A new dawn for global transport as Volkswagen Truck and Bus restructures.
There’s nothing understated about the decision by Volkswagen Truck and Bus Group to change its name to TRATON Group. The announcement was timed to coincide with the IAA Expo in Hanover in Germany, and while the show it itself is a huge extravaganza of displays and investment, even that paled a little as the individual exhibitors fought to make their presence felt against the onslaught of this massive corporate coalition.
Three years ago, Andreas Renschler, the ex-chief of Daimler Trucks, changed allegiances and became the head of Volkswagen Truck and Bus. Now the operations of Volkswagen commercial vehicles have combined with Scania and MAN, with the bold statement that the final entity created would achieve the dominant position amongst the world’s truck and bus manufacturers.
At the opening presentation of TRATON Group at the IAA, CEO Andreas Renschler explained the derivation of the name TRATON is an abbreviation of TRANSFORMATION, coupled with TRADITION and TRANSPORTATION. It also aligns the new group name with the possible preparation of an IPO, (International Public Offering) or stock market launch, opening up interest amongst institutional investors for the future.
Further members of TRATON Group, in addition to MAN, Scania, VW Caminhoes and Omnibus in Brazil plus RIO, a digital open platform to merge customer business through a broad range of smart cloud-based solutions, include Solera digital technology, a strategic partnership with Hino Motors Japan, a 25 percent stake in SINOTRUCK in China, plus a 17 percent stake in Navistar Group and International Trucks of North America.
In the first half of 2018, TRATON’s commercial vehicle business continued its successful track record of profitable growth and has significantly increased its sales. The Group has sold 112,130 vehicles, an increase of 16.4 percent over the first half of 2017. Between its founding year of 2015, and 2017, sales increased by 14.5 percent. During the same period, revenues went up 16.8 percent to €23.9 billion. Operating profit before special items between 2015 and 2017 saw an increase of 61.4 percent to €1.7 billion, resulting in an operating return of sales of 6.9 percent.
Since 2015, MAN has increased its return on sales from 2.3 percent to 5.3 percent. Scania’s FOCUS & AMBITION programme has led to a further improvement and the brand sustained its industry-leading profitability. Return on sales increased from 9.8 percent to 10.1 percent from 2015 to 2017. Volkswagen Caminhões e Ônibus has aligned to new market capacity and is strongly positioned to benefit from the expected market recovery. Return on sales improved from -11.5 percent in 2015 to -9.2 percent in 2017.
The combination of all these industrial strengths and synergies come together in TRATON Group as a means to reduce overall engineering costs by developing a joint powertrain family using a common base engine. It is expected that this engine and driveline will be installed in more than 50 percent of all heavy-duty trucks produced by the TRATON Group from 2025 onwards. TRATON expects major synergies to result from this and other powertrain platform efforts, given that the powertrain usually represents more than 60 percent of a truck’s value.
In the area of purchasing, TRATON is successfully pursuing its ‘Lead Buying’ concept. By increasingly bundling the volumes of MAN, Scania and Volkswagen Caminhões e Ônibus for selected components, the Group is driving short-term and long-term commercial synergies. As of today, already 35 components are part of the Lead Buying initiative.
TRATON GROUP members can traditionally claim market-leading positions in Europe and Latin America, and, with its ‘smart partnership’ approach, it has quickly gained access to additional markets across the globe. The partnership with Navistar in North America already means that technology cooperation is fully on track and both partners expect to see first ‘start of productions’ by 2020/2021.
In Asia, the recently announced strategic alliance with Hino Motors is gaining pace. Hino has sold around 175,000 units during the 2017 fiscal year, of which exports amounted to 110,000 vehicles. In addition to Japan, Hino serves the key markets of South East Asia and Australia, while also maintaining a presence in North and South America, and the Middle East. Joining forces in e-mobility would allow the partners to share their development efforts and market products in shorter time. The partners feature complementary approaches, with Hino Motors focusing on light and medium-duty trucks, while TRATON’s focus lies on heavy-duty trucks.
In the important Chinese market, TRATON now has an interest through MAN’s partnership with Sinotruck, the largest manufacturer of heavy-duty trucks in China, of which it holds 25 percent plus one share. With the support of this joint venture, MAN will localise a heavy-duty truck in China.
