 2003, he served as Vice President of Hunan Torch Motor Company. He currently serves as Vice President of Weichai Power Group and is responsible for strategic development and international business.
Core tips:
With regard to the future situation of the commercial vehicle market and how companies can respond, Dr. Qian gave an organized and very innovative and inspiring perspective. With regard to the trend of convergence between passenger car and commercial vehicle business, Dr. Qian also presented insights that are different from many consulting companies. In contrast to the three near-death situations in Detroit, the United States’ PACCAR company is still affected by the economic crisis, but the situation is still relatively much better. We asked Dr. Qian Cheng to analyze the success of this century-old shop.
Reporter: The impact of the financial crisis on the real economy has already emerged. Many people predict that the growth of the commercial vehicle market will slow down next year. What do you think about this situation?
Qian Cheng: The global economy led by Europe and the United States began to slow down at the end of last year due to the financial crisis. Commercial vehicle companies as equipment manufacturing companies will certainly be greatly affected, but the market reaction is still relatively complicated. On the one hand, regional markets in the world have risen or declined, Europe and the United States have fallen, and emerging markets such as Eastern Europe and South America have maintained growth. On the other hand, it also reflects the lag in market reaction. Generally speaking, in the third quarter, the global sales of Mercedes-Benz trucks, Volvo and other major groups did not show a significant decline, perhaps related to the longer period of production of orders by commercial vehicle companies in Europe. . It is reported that the apparent decline in the fourth quarter will affect sales throughout the year.
Some industry experts believe that the commercial vehicle market will continue to decline next year, and the entire industry will not be able to return to its original level until around 2012. This is mainly due to the economic slowdown and the reduced demand for transportation. At the same time, the financial and credit crisis has limited the ability to finance car purchases. This adjustment phase takes about 3 to 4 years. For this reason, major commercial vehicle groups have formulated and implemented corresponding strategies. Such as Mercedes-Benz trucks stopped the North American Sterling brand, closed the corresponding factory, ready for the winter.
The situation in the domestic market is as special as everyone knows. Due to the implementation of the country's three emission regulations, the purchase of cars in advance in the first half of the year and the accumulation of vehicles in the sales channels caused a sharp decline in sales in the second half of the year. Here also see the uncertainty of the implementation of laws and regulations, or not strict enough to make the company more difficult to deal with. However, the world's major truck companies still regard China, Russia, etc. as an important growth area for the future market. As a result, the Chinese market is more ups and downs due to structural adjustments. As a developing country, the prospect of stimulating market growth due to infrastructure construction is much better than that of Europe and the United States, and the recovery of the market is also faster.
Reporter: Under such circumstances, what strategies should companies adopt and how should they respond?
Qian Cheng: Actually, the commercial vehicle market, especially the medium and heavy truck market, is a market with severe cyclical fluctuations under the influence of economic cycles and emission regulations. How to deal with cyclical market changes is the basic strategy of all major truck groups in the world. The study found that trucking companies in the world generally use three main strategies to survive and develop in a fierce competitive environment:
First, the globalization strategy is to achieve an effective balance through the globalization of operations and the use of different cycles of regional market fluctuations. Such as the United States, Pekka company through the acquisition of Europe's Duff to achieve a global balance of business.
Second, the diversification of related industries. For example, the German Man Group owns multiple businesses such as trucks, marine diesel engines and industrial systems. And Volvo Group owns commercial vehicles and construction machinery business.
Third, it belongs to a large car group. We may call it a hybrid automobile group here to achieve financial stability. For example, Hino and Iveco belong to Toyota and Fiat Group, respectively. Judging from the analysis of the overall business structure, Mercedes-Benz Trucks is a group that implements a global and hybrid strategy. Volvo is a group that simultaneously realizes three strategies: diversification, globalization and hybrid.
Realizing these strategies is the basic guarantee for the international commercial vehicle group to cope with the economic downturn and market fluctuations. Their development strategy is worthy of reference by domestic companies. Domestic auto companies have grown up due to their rapid development in recent years and there is still a certain distance in the globalization, diversification, and hybrid strategic development. Some companies have a single product and the market is excessively concentrated in the domestic market. The current market decline will bring great difficulties to their operations, and even survival will be a problem. However, there are new development opportunities for companies with favorable strategic positioning and good management and management.
