European truck manufacturers benefit from increasing cost awareness among Chinese fleet owners

EUROPEAN TRUCK MANUFACTURERS BENEFIT FROM INCREASING COST AWARENESS AMONG CHINESE FLEET OWNERS

New research from Bain & Company finds that more than 20 percent of buyers intend to buy higher-value heavy-duty trucks in the future

Munich – July 19, 2017 – The market for heavy-duty trucks in China promises healthy growth over the coming years. Across all market segments, more than 20 percent of fleet managers intend to buy higher-value vehicles at their next purchase. Whereas in the past construction site vehicles boosted the market, the main drivers of future needs will be logistics companies with long-distance transportation. This is one of the key findings from Bain & Company’s new research, China’s Truck Market: New Chances for Europeans, which includes a survey of 360 truck buyers in China.

“Until recently, most of the sector was convinced that premium import trucks had little chance in the Chinese market over the long term,” says Dr. Jörg Gnamm, Bain partner and co-author of the study. “But Chinese vehicle fleets are now paying closer attention to factors such as costs and showing strong brand loyalty towards European brands. This results in serious growth opportunities for them in this huge market.”

Operating costs are more important than purchase price

Bain found that the decision-making criteria applied by truck buyers have changed significantly in some cases. Although the product’s performance and quality is still the most important purchasing criterion for 34 percent of those surveyed, this represents a decrease of 19 percentage points compared to the last Bain study in 2013. By contrast, the total cost of ownership (TCO), including fuel, has become nearly as important – up 12 percentage points to 33 percent. Overall, this is good news. European providers’ trucks can be up to two or three times more expensive than comparable models from domestic manufacturers.

Europeans have more loyal customers

Medium-sized and large fleets in particular are expanding in China. According to Bain’s research, most of those surveyed intend to upgrade within domestic brands or switch to the upper-middle segment, where attractive opportunities could arise for European manufacturers. Loyalty proves to be an important factor when making purchase decisions. European truck customers reported that they were very satisfied and were more likely than average to recommend their brand. Conversely, there are many critics among the customers of Chinese and joint-venture brands.

“Medium-sized and large fleets in China are becoming increasingly professional,” said Dr. Eric Zayer, Bain partner and co-author of the study. “If European manufacturers do their homework there, they have excellent growth opportunities—even in view of the traditionally rather small changes in market share in truck markets worldwide.”

Brands need to reduce production costs

To capitalize on opportunities in China, Bain suggests European truck manufacturers should reduce their production costs in the medium term, enabling them to remain competitive in the long term. The research notes, however, that the average service life of premium trucks is almost twice as high, and this segment consumes up to ten liters of fuel less per 100 kilometers than their competitors in the lower and middle market segments. These factors make the differences between the premium and upper-middle segments much less significant. The latter originated as a result of joint ventures between domestic manufacturers and European or Japanese truck providers. Compared to these, the Europeans only offer around 25 percent better mileage and less significant consumption advantages.

European brands also need to implement cost reductions, particularly with regard to aspects of the vehicle that are not relevant to the TCO. Another possibility is sourcing and assembly in low-cost Asian countries or in China itself. In addition, Bain advises manufacturers to strengthen their service networks in China, particularly along the main freight routes. Last but not least, they need to refocus their sales approach. This includes moving away from the current emphasis on superior performance and quality and focusing more on TCO arguments and associated financing offers.

“Those who invest in these aspects can look forward to above-average growth in the Chinese market in the coming years,” says Gnamm.

Editor’s note: To receive a copy of the report or arrange an interview with Dr. Gnamm or Dr. Zayer, contact: Aliza Medina at aliza.media@bain.com or +44 20-7969-6480.

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