For the European market, Scania as well as MAN are currently conducting platooning exercises. This follows the first autonomous trucks being delivered to customers by Scania, for use in the areas of mining or harbour logistics. With its alliance partner Navistar, TRATON is expected to connect more than 900,000 vehicles, with the RIO connectivity environment being the backbone of the Group’s digital ecosystem, offering digital solutions for transport and logistics.
As the TRATON name becomes know globally, the group will be impacting on the Australian market through its expansion across North America. Navistar has undergone its own financial woes in recent years, but, under the guidance of ex-GM executive Troy Clarke, it’s seen a substantial strengthening in its performance.
It’s an important factor in Navistar’s favour that it can offer TRATON the largest national truck dealership operation across the North American market. That means an almost instant market penetration into the US that’s ready and waiting for expansion and integration.
Navistar is a major manufacturer in the NAFTA region, building around 100,000 trucks and more than 10,000 buses per year. The heavy-duty category accounts for two thirds of the truck production, with the International product range serving the class 4 to class 8 segments (6000 kg – 15,000 kg) with a total of nine product lines. International has production sites in the USA, Canada, Mexico, Brazil, and South Africa. Navistar has joint ventures with Ford, JAC (China), Mahindra (India), and Tatra (Czech Republic).
Today, Navistar can offer its customers a 12.4-litre engine, known in North America as the International A26, which is based on the MAN D26 engine and used in International trucks from 380 hp to 480 hp.
By capitalising on the available synergies through TRATON Group, and with increasing commonality of components, it’s highly likely that selected International trucks will be sporting a broader range of MAN-derived engines, together with Scania-supplied Opticruise automated manual transmissions throughout the powertrains used by International. Cummins engines and Eaton transmissions will remain optional in selected applications.
Speaking to PowerTorque, Andreas Renschler, TRATON CEO, said, “This is a partnership with a leading truck and bus manufacturer that has a particularly strong presence in Asia. We complement each other perfectly in terms of our regional positioning and products, as well as our shared ideas of how we, together, can shape the future of transportation”.
During the launch programme, PowerTorque was invited to have informal and exclusive one-on-one interview sessions with the leading executives of the different brands, including Troy Clark, president and CEO Navistar International Corp; Henrik Henriksson, CEO and president of Scania; Eric Tech, senior vice-president within the TRATON Group representing Navistar International; and Chris Ito, director of innovation and design at Navistar International.
It’s a particularly rare event these days to have uninterrupted and unscripted interview opportunities with senior members of the industry, and particularly noticeable was the upbeat attitude of all concerned as they enthusiastically commented on the way forward for the group as it affected their own brands.
When asked if he was comfortable with the position of Navistar in today’s market, Troy Clarke replied:
“I believe in the progress we’ve made, and I have a good management team that has put in a good, hard five years to get the company turned around. We had to get the foundation right. We had to get our quality right and our cost structure and regain the customers’ confidence.
“When I came to Navistar in 2010 it was all about global growth and expansion. We had to get the base right, so we did, and now we have the opportunity to grow. Once you disappoint customers, sometimes it’s hard to get them back. Now we’re getting them back.
“It’s a very cyclical market, and the problem was that we could not have invested in technology.
“We sought a joint venture or business relationship with MAN, and asked could we do something together? Although it didn’t result in anything then, when Mr. Renschler came on board we had a conversation about how serious we were. Ultimately they took an equity stake, with two board seats, and then a technology agreement that gives us access to technology that covers our market.
“In the immediate short-term, we tapped into their purchasing scale. They had three or four times our purchasing power”.
PT: The return of International to the Australian market – are you happy with that initiative?
Troy Clarke: “I am, but that’s really because of the next phase. The International LT is a new platform. I look at that and it’s a great truck for the Australian market. They really know the business (Australian operators) and they helped us to improve when we first went over there.
“This is an even better truck (than ProStar), and gives us much better opportunities. We can put in the right-hand-drive option much more easily, with the design enabling us to move the engine back and have a much larger pedal area for the driver on the right-hand-side, so we don’t comprise anything for the driver”.
PT: Will we see the LT as a challenge to Cascadia, and is it your intention to compete against Cascadia in the Australian market?
Troy Clarke: “It’s our intention to be a major competitor to Cascadia. We haven’t made an announcement yet and don’t have a date yet. There are a couple of really good pointers over there, we just want to be one of them. We’ll let the market figure out how we go”.
