Daimler drives to $72 as trucks ride global growth
Strength in emerging markets, cost savings and new portfolio initiatives will help Daimler achieve its revenue target.
The company introduced new products in various markets, became a regional leader and undertook a variety of sustainable growth initiatives.
Daimler adopted the global excellence optimization program for its trucks in 2005, which focuses on four strategic initiatives (management of cycles, operational excellence, growth and market exploitation, future generation products) in a bid to improve productivity and profitability across the board.
This program, which had earlier helped Daimler deal with the decline in demand during the financial crisis, is now working well to open new profitability venues for the company. Here is a look at all the factors that have helped Daimler Trucks achieve this growth in 2011.
We currently have a price estimate of $72 for Daimler, which is about 20% above the market price.
Regional brands in India and China
The company has introduced a new regional brand in India called "Bharatbenz." The product lineup of this brand covers the entire spectrum of trucks, ranging from light duty to heavy duty. These trucks are manufactured in a facility in Chennai, which has the capacity to manufacture up to 70,000 trucks in the medium term. Daimler plans to invest $700 million in this facility over the next five years. It is also setting up a sales network in India, which will consist of about 70 dealerships this year.
In China, the company will finally embark on its joint venture with local truck manufacturer Foton after getting permission from the Chinese government. The venture will produce both medium and heavy-duty trucks and will be sold under the Auman brand. The joint venture will have an annual production capacity of 160,000 units, and the first manufactured truck will roll off the assembly line in the third quarter of this year.
Aging fleet in North America
Daimler Truck's stupendous growth is driven by the aging fleets in North America. The average fleet size in North America is the highest in the past three decades, representing an acute demand for replacement. Daimler Trucks North America (DTNA) had performed exceptionally well last year, increasing sales by 50% to about 118,800 units last year. DTNA increased its market share in the segment of vehicles in Classes 6 to 8, taking it to 31.9% from 31.6%.
Increased transportation needs in earthquake-hit Japan
The massive infrastructure rebuilding exercise that was started by Japan after the devastating earthquake has driven demand for construction equipment and its transportation. Daimler trucks in Japan, especially the home brand of Fuso, which increased its truck sales in Japan by 9% to 27,000 units last year, are successfully capitalizing on this demand.
Shaping future transportation initiative
Daimler has started a "shaping future transportation" initiative that seeks to build new technologies and services that will make commercial vehicles safer, economical and more environmentally friendly. An example of this is the CleanDrive concept, which cuts down substantially on the commercial vehicles' fuel consumption and exhaust gas emissions. These initiatives are helping Daimler come up with clearly differentiated products in the truck market.
Offer of complementary services
Daimler has been offering services to fleet operators as a complementary service along with its vehicles so that customers can cut down on their inventory and other operating costs. These services by Daimler include customized financing offers (Daimler Trucks Financial), the renting of trucks at a short notice to cover peaks in transportation demand (Mercedes-Benz CharterWay), electronic assistance systems that make workshop stays as short as possible, and technology for managing entire truck fleets (FleetBoard). They are helping the company drive its top-line with the increase in sales.
Modular approach to manufacturing trucks
The company has been leaning toward modular manufacturing in an effort to reduce its cost of goods and drive synergy in cost savings. It has come up with a new heavy duty engine that reduces the previous portfolio of four engine variants manufactured at four locations to one global engine manufactured at two locations. Daimler Trucks adopted this approach after realizing that the power train was costing more than half of the total trucks. It will extend this platform and module strategy beyond the power train to many other components.
Western Europe, Russia, Brazil and Latin America sales
The sales of Daimler Trucks has grown steadily in Brazil, Western Europe and Turkey. While Turkey and Western Europe's overall economic growth is driving demand for Daimler's trucks, in Brazil the increasing need for heavy duty trucks is helping Daimler fuel sales. In Russia, the company further expanded its relationship with the local player Kamaz. Daimler has now two joint ventures with Kamaj in Russia and has recorded a 200% growth in its trucks sales in Russia last year. Russia is the largest truck market in Europe and is expected to grow substantially in the coming years.
Daimler Trucks has set ambitious future plans for itself but it looks on track to achieve those targets. It aims to sell 500,000 trucks worldwide in 2013 and more than 700,000 units per year by the end of the decade. It is also hoping to maintain its EBIT margins at 40% while increasing its return on sales to 8%. The positioning of Daimler in the high growth emerging markets, along with its cost savings and new portfolio initiatives, indicate that the company may well be able to accomplish its sales and revenue targets. However, return on sales would be slightly tricky to achieve.
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