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Reporter: What are the opportunities for better-performing companies and what should they do?
Qian Cheng: Well-run companies are those companies that not only have a good strategic layout, but also predict the arrival of the trough and prepare well. They are very prudent and conservative in terms of investment when the economy is good. At present, the company has sufficient cash reserves and financial strength. How can the crisis be taken as an opportunity and take advantage of this opportunity? Here I give an example of the passenger car market. In the United States, the car market usually experiences four to five-year cyclical changes, and the product cycle of cars is also about four to five years. Vehicle companies usually establish sufficient cash reserves when the economic situation is good, and focus on the development of new products when the market enters a downturn. When the market picks up, it just happens to bring new products to market. It is assumed that if the company does not have cash reserves to support the development of new products when the market is low, there will be no new market opportunities when the market picks up, and new market opportunities will be lost, and the vicious cycle will continue.
Therefore, the more the financial crisis or the low tide of the market, the more time it is necessary to plan for the next big development. Planning for a major development should include two aspects: On the one hand, strategic resources for the company's overall business should be configured, and domestic or foreign mergers and acquisitions projects should be adopted to further optimize the entire group's industrial resources. Although the current economic situation is not good, the entire M&A market is not active enough. However, some companies are in a very difficult period and are more willing to develop through strategic reorganization. Therefore, it is a good opportunity for powerful companies to acquire companies to achieve strategic development. On the other hand, at the time when the market is at a low tide, it should pay close attention to investment in new product development and staff training and other aspects to make some long-term preparation. When the market picks up, it will certainly bring many new market demand characteristics. In the past when the market was growing at a high rate, these jobs were generally unacceptable. Now focus on doing these things, once the market rebounds, it will be able to meet the market's development needs.
Reporter: As mentioned earlier, a mixed-type automobile group, do you think hybrid automobile groups are the future development trend?
Qian Cheng: About ten years ago, when the Volvo Commercial Vehicle and the Volvo sedan were separated, the entire industry generally believed that there was no synergy between passenger cars and commercial vehicles, and often led the company’s leaders to lose focus on one of the businesses. Both sides can't care. Before that, General Motors and Ford sold commercial vehicle business. At that time, it was just a commercial vehicle company in Europe, mainly Mercedes-Benz and Volvo. It expanded its business to North America through mergers and acquisitions, and realized the globalization of its business. The entire industry clearly shows the trend of separating the commercial vehicle and passenger vehicle business.
However, in the past decade or so, the development trend of the industry has been reversed. When we saw that Volvo acquired Renault Trucks, Renault Motors had a certain share in Volvo. Later, because of the holding relationship between Renault and Nissan, Volvo Group acquired Nissan Diesel. In addition, the relationship between Toyota and Hino is also strengthening, and Toyota regards commercial vehicles as a new business growth point. In recent years, Toyota Motor has increased its investment in Hino, making Hino into the North American medium- and heavy-duty card market.
In addition, Volkswagen also invested in Brazil to establish its own medium and heavy truck business. At the same time, through the participation of Scania and Mann, Volkswagen intends to strengthen its position as a commercial vehicle by integrating all the above-mentioned medium and heavy truck business. Looking again at Iveco and Fiat, the new powertrain business unit in the Fiat Group called Fiat Power Technologies is also a resource that integrates the business of the commercial vehicle and passenger vehicle business within the Group, deepening the synergy between the two businesses. Therefore, the current international trend should be that the links between commercial vehicle and passenger vehicle business are strengthened, forming the development trend of the hybrid automobile group.