Henrik Henriksson – CEO and president of Scania, together with Eric Tech – senior vice-president within the TRATON Group representing Navistar International, gave their views also on the opportunities now presenting themselves through the TRATON Group.
“We are very happy with the powertrain options that we have kicked off, these are progressing even better than we had hoped. With some of the existing things that the group is working on, I think you’ll see some really good results in the powertrain area for the group,” said Eric Tech
Continuing, Mr. Henriksson added, “From a group perspective the idea is to create a common platform up to say 60 percent common, and then adapt it to the needs of the individual brands and the local markets and we need to work together for that.
“We need to ‘SCANIAfy’ the products and then ‘MANify’ the products, and that way we can create a common phase while maintaining the individuality to meet the needs of the brands and keep the brand positioning. That goes for conventional powertrains.
“We need to do the same with electrification and e-mobility. With the speed that things are going we need to find the platform synergies, but it is also important to tailor make the vehicle as a component for each brand as we have different positioning and there are major differences between the North American and European markets. We need to do it in a clever way or we kill the brand”.
Commenting on the European brands, Eric Tech said, “These guys are much more vertically integrated than we are. The American market is about choice. Just as our competitors have done, they have integrated options as well as non-integrated. I think this will be the case in the US for quite a while. This provides a vertically-integrated option of powertrains as well as drivelines that we don’t have today. We are going to do both and not force the customer into buying our product the way it is. We are all about choice, and with the vertically-integrated option we are really looking forward to it”.
“Our business is about uptime and getting it back up there for support,” added Henrik.
“The competitiveness is such that fuel economy alone can lose you deals by just 2 or 3 percent. It’s only the big groups that can keep up with that speed”.
PT: How do you ramp up your production to match that demand?
Henrik: “That is a challenge, as you have to support the need. At the moment we have enough capacity to support Scania vehicles and certain models of MAN and our other partners. We need to build up capacity, in Europe as well as Latin America. Because of the regionalisation of the politicians at the moment, you need to have production options throughout the world – North America, South America, Europe, Russia, India and China. More or less everywhere. We need to make that investment anyway”.
As Eric Tech pointed out: “Both MAN and Scania are scale players in Europe, and we are also scale players. You figure out what’s the best capacity from a business case. We think there will be real efficiency advantages with the powertrain integration”.
“It’s also about sharing the capacity and investment,” said Henrik. “The North American market is very unique, but we see more advantages in creating a complete powertrain from the engine, the engine management system, the gearbox and the intelligent software. It’s the whole powertrain that we have to look at, but there will still be the choice of what the customer wants.
“We have 350,000 connected vehicles on our own platform – we have not yet formed a connected platform and that’s what we will share. When it comes to the service they will still be brand-new vehicles. Scalability – it’s a basic platform that we share and then build your own brand for integration. Eventually, we will all work with electrified vehicles, and in the future it will all be about getting as many kilometres out of the battery as possible.
“We can tailor the battery and software management that control the duty cycle of the battery to suit the operation of the vehicle. Depending on the operation, we can dig deeper into the battery for more power. We have looked at electric power for trailers, but that creates problems for customers that change trailers,” added Henrik.
The commonality of powertrain and drivetrain componentry is not the only aspect of truck manufacturing to gain from different companies working more closely together over global infrastructure.
As Navistar’s Chris Ito explained to PowerTorque, “Undoubtedly, in the future, the design studios will achieve a synergy between each brand when it comes to simple componentry such as switches, gauges and instrumentation, together with improved ergonomic approaches. It’s not a conversation I have had yet with other brands in the group, but there are many ways to cooperate without running the risk of losing the individuality of the brand”.
The formation of TRATON Group leaves little to the imagination in terms of how competition across all competing brands in the global market will now intensify. Manufacturers that have maintained their brand independence will find that, without partners and associates, they could be left without close allies, resulting in a difficulty to leverage cost savings that can be achieved by collective purchasing or in-house supply.
At the end of the day, trucks have to perform reliably, economically and safely. Electrification will change the way that local distribution operations do business, but for the long-haul operator it will be business as usual for many years to come. However, one thing is certain – in order to compete globally, there’s no room for complacency on the part of any truck maker as the competition continues to strengthen.