Foreign lorries' long road in China

While overseas car marques are coveted in China, foreign commercial vehicle makers are finding it hard in a market dominated by domestic companies.

Technicians assemble lorries in a factory in Shiyan, also known as China’s lorry capital. Nine of the top 10 commercial vehicle sellers are home-grown.

The brand names of the cars sweeping by on Beijing's second ring road in the autumn sunshine are familiar all over the world - Volkswagen, Ford, Chevrolet and Toyota.

For all the ambitions of China's vehicle makers, the dragon economy's car industry remains dominated by foreign names, even if most of the vehicles are locally made through joint ventures.

With the lorries that are allowed to prowl through the city only at night, things could not be more different: more than 95 per cent of commercial vehicles sold in China are made by Chinese companies such as FAW, Foton, Dongfeng and Sinotruk.

Nine of the top 10 commercial vehicle sellers are home-grown with just one foreign name, Italy's Iveco, making it on to the chart through a joint venture. It is a similar story, albeit with different names, in some other major developing economies, such as India.

"Trucks packed with the kind of technology found in Europe are nearly impossible to sell in the up-and-coming markets of the East," said the analysis company AlixPartners in a recent commercial vehicle industry report summary.

The trump card for China's lorries is simple. They may not be advanced, much of the technology was bought from western makers more than 20 years ago, and they may not meet the emissions standards of developed countries. But they are cheap.

AlixPartners indicated Chinese manufacturers were making vehicles for half the cost of their European or North American rivals.

"The growth markets have very little need for the high-tech trucks made in Europe; trucks that can be operational around the clock and meet the highest safety requirements," the report quotes Vinzenz Schwegmann, a managing director at AlixPartners, as saying.

"What matters most is to manufacture reasonably priced vehicles with specifications tailored to the region involved."

Lorry buyers in China are mostly individuals who drive their own vehicles, says John Zeng, the director of Asia vehicle forecasting at JD Power and Associates in Shanghai.

Even the large logistics companies tend to hire private operators with their own vehicles. For such owner-drivers, price is key.

"For one Volvo, you can buy three local trucks and it's much more difficult to get your [foreign] truck maintained if you have a problem," Mr Zeng says.

"The durability is quite good. The Chinese-made local trucks, you can overload them. That's what drivers are looking for."

With the car industry, consumers are more heavily motivated by brand names and the most respected are foreign. Local brands tend to be cheaper but most drivers believe a better made, foreign-designed vehicle is worth the money for its prestige and quality.

"Most Chinese buyers care about their car's social status. It's about 'face'," Mr Zeng says.

Given that the cache of an overseas name counts for little in China's no-frills world of lorries, it is no surprise that foreign companies' attempts to break into the market have faltered.

In 2004, Volvo launched a joint venture with Sinotruk to produce the Swedish maker's lorries in China. But sales were poor and technical collaborations between the partners were limited as parts were imported from Europe.

It came as little surprise when the joint venture, supposed to last for 30 years, wound up last year.

Missing out on China is a major loss for the foreign lorry makers, since the market is vast and growing at a pace the West can only dream of.

In 2008, global lorry production reached 2.6 million before the global slump caused it to plunge to 1.7 million last year.

While demand and production dropped in Europe and North America last year, China increased the number of lorries it made by more than one fifth, producing about half of the world's total.

In the first half of this year the number of lorries rolling off China's production lines increased by a further three quarters, and by the end of the year the total is expected to reach 1 million.

Just as foreign manufacturers are struggling to make inroads into the Chinese market, they are being overtaken by Chinese-made lorries in many emerging markets, particularly Africa and South East Asia. Again, price is the main factor.

"Sales of Chinese trucks … are continuously strengthening in Africa, the Middle East and South East Asia," AlixPartners said.

The European producers are increasing their sales in some emerging markets as overall demand increases but their market share is declining.

In the first six months of this year, China exported 134,000 commercial vehicles, up 25 per cent on the same period last year. China's car makers saw their exports drop, with numbers falling 46 per cent last year to 369,600 compared with the previous year.

"The Chinese truck makers meet the basic standards of the developing countries and, in terms of cost, Chinese trucks are very competitive in these markets," says Mr Zeng.

The headaches for the western manufacturers may eventually extend beyond the lower-value end of the global lorry market.

Some observers have suggested the huge growth in sales at home and abroad would allow the Chinese manufacturers to invest in research and development with a view to competing with their western rivals at the top end of the value range, including in North America and Europe.

Some of China's lorry makers are also leveraging joint ventures with overseas manufacturers to gain access to advanced technology, just as Chinese car makers have done.

This will prove particularly useful as emissions regulations tighten in China and other developing markets and the earlier generation of less eco-friendly vehicles is phased out.

When his company signed a 50-50 joint-venture agreement this year with Daimler, the world's biggest lorry maker, the chief executive and president of Foton Motor Wang Jingyu was clear about what his side could gain.

"We plan to use Daimler Trucks's technological expertise in particular to further expand our commercial vehicle activities," Mr Wang said.

As they have little hope of beating the Chinese in their home country or in other emerging markets, some western manufacturers have decided the best strategy is to acquire stakes in their price-cutting rivals.

Midway through last year, the German-based lorry maker MAN bought a 25 per cent share in Sinotruk. The agreement allows Sinotruk to use MAN technology, which will come in useful as the Chinese manufacturer looks to improve its offering in developing markets.

From MAN's point of view, it means - for once - the company will no longer have to look on in horror as a Chinese lorry maker sees its sales figures go off the chart at home and all over the developing world.