The analysis found that although there is no synergy between these two businesses, they are financially complementary and can reduce the risk of commercial vehicle business due to market fluctuations. The medium- and heavy-duty commercial vehicle business can generally achieve an annual sales income of 10 billion to 15 billion US dollars and 100,000 trucks a year. All companies are similar in size, with sales ranging from $10 to $15 billion a year in response to market fluctuations. However, passenger cars can cost 100 billion to 150 billion U.S. dollars, which is about ten times that of commercial vehicles. Since a commercial vehicle is in a very unstable market, when it is too late, it can rely on the shareholder of passenger cars. It is conceivable that if Hino is not owned by Toyota, Iveco is not part of the Fiat Group and I am afraid that it has already been acquired or integrated by other companies. When the economic situation is good, the revenue of commercial vehicles can be used as a supplement to the performance of the entire automotive group. Since commercial vehicles are production equipment and passenger vehicles are basically consumer goods, the two markets are different. The biggest advantage is that the market cycle is not very synchronized, so it can be very complementary. The domestic automotive industry also shows this trend. The SAIC Group is developing its own commercial vehicle business. FAW and Dongfeng used to be commercial vehicles. Now that their passenger vehicles have developed, this is a hybrid auto group. The current market slowdown has brought about a new round of opportunities for automobile industry consolidation. The domestic automotive industry resources will undoubtedly be concentrated in powerful companies and will encourage companies to further develop into hybrid automobile groups.
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Reporter: The implementation of new emission standards in the United States on January 1, 2007 has led to a 45% decline in the Class 8 truck market in the United States and Canada in 2007, but PACCAR’s 2007 net income of 1.227 billion US dollars still set its 102 years. The second highest in history (the first high was 1.496 billion U.S. dollars in 2006). The net income in the first three quarters of this year was $905 million, which was only 6% lower than the $961 million in the same period of last year. How can Peica do so well?
Qian Cheng: Peca is one of the best commercial vehicle companies operating in the world. We are also studying and studying Peca. I had exchanges with Pekka's chairman and president. There are many advantages for Pekka, but there are four main points:
First, Peka has achieved a relatively good balance of business on a global scale and has a strong ability to resist market fluctuations. More than 50% of Pecca's business comes from markets outside North America, and most of its sales (via DAF) come from Europe. Due to the different implementation schedules of emission regulations in Europe and the United States, the cycle of market fluctuations that are affected by them is not the same, and Peca can use this to balance its business well. For example, in 2007, Peca's business in Europe accounted for more than 40%, effectively remedying the market decline caused by the introduction of new emission standards in the United States. This year, Peca's sales in the United States were only 36%.
Second, Pegasus's horizontal integration of products in North America is relatively high, mainly truck assembly and light asset operation. When demand falls, production slows down, workers leave, and the cost burden is lighter. At the same time, each time the emission standard is upgraded, it has less input. Usually, each time a new emission regulation is implemented, those companies that have engine business will inevitably increase their investment in R&D. The capital expenditure for technological transformation will also increase, and almost 200 million U.S. dollars will be invested.
Third, Peica's products and services are concentrated in the high-end, Kenworth and Peterbilt in North America are high-end brands, heavy trucks in the heavy truck, most of them are equipped with a 15-liter engine. The customer is a long-distance operator with high mileage. The product emphasizes quality, reliability and service. The goal is to reduce the truck's full-life operating costs and create value for customers.
Fourth, Peica's after-sales service and spare parts not only do a good job, but also a very important source of profit for the company. Spare parts business and new car sales also have complementary countercyclical roles. At the same time, Peca’s financial companies are also more powerful in the industry, and truck finance services are also doing very well. This is consistent with its brand positioning.
I think Peica’s success depends mainly on these four aspects. The situation in the industry is constantly changing. Caterpillar, Pekka's current largest engine supplier, has announced that it will withdraw from the truck engine business. Pekka is also using Duff's resources to develop its own powertrain. What is interesting is that the product structure of Scania, the other most profitable company in the world, is fully vertically integrated. The difference is that the market Scania is in is not as drastic as North America. In short, everything must be adapted to local conditions. The above analysis should be used for reference by domestic companies and we hope that they can develop their own unique development path.
Reporter: Thank you, Dr. Qian for providing many profound and comprehensive insights into the truck industry. In the end, what do you hope to say to your counterparts in China's truck industry?
Qian Cheng: The financial turmoil itself is not important. It is important to look at its impact on the real economy. The business is like a boat. The storm is coming. You can't say I stopped the storm. The key is how to sail in the storm. At this time, some companies are in a difficult position to study and learn how the world's best companies do meaningful work. Analyze and understand the direction of the entire industry, and the company's next-step development goals will be more clear. The crisis is also an opportunity. We would like everyone to seize the opportunity to achieve more reasonable development and growth.
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