Daimler to Use India as Source of Trucks for Emerging Markets

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BharatBenz to Export Medium-Duty Vehicles to Asia, Africa

Wall Street Journal / September 21, 2014

Daimler is targeting emerging markets with an unusual weapon: a line of stripped-down trucks it produces not in Germany, but in India.

Daimler is the world's largest truck maker by sales, with dominant positions in the Americas and Europe. But the German company faces growing competition from Chinese manufacturers, who are using their leading positions in China, the world's biggest commercial-vehicle market, to expand in emerging economies.

Western auto makers have yet to face a threat from Chinese car companies. But for the medium-duty trucks that are popular in emerging markets, Chinese manufacturers such as Dongfeng Motor Group, FAW Group and Sinotruck are making inroads.

Daimler is relying on its growing BharatBenz operation in India. Opened in 2012, it is now India's fourth-largest truck maker and has helped the company become an important player in India's substantial truck market.

Daimler plans to use India as the company's development and manufacturing hub to counter the Chinese expansion in Southeast Asia and Africa, said Wolfgang Bernhard, the head of Daimler's global truck business.

"The Chinese are gaining a foothold in these markets. We need to do some forechecking," he said, using a hockey term for a pre-emptive strike.

The global truck market is expected to grow 5% a year to 3.7 million vehicles in 2020 from 2.6 million vehicles last year, according to research group A.T. Kearney. The market is dominated by heavy-duty trucks, which typically weigh more than 25 tons and logged sales of 1.7 million vehicles last year. But medium-duty trucks are substantial. Last year, 937,000 such vehicles were sold world-wide. The number will grow 5.1% a year, to 1.33 million, by 2020, according to A.T. Kearney.

India is the fastest-growing commercial-vehicle market, expected to grow 10% a year to 410,000 trucks a year in 2020 from 210,000 last year. By 2030 there will be two to four Chinese, Indian or Korean truck makers among the top six to eight global manufacturers, A.T. Kearney predicted. The top global players today are Daimler, Sweden's Volvo, Germany's Volkswagen and U.S.-based Paccar.

At this week's commercial-vehicles fair in Hannover, Germany, BharatBenz will unveil its first heavy-duty truck manufactured in Chennai, India—a 48-ton off-highway mining truck.

The Chennai plant also produces trucks for export, developing models based on its Mitsubishi Fuso venture with Japan's Mitsubishi Motors Corp.

Daimler recently unveiled Mitsubishi Fuso models to be manufactured in Chennai and exported to Indonesia, a growing Southeast Asian market.

Daimler this year plans to export more than 500 trucks made in India on the Mitsubishi Fuso platform to customers in Southeast Asia and Africa.

Daimler wants to double exports from India next year.

The numbers are small when compared with the nearly 1.5 million Mercedes luxury cars that Daimler sold last year. But the truck market can be hugely profitable. Daimler sold 484,200 trucks last year, generating €31.5 billion ($40.4 billion) in revenue and €1.75 billion in operating profit, a return on sales of nearly 6%.

The challenge for Daimler in India was to learn that less truck could mean more business. The brawn and fancy features typically found in Daimler trucks are of little use to Indian customers and made Daimler vehicles too expensive for exporting to India.

Daimler had to tailor products to local needs and pocketbooks. Some Indian customers wanted Daimler to rip out the upholstered seats and put in wooden benches. The average speed on Indian highways is about 25 kilometers an hour, or roughly 15 miles an hour, compared with 70 kilometers an hour in Europe, Mr. Bernhard said.

"They won't pay for a lot of safety features, comfortable seating or air conditioning," he said.

The strategy appears to be working. The BharatBenz factory has sold more than 10,000 trucks since opening two years ago.

First-quarter sales rose 67% from a year earlier to 2,203 vehicles. Daimler now has 4.6% of India's truck market. Daimler's India operation in March broke ground for a new bus-manufacturing plant.

"We think we can get beyond sales of 10,000 vehicles a year," Mr. Bernhard said. "In this industry, 10,000 gets my attention, especially when the margins are so good."

Mr. Bernhard said he was eager to use Daimler's Indian factory to build strong presences in Asia and Africa's growing market. Daimler is setting up sales offices in Africa and exploring the possibility of doing business in Nigeria, though corruption is a concern. "It is very difficult to sell there in a clean way," he said. "That is the greatest challenge."

Daimler's emerging-market strategy faces other road blocks as well. Political turmoil, currency turbulence and souring economies have hurt truck markets in Brazil, Russia and Southeast Asia.

"With this whole cocktail of crises that we have, we are seeing a softening of sentiment," Mr. Bernhard said.

He said he was encouraged that the new Indian government seemed determined to enact economic overhauls and was already having a positive impact on the economy. He is convinced that emerging economies will return to solid growth, he said.

Daimler also is developing an Indian supplier base that Mr. Bernhard said he hoped to tap for Daimler's factories in Europe, the U.S. and Japan, saving between 20% and 50% on parts.

Daimler's goal is to boost its global commercial-vehicle sales to 700,000 vehicles a year by 2020, with 250,000 vehicles sold in Asia—excluding China.

But Daimler's traditional markets—the U.S., Europe and Japan—are barely growing.

"The biggest growth rates will have to come from the emerging markets," Mr. Bernhard said. "Despite all the turmoil we are seeing, we believe in the long-term potential of these markets and are positioning ourselves."