Transportation & Logistics Analysis

The crisis is speeding up change in the HGV sector

June 12 2020

Truck manufacturers expected a fall in new truck registrations as part of the end of the latest cycle in the road freight sector. Under the impact of the Covid-19 epidemic, however, the decline in registrations has gone into free fall. This could serve to accelerate the profound change already taking place in the sector as part of the energy transition.

The global heavy goods vehicle (HGV) manufacturing industry was already expecting a difficult year this year because of a cyclical slowdown in new vehicle registrations. As a result of the Covid-19 crisis, however, the situation looks set to become disastrous. Writing in the 2020 edition of The World's Truck Manufacturers, a study which is published annually by Automotive World, Jonathan Storey notes that a slowdown had been expected in 2019 and 2020. This had taken place in line with expectations in 2019, he said, but had taken a much steeper downward curve in 2020 as a result of the Covid-19 pandemic.

After a decade of recovery in the HGV sector, this year's decline was expected in Europe as it was elsewhere, as was pointed out in January by France's Observatoire du Véhicule Industriel. Here again, however, the phenomenon has been aggravated by the pandemic. In the first four months of 2020, HGV registrations in the European Union dropped 35.4% for vehicles over 16 tonnes and 33% for those over 3.5 tonnes, according to figures from the European Automobile Manufacturers' Association (ACEA). These two market segments represent a total of 64,456 and 79,954 registrations respectively. The month of April, which took the full brunt of the lockdown measures, was particularly hard hit, with 16 tonne+ vehicle registrations down 58.5% and those for 3.5 tonne+ vehicles down 54.8%.

Sharp decline on all leading markets

The situation seems to be worst in France. According to the ACEA's figures, the French 16-tonne+ market showed a 39.8% reduction during the first four months of the year, followed by Germany (-30.8%), Italy (-25.7%) and Spain (-23.6%). It was the same for 3.5 tonne+ vehicles. France was the sad record holder (-39.8%), again ahead of Germany (-27.3%), Italy (-26%) and Spain (-22.7%).

The decline was particularly sharp in April. According to Thierry Kilidjean, managing director at Iveco France, sales on the French market this year were 58% down by May 11. "Clearly, the pandemic and the lockdown measures caused the market to plunge immediately," he said. France suffered a record 72.3% fall in sales on the 16-tonne+ market in April but central European countries were also hard hit, with sales down 71.2%, according to the ACEA. Poland, notably, saw registrations plunge 71.7%.

Production outlook gloomy

After having been closed during the lockdown, heavy goods vehicle assembly plants have virtually all resumed production. Currently, in the European Union, 31 plants are operating, according to the ACEA. But all are in slow production mode as they adapt to the Covid-19 protection measures. "For the time being, we are less concerned about production figures," said DAF Trucks NV president Harry Wolters. "The safety of DAF and Leyland Trucks employees is our priority." In France, Renault Trucks has been gradually increasing production since April. But there can be no doubt that, so long as orderbooks stay empty, production will not return to a normal rhythm.

There are more and more redundancy announcements. "It is going to be a long time before market demand returns to previous levels and we must therefore adapt our organisation to the new situation," said Henrik Henriksson, president and chief executive of Scania. The Swedish group, a Volkswagen subsidiary, estimates that it has a surplus of 5,000 people in a workforce of 51,000. Volvo, too, has announced 1,600 redundancies, mainly at Volvo Trucks.

Second-hand market also in free fall

Several European transporters have confirmed to us that second-hand vehicle transactions and prices are down. This market is of capital importance since it allows transporters to put a value on the trucks which represent the bulk of their assets. As they face a reduction in their revenues and an increase in their costs due to their low productivity and the impact of Covid-19 protection measures, they must now make provisions for the fall in the value of their assets, weakening their position further still.

The price of second-hand vehicles is becoming so attractive, moreover, that it is creating a vicious circle. By reducing interest in new vehicles, they are contributing to the slump in demand faced by truck manufacturers and coachbuilders.

Industry rescue

Like many other economic sectors, vehicle manufacturers are calling on the authorities to help them get through this difficult period. "What Europe needs right now are investment incentives for the environmentally friendly modernization of truck fleets as a means to overcome the crisis in this system-critical sector," said Andreas Renschler, chief executive of Traton (Scania and MAN) and a member of the Volkswagen AG executive committee.

According to Germany's Süddeutsche Zeitung newspaper, truck manufacturers could benefit from purchase premiums for customers replacing type 3, 4 and 5 combustion engines with engines which meet the latest emission standards. The European Commission is thought to be ready to set up a European programme to finance heavy good vehicle fleet renewal with premiums of up to €15,000 per vehicle.

Germany is also thought to be preparing an economic recovery plan worth €130 billion which would promote the use of hydrogen technology. Germany aims to be a world-leader in the field. The federal government intends shortly, therefore, to present a national hydrogen strategy. To promote the use of green hydrogen fuel in the heavy goods vehicle sector, dedicated service stations and other infrastructure would be quickly developed.

Covid-19 a catalysis for change

The economic slump is hitting truck manufacturers' customers hard. Most small haulers are struggling to survive. Financial incentives would therefore probably be of greatest benefit to bigger operators with more solid financial situations. They would therefore be able to speed up their energy and environmental transitions. It should be remembered that the process of transition is already well under way. The sector has considerably improved diesel vehicle performance over the last two decades. The gas-powered vehicle fleet has shown significant development. That said, any acceleration of the trend risks further increasing the gap between the winners and the others, thus favoring the concentration already under way in the road freight transport sector.

Those transporters who are not among the beneficiaries in this process could consider dropping the model which requires them to be owners of their trucks and, instead, rent new-generation trucks. Manufacturers could then promote leasing and even go further. One recalls the Truck As A Service (TAAS) model, under which trucks are rented out by the kilometer or hour of use by the vehicle manufacturer or distributor. The recent alliances formed by Iveco and Nikola and Volvo and Daimler to develop trucks powered by hydrogen batteries represent the first step in the creation of this new market.

Without the Covid-19 crisis, such change would doubtless have been slower and less dramatic.

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With more than 20 years of experience in the international supply chain, William works as a road transportation expert for Upply. Entrepreneur by nature, he has successively worked in operational and functional management among various industries, such as chemistry, automotive and building materials; alternately shipper and service provider.
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